Labour's VAT idea falls foul of EU law

Labour wants to spend the £800 million bank levy on stoping the fuel tax rise. Couple of points here.
1) We shouldn3t be hitting pour most productive sector with a one off levy.
2) He can't.

Much as it would be nice to soften the hit on fuel tax, trying to do it via the VAT rate, rather than scrapping the escalator contravenes... You guessed it, EU law.

As the FT points out today via a Tory rebuttal,

EU Directive on VAT states: ‘Member states may apply either one or two reduced rates. The reduced rates shall apply only to supplies of goods or services in the categories set out in Annex III’

The fact that Labour hang their hopes on a Cypriot derogation is rather pathetic. We are not going to get any back-dated derogations to EU rules while we still have any of the Rebate. It just isn't going to happen.