Schedule 4

HC Deb 10 May 1972 vol 836 cc1419-513

ZERO-RATING

The Temporary Chairman

The next Amendment is No. 77, in page 96, leave out line 17.

With that Amendment it will be cenvenient to take the following Amendments: No. 12, in line 17, after catering ', insert: by an establishment with annual turnover in excess of £10,000 '. No. 80, in line 17, after catering ', insert: other than at factory or office canteens'. No. 93, in page 97, line 30, leave out first ' on ' and insert ' by a person seated in '.

No. 21, in line 31, at end insert: 'but shall not include catering on the premises of any educational establishment'.

Mr. Carter

rose—

Mr. Joel Barnett

rose—

The Temporary Chairman

Mr. Barnett.

Mr. Joel Barnett

I beg to move Amendment No. 12, in page 96, line 17, after "catering ", insert: by an establishment with annual turnover in excess of £10,000. We have already been assured by the Government about how they propose to treat all the Amendments to the provisions on zero-rating. We have had a very considerable warning in a whole series of speeches from the Chancellor, the Chief Secretary and the Financial Secretary. Last night we were told by the Financial Secretary: This means, because we have not got a completely comprehensive tax, that we are bound to have some borderline problems. But the lines which have been drawn are lines which, to coin a phrase, are at the saddle point. Generally speaking, if one tries to move any of those lines a little further on a particular border, one is likely to slide a long way before one could call a halt at a sensible point. The early history of purchase tax demonstrates what an anomalous and inequitable system emerges once one begins to slide down such a slippery slope. For that reason it is not meaningful to ask what will be the cost of this or that concession. In answering that, one would need to take account of all the other concessions which would then be pressed."—[OFFKIAL REPORT, 9th May, 1972; Vol. 836, c. 1251–2.] That is a very interesting view about how the Government propose contemptuously to deal with Amendments to Schedule 4. No matter how good the Amendment and how fair the concession, it must be resisted. If the Amendment would cost £1, all the others must be looked at because they would cost £X million and the Government could not concede the £l Amendment. This illustrates the Government's whole attitude.

Last night the Financial Secretary chided my right hon. Friend the Member for Leeds, East (Mr. Healey) about repetition. I hope that we shall not have repetition from Ministers on the Amendments about zero-rating. They argue that because the Bill provides a comprehensive tax, further Amendments cannot be accepted because, as the Financial Secretary said, we would slide down such a slippery slope". They are interesting words and I shall be interesting to see how many slippery slopes we slide down. The Ministers on the Treasury Bench seem to have a great love of the comprehensive nature of the tax. The Chief Secretary nods, agreeing that it is comprehensive. But it is nothing of the sort, and the Government have started to slide on the slippery slope by excluding about 40 per cent. of consumer expenditure. It is not comprehensive, and the Government have opened the door to concessions.

They virtually rest their case for resisting Amendments on a false argument.

The only remaining argument—that if they concede once it will cost a great deal—is too absurd to require any answer. In effect, the Government are saying that they know that it is unfair to resist some of the Amendments but that they want a comprehensive tax and they must therefore accept unfairness. This sums up the Government's case, and I assume that it will be their approach to all these Amendments.

I will deal with that argument therefore and relate it to the Amendment which I am moving. My Amendment relates to catering. All food is zero-rated for the moment, although we have no assurances about the future. It is zero-rated unless, according to the Bill, it is in the course of catering. In note (3) is the definition: A supply of anything in the course of catering includes any supply of it for consumption on the premises on which it is supplied. That seems a very interesting definition. It seems simple enough that if food is eaten on the premises it is subject to the VAT but if it is eaten off the premises it is not. But it is nothing like as simple because there are many catering establishments where some food is eaten on the establishment and some off. This applies, as I said on Second Reading, to fish and chip shops, some Chinese restaurants, snack bars, and sandwich bars. It is even likely that hon. Members will decide that it is cheaper to buy their food in the dining room and take it away and eat it on the terrace because it would then be free of tax. The Chief Secretary is disagreeing with me, but I should be delighted to hear whether I could do that. We have a canteen here, and I will deal with canteens in the course of my remarks.

If anyone thinks that establishments providing mixed catering are only few in number I must quickly disillusion them. I have tried to find out how many there are, and the latest figures I have been able to find are in the Trade and Industry Journal of 13th April, 1972, relating to an inquiry carried out in 1969. According to this there are 27,978 restaurants, cafes and snack bar companies having fewer than ten shops. A large number of these will have two and three shops, but it is obvious that in that 27,978 there will be many cafés and snack bars with mixed types of business where there is eating off as well as on the premises.

There are 14,282 fish and chip shops. I speak about this with some feeling because if that is an average of about 24 per constituency in the country, in the North West we have a very much higher proportion. In my constituency, although I may have missed a few, we certainly have more than 60, and in other constituencies in the North West there may be even more. This is not a small matter because it affects large numbers of people who eat in fish and chip shops. These are not the sort of people who will eat caviar and lobster and oysters. We are discussing a different sort of person.

Mr. Brian Walden

Our voters.

Mr. Barnett

There will be people eating in pubs and clubs, on and off the premises. We are talking about a large number of people.

I did a little research in my constituency over the weekend and found that in many fish and chip shops there is perhaps one table, sometimes more, and in some cases the customer eats at the counter. Whether he uses the table or the counter, he is eating on the premises, so presumably that proportion of the fish and chip shop's sales would be subjected to VAT. I should be delighted to hear that that is not so, but my understanding of the Bill is that it is.

The Amendment would help the Government to deal with the problem. It helps to avoid some of the problems by proposing that there should be a zero-rating below £10,000 a year turnover. This is different from the exemption—

The Temporary Chairman

Order. Before I leave the Chair I should like to apologise to the hon. Member for Birmingham, Northfield (Mr. Carter), because Amendment No. 77 stands in his name. I did not see him rise. But I will ask that he may be called soon.

Mr. Barnett

I am sorry, Mr. Gurden, but the Amendment I am moving is a different one, and my hon. Friend will, I am sure, be moving his own Amendment.

[Miss HARVIE ANDERSON in the Chair]

8.30 p.m.

Mr. Arthur Lewis

May I refer to the very kind and courteous remarks of your predecessor in the Chair, Miss Harvie Anderson? The whole Committee thanks him for them. But this is not the first occasion on which such things have happened. On a number of occasions I have had Amendments on the Notice Paper and have been told that they would be called, but not only have they not been called, and others have been called before me, but sometimes I have failed to be called even on my own Amendment, so this is not an unusual occurrence.

The First Deputy Chairman

Order. My understanding is that we are on Amendment No. 77.

Mr. Barnett

A reading of HANSARD will show that in very clear words I moved Amendment No. 12. No one who was here will be in any doubt about that.

The First Deputy Chairman

My understanding is that we are on Amendment No. 77. and that for the convenience of the Committee the Amendments already mentioned are being discussed at the same time.

Mr. Barnett

I cannot understand why there should be any misunderstanding, because I very clearly moved Amendment No. 12.

The First Deputy Chairman

I do not think there need be any difficulty. My understanding is that the Amendment which is being moved is Amendment No. 77, with which we are taking Amendments Nos. 12, 80, 93 and 21.

Mr. Barnett

May I suggest that my hon. Friend formally moves Amendment No. 77, but speaks to it later, and that I finish my speech on my Amendment?

Mr. Carter

I am prepared formally to move my Amendment, provided that I may have an assurance from you, Miss Harvie Anderson, that as soon as my hon. Friend sits down you will call me.

I beg to move Amendment No. 77, in page 96, leave out line 17.

The First Deputy Chairman

It would be very unwise for the Chair to commit itself publicly to any such assurance.

Mr. Barnett

Thank you, Miss Harvie Anderson. I am speaking to my own Amendment, as will be clearly understood, and as my hon. Friend understands very well. I was saying that the Amendment seeks to zero-rate all catering establishments with a turnover of under £10,000 a year. That is very different from the exemption of £5,000 in Schedule 1, because an exemption is very different.

It is clear from the inquiry to which I have referred that the Amendment would go a considerable way towards helping to remove many of the anomalies. The inquiry showed that the 14,282 fish and chip shops had a total turnover of £124 million, which is about £9,000 each. Obviously, some will have more than £10,000 and some will have less, but clearly large numbers would be zero-rated, and therefore the anomalies would be removed. The annual turnover of the restaurants, cafés and snack bars is, according to the inquiry, £402.2 million, which means, with 27,978 establishments, an average turnover of about £14,500. A substantial number will have a turnover of less than £10,000; certainly more will be exempted than if we take the £5.000 in the exemption Clause in Schedule 1. Whilst one cannot say with certainty how many would be exempt under the terms of the Amendment, clearly it would take a large number out.

I will take this opportunity to refer to the other Amendment about factory canteens. We would seek completely to exclude factory canteens and allow them to be zero-rated. I am not sure whether that definition would include our own "factory canteen" or whether one would describe that as something different.

The difficulty about factory and office canteens which arises from the other Amendment is: even if total sales in the canteen are less than £10,000, will it be necessary to add that to the total of the company's other sales? Clearly, anything less than £10,000 would be meaningless. The figure of £5,000 that has been taken by the Government for exemption purposes is, on any analysis, far too low. One only has to consider the gross profit margin of an average cafe and take off the normal overheads to find that one would be zero-rating hardly anybody if one zero-rated up to only £5,000 a year.

Our Amendment has three purposes: first, it would simplify the tax and reduce evasion; secondly, it would keep prices down for the lower paid and the average paid workers who use establishments of this sort; and, thirdly, it would remove a considerable anomaly.

Regarding simplification, without this Amendment it would seem that the Customs and Excise would have to decide what proportion of the total sales of these mixed types of establishment should be subject to zero-rating and what proportion should be taxed. That would be a tremendous problem. In the small amount of research that I carried out over the weekend I found one fish and chip shop in my constituency that had one table, one with about 10, and one where customers ate round the counter. How on earth are the Customs and Excise to decide what proportion should be subject to the output tax? Will it suggest that at every point of sale one will charge VAT? That would show how crazy it is.

It would be a great temptation to claim that none of the sales of these establishments is eaten on the premises. What would inevitably happen is that we would create a new type of criminal in our fish and chip shops. We would have fish and chip shop proprietors and Chinese restaurant proprietors saying either that their customers do not eat anything in, that everything is bought, taken and eaten off the premises, or that it is considerably less than the actual case.

Mr. Arthur Lewis

Has consideration been given to the origin of all this; namely, the EEC? The Treasury has probably considered that in Germany the tax operated adequately with the hot sausage stalls. Perhaps that is what is wanted here and what the Treasury have in mind to bring into this country.

Mr. Barnett

My hon. Friend is attempting to draw me out. I hope he will not mind if I am not tempted, as we want to get on. Maybe the Minister will let him know whether the Treasury has in mind to create hot sausage stalls all over the country to create anomalies.

The situation will be absurd as it stands, but then we come to the question of prices. I said earlier that the lower and average paid worker tends to use fish and chip shops, small cafes and canteens. I have found, when talking to restaurant proprietors, that particularly at lunch time the majority of customers are school children and workers from local factories. If they are served and eat inside the premises they will be subject to VAT. If, on the way from the counter to the door, they stop and have a chat and eat 26 chips—I do not know whether there are 50 chips in a bag, but let us assume there are—will it mean that the other 24 chips are subject to VAT? I am sure the Minister will tell us. I am not altogether clear because it is not spelt out in the Bill. I am suggesting that it should be, because the Bill is big enough already. This illustrates the nonsense of the tax and shows how much we are trying to help.

All our Amendments are drafted in a way to help the Government get off the hook of some of the terrible anomalies which they have created. This Amendment will help to avoid the vicious circle of a wages cycle following a prices cycle. If every day of the working week a factory worker pays an increased price for his canteen meal and at some time during the year he is told by the Chancellor, "Do not hold me to ransom for a wage increase ", he will not take too kindly to that suggestion. He might be more inclined to say," No. I insist on the wage claim which my union has submitted." I repeat, we are trying hard to help the Government in this respect.

We have heard a great deal about the anomalies of purchase and selective employment tax. It has been said that SET has changed the habits of many firms. That is true. Some firms have changed various habits to avoid SET. This particular group of provisions in Schedule 4 will change the habits of millions. Those who like to stand and eat chips at the counter will have to pay tax on them, so, to avoid it, they will be forced to go out on the streets to eat them. I do not know what effect this will have on pollution, about which we have been talking, with the litter on the streets which will inevitably follow. The Amendment is therefore very helpful.

Mr. Crouch

I am sorry that I was not here when the hon. Gentleman began his speech. I should explain that the notice which appeared on the television annunciator was not that we were discussing Amendment No. 12, but that we were discussing Amendment No. 77. If I had known that we were to discuss fish and chips, I should have come in instantly. Did the hon. Gentleman define what he understands is meant by "catering "? I missed that early part. Is he now saying that to eat fish and chips at the counter is to enjoy" catering "? Do I understand that if I go to the Savoy and take my lunch away in a packet I do not have to pay VAT on it? If so, I should like to try it.

Mr. Barnett

That is an interesting suggestion. However, I am surprised that when the hon. Gentleman saw Amendment No. 77 go up on the television annunciator he did not realise that it related to all restaurants, including his having lunch at the Savoy and bringing back his oysters and caviare to the House of Commons to eat in our presence. We would be pleased to see the hon. Gentleman eating them here.

The Amendment goes a long way towards removing the difficulties inherent in this group in Schedule 4. It also has an important effect on prices at a crucial point. The Amendment is reasonable. Therefore, I trust the Minister will now tell us that he will accept it.

8.45 p.m.

Mr. Carter

I do not intend to make a meal out of my contribution. I shall be as brief as I possibly can. However, I got a bonus with an eloquent introduction to my Amendment which I should not have had had I been called first.

The purpose of my Amendment No. 77 is to preserve our traditional approach to the taxation of food. All food should be exempt from tax. This principle is ingrained in our economic and social life, and, especially at this time, with the possibility—indeed, one may say, the certainty—of our entering the EEC, we should do all in our power to reinforce it. I am certain that, but for our projected entry into the Common Market, we should not have been discussing a Finance Bill containing provisions for value added tax, or, in the unlikely event of such a Bill, we should certainly not be discussing proposals to put a tax on food.

I do not agree with the value added tax. Moreover, like most of my right hon. and hon. Friends, I am disturbed about the terms of entry into the EEC. Nevertheless, we accept that we shall probably enter the EEC fairly soon. At the earliest opportunity, therefore, we should lay the basis for our arguments when we do go in. We should be saying clearly and convincingly now that our determination is that all food should be exempt from tax. To make a concession at this point to the Community in the form of a tax on catering or on confectionery and other food items would be to weaken the argument which, I hope, we shall take with us into Europe.

Much was said earlier today about scare-mongering on this question. The hon. Member for Canterbury (Mr. Crouch) raised that matter in a brief intervention. But at no stage has the Chancellor or any Treasury Minister stated categorically that the Government will apply the veto if there is any attempt on the part of the Six to get Britain to apply the value added tax to food. We should welcome such a statement from the Government, but it has not been forthcoming so far, and any scare-mongering of which we might be accused is based on the fear that when we are in the Common Market, we shall have to introduce the value added tax on food.

Over the past few years there has been an enormous change in the pattern of eating habits. People are eating out more and more. It seems that, without our having joined the EEC, we are acquiring continental habits. The number of restaurants has grown enormously, and there have been great developments in such services as take-away meals, convenience foods, canteens and so forth.

These changes are reflected in the figures. In 1966 £2,203 million was spent on food bought out, but by 1971 the figure had risen to £2,950 million. The average weekly consumption per household rose from £0.617 in 1965 to £0.996 in 1970, a growth of about 10 per cent. per year in that period. Moreover, that rate of growth shows every sign of increasing in the future. What is more, all this has come at a time when the percentage of the household budget spent on food has been declining. There is, therefore, a positive shift away from consumption at home to consumption outside.

The future rate of growth in what is clearly a desirable trend could well be inhibited if the VAT is applied. Already to a large extent it bears tax, but that has not inhibited its growth. It is worth pointing out that selective employment tax was imposed on this industry and that the Conservative Party made a clear commitment to remove it. Naturally, the caterers thought that it would be removed. Now they know that this is a broken election pledge because SET is merely to be replaced by VAT.

My hon. Friend the Member for Heywood and Royton (Mr. Barnett) mentioned a long series of anomalies, including fish and chip shops and Chinese food. One could add Indian food to the list. I know a very good take-away Indian food shop in Earls Court.

Dr. Gilbert

Hear, hear.

Mr. Carter

My hon. Friend the Member for Dudley (Dr. Gilbert) obviously knows it. The food of many other nationalities is involved.

I want to draw attention, although this is rather a late hour, to another anomaly briefly touched upon by my hon. Friend the Member for West Ham, North (Mr. Arthur Lewis)—food stores. I wonder where a winkle stall stands in all this. I remind the Committee that Note (3) to Group 1 of Schedule 4 says: A supply of anything in the course of catering includes any supply of it for consumption on the premises on which it is supplied. There is an obvious anomaly there with fish and chip shops. One buys fish and chips at the counter, goes outside to eat them and escapes tax. But what is the position of the person who buys a plate of winkles? Winkle stalls are neither inside nor outside. They are on the public highway.

Mr. Arthur Lewis

Before my hon. Friend leaves fish for winkles, has he realised that the latest thing even with fish and chips is not to have a shop at all, but to have a travelling bar? If he had been lucky enough to be at Wembley last Saturday—

Mr. Carter

I was.

Mr. Lewis

—he would have seen dozens of these travelling fish and chip bars. What is to happen with them? They are neither shop nor stall.

Mr. Carter

I thank my hon. Friend for that intervention. I am glad he brought Wembley to mind. I saw those very bars. At the height of the match I wondered what position they would be in under the provisions of this Bill.

But, of course, it is not just winkles. There are tripe bars in the North. My hon. Friend the Member for Heywood and Royton no doubt in the past has partaken of cartons of hot peas, again bought off stalls. I wonder what the position of such stalls is to be. We have heard about sausage stalls and hamburger bars. All these things are enjoyed by large sections of the community. What position are they to be in under the Bill?

Mr. James Dempsey (Coatbridge and Airdrie)

Pies and beans.

Mr. Carter

I hear my hon. Friend the Member for Coatbridge and Airdrie (Mr. Dempsey) making a remark about Scotland and its delicacies. It might be a plate of old Scotch whisky, perhaps, or a plate of haggis.

Mr. Dempsey

One of the biggest problems we have is not the fish and chip shops or the hamburger stalls but the pie and beans vans. They clutter up the main street, and there is little the police can do because they are not creating congestion. People purchase and eat pies and beans in the main street. How do these vans stand in relation to VAT? Has my hon. Friend given any thought to that aspect? Could I advise my hon. Friend that there is another beverage about which he may not know very much—

The First Deputy Chairman

I hope that the hon. Gentleman will not make his intervention too long.

Mr. Dempsey

All Scots have the gift —you should know this, Miss Harvie Anderson—of brevity. [Laughter.] We produce "pea brae" which is the water from the hot peas. It is quite a mixture with the Scots. What has my hon. Friend to say about this?

Mr. Carter

My hon. Friend will know more about hot pies and beans than I do. One wonders what might happen if all catering establishments in Scotland become liable to VAT but hot pie and bean stalls escape it. It may lead to the sort of congestion on the pavements to which my hon. Friend was referring. I cannot give a detailed or authoritative answer but no doubt the Treasury Minister will be able to do so, because stall owners throughout the country, from winkle stalls to hamburgers and hot pies and beans will be hanging on his every word. We would like some convincing answer from him.

Eating habits are changing and will change more rapidly in future. The continental habit of eating out will grow and it is conceivable that more food will be consumed outside the household than inside it. For these reasons I hope that the Minister will consider the points I have put to him and which some of my hon. Friends have put to him through interventions.

Captain Walter Elliot (Carshalton)

Hon. Gentlemen opposite can indulge in a good deal of fun over this Schedule. We all enjoyed it but I am glad to hear that their opposition is not that serious.

Mr. Carter

Yes, it is.

