Government to consider lowering VAT for salons

Stephen Timms, financial secretary to the Treasury, has indicated the government is prepared to consider a lower rate of VAT for labour-intensive small businesses, such as hairdressing salons in what signals a major shift in the government's stance.

He said in a letter to NHF president Harry Walker that European Union (EU) agreements did not currently permit the UK to introduce a reduced VAT rate but the European Commission's proposal to amend the EU VAT Directive would provide more scope for the UK to introduce new reduced rates of VAT on certain services.

"If this were agreed, then the government would consider whether there were a policy case to apply any of the new reduced rates in the UK," Timms said.

George Osborne, shadow chancellor, also wrote positively to Walker and said he would "give consideration" to Dutch research which showed how positive lower VAT for hairdressing businesses had been in The Netherlands and he would ensure that David Gauke, shadow exchequer secretary, saw a copy of Walker's suggestions.

European finance ministers on the Economic and Financial Affairs Council have since agreed the freedom of member states to introduce lower rates, putting the ball firmly in the UK Treasury's court.