Vat plan may add 5p to cost of stamps

POSTAL regulators are calling on the government to levy Vat on stamps that could add 5p to the cost of sending a first-class letter, writes Robert Winnett.

Documents released under the Freedom of Information Act show that Postcomm is in “negotiations” with the Treasury and the Department for Trade and Industry (DTI).

The regulator believes the special exemption from Vat for Royal Mail stamps will have to be scrapped when the postal market is opened up to full competition next year.

A reduced rate of 5% has been proposed but the European Commission may insist the full rate of 17.5% is levied, according to the papers.

The exemption is not available to other mail companies hoping to enter the market so would prevent a level playing field. The EC is understood to be pressuring the government on behalf of European companies that are planning to start collecting and delivering British mail from 2006.

Sources close to Postcomm say scrapping Vat for the new firms is “not an option”.

The Treasury insists it does not wish to levy Vat on stamps but Postcomm sources believe it may find an annual tax windfall of hundreds of millions of pounds too good to refuse. It also faces legal action from the private firms if it sticks to its position.

In its response to the plan, which Postcomm received last month, Royal Mail sets out strong objections. Unions also object to the proposal.