§ 'Schedule 1 of the Finance Act 1972 shall be amended so that £7,500 shall be substituted for all references to £5,000; £6,250 for all references to £4,250; £4,500 for all references to £3,000; £2,625 for all references to £1,750; £6,000 for all references to £4,000; £1,875 for all references to £1,250.'—{ Dr. Gilbert.]
§ Brought up, and read the First time.
§ Dr. John Gilbert (Dudley)I beg to move, That the clause be read a Second time.
I should like first to correct what I hope is a printer's error in the new clause, Mr. Speaker. The figure of £6,250 should be £6,375. I trust that that is indeed a printer's error and not an error on the part of the Parliamentary Labour Party's computer, or of those of my hon. Friends who may have drafted the amendment.
I am not surprised that the Government have seen fit to phrase the financial resolutions in such a way that this will be the only debate on value added tax which will be in order. I understand why they have done so, the more particularly in view of some of the replies which the Chief Secretary to the Treasury gave at Question Time on Thursday as he inched his way from the Government's commitment to zero rate food. But I will not dilate on that for too long.
The object of the new clause is straightforward—to compensate small traders for the inflation which has already taken place under the present Government. It would lift the lower exemption limit for value added tax in all respects by 50 per cent. from the amounts laid down in Schedule 1 of the Finance Act, 1972. Indeed—to be fair to the Government—I must point out that it slightly over-compensates for the amount of inflation which has taken place since the Act came into force and since the tax became operational. However, the overcompensation is only slight and at the rate the inflation is going small traders need not only new Clause 10 but probably a further lift in the exemption floor for VAT before the end of this Parliament.
It would be very interesting to know from the Financial Secretary how many 1406 firms which are under the £5,000 limit have registered voluntarily already under the provisions of the 1972 Act enabling them to do so. What would be even more interesting and more important to know would be how many firms have been driven from business, which have been on the margin of the £5,000 limit and have been caught by it and, rather than go along with all the bookkeeping and additional burden of work which VAT involves, have finally decided to pack in the whole thing, that the game is not worth the candle and have with drawn from business. I do not pretend to know how many firms there are in that category. I am quite sure that the hon. Gentleman does not know. I suspect we shall never know how many firms have been driven from business as a result of value added tax.
However, I should like to read a letter which I have received on this very subject, it is addressed to me from Cardiff and it says:
I was very interested to read your article about the effects of VAT on the small shopkeeper and I think you will be interested to learn of my experience here. We had a very good ironmonger here, with two brothers also in the same line of business a mile or two away, but in May they all three started to sell off their stock to avoid VAT—one in Rhiwbina village and one in Whitchurch, a mile away from that. By this time I think they have all closed, though one may still be open as they have moved stock from one shop to another and taken turns to help each other. All goods were sold at 33 per cent. discount and some people have got some bargains. but this leaves us without any hardware shop in a fairly large area. One of the brothers is said be near retiring age—69—but this would not lead to the closure of all three in normal times, and such a shop has so many different kinds of goods to sell that I can well understand their reluctance to tackle the new and superfluous task of VAT.Whatever the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) may think, it is not a laughing matter. It is not a laughing matter for small businesses and it is not a laughing matter for people who in village communities rely on small businesses for their supplies. Earlier the hon. Member for Oswestry (Mr. Biffen) and the hon. Member for Basingstoke (Mr. David Mitchell), whom I see in his place, were most eloquent when we were discussing new Clause 39 and the burdens placed by reporting requirements on small businesses. I agree with what the 1407 hon. Member for Basingstoke said on that clause. I am sure that he will agree that the burdens placed on small businesses by that clause are as nothing compared with the burdens placed on small businesses by VAT.This clause is not just an attempt to get a little leeway under the Finance Act 1972. It is much more than that. It is a plea for mercy from the Government for small firms. Something must be done along these lines. The Government know perfectly well that the £5,000 exemption limit was inadequate when it was first introduced, has been overtaken by events, and must be raised drastically in the immediate future.
§ Mr. David MitchellI agree with the principle that the £5,000 limit should be reviewed from time to time in the light of changes in the value of money. I do not think the figures specified in the clause are realistic and I shudder to think what chaos there would be tomorrow morning if the clause were passed and traders in the middle of a quarter's VAT trading period found themselves suddenly removed outside the scope of VAT when they thought they were inside it. I cannot think that the hon. Gentleman's colleagues, who apparently worded this new clause for him, did their researches as well as he would have wished had he studied the matter first.
