HC Deb 30 January 1973 vol 849 cc1322-30

11.26 p.m.

Mr. John Gorst (Hendon, North)

In raising the subject of the application of value added tax to the coin-operated machine industry I want to make it perfectly clear to my hon. Friend the Financial Secretary at the outset that I am very much in favour of the principle which underlies the value added tax. One might have reservations about small details of its application but in general I support the tax in principle.

I must also immediately declare an interest as an adviser to part of the coin-operated machine industry; namely, to two trade associations which cover the amusement trades and the amusement catering side of it.

The anomaly to which I want to draw attention concerns the imposition of VAT—a tax which we should remember is designed to fall on the consumer—in circumstances in which it will, so far as this industry is concerned, have to be borne by the supplier. Suppliers will have to carry it because it is technically impossible to adjust coin-operated machines to collect odd percentages, whether the simple one of 10 per cent. or any other percentage.

I should also like to make it clear that I am not discussing ordinary vending machines. They dispense a product, which might be cigarettes or packets of sweets. The owners of such machines can regulate the quantities or the weight; indeed, they can sometimes give change in the packets that are dispensed. Those are not the sort of machines about which I am talking.

The coin machines giving a service are in a category entirely different from vending machines. The coin-operated launderettes cannot half wash a bundle of clothes. A weighing machine cannot weigh the torso of a human being and discount the limbs. Nor can an amusement machine on a pier or in a seaside arcade give out half a game's worth of pleasure.

The Minister asserted in a reply that he gave me last week that the industry has coped with similar changes in the past. I believe that he was referring to selective employment tax and purchase tax. The implication was that if it has managed to cope in the past with these sort of changes, it could in the future deal with VAT. But, with great respect, this ignores the reality of the technical problems. Adjustments just cannot be made. A 1p coin place in a coin slot cannot have one-tenth of 1p added to it. It ignores the basic aim of VAT, which is, as I have said, a tax on consumer spending.

It also overlooks, most importantly, the savage penalising nature of the taxation which is already being imposed on gaming machines used in amusement arcades or clubs. It sets at naught the frustrating and petty inhibitions which have been heaped on the industry by the Treasury, the Home Office and the Gaming Board.

At this point I want to give some examples. In respect of the Treasury, I do not hold my hon. Friend responsible for this because this matter was implemented in 1969, and I know that he played a notable part in opposing it at the time. Nevertheless, in the intervening years the Treasury has steadfastly refused to concede the disastrous effect which the 1969 duties have had on the industry.

The Treasury has proved deaf to the entreaties and pleas which I have made for information and for estimates on which the views it holds are based, and it will not help in respect of some of the restrictive practices whose removal might have assisted the industry.

I want to be specific about what I mean about lack of information. A certain amount of information has been made available.

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

I shall answer that when I reply, but I want to be clear on one point. My hon. Friend appears to be talking about VAT and gaming machines. Did I understand him correctly on that point?

Mr. Gorst

That is quite correct. I was going on to acknowledge that VAT is not levied on gaming machines because they are exempt, but later I want to deploy the argument that the situation which has affected the section of the industry paying gaming machine licence duty provides some lessons for us when we come to consider amusement-with-prizes machines that will be subject to VAT.

Returning to the question of lack of information, I would point out that a great many of the assumptions which the industry has had to make about the reasons for no alleviation are based upon the Treasury's refusal to accept, or its failure to find in favour of, the figures which have been submitted and which prove the case. On the other hand, when one has sought information from the Treasury one has found that significant aspects just are not available there.

I want to be specific. I refer to the cost of collecting the licence duty, the list of organisations liable to duty, the staff needed to collect it, the amount of purchase tax paid by the industry, the amount of corporation tax paid by firms in the industry, the number of bankruptcies and liquidations resulting since the duty was introduced, and, indeed, the very industries which are unable to pass on VAT. Such records are not kept in the Treasury. The Minister has already told me this in Written Answers at various times in recent months.

But it is not only a question of records that are not kept; the information is often not available—information such as the likely amount of revenue from VAT within this industry or, in another sphere, the cost of issuing a monthly licence, if such a proposition were to be accepted. This lack of information causes the industry to feel that its point of view is not carrying enough weight in the Treasury, and that the Treasury has not enough information on which to reject the pleas that have been put forward.