Captain Elliot

I should like to contradict the assertion by the hon. Member for Heywood and Royton (Mr. Joel Barnett) that this series of Amendments is aimed at simplifying the Bill. Consider Amenedment No. 93. The substitution of: by a person seated in for "on" would cause a great deal of chaos and confusion when it came to attempting to assess those seated on a stool and eating sandwiches as opposed to those standing and eating them. With Amendment No. 21 there is the question of deciding what is an educational establishment. That would he very difficult, and in any case I do not see why such places should be exempted from the tax.

9.0 p.m.

The point which I wish to make concerns the increased cost in workers' can- teens. There is a wide range of places of that sort attached to businesses as well as industry where employees can obtain cheap and good meals. They are regarded as one of the attractions of the place of employment, and it is a valuable attraction. The hon. Member for Northfield (Mr. Carter) said that all food should be exempt from tax. It was not exempt when his party was in office because selective employment tax was paid. Can my hon. Friend the Financial Secretary say what difference, if any, is made by removing SET and imposing the value added tax? Is it possible to make a calculation?

Mr. Gordon Oakes (Widnes)

The fact that we have dealt lightly, good humouredly and sometimes facetiously with these Amendments does not mean that we are not serious about their effects. The purpose of Amendment No. 93 is to help the Government and to give a precise definition of catering, which the Bill manifestly fails to do, namely, if a person is seated in premises that is catering.

All the Amendments are designed to relieve of the tax those people who must go out to eat. Many people do not wish to eat in cafes or canteens but they must do so because they have to travel to work. This is a matter not of choice but of compulsion for them. Yet it is proposed to tax their food at 10 per cent. Perhaps hon. Members opposite want people not to eat in canteens but to take sandwiches to work or to school. In fact, the hon. and gallant Member for Carshalton (Captain Elliot) said "I do not see why education establishments should be exempt from this tax ". Of course he does not. That is the thinking of the Government who increased the cost of school meals and took away school milk. We on this side of the Committee think that they should be exempt because children attending them often stay for school meals because the school is some way from their homes.

Similarly people go to works canteens because they cannot get home for a meal. They will have the choice of eating the meal in the works canteen and paying a 10 per cent. tax on the food, which is as much food as the food they would eat in their home, or taking sandwiches. I thought that we had left behind the days when workmen had to take food to work in luncheon boxes and that now they were able to eat properly balanced meals. This tax discriminates against the person who, perforce, must eat in a canteen or school as against the person who can eat at home.

My Amendment has been tabled in a spirit helpful to the Government, although I detest the tax which they propose. Its object is to get them out of a difficulty. It would be helpful to the many thousands of fish and chip shop proprietors and other small caterers who will have to implement the tax. They will have to decide whether a person is chargeable for tax. What is a fish and chip shop proprietor to do—to put a notice in his shop saying, "Any person found eating any products in this shop will be subject to a 10 per cent. tax "? What will his customers think about it? What will they think if they have to leave?

Pollution was mentioned by my hon. Friend. People in the North of England often eat in fish and chip shops. It is customary for them, when they buy, bags of fish and chips, to start to eat them then and there. They may wander out and eat them, but very often it happens that they start eating them in the shop, when they are served. That is an ordinary eating habit. A while ago I put down a Question for written answer by the Treasury and I was told very specifically that if people started to eat fish and chips in a shop they would be liable for tax.

What will the proprietor of a fish and chip shop do? Suppose on his premises he has tables or stools, or a shelf at which people stand and eat fish and chips—doing no harm to anybody, but rather doing a great deal of good because they will not be dropping any of their purchases outside and causing pollution. If this Amendment goes through, then, if a person is seated the proprietor knows whether he will pay tax—but suppose the person is standing up? I know hon. Members are laughing, but this is the sort of complication which arises with this ridiculous tax, and these are the difficulties we get into when the Government bring in such a tax as this. I am trying to help to resolve some of the difficulties.

By my Amendment tax will be paid in respect of a person who sits at a table on the premises, and the proprietor will know that. It is a simple Amendment which I think will help the Government out of a difficulty. What will a proprietor do? My hon. Friend the Member for Heywood and Royton (Mr. Joel Barnett) is a Lancashire Member, as I am, and he knows that in a fish and chip shop there may be tables where people can very often sit to eat their fish and chips at no extra cost. One can take the fish and chips outside, and people take plates to take them home.

How will the proprietor know whether or not he is within the £5,000 turnover limit? What will he do? He will say. "All my customers took them out ". Of course he will. How will he be able to estimate how much of the fish and chips which he sold were sold to people who ate them on the premises, and whether he has gone over the £5,000 limit? He will not sit like a calculating machine when he ought to be frying fish and chips. although hon. Members opposite, by producing this proposal in the Bill, seem to want him to do so.

The Bill as it stands is loosely drafted, and this is a taxing statute in which every word matters. What do the Government mean by" on the premises "? They are thinking in terms of a café or shop, I suppose. Hon. Members opposite, as well as hon. Members on this side, on a fine day enjoy a walk round St. James's Park. In St. James's Park there is a café. That café, I understand, is part of the Royal Park. If I go to that café and buy some cakes and take them to a seat within the same Royal Park, am I not still on the premises? How does the proprietor who served me know whether I shall eat them there or whether I shall bring them into this Chamber to eat them?

The whole phrasing in the Bill as it stands is too loose. By the words "on the premises" people do not know precisely what the Government mean, and in a taxing statute they ought to be able to know, because the Government should spell out precisely what they mean, and whom they mean to tax and whom they do not. I repeat, it is not hon. Gentlemen opposite who will have to do the calculations and work out the tax, but it will be simple, ordinary, decent people serving the public. They do not want to break the law; they do not want to defraud the Inland Revenue. They just want to know where they stand under the imposition of this tax.

I hope the Government will see some sense in some of these Amendments, not only mine about whether a person is seated or not, but other Amendments which are much more important. It has to be remembered that some persons are obliged to eat out—at school or factory; it is not always a question of choice, of pleasure, in going to a café.

Mr. Arthur Lewis

I will develop the point made by my hon. Friend the Member for Widnes (Mr. Oakes). The working man's usual dining place is the pub—when he happens to be in employment. That is rare under this Government, but under a Labour Government working men were getting high incomes and the cost of living was lower, and many of the workers in my constituency used to have their lunch or, as they called it, their dinner, in the pub. Is a pub a catering establishment? I understand that pubs are licensed premises. Most pubs supply snacks—pie and beans, sausages, bubble and squeak, cheese and pickled onions. There are tables in the pub, but the customers do not usually sit at the tables; they prefer to stand at the bar, have a pint of beer and eat their snacks.

My hon. Friend the Member for Heywood and Royton (Mr. Joel Barnett) mentioned the £5,000 limit. There might be a public house next dor to a small café which provided the same sort of food and which, because it was below the £5,000 limit would be zero-rated—

Mr. Joel Barnett

It would not be zero-rated; it would be exempt, which is a different thing.

Mr. Lewis

What I meant was that the café would have an unfair advantage over the next-door public house.

In my constituency, because of the various wicked Measures introduced by the Government and the savage way in which they have attacked old-age pensioners, the sick and the disabled, we have had to introduce meals on wheels. The service is run by the Royal Women's Voluntary Service and charitable organisations. They are not catering establishments—or are they? People do not eat those meals seated in a café. The facilities provided are not the same as those provided at the Wembley Stadium by a travelling fish and chip van where people may eat their fish and chips on the spot or take them away. The food for the meals-on-wheels service is cooked either at a school or at a catering establishment, and the meals are taken to people's homes. Meals are also delivered to the sick and the disabled. Will these meals be exempted or zero-rated, or will they be chargeable to tax?

Captain W. Elliot

The hon. Gentleman seems to be trying to make a point about the difficulty of defining a catering establishment. Will he show me in Schedule 4 where a catering establishment is mentioned?

Mr. Lewis

I have not mentioned "catering establishment ". Some of my hon. Friends have been talking about the various types of food that would be liable to VAT, and I have been giving one or two other examples. The question has been raised whether stalls would attract VAT. My hon. Friend the Member for Birmingham, Northfield (Mr. Carter) mentioned a number of stalls, but left out one of the most important in London —Tubby Isaacs, which sells jellied eels. I do not know whether that would be regarded as a catering or food establishment and would be liable to VAT. I hope the hon. Gentleman will explain the situation.

9.15 p.m.

Whether we like it or not, it appears that we shall go into the Common Market, but hon. Members on both sides of the Committee are not in favour of VAT being imposed. I believe that the reason that these Amendments have little chance of success is that the Government do not wish to do anything to prejudice the type of taxes which are already in being in the Common Market countries.

There are certain of my right hon. and hon. Friends on the Opposition Front Bench who are in favour of going into the Common Market on any terms —though, of course, I exclude my hon. Friend the Member for Dudley (Dr. Gilbert) who is at the moment the only honourable exception. But even my pro-Market hon. Friends must know that VAT will eventually be imposed on many items, including food. I am certainly opposed to entry into the Common Market, and I am very much against the imposition of VAT on food.

In France and other Common Market countries there is already a value added tax on food. I understand the Government's difficulties. They do not want to make concessions now only to find that next year, after entry into the EEC, they will be told by the other Common Market countries that we in this country will have to impose the same taxes as are imposed in the Community at large. We certainly will not be able to move Amendments if the Commission—

The First Deputy Chairman

Order. I hope the hon. Gentleman will not test the patience of the Chair too sorely.

Mr. Lewis

I will not go into detail, Miss Harvie Anderson, but this is relevant to what we are discussing. Will the Minister explain what will be the deleterious effects of this tax on this country after entry into the Common Market? I will not go into detail, but will content myself by saying that this is probably an important reason why the hon. Gentleman will not be in a position tonight to give way on these Amendments.

The Minister of State, Treasury (Mr. John Noll)

I have no doubt that this debate will be enshrined in the annals of Parliament as "the fish and chip debate". However, before coming to the comments of the hon. Member for Heywood and Royton (Mr. Joel Barnett) on his fish and chip shop example, I ought to mention the basic principle of VAT.

The tax is intended to be broadly based and to fall upon consumption. In designing VAT my right hon. Friend the Chancellor of the Exchequer has sought to tax all consumer expenditure on goods and services. By definition, such a tax must include meals out. In doing that, my right hon. Friend has succeeded in keeping the rate down to 10 per cent. But it is the broad base of the tax which enables a large revenue yield to be obtained with such a modest rate. These are fundamental points to a discussion of these Amendments.

At the same time, the Government are aware that indirect taxation in the forms of purchase tax and SET bears heavily on the lower income groups. As my right hon. Friend said in his Budget statement, VAT has been designed deliberately with the interests of low income families in mind. It was to relieve this section of the community that zero-rating was introduced for all those items of expediture which form a high proportion of the low income family's budget, and that relates especially to food.

The charge which has been made constantly that VAT will bear more heavily on low income families than SET and purchase tax is entirely without foundation—

Mr. Carter

The Minister of State has repeated what his right hon. Friend the Chancellor of the Exchequer said about all food being zero-rated. What is more, it is in the Bill. However, will he now say categorically that when we are in the EEC, should the Conservative Party still be in power, the British Government will use the veto in order to keep a zero-rating on food in this country?

Mr. Nott

I will come to that point in a moment. All food will not be zero-rated. The hon. Gentleman said that traditionally in this country food was exempt from tax. Of course, some items of food bear purchase tax now. The hon. Gentleman was not correct. What is more, some items of food bear SET, which we are abolishing. That tax also enters into food prices. I will come to the hon. Gentleman's point about the Common Market in a moment. If he will allow me, I will complete my opening remarks before dealing with that.

If it is appreciated that food is zero-rated with the principal intention of providing relief for low income families, bearing in mind at the same time that it is a general principle of VAT that it should be a tax on all consumer expenditure, surely it is inconsistent not to apply VAT to meals out, to catering, to restaurants, to canteens and to other such establishments.

Amendment No. 12 seeks to zero-rate catering establishments with an annual turnover not exceeding £10,000. while leaving larger catering establishments subject to VAT at the standard rate. The Committee will be aware that the Government's proposals envisage exemption, not zero-rating, for all traders with an annual turnover in taxable goods and services not exceeding £5,000. The Opposition's Amendment would extend to this sector the wider relief of zero-rating and would apply it in the catering sector alone to traders with a turnover not exceeding £10,000 I must tell the hon. Gentleman that, apart from the fact that a concession of this sort would be bound to lead to pressure from traders in all sorts of other businesses throughout the economy, it would be likely to lead to economic distortions within the catering sector itself.

I presume that the object of the Amendment is to help small businesses, but it is not by any means certain that it would do even that. For instance, an establishment which supplies other goods and services as well as catering would be taxable on its catering supplies if the turnover exceeded £10,000, even if the turnover in catering itself was less than £10,000. I think that the hon. Gentleman's question about a canteen in a company and whether the £10,000 limit would apply purely to the output of the canteen or be taken in with the output of the firm as a whole is an example of that. In fact, it would apply to the firm's turnover as a whole.

The effect of the Amendment would be to zero-rate a small luxury restaurant of the sort which some of the hon. Gentleman's right hon. Friends frequent. The right hon. Member for Leeds, East (Mr. Healey) no doubt eats caviar in a small luxury restaurant. Under the Amendment, to take a figure of £10,000 could mean that that luxury restaurant selling caviar would be zero-rated, whereas a more humble abode of the kind which the hon. Gentleman and I attend, perhaps slightly larger and with a bigger turnover, where simple fare is available, would be taxable. Drawing the line where the hon. Gentleman seeks to draw it would throw up many more anomalies than exist now.

1 was interested to learn that the hon. Gentleman has a great concentration of fish and chip shops in his constituency. It is a most interesting and important factor in this debate. I was also fascinated to learn that he spent so much of his time last weekend tramping around visiting them. He performed an excellent constituency service, but he should know that under the Bill—his suspicions were correct—if he wishes to avoid VAT he will have to wrap his fish and chips in the HeywoodAdvertiser—I think that that is the name of his local newspaper—and take them out of the establishment. It is a pity that he cannot wrap them in the St. IvesTimes and Echo,because I am sure that they would taste very much better. It is the case that if the fish and chips are consumed on the premises they are liable to VAT, but if they are taken away they are not.

[Mr. HAROLD GURDENin the Chair]

Mr. Alexander W. Lyon (York)

The only proper way to eat fish and chips—and I speak with some experience—is out of a newspaper as they are given to the purchaser, with lots of salt and vinegar. If someone who buys fish and chips proceeds to eat them as he gets them in his hand and walks out of the shop still eating them, will he pay half the 10 per cent. rate, or will he be zero-rated up to the moment when he reaches the door?

Mr. Nott

If the purchaser consumes his fish and chips on the premises, the trader is liable. If he does not consume them on the premises, the trader is not liable. I think that the hon. Gentleman must make up his mind about where he will consume his fish and chips.

Mr. Oakes

The hon. Gentleman spoke about fish and chips being consumed on the premises. Does he mean wholly consumed on the premises, or starting to be consumed there? That is the kind of difficulty that we are in.

9.30 p.m.

Mr. Nott

I am coming to the accounting side of it, because the fish and chip shop proprietor will be faced with this problem. I realise that this situation may seem anomalous, but it derives directly from the Government's determination to zero-rate food. In doing this the Government obviously have to make a distinction between food which is consumed on the premises—in a restaurant, canteen OT fish and chip shop—and food which is taken away, which would normally be food which is bought in a retail shop and taken home.

Mr. Dalyell

Why "obviously "? What is obvious about this?

Mr. Nott

I shall answer that question, although I do not think that the hon. Gentleman was present when the debate first began. The reason is that—I withdraw the word "obviously "—if catering were to be excluded in the way suggested, if it were to be zero-rated in accordance with the suggestion of the hon. Member for Heywood and Royton, the cost would be about £130 million. The effect of this clearly would be very serious upon the basic rate of VAT.

As I have said, my right hon. Friend is determined to maintain the wide coverage of the tax in order that he can have a low and simple rate of 10 per cent.

Mr. Arthur Lewis

Who said that that is low?

Mr. Nott

I appreciate the problem and I shall come to the hon. Member's point. of establishments which supply both food to eat on the premises and food to take away, a good example would be that given by the hon. Member for Heywood and Royton, of the Chinese restaurant. Many Chinese restaurants provide food to take away and you can also sit in the restaurant and have your chop suey and use your chopsticks in that way. I apologise, Mr. Gurden; I should not have said "your chopsticks ". But the hon. Gentleman can use his, inside or outside the Chinese restaurant. In this case, it is intended to apply a very simple form of retailers' accounting scheme which will enable such establishments to divide those items of their output which are taxable and those which are not. This will be a very simple procedure which will be proposed by Customs and Excise in due course.

Mr. Brian Walden

On that point, though it has always been understood that there will be a certain amount of evasion, which one wants to keep to a minimum, it has also been the principle of the Inland Revenue that it does not introduce the kind of taxation which it knows will lead to wholesale avoidance—in this case, evasion, not avoidance. If the Government do this, will it not be the case that there is not the slightest chance that anyone, unless he is very carefully supervised by Customs and Excise—which he cannot be, given the number of personnel available—will make a fair return on this? However simple the formula devised, is not the method wide open to evasion? On those grounds, would it not be sensible to accept the Amendment?

Mr. Nott

One of the principal complaints of the Opposition is about the enforcement provisions. It is quite clear that there will be a considerably greater number of taxable persons. There is a problem of evasion with any tax. This is something that we accept. Therefore, we are proposing certain enforcement provisions which will enable spot checks to be made in just the sort of case which the hon. Gentleman mentions. But there are opportunities for evasion in other taxes. The hon. Gentleman's suggestion that evasion will be widespread, or is now widespread, is not accurate.

Dr. Gilbert

Before we come to the question of accountability, will the hon. Gentleman say a little more about the geography? Where I come from, Dudley, we quite clearly have more sophisticated eating habits than certain of my hon. Friend's constituents. My constituents tend to take their fish and chips outside and eat them in their cars. If the car is still on the car park, is it on the premises? We must have some idea, because a formula will later be introduced for apportionment as between inside and outside catering. How will that be decided?

Mr. Nott

If the hon. Gentleman wishes to eat his fish and chips in his car outside the premises, I am sure they will not be taxable—

Dr. Gilbert

In the car park.

Mr. Nott

Even in the car park.

I come on to the winkles, the jellied eels, so beloved in the East End of London, the haggis, the pork and bean pies and all the various other items of food mentioned in the debate.

Sir G. Nabarro

Worcestershire sauce.

Mr. Nott

My hon. Friend has an important Amendment to move later on wines and spirits, and I will include Worcestershire sauce.

Sir G. Nabarro

My hon. Friend must not mislead the Committee. I rebuke him at once. All my Amendments are concerned with alcoholic beverages. Lea and Perrins Worcestershire Sauce, the original Worcestershire Sauce, which dates from before I arrived in Worcestershire, has nothing whatever to do with alcoholic beverages, and is a wholly nonalcoholic foodstuff.

Mr. Nott

I am quite aware of that. I consume it myself, and it is an extremely attractive food.

I realise that there are serious problems of definition in many areas, but we intend to approach the matter in a practical way in consultation with all the traders concerned. Any attempt to define in a statutory form all the matters raised in this debate would throw up even greater anomalies than exist in, for example, the purchase tax system. There will be consultations with traders in all these areas, and I am convinced that definitions will be arrived at in the case of all the items mentioned which are to the satisfaction of the traders concerned. If it is not possible for the traders to agree a definition with the Customs and Excise, which I do not think is likely to happen, they can appeal to the appeals tribunal.

Mr. Carter

The hon. Gentleman has gone rather further on the question of stalls, which although put in a humorous way was not frivolous. Many millions of pounds are spent on food consumed from them. In Note 3 a definition is given concerning consumption on the premises. Consumption from stalls is surely neither on nor off the premises.

Mr. Nott

I take the hon. Gentleman's point. But 30 examples have been given tonight, and to try to define all of them in statutory form would throw up great absurdities. This will be a matter of discussion between the Customs and Excise and the traders concerned. I am sure it will be possible to arrive at sensible and flexible arrangements in each case.

