HC Deb 11 July 1972 vol 840 cc1461-8

6.15 p.m.

Mr. Higgins

I beg to move Amendment No. 25, in page 106, line 18, leave out from 'person' to 'and' in line 19 and insert: 'carries on his business or part of his business by supplying to a number of individuals goods to be sold, whether by them or others, by retail'. I understand that we can also discuss Amendment No. 26, in page 106, line 28, leave out 'that individual' and insert 'retail'.

We are making progress and I will endeavour to maintain the momentum. Amendments No. 25 and No. 26 achieve two diverse objectives.

Amendment No. 25 aims to meet criticisms of Schedule 3(2) made in Standing Committee and to put it beyond doubt that the paragraph is not intended to apply to occasional supplies such as might be made to charitable organisations, church bazaars and so on, but only to a systematic method of doing business. This is achieved by introducing the words: carries on his business or part of his business by supplying … which exclude occasional charitable gestures. We have had discussions already about charities. In Committee a number of hon. Members referred to the kind of situation where a firm is selling through private individuals who might then hold coffee mornings and so on. The hon. Member for Ashton-under-Lyne (Mr. Sheldon) pointed out that this provision might inadvertently hit those who perhaps were holding a coffee morning for a charitable purpose.

I listened carefully to what the hon. Gentleman and others said in Committee. We have brooded on it and even believe that there might be some substance in what the Opposition said. It is not our intention to catch charitable coffee mornings but simply to prevent the distortion of competition by those seeking to sell goods as a matter of trade through such outlets. The Amendment will clarify the position of those holding charitable coffee mornings as opposed to commercial coffee mornings.

Amendment No. 26 applies to situations where there are or may in future be two or more non-taxable intermediaries between the taxable person and the final consumer. On further reflection, we agree that it is possible, by operating so to speak a two-tier system, that the provisions for prevention of distortion of competition might not have operated properly. Amendment No. 26 will therefore overcome a difficulty. I am sure that the intention, which was generally accepted in Committee, that there should not be distortion of competition by those using this method of selling will now be more effectively carried out without the previous danger of evasion.

Mr. Joel Barnett

Little did we know in those long days and nights upstairs that, unbeknown to us, the Financial Secretary or someone else was taking note of all our hammering away at these provisions. I do not wish to be churlish. I am happy to accept the hon. Gentleman's explanation and clarification of the concession.

Amendment agreed to.

Amendment made: No. 26, in page 106, line 28, leave out 'that individual' and insert 'retail'.—[Mr. Higgins.]

Mr. Brian Walden (Birmingham, All Saints)

I beg to move Amendment No. 28, in page 106, line 44, leave out from 'Act' to end of line.

I gather from the fact that the Financial Secretary gave us very interesting comments on the law and common sense, and about which we have to back on different occasions, that he is in his clarification mood. Before he slips back into his, "It is so clear and comprehensive that it should be obvious even to the Opposition" mood, we want to press him on Amendment No. 28. Frankly, it is not terribly important and I do not want to waste too much time on it.

We wish to leave out these words not because they are obscure but because we are interested to know why they are there. We are also interested in what further discussions—since our debates in Committee—the Financial Secretary has had with the trade.

I have no doubt—subject to the caveat of my hon. Friend the Member for West Lothian (Mr. Dalyell)—that if we could be satisfied on those points the Amendment could be withdrawn.

Mr. Higgins

The hon. Member for Birmingham All Saints (Mr. Brian Walden) is always commendably brief. I wish that the explanations to the questions he asks so briefly could always be so short. That is not invariably the case.

The effect of the Amendment would be to exclude from the scope of VAT ser- vice charges for the issue of luncheon vouchers, book tokens and other similar tokens of value. We do not share the view that they should be excluded from the tax, because we believe that it should be a broadly-based tax.

Schedule 3 paragraph 5 as drafted provides that the consideration for the issue of tokens of value shall be disregarded except to the extent that it exceeds the face value of the tokens. The result is that VAT will fall only on the service charge element of the consideration. The Amendment provides that the total consideration shall be disregarded so that, if the Amendment were pressed, and succeeded, no VAT would be payable. That would not be right. There was an Amendment in the opposite sense tabled during the Committee stage which was not debated then, probably for the reason mentioned by the hon. Gentleman, namely, that it was in some sense a probing Amendment.

It would not be right to single out service charges on tokens of value for relief. Most luncheon vouchers are supplied direct to traders, who issue them free to employees. Traders, who are taxable persons, will be able to take a tax credit for the tax on the service charge in the normal way. These service charges represent only a small additional percentage to the face value of a luncheon voucher. There have been no representations about its effect on those traders who may be exempt or partially exempt, for instance banks, who cease to use luncheon vouchers without attendant social consequences.

The position of book tokens and record tokens is different. Those are supplied almost exclusively to consumers. Service charges on these tokens are items of final consumer expenditure and it is appropriate that they should be subject to VAT.

The treatment proposed for other tokens of value is not altogether apt for trading stamp schemes. Power to adapt this paragraph and Clause 10 is therefore contained in Clause 29.

The hon. Gentleman asked what further discussions we had had with the trade. I did not clearly understand which form of token he meant. Could he clarify that point? I shall seek to answer it, although I suspect that I do not have the answer readily available.

Mr. Walden

Has there been any further discussion on book tokens?

Mr. Higgins

I cannot give the hon. Gentleman an immediate answer to that. We have held discussions on some aspects of this matter. I cannot say what the state of play is with regard to book tokens. If he wishes me to deal further with the matter, he can put down a Question, or use whatever method is appropriate to establish the answer.

