HC Deb 19 April 1973 vol 855 cc642-53
2. Mr. Horam

asked the Chancellor of the Exchequer if he is satisfied with the way the introduction of VAT has worked in practice.

The Chancellor of the Exchequer (Mr. Anthony Barber)

Bearing in mind that the abolition of purchase tax and SET and the introduction of VAT has involved the biggest change in our taxation system since the war, the transition has gone reasonably well. I should like in particular to thank and congratulate all those in the retail trade and the business community generally for the way in which they have co-operated.

Mr. Horam

Will the Chancellor explain how it is that in the case of taxi-cabs owner-drivers have to pay no VAT while hire drivers have to pay 3 per cent., even if they earn less than £5,000 a year? Will he give any information that the Government have on the extent to which people who provide services are not deducting SET and are still charging the full rate of VAT?

Mr. Barber

We spent a lot of time last year debating the circumstances of individual traders and business people and how VAT would affect them. We gave careful consideration and debate here to the question of taxis and transport generally. If the hon. Member has any specific questions he would like to put down, I hope he will do so and I and my hon. Friends will be glad to answer them.

It is natural that the stories about the difficulties should attract attention, but certainly the reports I have had from the tax officers and also from those who are monitoring prices show that the vast majority of traders have co-operated in the changeover efficiently and fairly.

Mr. Wilkinson

Will my right hon. Friend clarify the position concerning vending machines which dispense food and drink, and say how the introduction of VAT fits in with phase 2 guidelines under the counter-inflation policy?

Mr. Barber

The action we have taken on VAT is consistent with the proposals for phase 2, but if my hon. Friend has a particular aspect in mind it will be much better for the general interest if he puts down a specific Question which could then be answered.

Mr. Healey

Is the Chancellor aware that value added tax is already giving a major new boost to price inflation, running at 8 per cent., over which he is presiding, and that, according to his right hon. and learned Friend the Minister for Trade and Consumer Affairs, in the first few days after the introduction of the tax there were 11,000 complaints that retailers were taking advantage of it to make unjustified price increases? Moreover, it is already clear that weights and measures authorities are quite incapable of monitoring the price increases as the Government intended and that on many vital issues the Customs and Excise is still unable to give a ruling.

Mr. Barber

I realise that the Opposition, and the right hon. Gentleman in particular, take the view that all shopkeepers are cheats. The fact is that the overwhelming majority of traders have co-operated magnificently in what has been a major changeover, the biggest change in taxation since the end of the war.

With regard to the suggestion that the tax is having an effect on prices, the right hon. Gentleman would do well to recall that virtually every family—large or small, young or old, rich or poor— will be paying less tax on its spending with VAT than it would if purchase tax and SET had continued at the rates of the Government of which he was a member for six years.

6. Mr. Winterton

asked the Chancellor of the Exchequer whether he will take steps to provide for the refund of VAT in respect of services provided on credit where bad debts are suffered.

The Financial Secretary to the Treasury (Mr. Terence Higgins)

No, Sir.

Mr. Winterton

I thank my hon. Friend for that rather negative reply. I wish to draw his attention to the problems of the plant hire industry. Is he aware that even the medium- to small-size plant hire company, with good and effective credit control, could make a contribution to the Exchequer in respect of VAT on bad debts of approximately £5,000 a year? Is he prepared to take action during Report on the Finance Bill to try to ensure that this loss of investment to the plant hire industry can be rectified?

Mr. Higgins

I do not think it is true to describe the situation in the terms which my hon. Friend has used. I agree with him entirely that my reply was somewhat negative. In fact, it was entirely negative. The reasons for the imposition of VAT on bad debts were spelt out at considerable length, as the House will recall, in Committee on the Finance Bill on 23rd May 1972. The debate continued until 24th May. On that occasion, in the interim, I provided the Committee with figures and arithmetical examples showing precisely what were the issues at stake. I think that greatly helped our debate and helped the House to reach the conclusion that it would not be right to give bad debt relief. I should not like to hold out any hope for a reversal of that decision.

Mr. Sheldon

Is it not the case that when a trader is faced with a bad debt he not only loses money on the debt but has to pay VAT on the loss which he has incurred? It cannot be right both to lose the debt and to have to endure the final insult of having to pay VAT upon that debt.