Mr. Dempsey

Will the hon. Gentleman deal with the van trading at the roadside? A person could easily purchase a bowl of pea brae at the roadside, drink some of it, and throw the rest down in the gutter, defying all the laws on food and hygiene, and be exempt from VAT according to the hon. Gentleman's definition.

Mr. Nott

I find it a little difficult to follow the hon. Gentleman's example. I think he was asking about the position if he were to buy something at a stall—

Mr. Dempsey

A van.

Mr. Nott

—and tip it down a drain.

I must move on, because there are many other points to deal with. I come to Amendment No. 93.

Mr. Arthur Lewis

The Minister of State has not dealt with my serious point about old-age pensioners, the sick and the disabled who have "meals on wheels ".

Mr. Nott

I will deal with that point. Under Amendment No. 93 the hon. Member for Widnes (Mr. Oakes) proposed to confine the taxation of food supplied in the course of catering to food supplied for consumption by persons seated in the premises in which the supply is made. If the Amendment were accepted it would create far more problems than it would solve. In many establishments, such as coffee bars and pubs, seating is not available to all the clientele, and neither the proprietor nor the customer would know at the time the food was supplied whether the customer would be taking a seat. I appreciate that the Amendment is intended to simplify matters for the fish and chip shop, for pubs and for cafés. But if it were accepted the shop would still have to apply a different tax treatment on supplies to standing customers from supplies to seated customers and this would be very complicated.

Amendment No. 80 was referred to by the hon. Member for Heywood and Royton when he said that it was anomalous to tax essential expenditure on meals by workers who were unable to get home to lunch. The answer is that it would be quite impossible to draw a satisfactory line between so-called essential meals and so-called luxury meals in cafés, say, outside the works. Another argument of his was that workers' canteens should not be taxed because they provided a sort of welfare service within the plant. But many firms do not have canteens and their employees have to use cafés and pubs and other eating places near their works. There would be complaints, therefore, of unfair competition if workers in canteens were relieved of the tax and nearby cafés were not. To avoid that anomaly I am sure it is right that all meals out, whether in canteens or cafés, should be taxable.

The hon. Member for West Ham, North (Mr. Arthur Lewis) spoke of his pub. If he has a snack in his pub it will be taxable.

Mr. Austen Albu (Edmonton)

Has the Minister of State not overlooked the fact that canteen meals are nearly always subsidised?

Mr. Nott

If they are subsidised, the price at which they are purchased by the individual in the plant will be lower than it would otherwise be and therefore the VAT will be lower since it is levied on the price. The more the meal is subsidised, the lower the VAT will be. I hope that is a satisfactory answer to the hon. Member.

We come finally to the zero-rating of catering schools and educational establishments. This matter was raised by my hon. and gallant Friend the Member for Carshalton (Captain W. Elliot). Schedule 5 Group 6, which exempts supply of any goods or services incidental to the provision of any education provided by a school or university, also exempts meals supplied to students, and therefore such meals in a local authority or other school will be exempted.

I can assure the hon. Member for West Ham, North that "meals on wheels" are not supplied in the course of business so they are outside the scope of the tax. As for his comments on the EEC, I do not think that hon. Members would wish me once again to launch into a lot of debate on the question of VAT and the EEC directives. This has been referred to in practically every debate we have had, and I should be quite happy to deal with it, but it does not arise on the Amendment.

9.45 p.m.

Mr. Arthur Lewis

I do not want a long debate. I want a short answer. Can we have an assurance, notwithstanding what happens or what might happen in the EEC about VAT, that the Government can, if they want, carry out whatever we may decide in this House, without let or hindrance from the EEC?

Mr. Nott

I will answer it quickly, but I hope the hon. Gentleman will not raise the point again. I can only refer to the remarks made by my right hon. Friend on 9th May when he was asked by the right hon. Member for Leeds, East the same question about the taxation of food in the EEC. My right hon. Friend replied: There is no obligation under the Treaty of Rome, and as a result of the decisions which have been taken by the Six to impose VAT on food."—[OFFICIAL REPORT, 9th May, 1972: Vol. 836, c. 1154.]

Mr. Arthur Lewis

I said VAT generally, not only on food.

Mr. Nott

That does not arise on this Amendment.

Finally, I will revert to the basic idea underlying the tax. It is designed in principle to fall on all consumer expenditure on goods and services. My right hon. Friend has zero-rated certain items because they make up a large proportion of the low income families' budget. On that basis there is no justification to zero-rate any meals eaten out. It is the broad coverage of the tax which enables approximately the same amount to be raised as is now raised by SET and purchase tax. It will be gathered by the modest and simple rate of 10 per cent. If these Amendments are accepted the standard rate of VAT will have to be raised. I therefore invite my right hon. and hon. Friends to vote against these Amendments when the time comes.

Mr. Joel Barnett

The Minister of State started by telling us that if he accepted our Amendment to limit the VAT on catering to a turnover of £10,000 a year it would create distortions. Any hon. Member who was listening to the reply he has given about the anomalies, about which I and other hon. Members spoke, would find it difficult to accept what he was saying. The hon. Gentleman referred to what might happen if he accepted our Amendment to limit the VAT only to those establishments with a turnover above £10,000 a year—in other words, to avoid paying tax on food eaten by ordinary working people in canteens, fish and chip shops and the rest. For example, he asked: "What about the little shop that sells caviar with a turnover of £10,000 a year?" I do not know what sort of establishment he knows that sells caviar with a £200 a week turnover. Perhaps he will have a word with me afterwards, as it must be very cheap caviar.

Our purpose was to seek to assist him, as he knows and as we pointed out, to remove some of the crazier anomalies. We also are attempting to help those with low incomes who are compelled for a variety of reasons to eat in fish and chip shops and similar establishments.

The Minister told me that concerning fish and chip shops and Chinese restaurants with take-out food I should still be able to eat food from a Chinese restaurant with my chopsticks, but outside the restaurant, and thereby be free of VAT. He then went on to say that he will have a simple form of accounting for the proprietor to decide what proportions are eaten inside and outside. I must say that they will need chopsticks to work out the proportions that are eaten inside and outside.

The Minister did not deal with many of the interventions about chips. For example, what will happen if a man buys his chips and, as is usual, goes outside to eat them? That is free of VAT. But if he finds it is raining and he walks back inside the proprietor presumably says, "Would you mind giving me another 10p?" That is precisely what he is saying.

Then the hon. Gentleman accuses us of proposing more distortions and anomalies by exempting under £10,000 a year. The hon. Gentleman seemed to imply that all my constituents eat their fish and chips from theHeywoodAdvertiser. I hope that they do because I have a weekly article in that paper which includes my photograph. It would be helpful if everyone did so.

The hon. Gentleman will be surprised to know that in the North-West large numbers of ordinary working people eat at fish and chip shops. This is not a minority interest. They will now be told by the fish and chip shop proprietor when they ask the price, "Hang on a minute while I work it out." I can imagine what this will do to the fish and chip shop customers and, I hope, to their votes.

Mr. Alan Haselhurst (Middleton and Prestwich)

The hon. Gentleman is exaggerating, and he must know it. He must realise that in the part of the country from which we both come by far the majority of people who go into fish and chip shops as a regular routine go during their factory lunch hour or in the evenings to purchase fish and chips to take home. In the evening they take them out and eat them in their cars and in the street. The tell-tale of rubbish shows that most people go outside.

[Sir ROBERT GRANT-FERRISin the Chair]

Mr. Barnett

The hon. Gentleman should have been here when I opened. I said that I did some research at the weekend and that in almost every fish and chip shop I found one or a number of tables or people eating at the counter. The point is that not everybody eats inside. I also pointed out that many factory workers and schoolchildren go into fish and chip shops and eat there.

Consider the problems which will be created. The Minister said that there would be spot checks against evasion. It will be an extremely interesting job for these extra 6,000 members of the bureaucracy to visit Chinese restaurants and fish and chip shops and decide whether they have allocated an adequate proportion of fish and chips to be taxed. We are getting to an absurd situation.

Sir G. Nabarro

On the subject of the bureaucracy and fish and chips, the hon. Gentleman misses the point. An essential ingredient in the consumption of fish and chips all over Britain is a generous douching with Worcestershire sauce which is zero-rated as a foodstuff. Therefore, no value added tax ultimately accrues to the fish and chip shop proprietor for the Worcestershire sauce ingredient.

Mr. Barnett

I am sorry to disappoint the hon. Gentleman, but in Lancashire, at any rate, people eat fish and chips with large doses of salt and vinegar.

We really are in an absurd situation. The Minister gave no answers to the points raised in the debate. I must therefore ask my right hon. and hon. Friends to vote for the Amendment.

Amendment negatived.

Amendment proposed: No. 12, in page 96, line 17, after ' catering ', insert: ' by an establishment with annual turnover in excess of £10,000 '.—[Mr. Joel Barnett.]

Question put,. That the Amendment be made:—

The Committee divided:Ayes 201, Noes 219.

Bruce-Gardyne, J.	Holt, Miss Mary	Price, David (Eastleigh)
Bryan, Paul	Hordern. Peter	Prior, Rt. Hn. J. M. L.
Burden, F. A.	Hornby, Richard	Proudfoot, Wilfred
Butler, Adam (Bosworth)	Hornsby-Smith, Rt.Hn.Dame Patricia	Pym, Rt. Hn. Francis
Campbell, Rt.Hn.(Moray&Nairn)	Howell, Ralph (Norfolk, N.)	Ramsden, Rt. Hn. James
Carlisle, Mark	Hutchison, Michael Clark	Redmond, Robert
Chapman, Sydney	James, David	Rees, Peter (Dover)
Chichester-Clark, R.	Jenkin, Patrick (Woodford)	Rees-Davies, W. R.
Churchill, W. S.	Jessel, Toby	Renton, Rt. Hn. Sir David
Clark, William (Surrey, E.)	Jopllng, Michael	Rhys Williams, Sir Brandon
Clarke, Kenneth (Rushcliffe)	Joseph. Rt. Hn. Sir Keith	Ridley, Hn. Nicholas
Clegg, Walter	Kellett-Bowman, Mrs. Elaine	Ridsdale, Julian
Cockeram, Eric	Kershaw, Anthony	Rippon, Rt. Hn. Geoffrey
Cooke, Robert	Kilfedder, James	Roberts, Michael (Cardiff, N.)
Cooper, A. E.	Kimball, Marcus	Roberts, Wyn (Conway)
Cordle, John	King, Evelyn (Dorset, S.)	Rodgers, Sir John (Sevenoaks)
Corfield, Rt. Hn. Frederick	King, Tom (Bridgwater)	Rossi Huoh (Hornsey)
Cormack, Patrick	Kinsey, J. R.	Rost. Peter
Costaln, A. P.	Kitson, Timothy	Russell, Sir Ronald
Critchley, Julian	Knight, Mrs. Jill	Sir John-Stevas Norman
Crouch, David	Knox David
d'Avigdor-Goldsmid, Maj.-Gen.James	Lamont, Norman	Sharpies, Richard
Dean, Paul	Legge-Bourke, Sir Harry	Shaw, Michael (Sc b gh & Wnitby)
Deedes, Rt. Hn. W. F.	Le Marchant, Spencer	Shelton, William (Clapham)
Digby, Simon Wingfield	Lloyd, Ian (P'tsm'th, Langstone)	Sinclair, Sir George
Dixon, Piers	Loveridge, John	Skeet, T. H. H.
Drayson, G. B.	Luce, R. N.	Soref, Harold
du Cann, Rt. Hn. Edward	McLaren, Martin	Speed, Keith
Edwards, Nicholas (Pembroke)	McMaster, Stanley	Spence, John
Elliot, Capt. Walter (Carshalton)	McNair-Wilson, Michael	Sproat, lain
Elliott, R. W. (N'c'tle-upon-Tyne, N.)	McNair-Wilson, Patrick (NewForest)	Stanbrook, Ivor
Eyre, Reginald	Maddan, Martin	Stewart-Smith, Geoffrey (Belper)
Farr, John	Madel, David	Stoddart-Scott, Col. Sir M.
Fell, Anthony	Marten, Neil	Stokes, John
Fenner, Mrs. Peggy	Mather, Carol	Stuttaford, Dr. Tom
Fidler, Michael	Maude Angus	Sutcliffe, John
Fisher, Nigel (Surbiton)	Mawby, Ray	Tapsell, Peter
Fletcher-Cooke, Charles	Maxwell-Hyslop, R. J.	Taylor, Sir Charles (Eastbourne)
Fookes, Miss Janet	Meyer, Sir Anthony	Taylor, Edward M.(G' gow, Cathcart)
Fortescue, Tim	Mills, Peter (Torrington)	Taylor, frank (Moss Side)
Fowler, Norman	Mills, Stratton {Belfast, N.)	Tebbit, Norman
Fox, Marcus	Miscampbell, Norman	Temple, John M.
Fry, Peter	Mitchell, Lt.-Col.C.(Aberdeenshire, W)	Thomas, John Stradling (Monmouth)
Gibson-Watt, David	Moate, Roger Molyneaux, James	Thompson, Sir Richard (Croydon, S.)
Gilmour, Sir John (Fife, E.)	Molyneaux, James	Tilney, John
Godber, Rt. Hn. J. B.	Money Ernie	Trew, Peter
Gorst, John		Tugendhat, Christopher
Gower, Raymond	Monks, Mrs. Connie	Turton, Rt. Hn. Sir Robin
Grant, Anthony (Harrow, C.)	Monro, Hector	van Straubenzee, W. R.
Green, Alan	Montgomery, Fergus	Vaughan, Dr. Gerard
Griffiths, Eldon (Bury St. Edmunds)	Mudd, David	Waddington, David
Grylls, Michael	Murton, Oscar	Walker, Rt. Hn. Peter (Worcester)
Gummer, Selwyn	Nabarro, Sir Gerald	Walker-Smith, Rt. Hn. Sir Derek
Hall, Miss Joan (Keighley)	Neave, Airey	Walters, Dennis
Hall, John (Wycombe)	Nicholls, Sir Harmar	Ward, Dame Irene
Hall-Davis, A. G. F.	Noble, Rt. Hn. Michael	Warren, Kenneth
Hamilton, Michael (Salisbury)	Normanton, Tom	Weatherill, Bernard
Hannam, John (Exeter)	Nott, John	White, Roger (Gravesend)
Harrison, Col. Sir Harwood (Eye)	Onslow, Cranley	Wiggin, Jerry
Haselhurst, Alan	Oppenheim, Mrs. Salty	Wilkinson, John
Havers, Michael	Osborn, John	Winterton, Nicholas
Hawkins, Paul	Owen, Idris (Stockport, N.)	Wolrige-Gordon, Patrick
Hayhoe, Barney	Page, Graham (Crosby)	Wood, Rt. Hn. Richard
Hicks, Robert	Page, John (Harrow, W.)	Woodhouse, Hn. Christopher
Higglns, Terence L.	Parkinson, Cecil	Worsley, Marcus
Hiley, Joseph	Percival, Ian
Hill, John E. B. (Norfolk, S.)	Pike, Miss Mervyn	TELLERS FOR THE NOES:
Hill, James (Southampton, Test)	Pink, R. Bonner	Mr. Hamish Gray and
Holland, Philip	Powell, Rt. Hn. J. Enoch	Mr. Victor Goodhew.

Question accordingly negatived.

Amendment proposed:No. 80,in page 96, line 17,after 'cating' insert:

'other than at factory or office canteens'.—[Mr.Healey]

Division No. 176.1	AYES	[10.5 p.m.
Abse, Leo	Armstrong, Ernest	Benn, Rt. Hn. Anthony Wedgwood
Albu, Austen	Ashton, Joe	Bennett, James (Glasgow, Bridgeton)
Allen, Scholefield	Atkinson, Norman	Blenkinsop, Arthur
Archer, Peter (Rowley Regis)	Barnett, Joel (Heywood and Royton)	Boardman, H. (Leigh)

The committee divided:Ayes 200.Nose217.

Booth, Albert	Horam, John	Palmer, Arthur
Boyden, James (Bishop Auckland)	Houghton, Rt. Hn. Douglas	Pardoe, John
Broughton, Sir Alfred	Huckfield, Leslie	Parry, Robert (Liverpool, Exchange)
Brown, Bob (N'c'tle-upon-Tyne, W.)	Hughes, Mark (Durham)	Pavitt, Laurie
Brown, Hugh D. (G'gow, Provan)	Hughes, Robert (Aberdeen, N.)	Pendry, Tom
Brown, Ronald (Shoreditch & F'bury)	Hughes, Roy (Newport)	Pentland, Norman
Buchan, Norman	Hunter, Adam	Prentice, Rt. Hn. Reg.
Campbell, 1. (Dunbartonshire, W.)	Janner, Greville	Prescott, John
Carter, Ray (Birmingh'm, Northfield)	Jeger, Mrs. Lena	Price, J. T. (Westhoughton)
Clark, David (Colne Valley)	Jenkins, Hugh (Putney)	Price, William (Rugby)
Cohen, Stanley	John, Brynmor	Probert, Arthur
Coleman, Donald	Johnson, James (K'ston-on-Hull. W.)	Rankin, John
Concannon, J. D.	Jones, Barry (Flint, E.)	Rhodes, Geoffrey
Corbet, Mrs. Freda	Jones, Dan (Burnley)
Cox, Thomas (Wandsworth, C.)	Jones, Gwynoro (Carmarthen)	Richard, Ivor
Cronin John	Judd, Frank	Robert, Albert (Normanton)
Crosland, Rt. Hn. Anthony	Kaufman, Gerald	Robertson, John (Paisley)
Cunningham, G. (Islington, S.W.)	Kelley, Richard	Rose, Paul B.
Cunningham, Dr. J. A. (Whitehaven)	Kerr, Russell	Ross, Rt. Hn. William (Kilmarnock)
Dalyell, Tarn	Lambie, David
Davidson, Arthur	Lamborn, Harry	sandelson, Neville
Davies, Ifor (Gower)	Lamond, James	Sheldon, Robert (Ashton-under-Lyne)
Davis, Terry (Bromsgrove)	Latham, Arthur	Shore, Rt. Hn. Peter (Stepney)
Deakins, Paul	Lawson, George	Short, Mrs. Renee (W'hampton, N.E.)
Dell, Rt. Hn. Edmund	Leadbitter, Ted	Silkin, Rt. Hn. John (Deptford)
Dempsey, James	Lee, Rt. Hn. Frederick	Silkin, Hn. S. C. (Dulwich)
Doig, Peter	Leonard, Dick	Sillars, James
Dormant), J. D.	Lever, Rt. Hn. Harold	Silverman, Julius
Douglas, Dick (Stirlingshire, E.)	Lewis, Arthur (W. Ham, N.)	Skinner, Dennis
Duffy, A. E. P.	Loughlin, Charles	Small, William
Eadie, Alex	Lyon, Alexander W. (York)	Smith, John (Lanarkshire. N.)
Edelman, Maurice	Lyons, Edward (Bradford, E.)	Spearing, Nigel
English, Michael	McBride, Neil	Spriggs, Leslie
Evans, Fred	McCartney, Hugh	Stallard, A. W.
Ewing, Henry	McElhone, Frank	Steel, David
Faulds, Andrew	Mackintosh, John P.	Stonehouse, Rt. Hn. John
Fernyhough, Rt. Hn. E.	Maclennan, Robert	Strang, Gavin
Fisher, Mrs. Doris (B1 ham, Lady wood.	McMillan, Tom (Glasgow, C.)	Summerskill, Hn. Dr. Shirley
Fitch, Alan (Wigan)	Mahon, Simon (Bootle)	Taverne, Dick
Fletcher, Ted (Darlington)	Marks, Kenneth	Thomas, Rt.Hn.George (Cardiff, W.)
Foley, Maurice	Marsden, F	Thomson, Rt. Hn. G. (Dundee. E.
Ford, Ben	Marshall Dr Edmund	Tinn, James
Forrester, John	Mason, Rt. Hn. Roy	Tomney, Frank
Fraser, John (Norwood)	Mayhew, Christopher	Torney, Tom
Galpern, Sir Myer	Meacher, Michael	Tuck, Raphael
Gilbert, Dr. John	Mellish, Rt. Hn. Robert	Urwin, T. W.
Ginsburg, David (Dewsbury)	Mendelson, Jhon	Varley, Eric G.
Gordon Walker, Rt. Hn. P. C.		Wainwrlght, Edwin
Gourlay, Harry	Mikardo, lan	Walden, Brian (B'm'ham. All Saints)
Grant, George (Morpeth)	Millan, Bruce	Wallace, George
Grant, John D. (Islington, E.)	Miller. Dr. M, S.	Watkins, David
Griffiths, Eddie (Brightside)	Mitchell, R. C. (S'hampton, Itchen)	Weitzman, David
Griffiths, Will (Exchange)	Molloy, William	White, James (Glasgow. Pollok)
Grimond, Rt. Hn. J.	Morgan, Elystan (Cardiganshire)	Whitehead, Phillip
Hamilton, James (Bothwell)	Morris, Alfred (Wythenshawe)	Whitlock, William
Hamilton, William (Fife, W.)	Morris, Charles R. (Openshaw)	Williams, Alan (Swansea, W.)
Hamling, William	Murray, Ronald King	Williams, Mrs. Shirley (Hitchln)
Hannan, William (G'gow, Maryhill)	Oakes, Gordon	Williams, W. T. (Warrington)
Hardy, Peter	Ogden,Eric	Wilson, William (Coventry, S.)
Harper, Joseph Oram, Bert	Woof, Robert
Harrison, Walter(Wakefield)	Orbach, Maurice
Hattersley, Roy	Orme, Stanley	TELLERS FOR THE AYES:
Healey, Rt. Hn. Denis	Oswald, Thomas	Mr. John Golding and
Heffer, Eric S.	Padley, Walter Mr.	James Wellbeloved.
Hooson. Emlyn	Pagat, R. T.