Mr. Costain

What does my hon. Friend consider the position would be over the free glasses given away by petrol stations? Will they carry VAT up to the price paid for them by the petrol stations and then be free of VAT thereafter?

Mr. Higgins

My best answer is to refer the hon. Member to the discussions we had in Committee. The question is whether the article is or is not a gift. We went over that ground at considerable length in Committee. The hon. Member will find that the answers given were generally accepted and that the matter was understood at the end of the day. The point does not arise on this Amendment. The hon. Member for Birmingham, All Saints will no doubt pursue this matter. I hope that he will withdraw the Amendment.

Mr. Dalyell

By some very improper telegraphy I have intercepted signals. I gather that there have been no consultations with the book trade.

Having read yesterday's article in the Three Banks Review by Ivor Brown, there is a convincing argument to err on the side of generosity. I hope that the Treasury, during the discussions, will bear generosity in mind.

Mr. Walden

The Financial Secretary said that VAT ought to be a comprehensive tax. That tends to be an argument he uses for clarification.

I do not agree with what the Financial Secretary said about luncheon vouchers, although I take the point he made in that respect. Nor do I agree with him that because it falls on the final consumer it is appropriate that book tokens should be subject to VAT. That is a retrograde and foolish step. We did not put down the Amendment to precipitate discussion. We put it down to confirm our worst suspicions. I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Brian Walden

I beg to move Amendment No. 31, in page 107, line 8, at end insert: (c) providing that a service charge of not more than ten per cent. of the bill shall not be treated as a supply for the purposes of calculating the tax. This is a more serious Amendment. The Financial Secretary tells me that I have been commendably brief, so I may not have been making all the arguments. I shall speak to this Amendment at greater length. The point was raised in Committee and it need not be greatly laboured.

If VAT is levied on the service charge one will affect the way in which clients conducts themselves at hotels. We could have a long discussion on the ethics of tipping. The English used to find the service charge abhorrent but they have come to accept it. It seemed to us to be reasonable that it should not be treated as a supply for the purposes of calculating the tax unless it exceeded 10 per cent. There were reasons why that figure was chosen. It is a normal hotel charge.

Perhaps the Minister will tell me what he and the Treasury think will be the consequences of levying VAT on the service charge and whether they regard that consideration as being worth the comprehensiveness of the tax or whether it would not be sensible to maintain the service charge.

6.30 p.m.

Mr. Higgins

I do not think that there is ever any danger that in the brevity of his speeches the hon. Member for Birmingham, All Saints (Mr. Brian Walden) will fail to cover all the arguments. The hon. Gentleman invariably manages to compress a great deal of argument into a short speech.

The Amendment is strange, in that it makes a proviso with regard to a service charge of not more than ten per cent. of the bill". That would be a rather arbitrary limit, although it may have widespread use in various catering establishments. The object of the Amendment is to exclude any service charge which is not more than 10 per cent. of the bill from the taxable value of a supply of services where the services consist of the provision of accomodation in a hotel, in a boarding house, or in a similar establishment.

The tax falls on the full value of a taxable supply, including any service charge itemised separately on the bill. This is consumer expenditure and, therefore, in a broadly based tax it falls, generally speaking, on consumption. It is right that it should be included. The proposal in the Amendment to limit relief to service charges below10 per cent. would complicate the administration of the tax and open the scope for abuse.

I will not weary the House by explaining a minor drafting point. As the hon. Gentleman said, we debated this matter at some length in Committee. We think that the procedure we suggest of taxing the service charge is the right one. It may be argued, as the hon. Gentleman has in mind, that tips would not be taxed, that any tax to service charges is inequitable, and that this will discourage attempts to move away from the less desirable form of tipping. There may be varying views on whether tipping is more desirable than a service charge or vice versa. This is not something on which the Government should necessarily express a view.

VAT is a tax on services however, and a service charge is part of a bill and is no different from any other charge for services, as the hon. Member for Heywood and Royton (Mr. Joel Barnett) conceded in Committee. It is common practice for a tip to be added even when there is a separate charge for service.

Even if we were not to proceed as proposed in the Bill but were to accept the Amendment, accounting and control would be made more difficult for traders and customers if the bill had to be apportioned as envisaged in the Amendment.

We cannot quantify what the cost of the Amendment would be, but it could be significant, because there is a considerable risk of abuse. For example, there could be a loading of the original cost of the taxable supplies such as the hotel accommodation and catering on to the service charge and encouragement to tipping at the same time, so there might be distortion.

Even if we were to accept the Amendment—for the reasons that I have given, it is not right to do so—the effect on the customer would be small. For example, if a hotel bill for a week before VAT was £20 and the service charge was 10 per cent., that would be £2. VAT just on the overall bill would be £2. VAT on the bill and the service charge would be £2.20. The net difference would be 20p or 1 per cent. of the total.

The hon. Gentleman did not seek to argue that this is a matter of great moment. I believe that the view we have taken is the correct one in these circumstances. Although there may be a difference of view between us, I hope that the hon. Gentleman will not press the Amendment to a Division.

Mr. Walden

By leave of the House, Mr. Speaker. I accept that there is probably a drafting weakness in the Amendment.

I cannot accept the hon. Gentleman's point about an apportionment. We shall not have a long debate about tipping, but if the Government will not state a position about it I am prepared to do so. It is better to have a straight service charge on a bill so that an employee is told, in effect, "You have given personal attention and this is the price for it". There is something less humiliating about that for the person who has given the service than for it to be a different arrangement under which he must individually cadge for a tip; that is a bad system. The continental system was always better and it has played a rôle in getting rid of the noxious servility which was one of the unpleasant points about service in Britain.

However, this is a "comprehensive" tax and this is an item of consumer expenditure. I therefore beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

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