I turn now from the difficulties experienced with the Treasury to those experienced with the Home Office. The Home Office refuses to allow any adjustment on the limit of the value of prizes which was set back in the early 1960s. It is difficult to know the reason, because the Minister in the Home Office has not given one; but I suspect that when the Minister of State at the Treasury told me in a Written Answer last week that the 25p piece, which, incidentally, is the limit of the value of prizes, was down in value since 1964 by only 13 per cent., the Home Office will have said to itself that as it had declined by only 13 per cent. there was no need to increase the value of cash prizes. In fact, after doing some research I find it is clear that the cost of prizes has gone up by about 97 per cent. I will give some examples.

Mr. Higgins

In response to my earlier intervention, my hon. Friend explained the situation with regard to VAT on gaming machines. I am now having some slight difficulty in understanding his present argument in relation to VAT.

Mr. Gorst

I understand the difficulty. The industry has a backcloth of trading difficulties some of which originate from Treasury measures, some of which originate from Home Office regulations, but many of which are of a quasi-fiscal nature. Some of them relate to the Gaming Board's transactions. All of these factors create a background against which the Minister's encouragement to the industry to absorb VAT when it comes along is unrealistic.

I will deal with the value of the prizes. The nature of the prizes obviously varies enormously from place to place, but a typical prize is household crockery. My investigations show that a three-piece canister set that in 1964 cost 5s. would now cost 45p; a pint Pyrex casserole that then cost 3s. would now cost 42p; a two-pint Pyrex casserole that cost 4s. 6d. would now cost 50p; an aluminium whistling kettle previously costing 5s. now cost 45p; a toilet brush and holder that cost 3s. 6d. would now cost 32p.

So, the cost of prizes themselves has gone up by a factor of 97 per cent. That is an important consideration in an industry in which novelty and fashion—the public always want something new—play an important part in the success of promoters. This is not a matter that can be left vegetating for a long time.

My third example by way of background concerns the Gaming Board. As a result of legislation, its interpretations of its duties frequently seem to be harsh and narrow. If an operator loses his licence for some reason, he loses not only his licence to operate machines subject to gaming machine licence duty but his business, because without a licence he may not operate. He is allowed time to sell his business, but the time allowed is so short that I know of cases in which the operator cannot sell at all. He is therefore faced with trying to sell machines which have absolutely no secondhand value. As machinery alone they are virtually unsellable.

This situation has been created largely as a result of duties imposed back in 1969; and this is the background against which the Minister is expecting the industry to adjust to the anomaly of VAT.

The Minister has seemed to ignore, because he will not concede, the penal nature of the existing duties which are levied. They are part of the scene that I have tried to paint. At the time when there was a boom in most leisure industries the amusements industry was being put into decline, and there is little evidence of change at present. For example, amusement-with-prizes machines licensed in 1971–72 dropped by 6,100 in the period from 1969–70. More recently, since Christmas, two leading manufacturers have gone out of business following the closure last year of Mayfield Electronics, one of the biggest manufacturers. In the early months of last year there was a continuous story of financial difficulties in the industry. I put to the Minister, faced with these burdens, inequitable and unfair as they are, that no industry can be expected to absorb, adjust to or adapt itself for a tax in the first place not designed for it.

Of course, as I have already said, machines liable to gaming machines licence duty are exempt from VAT. But their remorseless decline—they are a significant part of the amusement industry—points to the fate which will be in store for the coin-operated amusement-with-prizes industry if it is subjected to the tax. Does the Minister recall that when ordinary annual licences for penny machines were introduced in 1969 a machine had to be used about 72,000 times simply to meet the duty? Does he appreciate that amusement arcades usually have more machines than people in them at any one time? Consequently a very great deal of usage of the machines has to take place before they are even in a position to pay any of the overheads, let alone the duty.

As far as I know it is not argued that arcades are socially undesirable. I would assert the contrary. They are entirely harmless and give innocent family pleasure to countless of holidaymakers in seaside towns. A perfectly reputable part of the traditional British seaside holiday does not deserve slaughter or stealthy annihilation by fiscal maltreatment. In many places coin-operated machines are the bedrock on which political, social or sporting clubs lean for their very existence. I hope the Minister will bear this in mind.

The Minister said that exemption of coin-operated machines from VAT cannot be reconsidered. I know that he is a reasonable man. I hope he will push his reasonableness to the point of trying to suggest how he envisages that these dumb machines will be able to ask the customer the extra 10 per cent. which will be necessary if they are to find the value added tax. If I cannot press him that far, can he give sympathetic consideration to other ways to ease the industry's difficulties?

First, will the Minister consider amending the holiday season licence, which allows full-time operation in the season only, so that a limited operation on, say, Saturdays and Sundays is permitted under that licence during the winter months? That would be a considerable help.

Secondly, could my hon. Friend include the operation of 2p as well as 1p machines within the holiday season licence?