NOES
Adley, Robert	Brown, Sir Edward (Bath)	Corfield, Rt. Hn. Frederick
Allason, James (Hemel Hempstead)	Bruce-Gardyne, J.	Cormack, Patrick
Atkins, Humphrey	Bryan, Paul	Costain, A. P.
Awdry, Daniel	Burden, F. A.	Critchley, Julian
Balniel, Rt. Hn. Lord	Butler, Adam (Bosworth)	Crouch, David
Barber, Rt. Hn. Anthony	Campbell, Rt.Hn.G.(Moray&Nairn)	d'Avigdor-Goldsmid, Maj.-Gen..
Berry, Hn. Anthony	Carlisle, Mark	Dean, Paul
Biffen, John	Chapman, Sydney	Deedes, Rt. Hn. W. F.
Biggs-Davison, John	Chichester-Clark, R	Digby, Simon Wingfield
Blaker, Peter	Churchill, W. S.	Dixon, Piers
Boardman, Tom (Leicester, S.W.)	Clark, William (Surrey, E.)	Drayson, G. B.
Boscawen, Robert	Clarke, Kenneth (Rushcliffe)	du Cann, Rt. Hn. Edward
Bowden, Andrew	Clegg, Walter	Edwards, Nicholas (Pembroke
Braine, Sir Bernard	Cockeram, Eric	Elliot, Capt. Walter (Carshalton)
Bray, Ronald	Cooke, Robert	Elliott, R. W. (N'c'tle-upon-Tyne, N.)
Brinton, Sir Tatton	Cooper, A. E.	Eyre, Reginald
Brocklebank-Fowler, Christopher	Cordle, John	Farr, John

Fell, Anthony	Legge-Bourke, Sir Harry	Roberts, Michael (Cardiff, N.)
Fenner, Mrs. Peggy	Le Marchant, Spencer	Roberts, Wyn (Conway)
Fidler, Michael	Loverldge, John	Rodgers, Sir John (Sevenoaks)
Fisher, Nigel (Surbiton)	Luce, R. N.	Rossi, Hugh (Hornsey)
Fletcher-Cooke, Charles	McLaren, Martin	Rost, Peter
Fookes, Miss Janet	McMaster, Stanley	Russell, Sir Ronald
Fortescue, Tim	McNair-Wilson, Michael	St. John-Stevas, Norman
Fowler, Norman	NcNair-Wilson, Patrick (New Forest)	Sharpies, Richard
Fox, Marcus	Maddan, Martin	Shaw, Michael (Sc'b'gh & Whitby)
Fry, Peter	Madel, David	Shelton, William (Clapham)
Gilmour, Sir John (Fife, E.)	Mather, Carol	Sinclair, Sir George
Godber, Rt. Hn. J. B.	Maude, Angus	Skeet, T. H. H.
Gorst, John	Mawby, Ray	Soref, Harold
Gower, Raymond	Maxwell-Hyslop, R. J.	Speed, Keith
Grant, Anthony (Harrow, C.)	Meyer, Sir Anthony	Spence, John
Green, Alan	Mills, Peter (Torrington)	Sproat, lain
Griffiths, Eldon (Bury St. Edmunds)	Mills, Stratton (Belfast, N.)	Stanbrook, Ivor
Grylls, Michael	Miscampbell, Norman	Stewart-Smith, Geoffrey (Belper)
Gummer, J. Selwyn	Mitchell, Lt.-Col.C.(Aberdeenshire, W)	Stoddart-Scott, Col. Sir M.
Hall, Miss Joan (Keighley)	Moate, Roger	Stokes, John
Hall, John (Wycombe)	Molyneaux, James	Stuttaford, Dr. Tom
Hall-Davis, A. G. F.	Money, Ernie	Sutcliffe, John
Hamilton, Michael (Salisbury)	Monks, Mrs. Connie	Tapsell, Peter
Hannam, John (Exeter)	Monro, Hector	Taylor, Sir Charles (Eastbourne)
Harrison, Col. Sir Harwood (Eye)	Montgomery, Fergus	Taylor, Edward M.(G'gow, Cathcart)
Haselhurst, Alan	Mudd, David	Taylor, Frank (Moss Side)
Havers, Michael	Murton, Oscar	Tebbit, Norman
Hawkins, Paul	Nabarro, Sir Gerald	Temple, John M.
Hayhoe, Barney	Neave, Airey	Thomas, John Stradling (Monmouth)
Hicks, Robert	Nicholls, Sir Harmar	Thompson, Sir Richard (Croydon, S.)
Higgins, Terence L.	Noble, Rt. Hn. Michael	Tilney, John
Hiley, Joseph	Normanton, Tom	Trew, Peter
Hill, John E. B. (Norfolk, S.)	Nott, John	Tugendhat, Christopher
Hill, James (Southampton, Test)	Onslow, Cranley	Turton, Rt. Hn. Sir Robin
Holland, Philip	Oppenheim, Mrs. Sally	van Straubenzee, W. R.
Holt, Miss Mary	Osborn, John	Vaughan, Dr. Gerard
Hordern, Peter	Owen, Idris (Stockport, N.)	Waddington, David
Hornby, Richard	Page, Graham (Crosby)	Walker, Rt. Hn. Peter (Worcester)
Hornsby-Smith.Rt.Hn.Dame Patricia	Page, John (Harrow, W.)	Walker-Smith, Rt. Hn. Sir Derek
Howell, Ralph (Norfolk, N.)	Parkinson, Cecil	Walters, Dennis
Hutchison, Michael Clark	Percival, Ian	Ward, Dame Irene
James, David	Pike, Miss Mervyn	Warren, Kenneth
Jenkin, Patrick (Woodford)	Pink, R. Bonner	Weatherill, Bernard
Jessel, Toby	Powell, Rt. Hn. J. Enoch	Wells, John (Maidstone)
Jopling, Michael	Price, David (Eastleigh)	White, Roger (Gravesend)
Joseph, Rt. Hn. Sir Keith	Prior, Rt. Hn. J. M. L.	Wiggin Jerrv
Kellett-Bowman, Mrs. Elaine	Proudfoot, Wilfred	Wilkinson, John
Kershaw, Anthony	Pym, Rt. Hn. Francis	Winterton, Nicholas
Kilfedder, James	Ramsden, Rt. Hn. James	Wolrige-Gordon, Patrick
Kimball, Marcus	Redmond, Robert	Wood, Rt. Hn. Richard
King, Evelyn (Dorset, S.)	Rees, Peter (Dover)	Woodhouse, Hn. Christopher
King, Tom (Bridgwater)	Rees-Davies, W. R.	Worsley, Marcus
Kinsey, J. R.	Renton, Rt. Hn. Sir David
Kitson, Timothy	Rhys Williams, Sir Brandon	TELLERS FOR THE NOES:
Knight, Mrs. Jill	Ridley, Hn. Nicholas	Mr. Hamish Gray and
Knox, David	Ridsdale, Julian	Mr. Victor Goodhew.
Lamont, Norman	Rippon, Rt. Hn. Geoffrey

Question accordingly negatived.

Mr. Carter

I beg to move Amendment No. 13, in page 96, line 31, leave out from beginning to end of line 13 on page 97.

The Chairman

With this Amendment we can take the following Amendments: No. 14, leave out lines 34 to 38.

No. 15, in line 35, leave out from ' fruits ' to end of line 38.

No. 19, in page 97, leave out lines 7 to 13.

No. 20, in line 8, leave out potato crisps '.

No. 74, leave out lines 14 to 16.

Mr. Carter

I have dual interests in confectionery matters. The first stems from the position which I adopted on the previous Amendments, namely, that all food should be zero-rated for value added tax. I adopt the same attitude towards the question of confectionery. The second interest is that I have in my constituency Cadbury of Bournville, which employs about 8,000 people. It is a large employer of local labour and over the years it has provided a considerable number of very stable employment opportunities for my constituents. Cadbury is a part of a very large industry which employs some 700,000 people. It ought to be said that the industry's products are food. Chocolate, crisps, biscuits, nuts—all these things are food.

[Mrs. JOYCE BUTLERin the Chair]

10.15 p.m.

Another very important fact about the confectionery industry's trade is that its products form a very high proportion of the food consumed by low-income families. For many a child a bar of chocolate and one or two others of the products of the confectionery industry will make up a substantial part of the day's diet.

I know and appreciate that purchase tax is already levied on confectionery. Earlier today there were remarks about who first imposed the tax and who increased and decreased it to the greatest extent. I would remind the Committee that it was a Conservative Chancellor who first imposed purchase tax on confectionery, and it was levied at a time when, it was said, there was great economic difficulty. It is my submission now, and it is the submission of Cadbury and of the whole of the confectionery industry, that, due to the efforts of a Labour Government in building up the economy, we no longer live in a time of great economic difficulty, and, therefore, that this tax should be removed.

The Conservative Party, when in Opposition, pledged itself to remove selective employment tax. The removal of SET and purchase tax would leave confectionery, with other items of food, in a non-taxable state, but, in any event, we are surely entitled to argue, with this new value added tax being proposed, that a fresh approach should be adopted. Food should not be taxed, and that old-established principle should be reintroduced as a basic principle across the whole food range.

With respect to confectionery the following arguments weigh very heavily in favour of having confectionery and other foods exempted. It is my belief, and it is the belief of the confectionery industry, that to impose value added tax on that industry will weaken our arguments once we are inside the Common Market. If food is zero-rated, that could be used in argument in future by our EEC colleagues as a ground on which we in Britain should extend value added tax to other areas of food. If we decide not to impose VAT on confectionery, we shall be in a much stronger bargaining position within the EEC.

Another argument in favour of zero-rating for confectionery is that in Germany—which is our strongest competitor —confectionery is rated at 5½ per cent.— a lower rate than the standard rate—whereas the proposed rate for confectionery in this country is the standard rate. To put our home industry in this unfavourable position would jeopardise its export prospects within a wider Community where the buoyant German confectionery trade operates under much more favourable conditions. Confectionery has always been a major export industry.

Because of the buoyancy of the confectionery trade and the success of its operations—particularly Cadbury—it has been able to pioneer new types of food production. Convenience foods and frozen foods are examples that spring to mind. Any new tax which is imposed could seriously jeopardise the pioneering efforts of the past.

When purchase tax was first levied on confectionery it was followed by an immediate reduction in trade—

Sir G. Nabarro

Although there was a temporary fall in consumption of sweets and confectionery after purchase tax was levied on them for the first time in 1961, there was only a temporary drop, after which consumption went up again sharply, much to the detriment of children's teeth.

Mr. Carter

I am sorry to say that the hon. Member for Worcestershire, South (Sir G. Nabarro) is wrong once again.

Sir G. Nabarro

I am right, as always.

Mr. Carter

The hon. Gentleman has not been right at all today—and this is no surprise. I have it from a most reliable source, the Alliance which governs the affairs of the confectionery trade, that ever since purchase tax was introduced consumption has diminished. The argument of the trade, which is borne out by the fact, is that the imposition of higher tax will have an even more deleterious effect upon consumption. If it is said that sweets have a harmful effect on children's teeth, I suppose sweets could be singled out for the imposition of VAT, but we are not discussing sweets alone, we are discussing confectionery, which covers a very wide range of goods.

The confectionery trade has been treated unfairly in the proposal that VAT should be chargeable on items of confectionery. The impression has been given in the Green Paper and thereafter that unfair discrimination in industry and commerce will be removed.

Mr. Raymond Gower (Barry)

Could the hon. Gentleman, instead of merely making general statements, give figures of the turnover in respect of the imposition of purchase tax on confectionery to show that there has been a definite decline and that the industry has suffered badly from the imposition of the tax?

Mr. Carter

I have the figures with me and I can assure the hon. Gentleman that I am not plucking them out of the air. Perhaps I may be able to introduce these figures a little later in the discussion.

Sir G. Nabarro

The fact is that sweets and confectionery increased enormously in price between 1961 and 1971. It would be a difficult calculation to reduce them back to the 1961 pre-purchase tax prices in order to discover whether the volume consumed had or had not increased. I believe that it has increased substantially, and also the price.

Mr. Carter

The hon. Gentleman is wrong as usual. He will find that chocolate consumption has declined in percentage terms per head of population since the introduction of purchase tax. It may be argued that that development is due to factors other than the introduction of purchase tax, but it seems more than a coincidence that the decline has set in.

I would remind the Committee that we are not simply talking of sweets, but of crystallised fruits, beverages, possibly Worcestershire sauce and even cider.

Sir G. Nabarro

This again is an absolute red herring. The fact is that Worcestershire sauce by Lee & Perrins and by Heinz is zero-rated as a foodstuff. It is not in a separate category as a condiment, sweet or confectionery.

Mr. Carter

I cannot see why Worcestershire sauce should be zero-rated and ice lollies for small children should be subject to this tax. It comes strangely from the hon. Member for Worcestershire, South, who earlier in the day was complaining about VAT being levied on Scotch whisky, now to argue that it is appropriate for VAT to be levied on sweets. Surely whisky is more harmful than sweets. I have gone far enough to establish that confectionery should be zero-rated—

Sir G. Nabarro

rose

Hon. Members

Sit down.

Sir G. Nabarro

We are in Committee, Mrs. Butler, and the hon. Gentleman has given way.

Mr. Buchan

Could we not be protected from this idiot?

The Temporary Chairman

If the hon. Gentleman gives way, it is perfectly in order for another hon. Member to intervene.

Sir G. Nabarro

I am grateful to the hon. Member for giving way. All I was trying to tell the hon. Gentleman was that I am being scrupulously careful in observing my election undertakings. We wrote in our election manifesto that a value added tax would not apply to food except for those few items already subject to purchase tax. Therefore the whole Conservative Party is committed to VAT on sweets and confectionery because the Conservative Party brought in purchase tax on those items in the Budget of 1961.

10.30 p.m.

Mr. Arthur Lewis

On a point of order, Mrs. Butler. It is a serious point seeking clarification for the future guidance of hon. Members. Quite rightly and making a factual statement of the truth, my hon. Friend the Member for Renfrew, West (Mr. Buchan) called the hon. Member for Worcestershire, South (Sir G. Nabarro) an idiot. For the guidance of hon. Members, is "idiot" a parliamentary expression, because it may be that many hon. Members will choose to use it on future occasions?

The Temporary Chairman

It is not a desirable expression.

Sir G. Nabarro

Further to that point of order, Mrs. Butler. As the hon. Member for Birmingham, Northfield (Mr. Carter) very properly gave way to me, because this is a sensible argument on a complex matter which affects large industries, if the expression is undesirable, will you cause it to be withdrawn?

The Temporary Chairman

I did not say that. I think that it is undesirable, and I hope that hon. Members will not use it again.

Mr. Carter

Unfortunately, that exchange was not long enough for me to turn up the information that the hon. Member for Barry (Mr. Gower) wanted, but I assure him that I am in possession of it.

As for the reference by the hon. Member for Worcestershire, South to the Conservative Party manifesto, I do not think that we should embark on the contents of it now. It might be greatly to the displeasure of right hon. and hon. Gentlemen opposite if we peered too deeply into its contents.

I hope that the Financial Secretary will take note of the quite serious point which the confectionery trade has put to me and about which I have been in correspondence with the Chancellor of the Exchequer. There is great concern about the way in which VAT will be applied to products which will be sold in retail outlets next Easter. The Minister is probably aware of submissions already made to the Treasury to the effect that products sold at Easter will be ordered between now and Christmas, will be manufactured during that period, and in most cases will be dispatched either to warehouses or to retailers two or three months before the date of sale. Therefore they will incur purchase tax, and there is the distinct possibility, unless we can get some clear statement from the Treasury, that they will have to bear VAT as well.

Obviously one has to arrive at a suitable period. The trade has been informed that there will probably be a fortnight during which time purchase tax can be rebated on items already purchased. Bit clearly for Easter eggs this will not be anywhere near long enough. While at this hour it may seem a rather obscure and not too important point, it is extremely important for the confectionery trade. It accounts for a very large part of its manufacturing capacity and effort in the course of a year.

On that point alone, I ask the Financial Secretary whether he cannot give serious consideration to it and assure those concerned that they will not be asked or expected to bear both purchase tax and VAT on Easter products.

Mr. Higgins

I am sure that the hon. Gentleman appreciates that I am seeking to understand what he is saying. Why does distribution from the wholesaler to the retailer have to take place so long before the moment of sale?

Mr. Carter

It is a question of storage. It is as simple as that. I have been supplied with information by the trade, and I merely pass it on to the Committee without verification, but I have no doubt that it is accurate. I am told that it is impossible to set aside sufficient space for the storage of Easter eggs. This probably applies to other products at other times of the year, such as Christmas, but they will not be affected by the introduction of VAT. If the Minister is unsure of the position, will he undertake to enter into early negotiations with the trade as this will affect the working capacity and possibly the employment prospects of firms—for example, Cadbury—in the coming months when they will set about manufacturing next year's Easter eggs?

I believe that confectionery should be exempted from VAT. To impose it will weaken our argument that all food should be exempted from the tax. Conceding the Amendment would put us in an infinitely stronger bargaining position when we go into Europe and when, as I hope will happen, this Government, or their successors, will argue for zero-rating of all food.

Sir G. Nabarro

The Conservative Party made the position abundantly clear during the General Election when it debated the merits of various alternative forms of indirect taxation of a sumptuous character. It stated that if VAT were decided upon, either in the form discussed and reported on by Professor Richardson 10 years ago, or in an alternative form similar to that operated in France, or West Germany, or in certain Scandinavian countries, food would be exempted, but that certain items which were made subject to purchase tax in the Budgets of 1961 and 1969—of which there are five groups, namely, sweets and confectionery, soft drinks, roasted peanuts and crisps, pet foods, and finally ice cream, of which three, soft drinks, sweets and confectionery and ice cream were brought in and made subject to purchase tax by a Conservative Chancellor in 1961, and two, pet foods, and crisps and roasted peanuts were brought in by a Socialist Chancellor in 1969—would be made subject to VAT.