Mr. Higgins

The hon. Gentleman is taking a somewhat different line from that which he took in the last debate when the matter was discussed at great length. The main point in principle is that normally by the time a debt becomes bad the debtor, if a taxable person, will already have taken the credit in his own VAT account for the VAT element, and there would be a double loss of tax for the Exchequer. That was spelt out at great length in Committee and many arithmetical examples were given last year. The Government see no reason to change the view that they took on this matter, which was generally acceptable to the House.

12. Mr. Edward Lyons

asked the Chancellor of the Exchequer whether he will take steps to arrange for income from pin tables, at present an exempt supply, and income from bar billiards, at present standard rated, to be treated in the same way for value added tax.

Mr. Higgins

No, Sir. Receipts from a pin table are exempt as it is a game of chance; those from bar billiards are outside the scope of the exemption as it is not a game of chance.

Mr. Lyons

If gambling is free of VAT but games of skill are taxed, is it the policy of the Government, in this sector as in others, to encourage gambling and discourage skill?

Mr. Higgins

That would be to widen the principle too far. The point is clear and the House understands it. Most betting and gaming is already subject to other duties specifically designed for them and this seemed to us to be a sensible arrangement.

13. Mr. Judd

asked the Chancellor of the Exchequer whether he will call a representative round-table conference of charities of different kinds and sizes to review the impact of VAT upon their work.

Mr. Higgins

No, Sir.

Mr. Judd

Is the hon. Gentleman aware that there is a great deal of bewilderment and genuine anxiety amongst a large number of charities and similar voluntary service agencies? As they understand it, the Government are keen to stimulate voluntary action in society yet, with the exception of a small handful of larger charities which were to some extent compensated by the Chancellor's recent concessions, the majority of charities have been gravely penalised. The hon. Gentleman has only to consider the predicament of the Samaritans, for example, who are dependent greatly on the telephone which is now subjected to VAT. Would it not be sensible for Treasury Ministers to get together with a wide cross-section of the charities and see how these problems can be dealt with?

Mr. Higgins

The Government could not have taken more action to consult charities than they have done. We have done everything possible. We published a Green Paper far in advance of the introduction of VAT. We welcomed all representations which were made. Last year my right hon. Friend also asked for further representations, which were received, carefully analysed by Customs and Excise and fully considered. As a result, we made further changes.

In the overall situation, it has never been accepted by the House that charities should be relieved of all consumer taxes, such as purchase tax and petrol tax, but I remind the House that, quite apart from that, my right hon. Friend has made major changes which are of considerable benefit to charities.

Mr. Judd

To a few of them.

Mr. Higgins

The hon. Gentleman says that they have been made only for a few. I do not accept that view. My right hon. Friend has made provision with regard to estate duty, for example, in that none of the legacies of up to £50,000 left to charities will be liable; none of the transactions whose proceeds go to charity will be liable to capital gains tax; charities primarily established for the relief of distress are zero rated on resale by the charity; all goods exported by any charity are zero rated; goods and services provided by charities for the relief of distress at below cost are outside the scope of the tax; and with regard to income tax my right hon. Friend has provided transitional arrangements for covenants. [HON. MEMBERS: "Too long."] It is no good hon. Members asking on the one hand for more concessions and then, when I point out to them what has been done, shouting "Too long". I think it is perfectly right to give this list. As we have pointed out, the net cost of these concessions will be £20 million.

Dr. Stuttaford

But does not my hon. Friend understand that the charities to which he is referring are the larger and better established charities? There are newer charities, particularly those dealing with welfare, such as the Samaritans and the friends of hospitals, and funds are also collected by public subscription for individual items. I have one of these latter cases in my constituency where a collection is being made for a kidney machine. Yet this good and neighbourly work is being penalised by taxation, to the eventual cost of the Exchequer.

Mr. Higgins

There is a later Question about kidney machines and it would be more appropriate for me to answer the point then. I have read out a very long list of concessions of considerable benefit to charities. It is the case that charities as a whole will benefit substantially by about £20 million this year, and the dynamic effects of the concessions on giving, which are consistent with our manifesto pledge, must be added to the other provisions which I gave in my list.

Mr. Healey

We welcome the concessions which the Government have made and which we pressed for consistently during discussion of last year's Finance Act. But a large number of charities will be a great deal worse off. Was it really the Chancellor's intention that they should be worse off? If not, will he take action to see that they are not worse off? Will he look particularly into the situation of the Churches, which are deeply concerned about the impact of VAT on them? Is he aware of the recent estimate by a responsible official of the Church of England that VAT will mean an increased cost to the Church of England of £1½ million in the coming year?

