Britain was on a collision course with Brussels last night as fears grew of a new European Union push to end the right to exempt children's clothes, newspapers and books from VAT.

The Treasury said the exemption was worth more than £28 billion to UK households each year and saved low income households four per cent of their annual spending.

It vowed to wield the national veto if necessary after the European Commission announced a new "political debate" on how to streamline the patchwork of VAT rules that apply across the 27 EU states. Under these rules, Britain is able to keep a so-called "zero rate" of VAT on the printed word and children's clothes indefinitely.

But the EU tax commissioner, Laszlo Kovacs, signalled that he wanted to look again at simplifying the regime - which could end the UK's exemptions. Mr Kovacs said he would seek the opinions of member states.

"We need their views before defining a coherent and achievable long term policy," he said. "We consider that a new framework for reduced VAT rates is needed to be more rational, more transparent and more flexible.''

EU countries must apply a general VAT rate of between 15 and 25 per cent, with lower rates of not less than five per cent on a limited range of goods, usually essential or local services.

The UK applies the lowest rate on domestic fuel and power. Certain goods are exempted including postal services, medical care, lending, insurance and betting. On joining the European Economic Community in 1973, Britain won the concessions for a zero rate on books, newspapers and children's clothes.

The commission said it wanted to reopen discussions on rules its described as "highly disparate and very complex". The commission would like to see the zero-rate VAT band abolished.

A Treasury spokesman said that Alistair Darling would give no ground. "The UK's zero rates are fully safeguarded under existing agreements. We will not agree to proposals that would undermine the fairness of the UK VAT system."

While no plans are imminent, the commission said it could table proposals for new VAT legislation at the end of 2008 or the start of 2009.