What has happened with sweets and confectionery is that in accordance with that election undertaking they remain subject to VAT as a successor to purchase tax. They were made subject to purchase tax in 1961, and they have attracted purchase tax since then. The present proposals for VAT—and I hope that the hon. Member for Birmingham, Northfield (Mr. Carter) will note this—on sweets and confectionery reduce the incidence of tax on them. For example, purchase tax at 22 per cent. was originally levied on the wholesale price. That was reduced by two-elevenths by a Conservative Chancellor—and I hope that the Minister of State will check these figures for me—bringing it down to 18 per cent. on wholesale, which is 13 per cent. on retail. The 13 per cent. purchase tax on retail will become 10 per cent. on VAT. Therefore, we have an overall reduction on sweets and confectionery.

As I said in an earlier speech on value added tax, I am not in favour of any form of unilateral relief. I believe that all foodstuffs, all fuel, all transport, all these excepted items, ought to be subject to value added tax in order to secure a much lower rate, which is the general practice in Europe. But if we exclude any items at all, we should be ill advised to take one particular group, such as sweets and confectionery, and exclude it from value added tax. It would immediately give rise to a hundred other anomalies of a parallel kind.

If the whole group of five items, including particularly ice cream, is to be taxed under value added tax, which is the proposal in the Bill, it would be best to leave it as it is for the time being until all food is brought into value added tax in harmony with European practice. —[HON. MEMBERS: "0h."] It is no good saying Oh ". I was quite frank about this in a speech on Second Reading. I have always been quite frank that I would prefer a 5 per cent. overall value added tax applied universally, right across the board, to all items of manufacture, all services and all foodstuffs—a 5 per cent. rate or less—rather than a 10 per cent. rate of a selective character, as we have now.

The more items we except from the value added tax, whether manufactures or services, the higher the rate of tax has to be; the greater the number we bring into the net and the greater the volume, the lower the tax will be.

Mr. James Lamond (Oldham, East)

Would not that course of action be contrary to the Tory Party's election manifesto, about which the hon. Gentleman has just been boasting? Surely the hon. Gentleman is not advocating a policy which is contrary to that for which he stood at the General Election?

Sir G. Nabarro

No, because these are matters for the future. For the time being, we have gone to the point of excluding foodstuffs, save only the five items which are subject to purchase tax. What is done later is an entirely different matter. It will be subject to debate in the House of Commons, and in the context of what happens with harmonisation of tax with the European Economic Community countries if we join the EEC on 1st January next.

All of that is hypothetical. I do not favour or support any unilateral relief for particular products because it leads to endless special pleading on every kind of service as well as manufacture and is wholly to be deprecated in the interests of taxation equity.

Mr. Geoffrey Rhodes (Newcastle-upon-Tyne, East)

I am grateful to the hon. Gentleman for his customary courtesy in giving way. The point which the Opposition are trying to make is that if there is harmonisation of fiscal levies, such as VAT, throughout the Community, which is a principle stated by the Community, it is inevitable that those hon. Members who take a pro-Market view—I exempt the hon. Gentleman in this respect—are faced with the logic that sooner or later they will be faced with a requirement which applies in every country of the Community at present except Italy, which has not yet introduced VAT, of levying a tax on the nation's basic necessity, foodstuffs. Some of us consider that the Government Front Bench would be a little more honest if they admitted this fact to the people of this country.

Sir G. Nabarro

I can claim with due humility that I have been talking about indirect taxation in the House of Commons for more than 20 years, and every aspect of purchase tax, selective employment tax and now value added tax. I invite the hon. Gentleman to turn up the OFFICIAL REPORT for 30th July, 1971, where he will find, in Written Answers, a detailed schedule showing the rates of value added tax applicable in all the countries of the EEC save only Italy, and demonstrating that there is a different rate of value added tax on food in each of five of the six EEC countries; indeed, in many of those countries, foodstuffs are classified under two or three different rates. It is, therefore, a matter of great complexity.

One either puts all food in or one leaves all food out. I would prefer it that way. But the proposal in the Bill is useful for a year or two, which is exactly in consonance with the Conservative Party's election undertaking, which was to exclude food generally and to adopt value added tax as a form of indirect taxation applicable only to the five groups that formerly attracted purchase tax. That seems to me both reasonable and logical. Although I would like these five groups to be excluded this year, I am prepared to run it for a year and to see what happens and move to exclude them next year. That seems to me a sensible approach to the problem.

10.45 p.m.

Mr. Lamond

Is the hon. Member telling us that the Tory election pledge to zero-rate food was to be understood by the electorate to be carried out only as long as it was expedient and that it might change at any moment if 'the Government felt it was necessary?

Sir G. Nabarro

No, that is a wholly false allegation. What will probably happen is that the value added tax will be introduced in the form we are now proposing in April, 1973. My guess is that the next General Election will take place in October, 1974. We shall therefore have a run of perhaps 18 months with the tax in its present proposed form. It would be sensible then to debate the matter on the hustings. Wherever I went on the last General Election whether in the Black Country, Coventry, Nuneaton, Lichfield, Tam-worth, or any of the other Midland industrial seats, the electorate, knowing my interest in purchase tax, asked me whether I would support the value added tax. I always replied the same.

I was the first person in the Conservative Party to write this in any newspaper in detail. I said in theDaily Telegraphin 1967 that I would abolish purchase tax and selective employment tax—I included capital gains duty as well but that has not yet materialised as an item for abolition—and substitute for them a value added tax. I have always believed this to be the sensible thing to do, and although I am opposed to going into Europe I am a proponent of the value added tax on a comprehensive basis. I am not alone in this view. I see that several national journals wrote when the Bill was published that it made no sense at all to exclude great tranches of national activity such as food, fuel, transport, housebuilding and the remainder.

I would prefer the tax to be truly comprehensive and at a commensurately lower level than at present. I believe that this will come. I shall instruct my hon. and right hon. Friends in the Treasury properly, year by year, until my objectives are achieved. I am sure this will be absolutely in harmony with the European countries, should we join the EEC.

Mr. Carter

Can the hon. Member explain what benefit would be gained by debating at the hustings how we should level, and on what items we should level, the tax, when, having signed the Treaty of Rome, we are bound by the effective decision of the Community? This is especially so as the Government are not prepared to use the power of their veto in advance on the question of zero-rating of food, quite apart from the other issues connected with VAT.

Sir G. Nabarro

We shall have a powerful voice in the councils of Europe in debating harmonisation or otherwise. I am opposed to going into Europe, but if I accept the democratic decision of the House and we eventually enter Europe, I should hope to finish up in Brussels myself, dealing with taxation matters, pleading for rational harmonisation of indirect taxation in order that the very situation to which the hon. Member for Birmingham. Northfield alluded, with bars of chocolate—because Cadbury's chocolate is largely produced in his constituency—should not arise. The hon. Gentleman was less than fair when he said that the West Germans levy a value added tax on chocolate at 5½ per cent. We will levy value added tax, under the proposals in the Bill, at 10 per cent. What the hon. Gentleman did not say was that the French rate of value added tax on—

Mr. Carter

rose—

Sir G. Nabarro

Sit down a minute. I will give way in a minute. I have given way six times already. The French rate of value added tax is much higher than the German rate on sweets and confectionery. The Belgians and the Dutch also make very good confectionery. There is a chocolate house called "Nabarro" in Amsterdam—I commend it to hon. Gentlemen opposite—where the value added tax is not of a swingeing character. though the chocolate is of a very high order. I now give way.

Mr. Carter

The reason I did not mention France was that it has no confectionery industry of any account whatsoever.

Sir G. Nabarro

What?

Mr. Carter

The French have a very small confectionery industry. Our biggest competitor is the German industry. We should he in direct competition with Germany. For the German confectionery industry to have a considerably lower value added tax rate than us, 5½ per cent.—a difference of almost 100 per cent.—would put us at a severe disadvantage.

Sir G. Nabarro

I will leave the hon. Gentleman to the tender mercy of the French confectionery manufacturers who will no doubt instruct him that their industry is substantially larger than ours.

I believe it is wholly harmful to relieve unilaterally a single product—[Interruption.] That is what is being pleaded here. I have already said today that if it came to the Broadway United Football Club. the Worcestershire County Cricket Club, the Vale of Evesham Swimming Pool Association, or any sporting activity, I should subject them all to value added tax in the interests of fiscal equity. The application of this tax should be both ubiquitous and universal right across the board. Therefore, I oppose any move by sectional interests opposite, constituency or otherwise, Schweppes-Cadbury or the remainder, to except—

Mr. Carter

The hon. Gentleman is always wanting us to stop importing apples.

Mr. Lamond

Humbugs.

Sir G. Nabarro

A delectable sweet. Humbugs are a favourite form of confectionery, but they cannot be related to the words of wisdom I am uttering in this plea tonight. I hope that the Committee will reject the proposal to leave out sweets and confectionery.

Mr. Alexander W. Lyon

I cannot follow the argument of the hon. Member for Worcestershire, South (Sir G. Nabarro), who argues for equity in these matters and for dealing with food on a comprehensive basis by either all in or all out, and yet has Amendments down which would seek to leave out at least spirits and beer and wine—or British wine.

Sir G. Nabarro

Will the hon. Gentleman permit me one intervention and then I will keep completely quiet? Alcoholic beverages are the subject of a following Amendment of mine—three Amendments in fact. The hon. Gentleman must be fair. They are enormous revenue raisers already through excise duties, none of which applies to sweets and confectionery.

Mr. Lyon

If the hon. Gentleman's argument is to be followed to its logical conclusion, spirits and beer and wine, being food by the definition in the Bill, he ought to be consistent in seeing that item 3 is kept as an excepted item if he is arguing that we ought to have no further deviation from the present position.

I do not accept that. In my view, there is some strength in the point which he makes that, if we were talking about this in the context of the relationship with the pre-existing purchase tax position, since the exceptions have been made for purchase tax and have been maintained for a substantial time, it would be equitable to continue them into the future. But the situation has radically changed.

It is now proposed to establish a completely new tax base, and to do so in the context of entry into the Community. Therefore, we are beginning again, and we should wipe the slate clean, trying as far as possible to make the tax simple and to avoid all unnecessary complication. We should take the general principle that food should be excepted, because of its enormous importance to the average household budget.

Accepting that principle, we must begin by saying that food includes all items of food, including the five excepted items in Schedule 4. I subscribe, therefore, to the argument advanced by my hon. Friend the Member for Birmingham, Northfield (Mr. Carter)—I almost said "for Cadbury and Bourneville "—that we ought to delete all the references to the excepted five items.

I have put down Amendments which would cover only the products of R own-tree, Mackintosh, Terry and Craven, but I accept as valid the argument of general principle. I put down my rather narrow Amendments because the standard rebuke to the argument of general principle is the one which the Chancellor put in his Budget statement, namely, that to delete all these items would be to add a loss of revenue of £150 million and, the base being rather narrower, one would, therefore, have to increase the 10 per cent. rate.

It is interesting that the loss to the Revenue on the catering trade, which we discussed earlier, would be about £120 million, according to the Minister of State, and on these five items the loss, according to the Chancellor, would be £150 million. The total of £270 million has to be set against a gross yield from VAT of, I understand, about £1,600 million. Thus, a substantial part of the total yield of VAT, which is now to cover an area of services which were not even within SET—there is a whole new area of tax revenue coming in—is still to come under the general heading of food. At the same time, however, the Government are committed to the general principle that food ought to be excepted from the VAT range.

I start with that basic issue of principle. Let us begin by wiping the slate clean and say that no food items ought to be included.

Mr. Higgins

We are reducing the total tax on food. I hear what the hon. Gentleman says now. It seems a little singular that he never said it, and never voted that way, when his party was in Government.

Mr. Lyon

I said that, if one relates this tax simply to the position heretofore, there is some strength in the argument that the five excepted items should be continued, and there is an overall fall in the burden of taxation on even these five items—

Mr. Brian Walden

I am sure that my hon. Friend will not fall for so palpable a trick as that. The tax on food may have gone down, but, when the things called levies are taken into account, the amount coming into the Exchequer has risen.

Mr. Lyon

I did not want to enter a dialectical debate of that kind and obscure the issue. I am prepared to concede the Financial Secretary's point, that there is a case for saying that, if we were continuing our domestic tax, the purchase tax, into VAT, there would be some point in keeping these excepted items. All I am saying is that we are considering it afresh and in the new circumstances one can look at the total rate.

[Mr. HAROLD GURDENin the Chair]

11.0 p.m.

Until 1962, no items of food were taxed and then the then Chancellor, now Mr. Speaker, decided to put tax on a certain range of confectionery items. There was a considerable amount of criticism of that, but it was justified on the basis that we were in a period of financial stringency when the tax base had to be widened and new ways of finding tax had to be discovered. That was perhaps a legitimate argument in the context of purchase tax, which was a rigid tax. The argument for VAT is that it is a buoyant tax and that therefore one does not need constantly to be widening the tax base.

The same argument was used by my right hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins) when he introduced purchase tax on potato crisps and peanuts in 1968. There again, he was arguing that because of the need to raise more revenue, to damp down demand, one could not simply put up existing rates but one had to widen the base again.

Therefore, this further incursion into food was permitted by the House. But we have changed the whole basis of the structure and are moving to a system which, of its nature, is buoyant rather than rigid and we do not have constantly to be widening the tax base. It seems right at this early stage to ask whether we need to tax food at all.

I recognise the loss which would accrue to the Revenue and that if the Government insist on getting the same amount of revenue, it would mean an increase in the rate on other items, but surely, in order to keep the logic of the system, it is right that we should at least begin, with the slate wiped clean. On that general issue of principle, the Committee should accept my hon. Friend's Amendment and mine.

Mr. Carter

A short while ago, my hon. Friend was on the subject of purchase tax and its introduction. I have discovered the reference I had to the fall in consumption with its introduction. May I remind my hon. Friend of the figures? They were eight ounces a week in 1961 and with the onset of purchase tax this fell by 1970 to 7.4 ounces.

Mr. Lyon

I was about to deal with the point raised by the hon. Member for Worcestershire, South who was changing his place, but before I do, if the Financial Secretary wants to raise a point, I will give way.

Mr. Higgins

Purely from the point of view of information, one would need to know what was happening to the relative price of chocolate, apart from taxation.

Mr. Lyon

The Financial Secretary has a legitimate point in saying that a fall in consumption may be due to other factors than purchase tax. Nevertheless, experience immediately after 1962 was that we had the highest consumption,per capita,of any country at about 8½ ounces falling to about six ounces. It picked up again over the succeeding years and has now been stable for a considerable time at 7½ ounces, so the hon. Member for Worcestershire, South was wrong in saying that it picked up to anything like the same kind of consumption as before the tax. It must follow from the fact that the fall was registered immediately after 1962 that the tax had a considerable effect on consumption. In the light of that my hon. Friend's point about the German tax at 5½ per cent. is valid. The German confectionery industry is by far our biggest competitor. The hon. Member for Worcestershire, South is right in saying that there is a French confectionery industry, but it is not nearly as strong a competitor of ours as is the German industry.

In the new opportunities which open up in the Common Market, we have very considerable advantages. Our confectionery manufacturing industry is very large and it is located in a number of very big companies with, on the whole, low unit costs. They have considerable experience in marketing their items by reference to a number of limited, well-known names to the consumer. This system of marketing is not widespread in Europe and still less in America.

It is for this reason that in Europe the average consumption is about 5½ ounces per head, having risen in recent years from about 4 ounces. We have the picture of a market where the consumption is rising but is nowhere near theper capitaconsumption in this country. We have in this country a domestic industry geared to selling in a much more efficient and aggressive way than its European competitors. It is therefore a hopeful sign for the British confectionery industry once we are in the Common Market.

But if we are to give a tax advantage to our major German competitor, whereby it has a 5½ per cent. rate of VAT and we have a 10 per cent. rate, clearly we are in difficulty. I know that exports can be exempted, but the effect on the domestic market of the tax at this level has repercussions for the export market as well. It is for this reason that our confectionery industry is very concerned that we should not start off with this disadvantage inside the Common Market.

The turnover of the British confectionery industry is about £450 million a year, and about £45 million, or 10 per cent. is in exports, so it is a considerable export earner. But another factor also causes me concern, as Member for a constituency where one-third of the population is employed in the confectionery industry. Rowntree-Mackintosh, by far one of the biggest of the firms, also has factories in Europe, one in Hamburg and another in Paris, which it has just taken over. In these circumstances, the firm may well have to choose its German outlet as the means of producing its Common Market products if the German factory is to be taxed at 5½ per cent. while the York factories are taxed at 10 per cent. There may be reasons of economic prudence for concentrating production for Europe in Germany. I am sure that is not what the Chancellor intends.

I accept that this is largely a constituency point but it is of considerable importance because this group of factories employs about 20,000 people, and I am sure the situation is the same elsewhere. It is therefore a matter of general importance and I hope the Financial Secretary will pay some attention to it. Therefore, on a matter of principle and as a matter of practical expediency in helping this important British industry to get off to a good start in Europe, there is good reason for saying that the Government should remove these exceptions from the general zero-rating of food. 1 hope that the hon. Gentleman will respond in a favourable fashion.

I thought that my hon. Friend's remarks about the change-over from purchase tax to VAT were perhaps a little wide of the mask. Since the Minister responded to my hon. Friend's argument, I hope that he will say something about the scheme suggested by the industry for allowing the transitional period to be much easier upon the retailers than the system suggested by the Chancellor in his Budget Statement. It is true that the right hon. Gentleman made some concessions on these points but they are not concessions which assist an industry such as the confectionery industry where the whole of the retail outlets are geared to certain seasonal factors, such as trade at Christmas or Easter. We are particularly concerned about the trade at Easter. The products are manufactured in the autumn and go out to the retail outlets between January and Easter.

For the reasons given by my hon. Friend the Member for Birmingham, Northfield, a considerable amount of this has to be passed to retail distribution outlets long before it is likely to get into the shops for sale. The cost of storage for this huge weight, particularly at Easter, is so great that the manufacturers like to get the products off the premises as quickly as they can. That will cause considerable difficulties for them and the retailers, even allowing for the concession that purchase tax will be taken off some time before the introduction of VAT, and allowing for the other concession made by the Chancellor.

There is bound to be a certain amount of destocking in the period when the retailer is uncertain whether he will be caught twice on taxation for the same items. For that reason he is likely to want to destock. That would have catastrophic effects on the industry because production would be hindered. In the end it would mean a loss of jobs in my own and many other constituencies. I am sure it is not the Minister's intention that unemployment should be increased.

The other alternative is that the increase in price which would follow double taxation would permanently increase the price of confectionery. would not regard this as satisfactory because it is bound to affect consumption. I am sure the Minister would not regard that as satisfactory because it would be bound to affect the retail price index. For all these reasons I hope that the Minister will consider accepting the Amendment.

Captain W. Elliot

I agree with the hon. Member for York (Mr. Alexander W. Lyon) about the proportion of the low income group budget which is spent on food. I support the view that VAT will be particularly regressive unless this matter is dealt with, and I am glad that food generally is exempted.

Otherwise I found it difficult to believe my ears when I heard hon. Gentlemen opposite advocating tax exemptions and reductions. From 1964 to 1970 I sat on the benches opposite when the then Government retained purchase tax and introduced SET. We have already removed half of that. The hon. Gentleman's argument about these articles was settled long ago. For years attempts were made to bring this category of goods into the taxation net, and I believe that when it was done by the Conservative Party and maintained by the Labour Party it was right.

11.15 p.m.

My point to the Minister is this. We realise that the Government must get their revenue from somewhere. The present Government have made tremendous reductions in taxation. I wonder whether my hon. Friend could say exactly what exemption would cost. If these goods are exempted and the Government lose this revenue, presumably they will have to get it from other goods, which might be undesirable, as this category of goods should come into the VAT net. What would it cost the Government if it did not?

Mr. Dalyell

I do not represent anything like the concentration of the confectionery industry represented by my hon. Friends the Members for York (Mr. Alexander W. Lyon) and Birmingham, Northfield (Mr. Carter). However, I represent a number of smaller firms, like Patersons of Livingston, and I should like to emphasise two of their points.

The smaller firms, like the giants, have the same fear of German competition. The Minister must take this point seriously. In this industry much depends on exports, not only to Europe, but to third markets. One firm at Livingston exports more to Australia than it sells in Scotland. This is a fairly typical pattern. The difference between a 10 per cent. tax in this country and the 5½ per cent. borne by competitors in Europe is marked. I hope that the Government will give this point consideration.

