§ Item No.
§ 1. Agricultural and horticultural fertilizers'.
§ The objective of the Amendment is merely to bring fertilisers into line with the other main purchases of farmers. Livestock, feeding stuffs and seeds of all food-producing plants are zero-rated, but fertilisers are not and that will produce a complication. In addition, this omission has produced the fear that there could be a substitution of purchase of foodstuffs for increased grass production stemming from greater fertiliser usage. Although VAT will be reclaimable the fanner may tend to favour the untaxed products, and this could mean that the food potential of farm production might not be reached. That would be a pity in view of the Government's intention—and very considerable encouragement—to increase production by the various means which have been announced from time to time by my right hon. Friend the Minister of Agriculture.
1642§ Many thousands of small farmers and growers have a taxable turnover of less than £5,000 and they would in principle be exempt from VAT. However, in order to recoup VAT on fertilisers they will have to elect to be taxable and then claim their repayment. Obviously this will require a great deal of extra paper work and as that paper work will serve no real purpose except to satisfy some administrative whim, and as it will take up more of the time of people already extremely hard pressed, it seems added reason for the zero-rating of fertilisers.
§ Furthermore, it should not be forgotten that the book-keeping of many small farmers is decidedly sketchy and amateur and is very often dependent upon occasional attention from an accountant or the local auctioneer. VAT registration and recoupment will obviously complicate that situation very considerably.
§ There is a precedent for my proposed zero-rating of which I believe my hon. Friend the Minister should take careful note. I am informed that only last month the Irish Republic decided to zero-rate fertilisers. I am sure my hon. Friend will agree that it would be invidious if fertilisers were zero-rated on one side of 1643 the border and not on the other. Apart from anything else, it seems to me that if there were a distinction between the treatment of fertilisers on the one side of the border and on the other, farmers from the North would almost certainly purchase from the South and that would have a very sad effect upon the fertiliser firms in the north of Ireland.
§ In the light of these considerations, I hope that my hon. Friend will give very sympathetic consideration to the Amendment.
§ Mr. HigginsI must, with the greatest respect, say to my hon. Friend the Member for Devizes (Mr. Charles Morrison) that he has perhaps made insufficient allowance for the way in which VAT operates. The first point which one ought to stress is that our objective in zero-rating certain items of expenditure has been to take into account the impact which VAT might otherwise have on the lowest income families. It is for that reason that we have thought it right to give relief in respect of housing, fuel, fares and food. But it is important to stress that it is to food and not to farming that zero-rating has been given.
6.45 p.m.
Food production has been zero-rated, so that it will be possible through the normal operation of the VAT mechanism for the input tax to be deducted by those using fertilisers, and if a particular item of food production is zero-rated a net refund will be made to the fanner concerned. So there is nothing inconsistent in our view that food should be relieved of the tax but that fertilisers should be taxed, and the normal operation of the credit mechanism will in such cases apply.
It may be the case that fertiliser is used not for the production of food but for the production of, say, cut flowers. The House will recall that this matter was debated in Committee on the Floor of the House at very considerable length in the early hours of the morning, and I do not wish now to traverse again the many complicated arguments then put forward.
Cut flowers are not zero-rated, but again, if this were the case and fertiliser was taxed, the taxable trader who was producing flowers would be able to deduct 1644 input tax on the value of the fertiliser. In this way again the tax will work along the mechanism until it comes to the final consumer. I therefore do not accept my hon. Friend's point about the possible distortion between this or that type of fertiliser.
My hon. Friend also spoke of exempt traders. Certain of those producing food may have a taxable turnover of less than £5,000—although I do not know that my hon. Friend suggested that there would be very many of them—but it is perhaps more likely that there are more below the taxable turnover limit among those producing cut flowers. In either case the position is the same as it is in all other areas of the tax. We have thought it right to draw the line at a certain point and we feel that the limit of £5,000, which is significantly higher than it is in some parts of the EEC, for example, is a reasonable point at which to draw the line.
But being below that limit has both advantages and disadvantages. The exempt trader cannot deduct input tax but he is not charged output tax. We have gone over this ground at very great length both here in the Chamber and in Standing Committee. The important point is that which my hon. Friend makes: that if someone wants to opt into the tax in order to deduct input tax, he has the option—and it is an option—of doing so.
My hon. Friend also referred to administrative problems. There is no administrative problem for the exempt trader because he is outside the scope of the tax anyway. Taxable traders are likely to be over the turnover level of £5.000, and in Standing Committee we went into considerable detail about the documentation that would be required. But although the Green Paper we published to bring out the principles of the tax followed a particular item along the production chain, it presented an overcomplicated picture in many cases because it is simply a question of the taxable trader at the end of the accounting period adding up output tax and adding up input tax, deducting the one from the other and showing the difference to the Customs. We do not envisage that the administrative problems will in this respect be anywhere near as onerous as my hon. Friend seems to think.
1645 All that being so, 1 do not think there is any case for treating this particular input in any way different from the many other areas where VAT will apply. I therefore hope that my hon. Friend will feel able to withdraw his Amendment.
§ Mr. Brian Walden (Birmingham, All Saints)There is no fertiliser in my constituency, or, if there is, it is not being besprinked on the beautiful green fields. I was interested in what was said by the hon. Member for Devizes (Mr. Charles Morrison) about the efficiency of production being affected. I am told, and I have no way of getting expert guidance except by talking to farmers, that there is fear that the tax might lead to some diminution of agricultural efficiency.
My other point I can put very quickly. What exactly is the position in respect of Ireland? I also had understood that north of the border there would be a situation rather different from that south of the border. There does not seem to be any particular reason why there should not be. However, it is an oddity. If the Irish can make a concession of this kind, why cannot we make it, especially as we have a broadly based, comprehensive and unanomalous tax?
§ Mr. HigginsAs I said, given the operation of the credit mechanism I do not believe that there will be a distortion of the kind that has been suggested.
On the Irish point, I gather that it has been suggested that the Republic of Ireland is planning to zero-rate some fertilisers. I am not entirely clear about the exact point my hon. Friend the Member for Devizes (Mr. Charles Morrison) has in mind and whether he is saying in some sense that such zero-rated fertilizers would be smuggled across the border or that they would come across the border in the ordinary course of trade.
§ Mr. Charles MorrisonIn the ordinary course of trade.
§ Mr. HigginsIn that case it would be a question of the fertiliser coming in like any other import and the normal VAT rules would apply. But, also, the normal VAT tax deduction rules would apply in the same way as they will be used for other fertilisers—that is to say, if there was no tax charge there would not 1646 be an input tax and the trader would not be able to deduct it; a registered trader could not deduct any credit for the tax charged.
If I have understood my hon. Friend's point correctly, I do not think that this is a problem. Subject to whatever may happen in the direction of harmonisation of rates and coverage of VAT within the EEC—this is a much wider question and the House has expressed differing views on both sides—there are a number of items charged in some countries at different rates from other countries. But that does not raise problems of the kind my hon. Friend has in mind.
§ Mr. Charles MorrisonMy hon. Friend the Financial Secretary has dealt with the Amendment very sympathetically and with care and understanding. He seems to have confidence that no problems will arise from the fact that fertilisers are not zero-rated, in relation either to Ireland or to production patterns. I hope that my hon. Friend's confidence turns out to be well founded.
For that reason, I beg to ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.