Thirdly—this may be a point on which he does not have a great deal of influence—could my hon. Friend convey to his colleagues in the Home Office his appreciation that, even if the consumer price index shows 25p in 1964 to have been worth 13 per cent. more than today, the cost of prizes has doubled, and the limits should be adjusted accordingly?

In conclusion, how does my hon. Friend expect these inert, harmless and in many cases fading automatons to continue feeding his voracious and no doubt hardworking Treasury vultures, especially when the machines are weighed down with the insoluble task of passing on a value added tax that cannot be shifted on to or shared with the consumer?

11.46 p.m.

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

It is a tradition in the House that if an hon. Member is not entirely happy with the answer a Minister gives him at Question Time he may well say that he will seek to raise the matter on the Adjournment. Although many Adjournment debates are not preceded by such an event, it is universally recognised in the House that it is a very important right of back benchers.

My hon. Friend the Member for Hendon, North (Mr. Gorst) on 23rd January, when Treasury Ministers were being asked Oral Questions, made such an intervention after I had answered a Question he asked me. Therefore, it is with some sense of tradition that I reply to what he has said tonight. Alas, on many of his points I must give him a traditional answer, that I cannot anticipate the Budget Statement of my right hon. Friend the Chancellor of the Exchequer, because my hon. Friend raised a number of points that are essentially fiscal matters.

My hon. Friend referred to the debates when some of the taxes were introduced, and pointed out that many of us on the then Opposition side opposed them. But it is not irrelevant to remind him that we had some success in obtaining a concession from the Government of the day.

Time is short, so I shall turn to the point which my hon. Friend made at the beginning and end of his speech, and which was the subject of the Questions he asked last week.

I fully understand that traders providing goods or services by certain types of coin-operated machine are in a difficult position when the need arises to increase or decrease the charge for what the machine supplies. That is so if the service from the machine cannot be varied, if it can be varied only by a relatively high proportionate amount, or if the charge for the service is of a kind that can be varied only by a relatively large percentage. But, as I tried to tell my hon. Friend at Question Time on 23rd January, that is a difficulty inherent in the nature of the business. It is not something which arises simply in the application of VAT. It arises equally if there is a significant increase in wages of those looking after the machines, for example, or of interest charges, or in the wages of those cleaning out an amusement arcade or launderette. It is a problem which has always existed in this industry, an industry which has been around for a considerable time. I should not like to hazard a guess about when the first penny weighing machines were introduced. They have always had to deal with the problem of variations in operating costs and changes in the value and kinds of coins used to operate the machines.

Nevertheless, the variety and number of coin-operated machines has increased steadily, and that shows the resilience, the ability and the ingenuity of the industry to cope with problems of that kind. It is not for me to advise traders concerned on how best to adjust their business in the changeover from SET and purchase tax to VAT, and it is something which, by variations of one sort or another, they will succeed in overcoming.

It was suggested during our debate on the Finance Bill last year that the Government should solve the problem by exempting coin-slot machines from VAT. That is no doubt a possible solution. But VAT is a comprehensive tax, and the position we took on the Finance Bill was that we should seek to uphold that particular principle. The Minister of State at that time dealt with that suggestion, and I repeat the point he made, that the services provided by these machines are in competition with similar services provided by other means.

Coin slot launderettes, for example, are in competition with laundries; amusement machines are in competition with other sorts of amusement, such as shooting ranges; automatic weighing machines compete with chemists' hand operated machines. There would obviously be, therefore, a considerable anomaly if one form of service supplied by coin operated machines were to be relieved of the tax while the same service provided by other means was taxed.

My hon. Friend will no doubt appreciate the point. It was one which the Minister of State made in the debates last year, and it was one which the House decided on that occasion was the right view to take. So I hope that my hon. Friend will appreciate that we have taken note of what he said but that there are considerable difficulties of the kind I have outlined.

On the point about information, we are always anxious to provide the facts in answer to Parliamentary Questions if that information is available or if it can reasonably be obtained without a disproportionate amount of time and cost. Within that limit we shall do our utmost to supply the information. The Question by my hon. Friend last week was not simply one about which machines or industries were in the position he described. There are considerable economic reasons why the tax may or may not be passed on in any particular case. It would be an exaggeration to say that the slot machines and vending machines to which he has referred are in a unique position, or that they will face an insurmountable problem, as he has suggested. I hope my answer has spelled out the position at greater length. I stress that I cannot answer all the points he raised because on such occasions Treasury Ministers are necessarily inhibited at this time of the year.

Question put and agreed to.

Adjourned accordingly at five minutes to Twelve o'clock.