The other issue is the tax holiday. It arises not only in relation to Easter but from the Government's view on stocking. Having accepted the invitation months before, I was a guest at the annual general meeting of the Cake and Biscuit Alliance in Scotland this weekend. I went to talk on a very different subject. but Mr. Michael Cadbury, Mr. Palmer, Mr. Porteous, Mr. Cramb and others cornered me to talk about the value added tax and its effect on stocking and the tax holiday. They said "We must know about it. We must be told in advance." If there are to be changes in 1973, from 1st January or from 1st February, it is important that the confectionery industry knows about them fairly soon.

What is the Government's philosophy on the question of the tax holiday? Is the rumour true that it will be a two-week tax holiday? Would it not be sensible to give the industry the benefit of the doubt and have an eight-week or ten-week holiday? Otherwise, as my hon. Friend the Member for York said, there will be double taxation and the effects, according to the industry, which we have no reason to disbelieve, will be permanent rather than temporary.

Mr. John Farr (Harborough)

I believe that my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) was incorrect when he said that we as a party undertook not to place VAT on foodstuffs except for certain special items subject to purchase tax. Prior to the last General Election the Labour Chancellor of the Exchequer, after successive questions from both sides of the House, gave an undertaking that no food would be subject to VAT except, he added as an afterthought, possibly some of the items then subject to purchase tax. The questions put to the Minister of Agriculture were put to the Conservative Chancellor of the Exchequer in 1970, and his answer was that it was not the policy of the Government to impose VAT on foodstuffs, except, possibly, those items which were already subject to purchase tax.

It is wrong to say that our election manifesto said that these food commodities would be subject to VAT. It was a possibility. The impression of many hon. Members was that whichever Government won the last election food as a whole would be exempt from VAT. I welcome Amendment No. 13. The hon. Member for Birmingham, Northfield (Mr. Carter) is absolutely right. It is wrong to put VAT on any items of foodstuffs for human consumption.

The new policy of agricultural support has moved from deficiency payments to import subsidies, and we must face the consequences of it. It will mean an additional cost to the housewife. When this policy comes into effect a family of four, two adults and two children, with an income of £20 a week, in a year will pay over £30 extra for their food. A family of six, two adults and four children, with an income of £1,500 a year, will be paying more than £50 a year extra for their food. We have to recognise this, and my right hon. Friend the Minister of Agriculture and his colleagues weighed these facts carefully when they took that decision. The exemption of foodstuffs from VAT would provide a little relief for the housewife.

Amendment No. 15 relates to chocolate-coated biscuits. In my constituency there is the big Nabisco Freer factory which specialises in that delicious commodity. Amendment No. 20 relates to potato crisps, and there is in my constituency the head office of Golden Wonder—the market leader in potato crisps. Biscuits are the highest selling commodity in the food shops. Four out of five households buy them every week. At present chocolate-coated biscuits bear purchase tax at 18 per cent., reduced from 22 per cent. in the July, 1971, mini-Budget. To exempt chocolate-coated biscuits from purchase tax and VAT entirely would remove an historic anomaly and a discriminatory and illogical tax.

Luxury items such as pheasant soup, tinned asparagus tips, Gold Blend coffee and certain specialist teas attract no tax whatever. It is therefore illogical that chocolate biscuits, which are a staple ingredient in many work people's lunch baskets, should be subject to VAT when these other specialist items are exempt. To remove these items from purchase tax or VAT and to zero-rate them will help considerably to boost production, and, indeed, will help to increase employment in my constituency and others. By expanding consumption it will help to encourage producers of certain specialist biscuit wheats.

Both political parties have lent a hand in keeping in existence the purchase tax on potato crisps, but there are many good reasons why the tax should be removed. The potato crisp is a product which has attained almost 100 per cent. acceptability. It is consumed by young and old, rich and poor, in all parts of the country, in all seasons of the year. It plays a part in main meals and snacks, and not many lunch baskets omit a packet of potato crisps. If within any normal meaning of the word potato crisps is not a food and worthy to be included within the scope of the principles of taxation related to food, what other product could more properly qualify?

It is worth remembering that as soon as purchase tax was imposed on crisps by the Labour Government in 1969 consumption immediately dropped by 20 per cent. Despite a large increase in sales between 1960 and 1968, since 1969 with the introduction of purchase tax on this product customer resistance has been maintained. That 20 per cent. loss in the market has never been regained and there is still a good deal of excess capacity in the industry. Plans by manufacturers to expand their activities in East Anglia and in the Midlands have had to be shelved because of the hold-up in the progress of sales. It is interesting to note that on average every man, woman and child in the United Kingdom consumes more than £1 worth of crisps each year.

Finally, I wish to emphasize that potato crisps are produced by an industry which gets all its raw materials, apart from frying fats, from the farmer. The industry takes 8 per cent. of the potato crop of the United Kingdom. I support the hon. Member for Birmingham, Northfield in drawing attention to the importance of omitting these items from the VAT provisions.

11.30 p.m.

Mr. Rhodes

I support the whole range of the Amendments and I trust that hon. Members will press them to a Division. I hope not to detain the Committee for long and, as I am paired after midnight, I hope that the Committee will quickly come to a decision so that I may register my vote.

I do not in any way represent the confectionery industry or the potato crisps industry, although there is a disused crisps factory in my constituency which may have been the victim of the levies mentioned by the hon. Member for Harborough (Mr. Farr). Almost without exception, the range of items that hon. Members seek to exempt from the levy of value added tax loom as the basic necessities and a larger proportion of the budgets of the poorer members of the community than of the budgets of the richer. The argument for the large-scale exemption of items that loom large in the budgets of the poorer members of the community is basically the argument against the value added tax as a whole.

Unlike some of my hon. Friends and some hon. Members opposite, I do not seek td recoup' the revenue lost by exempting these items by transferring an even heavier levy to other items subject to value added tax later. I would seek to remedy the loss of revenue by levying taxation according to the ability to pay and not according to the necessity to spend. For that reason, I support the Amendments.

I accept that the Government have already committed themselves to zero-rating on food stuffs, but many of the other items which will not be exempt loom large in average household budgets, particularly those of my poorer constituents, and in the cost-of-living index. One such item is beer.

Several years ago, in an Adjournment debate, I suggested that the specific gravity of beer should be noted on the label on a beer bottle. That is by the way. However, it is a fascinating subject and I know that my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) is interested in the subject personally.

On that occasion the debate was answered by the then Minister of Agriculture, Fisheries and Food. When I asked why he was dealing with the matter, he said that beer was classified as a foodstuff. I am not sure who classified it, nor whether it is still so classified, but if it is classified in the cost-of-living index, why is it not given a zero-rating along with the other foodstuffs mentioned in the Schedule?

I am not sure that large-scale consumption of confectionery is good for the health of the nation, but, whatever my judgments about confectionery as a health item, it is a substantial item in the average household budgets of many of my constituents, a larger proportion in the budgets of those who live in the poorer parts of the constituency than the budgets of those who live in the richer areas.

I return to the basic proposition that I have argued in the last two days in Committee. We are debating the unfair effects of the value added tax, which is a tax on consumption and is therefore levied not on ability to pay but on necessity to spend. Rightly or wrongly, it happens to be one of the prices that have to be paid in logic by those who support our entry into the European Common Market.

As I said last night, I spent a lot of time as a delegate of this Parliament to the Consultative Assembly of the Council of Europe and Western European Union at the very time that value added tax was being introduced in several member countries of the EEC. Because it was passed directly to the consumer, in several instances it had an astronomic effect on the cost of living, particularly in Holland where it resulted in large-scale strike action.

If the Government are pledged to restrict the rise in the cost of living and if, of necessity, they have to pay the price of entry into the EEC—namely, the value added tax—they must seek to exempt items which loom large in the cost-of-living index. Although many items are covered by the Amendments, almost without exception they are those that loom large in the cost-of-living index.

The whole origin of the problem in Europe was that there was enormous tax avoidance, particularly in Italy and France, of fiscal measures which put a levy on the factors of production. It was found that up to 20 per cent., 30 per cent. —even 40 per cent.—of the income Governments expected to receive from taxes levied on factors of production—that is, on ability to pay—was avoided in some way or other. So the only way to get the revenue was to catch people where they could not avoid paying, which was the point of consumption. and VAT was one method of doing it.

That is all very well if the levy is made with some sense of social or moral purpose, but that is where I quarrel with the hon. Member for Worcestershire, South (Sir G. Nabarro). The hon. Gentleman wants it to be universal—just a simple all or nothing. I remind him, however, that any fiscal policy, at least on this side—although we have not always lived up to expectations there—has always been based on the argument that we should give preferential tax reliefs according to what are regarded as social necessities or requirements. We have sought to avoid taxing the nation's food. We have not always succeeded, but I can say that I have been consistent, because I have never voted, for example, for selective employment tax. There is, therefore, a strong case for exempting as many basic necessities as possible.

Since food has been mentioned, I give the Committee a warning and a prophecy. It is all very well the Government in this mid-term stage having this policy, and that policy may continue to the time of the next General Election—and the hon. Member for Worcestershire, South knows better than I when that will be. But, if not before that General Election then after it, in order to raise revenue and because of pressures for harmonisation in the Community, we shall not be allowed to be the only member of the Community that does not make a direct levy on basic foodstuffs. I regard it as humbug and hypocrisy, and an ignoring of the realities of the Community, to think that we can go on for long without taxing the people's food.

One of the basic reasons why I was driven, before the Labour Government went out of office, to oppose entry was precisely that I saw the unfairness of a fiscal system within the Community which increasingly transferred the burden of taxation from the factor of production to the point of consumption, including not only potato crisps and confectionery, and so on, but the basic foodstuffs.

Furthermore, when the time comes that we have to toe the line and meet the same requirements as the other members of the Community for levies on basic foodstuffs, the House will not have an opportunity to debate the matter as we usually would, because of the rules and regulations of the Community and the rules we have agreed here. We shall be lucky to get 1½ hours at the end of an evening to discuss what will be major increases in the taxation of the nation's foodstuffs.

I speak on this with a clear conscience, as I opposed the selective employment tax during the lifetime of my Government precisely because I did not agree with taxation levied on the capacity to spend, and I believed that selective employment tax levied on retail distributors would seep through as a levy on the nation's foodstuffs. It is true that the impact of selective employment tax was less than some of us forecast, because the competitive factor in the retail trade in, for instance, groceries limited that increase, but there is no denying that under the Labour Government that tax made a direct contribution to the rise in the cost of living. I have never denied it, and that is why I never supported it. But it is humbug for hon. Gentlemen opposite who opposed SET now to support VAT, which is worse than SET in the way that it has worked in the Community.

Mr. Tom King

In a previous life, I have considerable experience of the activities which have been referred to by all those hon. Members who have spoken in the debate. If they had not declared their interests first, I should have been able to pick off one by one the hon. Member for Rowntree, the hon. Member for Cadbury and the hon. Member for Nabisco Freers, for example. In my time, I have had some contact with all these companies.

The hon. Member for Widnes (Mr. Oakes), who declared his interest in a crisps factory, raised the argument to a more philosophical level. Unfortunately, however, there has been no speech, for or against the Amendment, which I have felt able to accept. For example, I could not accept the argument of my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) about the existence of a manifesto pledge that under all conditions we would maintain tax on these items. That is a distortion of the normally accepted manifesto pledge. There is a pledge that food would be relieved from tax, but I do not regard the question of exemptions from that relief in the same context.

Then we had the speeches of the hon. Members for York (Mr. Alexander W. Lyon) and West Lothian (Mr. Dalyell). This argument about exports is untenable and contradicts their other points. The first point was that the rate of VAT in Germany is 5½ per cent., whereas it will be 10 per cent. in this country. They appeared to instance the fact that our exports would suffer in third party countries. I appreciate that they recognise that exports are relieved of the tax. It does not apply directly to exports in competition with third countries.

Then the argument came back to the fact that the basic domestic demand was not sufficiently buoyant because it was penalised by a higher rate of tax and, therefore, that companies were not so well placed to compete effectively abroad. But hon. Members destroyed their argument by saying that, anyway, domestic consumption here of confectionery was higher than in any of the other countries, albeit in the present situation—

Mr. Carter

What about Germany?

Mr. King

With respect to the hon. Gentleman, consumption is higher than in Germany—

Mr. Carter

No.

Mr. King

If the hon. Gentleman studies the brief with which he has been supplied, he will see that what I say is correct.

When one considers that our consumption is higher and, as my hon. Friend for Worcestershire, South pointed out, when one considers that in any case the tax rate will be reduced under VAT as against the equivalent rate of purchase tax, I cannot see how the failure to relieve from VAT is a major threat to the existence of these companies.

Hon. Members then took the argument on into employment. They saw the tax as a major threat to it. Their argument in this respect is equally false. I know that the hon. Member for Birmingham, Northfield (Mr. Carter) is anxious not to mislead the Committee. He led off with the fact that 700,000 people are employed in this industry. With respect, he was referring to the food manufacturing industry and not to the number employed manufacturing the items which will not be relieved from this tax. That is a very different matter.

There was the further argument about pioneering. The hon. Member for Northfield said that if these companies are under threat in their basic markets, such as confectionery, it will inhibit their ability to pioneer. Why does the hon. Gentleman think that Cadbury went into instant mashed potato called "Smash "? Why did Cadbury go into cakes? The reason was that the company found that growth was stultified in its basic products and markets, and that increased its incentive to look for other markets and products and so increased its pioneering drive. In the time of Cadbury's greatest success and growth, there was no pioneering of outside activities and products.

11.45 p.m.

The success of Rowntree is built on four products which were the brainchild of one sales and marketing director in the 'thirties. "Polo ", "Kit Kat ", "Aero" and "Black Magic" were all 1930 creations. The company exploited those products and it did not feel the need to pioneer again until it found that they had topped out and there was a need, if it were to grow, to find new product areas.

Mr. Alexander W. Lyon

The hon. Gentleman cannot have it both ways. Either VAT will seriously affect the competitiveness of the confectionery industry to export because of a lack of buoyancy in the home market or it will not. He has conceded that companies have had to move into areas other than chocolates and confectionery simply because the domestic market is not buoyant. It is in this respect that we are worse off than the German market where there is rising consumption and where the amount of VAT is considerably less.

Mr. King

The hon. Gentleman is trying to misrepresent my argument. The consumption of confectionery in this country is at a high level compared with any other country in the world. Hon. Gentlemen opposite argue that the market will be jeopardised and threatened, that it will be reduced, that this will be a threat to employment, and that this in turn will be a threat to the viability of these companies. That argument has been exploded by my hon. Friend the Member for Worcestershire, South who said that under VAT the rate will be lower than it is now.

The argument goes on that companies will be inhibited from pioneering if there is any threat to their present position. I am merely saying that this threat exists anyway, and that" any company has to pioneer if it wants to survive. No company can survive if it remains static, and it is for that reason that companies which are finding a ceiling in their present market activities are having to find new outlets and new products in which to grow.

Mr. Carter

I accept the hon. Gentleman's point that in spite of purchase tax and various other restrictions and economic factors the confectionery industry has been able to pioneer other products. The point I was making was that given those conditions the industry was viable and was able to pioneer, but that what is worrying it now—and I take on board its fears and worries—is that with VAT at a level which is disadvantageous compared with that of its competitors it will no longer be in a position to continue this pioneering.

Mr. King

I appreciate that the hon. Gentleman has a close constituency interest in this matter. I am sure that he takes a close interest in the activities of a substantial company in his constituency. But I cannot accept his argument. To suggest that the industry will be threatened by what is, in fact, a reduction in tax in the domestic market seems a total distortion of the argument. As the hon. Member for York said the industry has an outstanding position which is capable of considerable exploitation in world markets, and the relevant rate of VAT in the German market is as nothing compared with the possibilities which exist for British confectionery.

I am disappointed by the debate. Some better arguments could have been made. I have considerable sympathy for the movers of the Amendments. But in all honesty and in the interests of accuracy, I felt it necessary to intervene to attempt to correct some very unsatisfactory arguments adduced in support of the Amendments.

Mr. Oakes

Although this is an important series of Amendments, the hour is very late and I promise not to detain the Committee for more than two minutes.

I rise only to support what the hon. Member for Harborough (Mr. Farr) said about Amendment No. 20. Golden Wonder Crisps has its head office in his constituency. It has one of the largest crisps factories in Europe in my constituency, which is a development area. Anything which is likely to reduce consumption of crisps, as the Bill may well do, is of great importance to future employment prospects in Widnes.

Mr. Higgins

Why is this Measure likely to reduce consumption of crisps? The tax is being reduced.

Mr. Oakes

The hon. Member for Harborough pointed out that when the tax was imposed by a Labour Government—I think that they were wrong in imposing that tax—it had the effect of reducing the consumption of crisps. As the VAT separates crisps from other foodstuffs, it will deter people from buying crisps.

In his Budget speech the Chancellor pointed out that many purchase taxes were anachronistic and that many needed revision. It was thought, certainly in the crisps industry, that the tax imposed by the Labour Government—wrongly imposed in my opinion—would be one of the taxes to go.

Many crisps are bought not as an item of confectionery but in quantity by housewives, from supermarkets, and they use them in the home. Can the Financial Secretary distinguish the difference between crisps and, for example, corn flakes? What is the difference in manufacture or in any other respect? Why should there be no tax on corn flakes but a 10 per cent. VAT on crisps?

Another difficulty with the imposition of this tax is that many crisps are sold to children and individuals in single packets. The average price of a packet of crisps is 3p. The VAT on crisps ought to be, therefore, 0.3p. There is no 0.3p. in our currency. As a minimum the retailer will charge an extra He may well charge 1½p. There is no other means by which the retailer can recover his tax. The manufacturer will not get it, but the customer will have to pay it. That is the sort of difficulty involved in taxing low-priced items.

I hope that the Minister will reply to the point that an inflationary situation will be created far and above the 10 per cent. tax he is imposing on crisps.

Dr. Gilbert

After a lengthy and interesting debate I shall not detain the Committee for long.

I entirely endorse the representations made to the Minister by my hon. Friend the Member for Birmingham, Northfield (Mr. Carter), in a most valuable contribution in opening the debate, about the need to remove VAT from convenience foods as a means of strengthening our case for keeping food zero-rated after harmonisation.

Harmonisation will happen. The odds are most heavily that we shall be forced to move towards European practice in this respect and this point has been made with great honesty by hon. Members on the Government side this evening. I can see the dangers quite clearly and I hope the Financial Secretary will take the point on board. I do not propose to labour it any further.

A further point was introduced from this side of the Chamber in connection with the transition period for stocks of this type that already carry purchase tax and may also be liable to value added tax. So far we have had virtually no information from the Government on this point. There is no excuse for this whatever. It is not a question of the Government being asked to make up their mind about the final rate of the tax which they have quite understandably taken power to vary. This is an administrative problem and if the introduction of the tax had been as well thought out as we have been led to believe, consultations with industry should have taken place to solve this extremely difficult problem.

This has been the theme of the speech not only of my hon. Friend the Member for Northfield. It was also brought up again by my hon. Friends the Members for York (Mr. Alexander W. Lyon) and West Lothian (Mr. Dalyell). My hon. Friend the Member for West Lothian pointed out that this was not just a question of stocking problems for goods made for the Easter trade but that it ranged over the many other types of goods subsumed in the Amendments. It concerns a great many goods that are not even affected by the Amendments. All types of goods which involve a slow movement of stock from the wholesaler to the retailer could be affected if the Government do not make up their mind quickly about the transition period. The amounts involved, particularly for wholesalers, could be considerable where there are no sale or return facilities.

I do not want to delay the debate because I know hon. Members wish to pass on to other things. The threats we have heard from the hon. Member for Worcestershire, South (Sir G. Nabarro) about what will happen tonight make us think of his expectation that should we join the Common Market he will find himself in Brussels. For some of us that moment cannot come too soon. In fact it is the best argument I have heard so far for going into the Common Market.

