HC Deb 28 November 1972 vol 847 cc215-21
4. Miss Lestor

asked the Chancellor of the Exchequer if he will take steps to prevent increases in the price of packaged and tinned foods as a result of value added tax.

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

Most of these foods will be entirely relieved from VAT by zero-rating. Where purchase tax is currently applied to such foods the effect of the abolition of purchase tax and SET and their replacement by VAT will be a reduction in the overall tax burden on the goods in question.

Miss Lestor

Is the hon. Gentleman aware that he has not answered the Question? How is it that the cost of food will not rise, bearing in mind that the packaging of food is subject to value added tax? How can one buy food that is packaged unpackaged if the package is already wrapped?

Mr. Nott

I am afraid that the hon. Lady has not yet understood how value added tax works. What she must do is constantly to repeat to herself the words "I must remember to deduct my inputs". [Laughter.] Let me explain to the hon. Lady. Any VAT payable on packaging and tins can be reclaimed fully by the food manufacturer, so that the final product, including the packaging and tins, will be zero-rated.

Mr. Hugh Fraser

Can my hon. Friend control his output, because some of the figures are indeed misleading? Included in these will be biscuits which are packaged in tins, and the cost will rise by 10 per cent. or 7½ per cent.

Mr. Nott

My right hon. Friend must appreciate that the only items of food which will bear any tax on the introduction of VAT are those which are now purchase-taxed foods. Purchase-taxed foods will be yielding about £35 million less on the introduction of VAT than they were when the previous Government left office.

Mr. Sheldon

As the Chancellor of the Exchequer has never made it plain that he intends never to tax food, will the hon. Gentleman take this opportunity of saying that at any rate the present Government will resist any attempt by the EEC to make us tax food?

Mr. Nott

We have made this clear on very many occasions. So far, the member States of the Community have agreed only to introduce the system of VAT. They have not agreed on the harmonisation of rates or coverage, and the hon. Gentleman knows that quite well.

10. Mr. Molloy

asked the Chancellor of the Exchequer what estimates have been made regarding price increases on clothing and household goods when value added tax is enforced.

Mr. Patrick Jenkin

Most clothing and some household goods are liable to purchase tax at the rate of 11¼ per cent. of the wholesale value and this is roughly equivalent to a VAT rate of 7 per cent. Many other household goods are liable to the 25 per cent. rate of purchase tax, equivalent to a VAT rate of the order of 18 per cent. VAT at the standard rate of 10 per cent. will therefore result in small price rises for some goods and rather larger price reductions for others. The favourable effect of the abolition of SET also needs to be taken into account.

Mr. Molloy

Is the Chief Secretary aware that the general public have no idea what he means when he says that certain items of food and clothing might cost less while others will cost more? Surely what will really happen is that ordinary working folk will find their clothing and food bills increasing dramatically. Will the hon. Gentleman therefore consider encouraging the Chancellor to converse with the Prime Minister about having proper consultations with commerce and industry and the trade unions to see what can be done to alleviate the effect of the tax? Will he also ask his right hon. Friend to refrain from making the sort of hysterical outbursts that he makes when this sort of consultation is under way?

Mr. Jenkin

The hon. Member has made a number of points, some of which are wholly wrong. Less tax will be charged on those items of food that will be subject to VAT than at present. My hon. Friend the Minister of State has given the figures. It is quite wrong and grossly irresponsible for the hon. Member to put about scare stories of that sort which Ministers speaking from this Dis- patch Box have flatly denied time and again. I hope that the hon. Member will use his influence to correct any false impression and that he will not follow the example of his right hon. Friend the Member for Leeds, East (Mr. Healey) who continues to spread wrong stories about the effect of our tax changes.

Mr. Edward Taylor

Does my hon. Friend agree that it might be difficult for the average housewife to calculate the adjustments which should be made in the removal of purchase tax and SET and in the addition of value added tax? Will he give guidance to housewives about which goods should be cheaper and which should be dearer?

Mr. Jenkin

My right hon. Friend the Chancellor has this aspect of the introduction of VAT very much in mind. We intend to ensure that the public fully understand the effects of the tax changes a little nearer the date of their implementation.