§ 10.30 p.m.
§ There is one way in which an amendment along somewhat different lines would be of considerable value. I refer to the problem arising for the small trader in making quarterly returns when he is a small trader who does not do his own accounting— the sort of trader who at the end of 12 months goes to his accountant, hands him two spike files and says, "There you are, Charlie, get on with it". Charlie goes through these dusty pieces of paper and works out what the accounts of the business are.
§ That sort of trader is quite incapable of making a quarterly VAT return. I hope my hon. Friend will allow him to make an estimated payment quarterly on condition that once a year his auditor presents a properly audited VAT return and makes the requisite balance payment to get it right. If my hon. Friend is not able to accede to this simple request I honestly believe that he will find himself 1408 making far more work for the already over-worked Department of Customs and Excise. I have the highest possible praise for the way in which it has introduced VAT.
§ It has gone to great trouble to help traders in the difficult teething problems which they have had. If the Department is faced with inadequate and erroneous returns—as it will be under this system—from traders who are incapable of making proper returns there will be a great deal of additional work. It will be much better if the Government accept this suggestion.
§ Mr. HigginsI was a little puzzled by the initial remarks of the hon. Member for Dudley (Dr. Gilbert). He seemed to be seeking to relate this new clause to the question of inflation. Yet if we look at the report of the debates on this subject on 24th May, 1972 we find that his hon. and right hon. Friends on the Opposition Front Bench moved an amendment to increase the limit to £10,000. This year, however, they have come down to £7,500. I find it a little difficult to reconcile this with the hon. Gentleman's arguments that this new clause is motivated by thoughts of inflation.
§ Mr. Joel BarnettThat was after consultation with the Financial Secretary.
§ Mr. HigginsThen I can only hope that by next year we shall be in complete agreement. We debated the merits of the case last year and we freely admitted that the level at which the limit had been fixed was necessarily to some extent arbitrary. We could not conclusively say that £4,999 was better than £5,001.
What we were seeking to do was to establish a balance between, on the one hand, the loss of revenue which raising the exemption limit would have had, and on the other the reduction in the administrative burden which having a higher limit would bring about. I said last year, I repeat now, that I believe the limit of £5,000 is round about the right order of magnitude.
We can certainly get variations but I believe that we can strike about the right balance. By and large the representations have tended to be from people 1409 arguing for a lower exemption limit rather than a higher one. The present level of exemption largely avoids the problems involved in moving from a position where one set of traders is exempt and another set is taxable. If we were significantly to raise exemption limit we would have a number of traders, all in a fairly substantial way of business, some of whom were exempt and others not exempt. This would create severe distortions.
I believe that the kind of limit we now have is right. A taxable trader can deduct his input tax, whereas an exempt trader cannot. This means that the problems which arise at the borderline are not as great as they would otherwise be.
Hon. Members have said that the limit is too low, but it is already well above the limit operating in many countries on the continent which employ the VAT system. As for changing the limit, in the initial period this would lead to a considerable amount of confusion.
The hon. Member for Dudley referred to one or two technical errors in his arithmetic. There was another one the hon. Gentleman did not mention, but I shall make no particular point of it. I understand the purpose of the clause. When we consider all the factors involved
§ and the fact that the clause would involve in a full year a loss of revenue of about £30 million, I am sure that my hon. Friends, concerned as they are about the level of aggregate demand and overheating, would not feel it right to accept the clause, based as it is on the inadequate arguments which have been put forward.
§ My hon. Friend the Member for Basingstoke (Mr. David Mitchell) has on a number of occasions raised the question of estimated payments. I have written to him on this matter on previous occasions and I believe that on one occasion we debated this matter. I cannot accept his suggestion, for reasons which I am sure he knows. It is not true to say that the burden on the small trader is anywhere near as large as the Labour Party suggests. Whereas last year this kind of scaremongering was likely to worry people, it is now the case that small traders understand the working of the tax and that it has operated in a reasonably smooth and acceptable way.
§ For all the reasons I have given the House, I ask my hon. Friends to reject the clause.