The only other speech I would comment on is that of my hon. Friend the Member for Newcastle-upon-Tyne, East (Mr. Rhodes) who introduced a most fundamental note that has been lacking in the Government's approach in all the debates on value added tax—the necessity to distinguish between the ability to pay and the necessity to spend. He quite clearly shot away the rational basis for the argument from the Government benches that by increasing the tax on consumption, consumption is reduced and savings increased. There is no evidence that the introduction of a general sales tax of this sort will be conducive to higher savings. Arguments like that ignore totally the price elasticity effects on demand of higher consumer prices.

My hon. Friend the Member for Harborough (Mr. Farr) struck a note with which many of us would sympathise. We are still awaiting some sort of indication from the Government as to what negotiating procedure we shall adopt with the Common Market when we come to the talks on harmonisation of VAT rates, particularly on foodstuffs.

[Sir ROBERT GRANT-FERRISin the Chair]

12 midnight

It would be interesting to know whether the Treasury, which has all along been saying that one of the great advantages of a single rate system is the reduction in the number of civil servants who would be needed compared with a multiple rate system, has made any calculations of the extra number of civil servants who will be needed to operate the various types of multiple rate system. We have had the bland assertion time after time that if we went for more than one rate, ignoring zero-rating, we could greatly increase administrative costs, particularly in the bureaucracy. However, we have not had any figures given to us.

It seems extremely ominous that if we must accept a value added tax on food —the odds are most heavily stacked that we shall—then, unless the Government change their mind, it will be at a standard rate.

I urge the Financial Secretary to investigate this matter as closely as possible to see whether it would be possible, if we have a VAT on food, to introduce it at a lower rate and to provide the Committee with information about the extra number of civil servants and administrative costs which would be involved if that were so.

Finally, I reiterate the representations which have been made by my hon. Friends about the transition period. Industry of all kinds, not just industry dealing with the products the subject of the Amendments, desperately needs information on this matter. It needs that information now. Jobs are at stake throughout the country. There can hardly be a constituency in the land where great numbers of jobs are not in jeopardy because this information is not forthcoming. There is no excuse for delay. I ask the Financial Secretary as soon as possible to give the answers to the questions which have been put by my hon. Friends.

Mr. Higgins

I should like to reply to the various points which have been made in the debate, but several of them have already been answered by my hon. Friend the Member for Bridgwater (Mr. Tom King) in what I thought was a remarkable and certainly very expert speech.

I will take as my starting point in replying to the debate the statement made by my right hon. Friend the Chancellor of the Exchequer in his Budget speech on 21st March 1972, when he said: I come next to the main areas where relief will be given by zero-rating. First, food. In our election manifesto we promised that VAT ' would not apply to food, except for those few items already subject to purchase tax.' This undertaking will be honoured. Food, other than those foods now subject to purcase tax, will be zero-rated. Those items at present liable to purchase tax are estimated to yield about £150 million in the corning financial year, and if they were to be relieved altogether from VAT there would have to be a commensurate increase in the rate of VAT. They will, therefore, be charged at the standard rate. The overall effect of these proposals, together with the abolition of SET, will be a reduction in the burden of tax on food."—[OFFICIAL REPORT, 21st March, 1972; Vol. 833. c. 1375–6.] That extract from my right hon. Friend's Budget speech brings out a number of points which I should like to emphasise tonight. The first is that, as my right hon. Friend said, our election manifesto clearly stated that VAT would not apply to food, except for those few items already subject to purchase tax. I confess, therefore, that I am puzzled by the remarks made by my hon. Friend the Member for Harborough (Mr. Farr). It seemed that the position about purchase tax foods was clear. I cannot suppose that anyone could be surprised, when we introduced the value added tax, that the position about purchase tax foods was as we described it in our manifesto and as my right hon. Friend confirmed in his Budget speech.

Shortly before the passage which 1 have just quoted, my right hon. Friend had referred to the question of tax-paid stocks. I have noted what was said by the hon. Member for Birmingham, Northfield (Mr. Carter) about the position of the confectionery industry, and we shall bear that in mind. But we must take into account the overall economic situation as the time of the transition period approaches, and we must have in mind also the position of individual industries. There is a wide variation between one industry and another as regards the length of time for which stocks are held, the size of stocks, and the various seasonal factors to be taken into account.

Dr. Gilbert

Are we not to be told until the last moment, until we are certain what the economic climate is likely to be? It is only a transition period. We are not talking about a final rate of tax. Surely the hon. Gentleman can be more forthcoming than that.

Mr. Higgins

The hon. Gentleman argues that it is a matter of urgency. I am not aware of any holding off at this time. Clearly, it is a matter which will have to be considered as the economic situation develops. Also, as I say, one has to take account of other factors, for example, the Christmas trade, the incidence of sales after Christmas, and so on. But we shall bear in mind the points which the hon. Member for Northfield made.

Mr. Dalyell

On the question of a tax holiday, what are we to say to those who have been to see us? Is it likely to be two weeks, or eight weeks, and when will they be told?

Mr. Higgins

I told the hon. Gentleman that I was not in a position at present to give answers to those questions. If he thinks about it, he will, I am sure, see that there are difficulties.

The proposal of the hon. Member for Northfield, who was especially concerned about the confectionery industry, is, in effect, for a zero rate on icecream, chocolates, sweets and similar products. It is clear from the passage in my right hon. Friend's Budget statement which I quoted that we think it right for revenue reasons to continue to tax these items, though at the standard rate. It would be inappropriate at a time when we are broadening the tax base, which is the object of the VAT, actually to narrow it in respect of some previously taxed items.

Several hon. Members, notably my hon. and gallant Friend the Member for Carshalton (Captain W. Elliot), asked for certain figures. If the foods covered by Amendment No. 13, now subject to purchase tax, were zero-rated, there would be a loss of revenue of about £95 million in a full year, out of a total revenue from purchase taxed foods of £110 million. To maintain the revenue from VAT would require an increase in the standard rate of 0.7 per cent. In other words, if we were to make the concession sought by the hon. Member for Northfield, the standard rate would have to go up by 0.7 per cent., and that would apply to all other goods and services subject to the value added tax.

That emphasises the point which 1 made in the Budget debates, and more recently, that if one gives concessions on one item and it is necessary to raise the same revenue, the tax will have to go up.

Sir G. Nabarro

My hon. Friend would help us all to understand the validity of this argument, which is generally accepted, if he could tell us the estimated total yield of value added tax in the first year of its operation.

Mr. Higgins

If my hon. Friend will refer to the Red Book he will find that information set out, but it is also implied in the figures I have given to him. I am not sure that hon. Members opposite appreciate the relationship between concessions and a necessary change in rate to give the same yield. As I pointed out last night, on the one hand they are asking that concessions should be given on this, that and the other, and on the other that standard rate should be reduced. There is a degree of schizophrenia in that.

Mr. Sheldon

Yes, but it does not come from this side. Under our rules of debate it is difficult to suggest an alternative tax. We have to suggest a reduction and leave it to the Government to suggest the alternative way to make up the revenue. Otherwise, in any Amendment put down by the Opposition it is not possible to bring about changes in taxation. Those are the changes we can bring about, and if the Financial Secretary's dictum was to hold water throughout our debates much of the discussion would be meaningless.

Mr. Higgins

If the hon. Member had been here for much of our debate, that would have been a point one could have considered, but we must look at these things in the context of the Finance Bill, and there is a degree of schizophrenia among hon. Members, who want it both ways.

My point is the simple one that if we were to accept the Amendment in the name of the hon. Member for Birmingham, Northfield, it would be necessary, to preserve the revenue, to raise the standard rate of value added tax by 0.7 per cent., and this is a point that hon. Members who have interests in their constituencies in other items covered by the tax will need to bear in mind.

In respect of the revenue—and this will be of interest to the hon. Member for Widnes (Mr. Oakes) it is worth underlining the point that the current yield of purchase tax on food is 18 per cent. of the wholesale value, which we reduced from 22 per cent. in 1971, and that in the year 1972–73, the first full year at 18 per cent., the total revenue from those items concerned is estimated at £150 million. The revenue from VAT in a full year is £110 million, £91 million being contributed by the four groups which are the subject of Amendment No. 13.

The point I wish to bring home to the Committee, and this is important, is that we reduced tax on the items concerned in the Amendment in July, 1971, and that the changeover to VAT will also bring a reduction of tax on those items.

It is rather remarkable not perhaps that the hon. Member for York (Mr. Alexander W. Lyon) and his hon. Friends did not vote against their own party when they were in Government, when the tax was increased, but that we did not get from them what we might have expected, the tiniest bit of acknowledgement that VAT will benefit their constituents. This might have been brought out in the speech by the hon. Member for York. I am rather puzzled. The same applies to the hon. Member for Widnes, and to his argument that the changeover to VAT will reduce the consumption of crisps and have an adverse effect on his con stituents. I ask him to explain to his constituents that this will not be the case.

I was saying a moment ago in a different way—and this will help to make it clear--that the overall effect of the Chancellor's proposals for indirect taxation will be to reduce taxation on food.

SET, which will he abolished when VAT is introduced, falls on distribution activities, as many hon. Members opposite with co-operative interests made clear when in Government, and on food prices. The retail equivalent of purchase tax on food to which it applies is on average 12.5 per cent. If, therefore, the rate of VAT is 10 per cent., the purchase-taxed food industry will secure a further reduction in the rate of tax slightly greater than that given by the two-elevenths' reduction in the rate of purchase tax last July.

12.15 a.m.

I put it in two different forms so that the hon. Members for Widnes, York, and Northfield can go to their constituents and say: "We are glad to tell you that the Conservative Government have twice on these items reduced the level of taxation and, therefore, it will be of considerable value to you." The arguments I have just used, and used the other day, about the need to encourage consumption and get economies of scale and so on will be brought about by these measures of the Conservative Government. That is the position; but not one of these things escaped the lips of the hon. Member for York.

Mr. Alexander W. Lyon

I thought I had made it clear, but obviously the hon. Gentleman was not listening. He is not usually a party political hack. Why go on with these silly party political points? If one looks at the records of the two Governments, one sees that in 1962 the Conservative Government first put on the tax on food and by far the larger part of the £150 million it brings in comes from that source. It is true that the Labour Government in 1968, in very considerably different circumstances from those obtaining today, added to the tax. But do not let us make these silly political points. This is an issue of principle. When one is starting with a completely new tax, it is perfectly right and proper to ask whether one has got the principle right. That is all I ask. Will the hon. Gentleman now answer that point?

Mr. Higgins

I will answer it. I am putting the argument, because it is fairly late, in as lively a form as I can make it. But even if this is a party political point, it cannot be refuted that the two changes we have made have been of benefit to those interests which the hon. Gentleman was anxious to bring out. This is something one would have thought he would have said.

Mr. Lyon

I did.

Mr. Higgins

Perhaps I can pursue a rather more technical point which the hon. Gentleman made, since he urges me to be apolitical and non-partisan. I had some difficulty in following his argument about the effects of taxation and relative rates of tax here and in Europe. Apparently he feels his constituents' investment in Germany, in that the firm has a factory there, would mean that they might consider it the right or most efficient or least costly place to use for the European market. Given the fact that exports of confectionery and so on will be zero-rated—a not unimportant point—I find it difficult to reconcile that with the remarks he first made on this problem, when he said one needed a larger home market in order to get greater economies of scale. There are either economies of scale in this industry or there are not, but one prong of his argument was based on the assumption that there were economies of scale and the other prong was based on the assumption that there were not. The hon. Gentleman urges me to be apolitical and alter the tone of the debate, but it seemed to me that his arguments were as invalid on that point as they were perhaps just a wee bit partisan on the first point.

Mr. Dalyell

The argument put forward by the confectionery industry is based on the importance of the home market as a base for exports. It is that if the United Kingdom industry has to pay a 10 per cent. rate while our chief competitor pays less, our competitor will have a better home market as a base for exports than we have. If this is not true, we should like to be told.

Mr. Higgins

It is difficult for me to say whether that is true. I cannot profess to be an expert, as is my hon. Friend the Member for Bridgwater, in the technology, the production functions, and the economies of scale in this industry. What I am saying is that if the technology and the production functions and the economies of scale are as the hon. Member has suggested then I have difficulty in reconciling that with the argument that it is better to set up a smaller factory in Germany and operate from there. It will to some extent depend upon transport costs, I am prepared to concede that. It certainly does not work with exports because they will be zero-rated. It seems that there is this inconsistency in the arguments. We can only make one valid set of assumptions and, having done so, we would then know which argument is right.

In Amendment No. 15 my hon. Friend the Member for Harborough seeks to bring about zero-rating for chocolate-coated confectionery and chocolate biscuits. This would effectively move the border, and if that were to be done we would have some difficult borderline decisions between confectionery as such and chocolate biscuits as such. It would create a number of difficulties and anomalies, and that is why it seemed to be best to leave the border where it is.

The other point made by the hon. Member for Widnes was to do with the pricing of the product if the tax is imposed. I have pointed out that the tax is being reduced, not increased. It may be argued that the tax reduction will be on a bigger scale as against a tax increase on a bigger scale. It is possible to alter not only the price but the number of crisps in the packet. From personal experience, although one always hesitates to quote that here, I am not convinced that the number of potato crisps in a packet has remained exactly the same over the last 25 years.

I think I have covered all the points raised, and I must ask my hon. and right hon. Friends not to support the Amendment.

Mr. Carter

The Committee can be nothing but disappointed by the Financial Secretary's reply.

Sir G. Nabarro

I am not. It was a very good reply.

Mr. Carter

There is one exception to that remark of mine.

The Financial Secretary is being rather pedantic. He seems to have got worse as the day wore on. His reply appears to bear out what we feared at the beginning of Committee stage—that we were not likely to get any concession from the Government on the structure of VAT. I was impressed by the arguments of the hon. Member for Harborough (Mr. Fan) and the concern that he and other hon. Members opposite felt for the predicament of the low income families who rely to a large extent on confectionery to make up a substantial part of their diet.

It is a sad reflection on the Government's attitude towards these matters that they view with equanimity the prospect of caviar escaping VAT while ice cream and chocolate biscuits get the full 19 per cent.

It is obvious that the Government would carry the day on this Amendment. Therefore, the wisest thing I can do, even though we have carried the day on the argument, is to withdraw the Amendment and possibly return to it at a later stage.

I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Sir G. Nabarro

I beg to move Amendment No. 16. in page 97, line 2, leave out spirits '.

The Chairman

It will be convenient also to discuss the following Amendments:

No. 17, in line 2, leave out ' beer '.

No. 18, in line 2, leave out ' wine or British wine '.

No. 73, in page 97, leave out lines 3 to 6.

Sir G. Nabarro

I propose to address myself to the question of alcoholic beverages, which in terms of excise duty are divided into three categories: beer, spirits and table wines. The revenue we collect in terms of excise duty from this group of alcoholic beverages is very large indeed. It is many times larger than the amount collected from the subject of the last Amendment. The estimated out-turn of excise duties on alcoholic beverages in 1971–72. according to the Red Book, was £1,000 million exactly. At the end of the year the provisional estimated out-turn was £1,005 million. According to page 17 of the Financial Statement and Budget Report, 1972–73, the estimated figure for the present year, before Budget changes, was £1,071 million. There was a minor alteration to excise duties which reduced the estimated out-turn to £1,065 million. Therefore, by any estimate or standard, the revenue derived from alcoholic beverages under these three heads is very large.

By comparison, on the last Amendment dealing with sweets, confectionery and soft drinks, we were talking in terms of about £150 million in purchase tax and a rather lesser amount in VAT. Those products turn out about one-seventh of the excise duties which we levy on alcoholic beverages. It should be no part of our policy to subject alcoholic beverages to taxation in the network of VAT in addition to the huge volume of excise duties.

The licenced trade of Britain is very concerned about the present position. Value added tax enters very substantially into the price of beer, wines and spirits sold on licensed premises and otherwise. Clearly, the cost of distributing, for example, bottled beers is very high. Compared with draught beers which are sold from the cask, the whole of the distribution costs by rail or road or otherwise will be subject to VAT. The label on the bottles, the printing of the labels and many auxiliary processes will be subject to VAT because beer, wines and spirits are not zero-rated for VAT purposes. Although it has not been possible to calculate precisely the increase in the price of beer, wines and spirits in public houses and otherwise—even in restaurants—the fact that they are not zero-rated makes it evident that there will be a substantial increase in price on account of the tax.

12.30 p.m.

The hon. Member far Rugby (Mr. William Price) recently raised this matter, and an interesting exchange took place: MR. WILLIAM PRICE asked the Chancellor of the Exchequer what effect he expects the introduction of value added tax to have on Exchequer revenue from the sale of beer. The Minister of State replied: This will depend on the extent to which the revenue duty on beer may be altered when VAT is introduced, which in turn will depend on the total revenue required from beer in 1973–74. After further exchanges I intervened and said: Would not my hon. Friend consider that a suitable solution would be the reclassification of beer as food, notably the reclassification of Guinness as food, which indubitably it is? To which the Minister of State replied: I regret to say that I could not go along with my hon. Friend's suggestion. As to the definition problem, there are revenue problems which must be taken into account."—[OFFICIAL REPORT, 25th April, 1972; Vol. 835, c. 1257.] In Europe alcoholic beverages are generally classified as food to ensure that they attract a relatively low rate of VAT. For example, in all European countries which have VAT there are higher, intermediate and lower rates of tax. Food is generally classified in the lower bracket for VAT purposes, but in one or two cases it is classified in the intermediate bracket. All these figures, with the exception of the figures for Italy, which is not yet fully attuned to VAT, have been quoted by the Treasury and appear in the OFFICIAL REPORT of 30th July, 1971, and, so far as I am aware, have not been changed since that date. The important point is that the European countries which are members of the EEC generally classify alcoholic beverages as food, and it would be for the convenience of our revenue arrangements in Britain if we did the same.

There are many ways of achieving this. It can be achieved by the reclassification of alcoholic beverages as food in accordance with Amendment No. 16 and the similar Amendments to Schedule 4, which would immediately cause all alcoholic beverages to be zero-rated. That would be the easy way of doing it, although it would place on thousands of licensed houses and publicans the complex responsibility of recovering the VAT already paid on the bottling process, the distribution processes and the auxiliaries of the sale of bottled beers, bottled spirits and wines.

Another way of doing it, which would relieve the publican of this onerous and complex task, would be for the Treasury to calculate the aggregation of VAT attracted by all alcoholic beverages on their production, distribution and sale in the United Kingdom and cause a commensurate or equivalent sum to be deducted from the date of excise duties for beer, table wines and spirits.

I personally prefer the second recourse, and I believe that the licensed trade will support me in saying that, for the very good reason that publicans are busy people with a great deal to attend to, and to put on their backs responsibilities for the recovery of VAT arising from a number of contributory causes would be cumbersome, costly and unnecessarily burdensome to the publicans.

The Treasury should reach an early conclusion on the principle, and I see no reason why the principle could not be announced tonight or before the Finance Bill has left the House of Commons. The licensed trade, the whisky distillers, the brewers, all those who participate in the drink trade, have been discussing VAT and excise duties with the Treasury for more than 12 months. The Treasury has been keenly aware of the problem of the duplication of taxation, first by excise duties and secondly by VAT, throughout the period since the publication of the Green Paper on VAT. It would remove a great deal of uncertainty in the drink trade if we could have an announcement at an early date.

I favour an announcement in principle as to which of the two recourses the Treasury prefers, either the recourse of zero-rating all alcoholic beverages or the recourse of finding out in aggregate what is the VAT payable on all the drink sold in this country under the three categories and then reducing the rate of excise duty to give an equivalent rebate in respect of total taxation which would otherwise occur. We could have a proclamation from the Treasury, leaving the details to a later date, but I could not accept a position in which alcoholic beverages were taxed twice—first, heavily taxed in terms of excise duties and then, to a lesser extent, by value added tax. I do not believe that is the intention of the Treasury, but we have yet to receive a positive assurance on this matter. All the Chancellor has done so far is to make sympathetic noises.

This matter is also important in the context of the retail cost of living index, in which the price of beer figures. It was a startling fact that in the Budget of 1959, directly before the General Election on 8th October, 1969, the excise duty on beer was reduced by an amount equal to twopence a pint.