Mr. Healey

Will the Chief Secretary agree that the introduction of value added tax on 1st April next year will mean an increase of 10 per cent. in the cost of children's clothes? Is it not absolutely outrageous that the Government should be contemplating such a measure when either the freeze legislation or its follow-up legislation will be in force? Will the hon. Gentleman accept that the vast majority of the British people regard the tax as ludicrous, unjust and unpopular? Does he agree with those of his right hon and hon. Friends who believe that it is high time the Government announced their decision at least to postpone the introduction of the tax until these ludicrous and unjust anomalies are removed?

Mr. Jenkin

My right hon. Friend the Chancellor has no intention whatever of following that advice. Even on the right hon. Member's single example—and it is quite wrong to select one case, because one should look at the effect of the tax in the round—I do not necessarily accept that the price will go up by the full 10 per cent. Retail establishments are saving on the SET on their staffs and they are saving on the purchase tax on the inputs, on stationery and other things. The effect of the change must be considered in the round, taking full account of the effects of the ending of purchase tax and SET.

13. Mr. Tebbit

asked the Chancellor of the Exchequer how much lower the tax burden on food will be in 1973–74 under a value-added tax of 10 per cent. compared with purchase tax and selective employment tax combined at the rates prevailing in June 1970.

Mr. Barber

This reply also answers the supplementary question of the hon. Member for Ealing, North (Mr. Molloy) about food.

When purchase tax and SET are abolished next April and replaced by VAT, the burden of tax on food will be cut further and will be over £100 million less than it was when we took office in June 1970.

Mr. Tebbit

Does my right hon. Friend agree that, arising from that answer and the exchanges earlier resulting from the Question of the hon. Member for Eton and Slough (Miss Lestor), Opposition Members and some on this side are either so stupid as to believe their own propaganda or so malicious as to distort the truth deliberately? Does he also agree that in going around the country telling people that VAT will put up food prices when it will not, they are making it more likely that housewives will not resist those increases if any shops try to make them?

Mr. Barber

I could not have put the point better myself.

Mr. Ashton

Will the right hon. Gentleman give us the other figures, when he talks about the £100 million, and tell us how many hundreds of millions of pounds were involved when food subsidies were abolished, and how many will be slapped on to the cost of food as import levies when we enter the Common Market? Is this why the price of food is going sky high?

Mr. Barber

Since we have been in office we have already halved the rate of SET—[Interruption.] I will give these figures. SET will be abolished altogether when VAT is introduced, and so will purchase tax. If the hon. Gentleman thinks that he and those who sit with him on the Opposition benches have anything to crow about with regard to the burden of tax on food, I would remind them that in October, 1964, when their Government came to office, purchase tax on those foods liable to it was 15 per cent. In July, 1966 the Labour Government increased it to 16½ per cent. In March, 1968 they increased it to 20 per cent., and in November, 1968 to 22 per cent.

Mr. Ashton

What about subsidies?

Mr. Barber

Next April, when VAT comes in, VAT will be levied at a rate of 10 per cent.

Mr. Marten

With regard to our pledge not to put VAT on food, if at some time after 1st January the Common Market gets around to harmonising VAT and wishes that it shall be put on food, will the British Government pledge themselves here and now to regard that as a matter of vital national interest requiring the unanimous decision of the Common Market?

Mr. Barber

My hon. Friend cannot have been present when I dealt with this matter in some detail during the debates on the Finance Bill. I have nothing to add to what I said then.

Mr. Brian Walden

When speaking of being stupid, does the Chancellor really think that, because the Treasury has theoretically worked out that purchase tax and SET rates taken together will give a remit on VAT, any manufacturer or retailer actually intends to return the SET charge to the consumer? Is there any reason why he should? Is there any mechanism that makes him do so? Has it happened in the past? Who is really being stupid about this?

Mr. Barber

Anybody is particularly stupid if he thinks that during the successive increases of taxation on food under the previous Government—[Interruption.] People are being very stupid indeed if they do not know that those increases made a direct contribution to increasing the price of food. The simple fact is—and the whole country knows this—that the Labour Government deliberately set out—[HON. MEMBERS: "Answer."]—by means of increases in indirect taxation to put up the price of food, whereas since we have been in office we have consistently reduced the taxation burden on food and so contributed towards much more stable prices.

Several Hon. Members rose

—

Mr. Speaker

Order. Let us move to calmer waters.