Mr. Higgins

We have studied the figures very carefully. My right hon. Friend has made an additional concession to the Churches with regard to covenants, which are of considerable importance to them. On the overall aspect, however, the right hon. Gentleman cannot tell me of an occasion when the Labour Government, of which he was a leading member, reduced taxes on charities or gave concessions to charities worth £20 million.

Mr. Judd

On a point of order, Mr. Speaker. In view of the totally unsatisfactory nature of the reply, I beg to give notice that I shall seek to raise the matter on the Adjournment at the earliest opportunity.

15. Dr. Marshall

asked the Chancellor of the Exchequer why he refuses to remove the imposition of value added tax on toilet paper and sanitary towels.

Mr. Higgins

Because value added tax is a broadly-based tax on consumer expenditure. Relief has been given from VAT for the main items of expenditure of importance to low income families and there is no reason to suppose that this changeover from purchase tax and SET to VAT will be regressive or have a significant effect on the general level of prices.

Dr. Marshall

Are not these items which were exempt from purchase tax basic necessities of life, so that value added tax is in effect a tax on being alive, the first poll tax we have had in this country since 1698?

Mr. Higgins

The hon. Gentleman refers to the "tax", which is the crux of the matter. It is very important to look at the overall picture of the tax as a whole. It is obviously quite absurd to look at the effect on individual items. That being so, we have made it clear throughout that some items will bear an increased burden of taxation while some will bear a lesser burden. There is no reason to suppose that, in its overall effect, the tax will be regressive or will have a significant effect on the general level of prices.

Mr. Geoffrey Finsberg

Will my hon. Friend accept that there is considerable feeling on both sides of the House that this tax is moving towards the same sort of situation as purchase tax was in and may require the intervention again of my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) to show up the stupidities which are beginning to creep in? Will my hon. Friend at least say that he will look at this matter again with sympathy?

Mr. Higgins

I think we are moving in precisely the opposition direction from the situation which was complained about by my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro), who on many occasions brought to the attention of the House the absurdities of discriminating between various items of consumer expenditure. We have given relief to those items which are of most importance to families on low incomes, thereby ensuring that the tax is not regressive.

The kinds of thing which my hon. Friend the Member for Worcestershire, South was concerned about were the absurd discriminations and line drawing which involved detailed analyses and a view taken by the man in Whitehall about what was regarded as essential and what was not. For example, it could be argued that under the purchase tax system there was considerable discrimination against men because of the tax on razor blades. We are bringing in a broadly-based tax at a single positive rate, and it is removing discrimination of the kind which my hon. Friend the Member for Hampstead (Mr. Geoffrey Finsberg) has in mind.

18. Mr. Jessel

asked the Chancellor of the Exchequer what representations he has received on the question of whether kidney machines should be subject to value added tax.

Mr. Higgins

My right hon. Friend has received several letters.

Mr. Jessel

Does not my hon. Friend agree that there is a strong case for zero-rating medical requirements of this kind? I remind him of the case of my constituent who needs a kidney dialyser which costs £302. This sum is being raised by local subscription and the fact that VAT may be payable is a considerable source of local annoyance.

Mr. Higgins

This is a difficult area. We can all have sympathy with such a situation. As regards medical aids as a whole, it would not be appropriate to look at specific items because we would then rapidly be back in the old purchase tax situation, with a long list of detailed items extending over pages and pages, with continuing debate about whether or not we should add an item. We have given relief to medical aids linked to their source of supply and to clinical diagnoses or judgments by doctors or qualified staff of hospitals or nursing homes. [HON. MEMBERS: "Too long."] Hon. Members again shout "Too long", but they want sensible replies. It is a very important matter and I am making a proper reply to it. We debated this question at considerable length last year and on 16th May my hon. Friend the Minister of State made it clear why we thought that our approach to the problem was the sensible one.

Mr. Spearing

The Financial Secretary has many times said that this is a broadly-based tax and he has therefore refused requests such as that just made by his hon. Friend the Member for Twickenham (Mr. Jessel). Would he say why he will not give exemptions in value equal to the amount of relief in income tax in the past three years?