Mr. William Price

That is the way to win elections.

Sir G. Nabarro

There is an element of truth in that because beer is heavily weighted in the cost of living index. That is why the Chancellor of the Exchequer chose at that time to try to stabilise retail prices by putting forward in the Budget a significant and large reduction in the excise duty on beer. That was the last time it was done, 13 years ago, and no attempt has been made to reduce excise duty since 1959.

1 make a comparable point now. Unless we deal with this prospective double taxation on beer once and for all, the implementation of VAT in April, 1973, will inevitably mean the price of beer going up by as much as 2p per pint, whisky by as much as 20p per standard bottle, and all wines sold in this country by as much as 10p to 20p per bottle. All this will result from VAT. Having regard to the excessive excess duties at present, notably on whisky—which I consume hardly at all —I believe we should have an announcement from the Treasury before the Bill leaves this House.

I would remind my hon. Friend the Member for South Angus (Mr. Bruce-Gardyne) how large is the excise duty on whisky at present. On 22nd April, 1970, I was privileged to address the first annual dinner of the Highland Chamber of Commerce in Inverness. My hon. Friend the Member for Ross and Cromarty (Mr. Gray), not then a Member of the House, moved the vote of thanks for my speech. I proposed the toast to the industry, trade and commerce of the Highlands and Islands. I produced a bottle of Inverness Cream whisky from beneath the table, having previously been supplied with it at the wholesale price, for I could not talk about the industry, trade and commerce of the Highlands and Islands without dealing with the principal exported product—namely, whisky—which contributes so mightily to our balance of payments.

I demonstrated, by holding aloft that bottle of Inverness Cream, which I had bought at 49s. 10d.— the duty was 44s. Id. and the wholesale price of the whisky 5s. 9d.—that it was the most heavily taxed article in Britain. It would be absolutely iniquitous to add 5p, 10p, or 15p, to the duty on whisky by taxing it a second time by value added tax. Exactly the same principles apply to the working man's principal item of diet, namely, beer, sold to him in the public house.

On all of it value added tax will have to be paid unless we get an assurance from the Chancellor of the Exchequer that it is not the policy of the Government to apply taxation twice to the alcoholic beverages that I have named—beer, whisky, table wines.

Mr. William Price (Rugby)

Perhaps I should start by declaring an interest: I have a working connection with the National Federation of Licensed Victuallers, an organisation of 35,000 of the most effective and often the most unwilling tax collectors in the country. The hour is late and the hon. Member for Worcestershire, South (Sir G. Nabarro) has said most of the things that I should have wanted to say, and I shall not detain the Committee.

The reclassification of beer as a food is an attractive proposition in many ways, and in many ways it is logical. But it would create major difficulties in public houses. Have those who are arguing for this reclassification thought out the problems of the licensee faced with the situation in which many of his products are subject to value added tax and some are not? We think that on balance, attractive though the idea is, in many respects it would be a practical nonsense.

12.45 a.m.

If the Minister rejects the Amendment, as I suspect he will, I hope that he will understand that we do not want a tax on top of a tax. There must be a limit to what the licensed trade will stand. The Government collect £1,000 million a year in excise duty from the trade. There have been seven increases since the war. We believe that if there is to be yet another imposition on the licensed trade the effects could be disastrous. All we say to the Minister is: "For goodness' sake give us an assurance that you do not intend to slap another 10 per cent. on a long-suffering public, and that if you have to choose between the alternatives suggested by the hon. Member for Worcestershire, South you will take the second."

Will the Minister therefore make it absolutely clear that if value added tax is to be placed on beer, spirits and table wines, there will at least be a corresponding reduction in the rate of excise duty? That is all we would expect him to say tonight. I thought that that was the position of the Government and that it had been made fairly clear until I made the fatal mistake of tabling the Question to which the hon. Member for Worcestershire, South referred. When I listened to the Financial Secretary's answers to that Question and to the hon. Gentleman's question it became far less apparent to me what the Government's position is.

All we ask is that the matter should be made clear tonight. If we cannot get the assurance which we seek, if the hon. Gentleman will not give the assurance that we are not to have a tax on top of a tax, we shall have to come to the conclusion, reluctantly, that the Government are taking yet another bite out of the cherry, which we think would be bad all round.

Mr. Bruce-Gardyne

I do not say that I support Amendment No. 16, because I do not think my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) was asking for support. Indeed, he made it clear that the proposition of zero-rating of spirits was not in his view the ideal answer, and I agree. Unfortunately, I do not have an interest to declare, as had the hon. Member for Rugby (Mr. William Price)—I wish I had. I do not even have a distillery in my constituency, though I am surrounded by them. But the taxation of Scotch whisky is of vital interest to all my compatriots.

I honestly do not think that one could be surprised if the Government tonight failed to respond to the second of my hon. Friend's propositions, because what he asked the Government to do was to commit themselves to make no increase in next year's Budget in the burden of taxation on spirits and the other beverages mentioned. That is an undertaking that I do not suppose any Government have ever been prepared to give six months in advance of their Budget.

I intervene only to express the hope that the Government can give some assurance that they will pay particular attention to the implications of putting yet a further burden of taxation on Scotch whisky, in particular. I ask for that assurance for two reasons. The first, which my hon. Friend emphasised, is the appalling burden of taxation which this beverage already bears—which he brought out so clearly—and the fact that the level of tax on Scotch whisky must very nearly, if not quite, have reached the point of diminishing returns.

My second reason, which is, I think, new, is that we have to pay increasing attention to the very serious problem which the Scotch whisky industry will face so long as we have a vast disparity in the levels of duty on Scotch whisky in this country and the levels in the other member countries of the Community. I do not think I need elaborate on that, because we shall go into it in greater detail when we come to consider the excise Clauses in Committee.

It is a matter that the Government must consider seriously. Even if my hon. Friend the Minister of State cannot give the sort of undertaking for which my hon. Friend the Member for Worcestershire, South asks, I hope he will give the Committee some assurances on these points. There is especially the relationship between the level of duty on Scotch whisky in this country and the levels in the other Common Market countries, where it is nowhere charged at more than half the duty that it bears here. I hope my hon. Friend will assure us that these points will be borne carefully in mind when consideration is given to the impact of VAT coupled with excise duty at the time of next year's Budget.

Mr. Brian Walden

My hon. Friend the Member for Rugby (Mr. William Price), who knows a great deal about these matters, was extremely temperate in the amount of time that he took at this late hour, and so shall I be. I have a great many facts and figures on the subject, but I do not intend to weary the Committee with them now.

Without in any way committing the Opposition officially to the idea of zero-rating as proposed by the hon. Member for Worcestershire, South (Sir G. Nabarro), I have considerable sympathy with what I take to be the objectives behind the Amendments. Though I always get on well enough with the hon. Gentleman, I rarely agree with him. However, for once, I find myself with him on practically all his points. Of course, these are not party political points. It is a fact that we have used the Excise duties on alcohol as a major revenue raiser, and some of the hon. Gentleman's arguments in regard to a value added tax have some relation to this matter. We have tended to have a fairly narrow tax base and have chosen to get a good deal of revenue from it.

I do not claim that the Conservative Party bears any more guilt for this than the Labour Party. However, the rates of Excise duty on alcohol have reached a farcical level. The example of the dinner in Inverness could not be duplicated anywhere else in Europe, and I admit that both political parties are equally culpable or praiseworthy, depending on one's point of view. Both parties have relied on these massive Excise duties.

My figures show that the elasticity of demand in relation to duties plays a significant part. If alcohol in this country has to bear additional taxation—which I had assumed was not originally the Government's intention—the Revenue may be the loser rather than the gainer. There are indications that at the present rates of duty there is sufficient buoyancy in the market, especially in regard to light and quality wines but also in regard to spirits, and enough to bring in the Revenue more at existing rates.

Plainly we cannot get an absolute guarantee. I do not agree with the hon. Member for South Angus (Mr. Bruce-Gardyne), who said that the Government would be chary of letting forth Budget secrets in advance of the Budget. That has not been our experience with this Government. They might be prepared to give the kind of guarantee for which the hon. Gentleman asked. But if we are not to have that, a little more is needed than words of comfort. I am attracted to the second option presented to us by the hon. Member for Worcestershire, South. I agree with my hon. Friend the Member for Rugby that there should be an aggregation and that Excise duty should be reduced to take account of VAT. VAT will increase administrative costs and, proportionately, they will fall more heavily on the smaller firms.

My reason for intervening was not to chide the Government for doing what all Governments have done, but to say that a few vague phrases will not satisfy the trade. On the contrary, they will cause considerable uncertainty and will be palpably unjust in my view. Both the people who sell alcohol and the unfortunate consumers of it pay enough as it is. Some sort of assurance from the Government that they broadly share that point of view, are taking it into account and are working to meet the problem would satisfy me, and for all I know might satisfy the hon. Member for Worcestershire, South, too.

Mr. Nott

My hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) has strong views on this subject, and I recall the occasion when this matter came up at Question Time the other day. My hon. Friend said that a suitable solution would be to reclassify beer as food, notably the reclassification of Guinness as food, which indubitably it is. I will not at this late hour question my hon. Friend's definitions. He is entitled to exercise his subjective judgment and to classify Guinness as food for his purpose, but I have to tell him that the Government's definitions do not coincide with his own in this instance.

Bearing in mind my hon. Friend's Question on 25th April, I was almost prompted to remark, before I heard him speak in this debate, that perhaps he was here only for the beer, but I notice that his further Amendments relate to spirits and wine.

I have to tell the Committee again that in principle—and I can give my hon. Friend an assurance on this—VAT, being a comprehensive tax, it has to apply to goods such as alcoholic drinks just as it does to other goods, and that as alcoholic drinks are already subject to duty, VAT cannot be zero-rated on them. My hon. Friend was kind enough to speak in favour of VAT in yesterday's debate, when he said: I want to urge on the Chancellor of the Exchequer that he does not submit to any special pleading at all during the passage of the Bill in Committee."—[OFFICIAL REPORT. 9th May. 1972; Vol. 836, c. 1182.] No doubt that is why my hon. Friend strongly favours the second of his two alternatives, with which I shall now deal.

Incidentally, perhaps I should add, because my hon. Friend mentioned the different rates in different EEC countries, that all countries with a VAT, except Belgium and France, tax alcoholic beverages at the standard rate and also apply a Revenue duty. Belgium applies the reduced rate to wine and the higher rate to spirits. France applies the intermediate rate to both.

I come to the question of Excise duty, which was the second of my hon. Friend's alternatives. In this respect I cannot go beyond the comments of my right hon. Friend the Chancellor when he presented his Budget statement. He said then: The extent to which I can make such reductions ߞ,that is reductions of Excise duty— must take account of economic circumstances nearer the time. I propose, however, to take a power, to be used only before the introducof VAT, to make appropriate reductions in the Revenue duties by order."—[OFFICIAL REPORT, 21st March, 1972; Vol. 833, c. 1373.] I am sure my hon. Friend will appreciate that my right hon. Friend must take his decision on this matter in the light of the economic position and the budgetary requirements nearer the time of the change. That was the point made by my hon. Friend the Member for South Angus (Mr. Bruce-Gardyne).

I think that it is generally true to say, as the hon. Member for Rugby (Mr. William Price) said in his short intervention, that the trade associations have generally accepted the idea that VAT should apply to their products, provided that the Revenue duties are reduced so that there is no increase in the overall fiscal burden. In other words, the trade associations also favour the second alternative. All I can say is that the appeal of my hon. Friend the Member for Worcestershire, South, and that of the hon. Member for Rugby will be borne in mind.

1.0 a.m.

I take the point made by the hon. Member for Birmingham, All Saints (Mr. Brian Walden) about the elasticity of demand for these products. Obviously that is very relevant. I also assure my hon. Friend the Member for South Angus that the implications of any extra tax on Scotch whisky will also receive full consideration at the time together with, in so far as this is relevant, any rates of duty which are now being levied on these items in other countries.

Mr. William Price

Even allowing for the fact that obviously future economic circumstances must be a major consideration, would not the Minister at least be prepared to say that alcohol, already facing enormous burdens of excessive duty, ought not to be expected to face an addition on top of one of the most severe taxes that this country has ever imposed on anything?

Mr. Nott

As I have said, in the last resort this is a budgetary matter, and I cannot give any firm statement of the sort the hon. Gentleman mentions. But I hope that I have given a reasonably helpful answer and that we can now pass to another Amendment.

Sir G. Nabarro

Having regard to the nature of the reply, I thank my hon. Friend for the solicitude he has displayed in responding to my plea on behalf of the drink trade and all the boozers of Britain. In order to put into correct perspective the extent and burden of excise duty on spirits, notably whisky, I remind my hon. Friend that if Excise duty on whisky were abolished and it were subject only to VAT at the rate proposed by my right hon. Friend the Chancellor, namely 10 per cent., the retail price of a bottle of whisky would be approximately 75p instead of £3. That is indeed a very attractive prospect.

However, I am grateful to my hon. Friend for the fashion in which he has received the Amendment. This evening I have done my duty by the drink trade. I am glad to see my right hon. Friend the Chancellor raising his glass of cheer and conviviality to me, though it contains tax-free water only. I am satisfied by the response from my hon. Friend and from the Chancellor, and the point has been well registered by the hon. Member for Rugby (Mr. William Price), whom I thank for his co-operation, and the hon. Member for Birmingham, All Saints (Mr. Brian Walden), whom I thank also, with my hon. Friend the Member for South Angus (Mr. Bruce-Gardyne).

I look forward, pregnant with fiscal anticipation, to the Treasury order in the early days of 1973 regulating these matters and reducing the Excise duty on whisky to tolerable proportions.

The Chairman

Do I understand that the hon. Member wishes to withdraw his Amendment?

Sir G. Nabarro

Thank you for prompting me, Sir Robert. I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Duffy

I beg to move Amendment No. 97, in page 97, line 41, at end insert: ' including delivery of such items to the public '. I want first to declare my interest in the matter and to admit a family involvement. My brother-in-law is in the trade. He is a newsagent. But I shall not plead on such narrow grounds. I hope that my argument will have universal appeal. In essence, it amounts to a reminder to the Chancellor of the intention proclaimed in his Budget statement, not merely this year but also last year, to zero-rate newspapers. I want also to remind the Committee that the practice well established in Britain of newspaper delivery is inseparable from the consumption of the bulk of such newspapers. It is argued that to subject delivery charges to value added tax would defeat the Chancellor's intention. The imposition would end the long-standing tradition in Britain not to tax knowledge. Hon. Members earlier today referred to the 18th Century, albeit to its closing decade and mostly to the contributions to revenue raising of Mr. Pitt. I want to refer to the 18th Century, but to its early years and to remind the House of the imposition of a tax on newspapers as long ago as 1712 when cheap newspapers ceased to exist. The tax was imposed from time to time until in 1815 it stood at 4d. a sheet, the usual price of newspapers then amounting to 7d. a copy.

In 1724 a Committee of the House of Commons sat to consider the action of certain printers who were evading the stamp duty by publishing cheap newspapers in the guise of pamphlets. The tax, after several reductions, was finally repealed on 15th June, 1855, and a rush of cheap newspapers immediately fol- lowed. The day after the Bill repealing it received the Royal AssentThe Guardiancarried the following verse: Today the press, from duty free, Appears on every side; Whilst competition reigns around, And news is scattered wide, A perfect flood of papers rise. Like breakers in the storm, Of every size—of every price— And every make and form. That is how the abolition of taxes on knowledge was greeted and not only inThe Guardian,but on all sides. It undoubtedly helped speed developments in newspaper history, the benefits of which are now known, especially to hon. Members. These benefits received their early impulse with the spread of education, the improvement of machinery, the more efficient collection of news. Subsequently it helped in the constant adaptation to the new demands of a wider public, the progress in the art of advertising as applied to the Press and, especially in its later stages in this century, the development of a system of internal distribution in this country that is without parallel in the modern world.

The house delivery of newspapers in Britain is a modern miracle. The plop of the daily newspaper inside the front door in most homes in Britain is taken for granted, whatever the weather and whatever the season, because the system is so smooth and dependable. But this is not accidental. It is the final stage in a remarkable process of distribution. It is not achieved without some cost, especially to the newsagent who provides the crucial link in the chain of distribution. He has to hire young people to assist him. Increasingly that means finding them first. Inevitably he is compelled to pass on some of the cost to the consumer in the form of a delivery charge. Nowhere does the newsagent pass on the full cost. In most instances he will permit a rebate to old-age pensioners. Nowhere does the newsagent charge people what the market will bear. That delivery will now be subject to VAT and yet the system of delivery is an integral part of the consumption of the bulk of newspapers in this country.

It can scarcely be maintained that newspapers will in reality be zero-rated. The Chancellor's intention, as proclaimed in his Budget Statement, will therefore be frustrated. The long-standing British tradition to avoid the taxation of knowledge will be terminated unless the Financial Secretary favourably considers my Amendment. That I earnestly invite him to do.

Mr. Higgins

I had occasion yesterday to agree with much that the hon. Member for Sheffield, Attercliffe (Mr. Duffy) said about the principle of value added tax as such. This evening he has sat in his place with great patience waiting to move the Amendment which, I presume to say, he has done with considerable charm and eloquence.

It is important to distinguish between the regard in which in many ways one probably holds newspaper boys—perhaps no less in this country than in the United States where they have often been identified with the American ideal—and the fact that the tax, as the Clause stands, is to be imposed on the actual service of delivery. I am afraid that we must take the position that the supply of a taxable service in the supply of goods is taxable under the Bill, so I must advise the Committee not to accept the Amendment, despite the cogent way in which the hon. Gentleman put forward his argument.

The delivery of a newspaper is an optional service for which an identifiable payment is normally made. As such it would be stretching the meaning of the word to say that to tax such a service was a tax on knowledge. It is a tax on the actual delivery service. That is clearly recognised because the price charged for a newspaper is separate from the price charged for the delivery service.

As far as can be estimated—there is no great precision in these matters—the cost of accepting the Amendment would be about £500,000 in a full year, a not inconsiderable sum.

I should point out, because the hon. Gentleman might reasonably say that this is to some extent an important matter, for example, in rural areas, that a number of the newsagents to whom he referred may be small traders within the meaning of the Bill—that is, they will have a turnover on taxable goods of less than £5,000 a year—so they would be exempt and would not have to add VAT to their delivery charges.

To accept the Amendment would cause considerable anomalies. Services, such as delivery for which a separate payment is made, are rightly within the scope of the Clause. Therefore, I do not feel able to accept the Amendment and I advise the Committee to reject it.

1.15 a.m.

Mr. Duffy

I am grateful to the Financial Secretary for his consideration and reply, but it disappoints me.

I should like to take him up briefly on two points. First, he described delivery as an optional service. Will he think about it again? I assure him that it is not optional in practice. I argued, for the sake of brevity at this late hour, that it was an integral part of newspaper consumption in this country. For most people—this is probably true even of the Financial Secretary—it is inseparable from the use of newspapers. In theory, it is possible to argue that the delivery is an optional service, but for the bulk of newspaper users, delivery is inseparable from use. They receive their newspapers when they come into the home, although they may pay for them at the point of dispatch.

What is more, when people pay for their newspapers, they pay a single bill. I remind the Minister of what happens in the delivery of milk. Milk is delivered to people's homes in the same way, and the 5p a bottle, or whatever it may be, will include a charge for delivery; but that will not, presumably, be subject to the value added tax. One can imagine the sense of grievance among some newsagents that that may cause. I ask the Minister to think about it again. In practice, newspaper delivery is not an optional service. I am sure that he knows that from his own experience. One cannot disregard the sophisticated arrangements by which newspapers are now distributed in this country.

I recognise that £500,000 is not an inconsiderable sum. Yet is it too much to pay to protect the Chancellor's intention to zero-rate newspapers—he will not do that if delivery charges are subject to the tax—and to preserve the principle that knowledge should not be taxed?

I am most disappointed by the Minister's reply, but, in the circumstances, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

To report Progress and ask leave to sit again.—[Mr. Barber.]

Committee report Progress; to sit again this day.