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Reality Check: Has the UK given up its tax and banking veto?

The claim: The EU wants more control of UK banks and taxes and we have lost our veto over this.

Reality Check verdict: Britain has a veto over tax measures, but for some issues that affect UK banks and financial institutions can be out-voted by other EU members.

Earlier this week, Michael Gove said that the European Union wanted more control over the UK’s taxes and banks. And he suggested that Britain would be powerless to stop it from inside the EU, because we’d given up our veto on such matters.

Is he right? The EU has no control over the most important taxes, such as income tax and National Insurance, as well as taxes such as stamp duty, inheritance tax, duties on alcohol, fuel and tobacco. All national governments within the EU have control over setting these taxes.

Nor does the EU have any say over how the taxes governments collect should be spent. There are no plans to change that.

On another important form of taxation, value added tax, (VAT), the EU has a say because EU countries co-ordinate their VAT rates, to avoid distorting competition across national borders.

The current rules mean EU countries can only apply zero or reduced VAT rates to an agreed list of goods and services. That list can only be changed by unanimous agreement of all 28 governments, meaning everyone has a veto over what’s on it.

For example, all 28 members had to agree to new VAT proposals, which would pave the way for the UK to remove VAT from sanitary products – the so-called tampon tax.

There are no plans to scrap the power of veto in this area either.

Similarly, the power of veto is in place if a new tax is to be introduced across the EU. For example, in the wake of the eurozone crisis, the EU proposed a new EU-wide tax on financial transactions.

The UK government opposes this tax and David Cameron vetoed it at a summit in 2012. Instead, 11 EU states, including France and Germany, decided to introduce the tax in their own countries.

Banking union

So what was Mr Gove talking about?

Well, when it comes to rules governing banks and financial institutions, the situation is different.

Many of the issues affecting financial institutions do not require unanimous agreement. That means no country has a veto as they are decided by qualified majority voting, which requires the agreement of at least 55% of the member states, representing 65% of the population of the EU.

For example, the UK government was outvoted in 2013 when the EU decided to put a cap on bankers’ bonuses, despite strongly opposing such a move.

If Britain left the EU, the UK government would be free to decide on this itself.

It is also important to mention that, in the wake of the eurozone crisis, the 19 EU countries that had adopted the euro agreed to integrate their banking systems more closely. This process started in 2012 and it is still continuing.

The UK is not part of the eurozone and is not taking part in eurozone banking union or in other forms of closer financial integration.

Nevertheless, the eurozone’s union will have an impact on the UK financial and banking sectors.

 


Reality Check: Has the UK given up its tax and banking veto? – BBC News. 2016. Reality Check: Has the UK given up its tax and banking veto? – BBC News. [ONLINE] Available at:http://www.bbc.co.uk/news/uk-politics-eu-referendum-36101443. [Accessed 22 April 2016].

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