Mr. Higgins

I do not think that arises on this Question.

Mr. Brian Walden

As on previous Questions the Financial Secretary has given us lectures about anomalies, would he not agree that it is palpably absurd that a kidney machine purchased by a hospital should not bear the tax while one purchased by charitable subscription does? Is not that completely ridiculous and should not the Financial Secretary, on this narrow issue, give exemptions on all kidney machines, whoever subscribes for them?

Mr. Higgins

If we were to do that, many representations would rightly be made to us and we should have changed the principle on which the tax operates on many other items of equipment for the disabled. I refer the hon. Gentleman to the speech by my hon. Friend the Minister of State on 16th May last year, because I cannot spell out the entire argument in answer to a suplementary question. If the hon. Gentleman reads the report of that speech he will see that the whole matter was debated very fully. as was the tax on aids of this kind, and that the House reached a conclusion, I think the right conclusion.

19. Mr. Rowlands

asked the Chancellor of the Exchequer whether he will review the application of VAT to motor-powered disabled people's chairs.

Mr. Higgins

No, Sir.

Mr. Rowlands

Is it not palpable nonsense to impose value added tax on chairs for the disabled, which make it easier for the disabled to get around? Is it not nonsense to tax the efforts of voluntary groups, such as the Merthyr Mendicants in my constituency, who have raised more than 1 million Green Shield stamps and money to buy chairs and who are coming to collect them today only to find that they need another 10 per cent. to achieve the same result?

Mr. Higgins

I understand what the hon. Gentleman is saying, but it must be put in the context of what was said on the two earlier Questions, the first about the overall position of charities and the second about the position of aids for the disabled. Equipment for the disabled is not relieved as such, but relief is linked to the source of supply and to the clinical diagnosis and judgment of the doctor or other qualified staff in hospital or nursing home. The whole matter was debated at considerable length. I cannot, in answer to a supplementary question, read out the entire speech by my hon. Friend the Minister of State on that occasion, but I can say that the House accepted it.

Mr. Jeffrey Archer

Will my hon. Friend be kind enough to reconsider? I ask this not because I believe he does not want to do the right thing but because this arrangement does not seem to be fair. If it does not seem to be fair, surely it is worth my hon. Friend saying that he will look at it again.

Mr. Higgins

We looked at it at great length when we debated the matter last year. We believe that we have reached the right decision. I do not accept that the solution we found was not fair. I believe that this is a more sensible arrangement than was purchase tax, and I cannot undertake to review it.

Mr. Thomas Cox

Is not the Financial Secretary aware of the inconsistencies of the effect of the tax for many local authorities? Many local authorities are installing telephones in the homes of disabled people. The effect of the tax will be to increase the cost and thus to lead to a reduction in the number of telephones that local authorities will be able to install for disabled people in their areas. Surely the observations by the Minister's hon. Friends illustrate why the matter should be looked at again.

Mr. Higgins

That is a separate question and we debated it separately last year. Different considerations apply to the supply of telephones for the disabled. Specific provisions are made in general for local authorities, particularly for their input tax, to ensure that the effect of VAT is not a burden on the rates, but that is a different matter and I refer the hon. Gentleman to the separate debate we had last year on the specific issue.

Dr. Stuttaford

Would not my hon. Friend agree that last year we discussed the theory and now we are seeing what is happening in practice, and that there is a considerable difference? In practice it is the unfairness which is causing resentment and is doing no sort of good to the cause of VAT.

Mr. Higgins

I think that the distinction is between good theory and bad theory, not between theory and practice. Our discussion last year covered all these issues and I think that we reached the right conclusion.

Mr. William Hamilton

Is it not obscene that the Government should reduce taxation by £100 million and more on sweets and ice cream and yet tax kidney machines and chairs for the disabled? Is not that an obscene policy that is indefensible?

Mr. Higgins

I do not accept that. The hon. Member must look at it in the context of the provision made for relief for items which help the disabled, subject to the source of supply. The Opposition have consistently opposed my right hon. Friend's concession on sweets, confectionery and ice cream, but those are important items in the expenditure of low-income families. The Government are determined to protect the position of low-income families and that is why the tax has been devised as it is.

Mr. Rowlands

On a point of order. In view of the unsatisfactory nature of that reply, I beg to give notice that I shall raise the matter on the Adjournment at the earliest possible opportunity.