§ Question put, That the clause be read a Second time:—
§ The House divided: Ayes 219, Noes 236.
1413| Division No. 195.] | AYES | [10.43 p.m. |
| Abse, Leo | Crossman, Rt. Hn. Richard | Forrester, John |
| Allaun, Frank (Salford, E.) | Cunningham, G. (Islington, S.W.) | Fraser, John (Norwood) |
| Archer, Peter (Rowley Regis) | Cunningham, Dr. J. A. (Whitehaven) | Freeson, Reginald |
| Armstrong, Ernest | Dalyell, Tam | Galpern, Sir Myer |
| Ashton, Joe | Davidson, Arthur | Gilbert, Dr. John |
| Atkinson, Norman | Davies, Denzil (Llanelly) | Ginsburg, David (Dewsbury) |
| Bagier, Gordon A. T. | Davies, G. Elfed (Rhondda, E.) | Golding, John |
| Barnes, Michael | Davies, Ifor (Gower) | Grant, John (Islington, E.) |
| Barnett, Joel (Heywood and Royton) | Davis, Clinton (Hackney, C.) | Griffiths, Eddie (Brightside) |
| Benn, Rt. Hn. Anthony Wedgwood | Davis, Terry (Bromsgrove) | Grimond, Rt. Hn. J. |
| Bennett, James (Glasgow, Bridgeton) | Deakins, Eric | Hatton, F. |
| Bidwell, Sydney | de Freitas, Rt. Hn. Sir Geoffrey | Hamilton, William (Fife, W.) |
| Bishop, E. S. | Dempsey, James | Hamling, William |
| Booth, Albert | Dormand, J. D. | Harnan, William (G'gow, Maryhill) |
| Boothroyd, Miss B. (West Brom.) | Douglas, Dick (Stirlingshire, E.) | Hardy, Peter |
| Boyden, James(Bishop Auckland) | Douglas-Mann. Bruce | Harrison, Col. Sir Harwood (Eye) |
| Bradley, Tom | Duffy, A. E. P. | Hart, Rt. Hn. Judith |
| Broughton, Sir Mired | Dunn, James A. | Hattersley, Roy |
| Brown, Robert C. (N'c'tle-u-Tyne, W.) | Dunnett, Jack | Healey, Rt. Hn. Denis |
| Brown, Hugh D. (G'gow, Proven) | Eadie, Alex | Heffer, Eric G. |
| Brown, Ronald(Shoreditch & F'bury) | Edelman, Maurice | Hooson, Emlyn |
| Buchanan, Richard (G'gow, Sp'burn) | Edwards, William (Merloneth) | Horam, John |
| Callaghan, Rt. Hn. James | Ellis, Tom | Houghton, Rt. Hn. Douglas |
| Cant, R. B. | English, Michael | Howell, Denis (Small Heath) |
| Carter. Pay (Birmingh'm, Northfield) | Evans, Fred | Huckfield, Leslie |
| Carter-Jones, Lewis (Eccles) | Ewing, Harry | Hughes, Rt. Hn. Cledwyn (Anglesey) |
| Castle, Rt. Hn. Barbara | Faulda, Andrew | Hughes, Mark (Durham) |
| Clark, David (Colne Valley) | Fernyhough, Rt. Hn. E. | Hughes, Robert (Aberdeen, N.) |
| Cohen, Stanley | Fisher, Mrs. Doris (B'ham, Ladywood) | Hughes, Roy (Newport) |
| Concannon, J. D. | Fitch, Alan (Wigan) | Irvine, Rt. Hn. Sir Arthur (Edge Hill) |
| Crawshaw, Richard | Fletcher, Ted (Darlington) | Janner, Greville |
| Cronin, John | Ford. Ben | |
| Jay, Rt. Hn. Douglas | Miller, Dr. M. S. | Silverman, Julius |
| Jeger, Mrs. Lena | Milne, Edward | Skinner, Dennis |
| Jenkins, Hugh (Putney) | Mitchell, R. C. (S'hampton, Itchen) | Small, William |
| Jenkins, Rt. Hn. Roy (Stechford) | Molloy, William | Smith, Cyril (Rochdale) |
| John, Brynmor | Morgan, Elysian (Cardiganshire) | Smith, John (Lanarkshire, N.) |
| Johnson, James (K'ston-on-Hull, W.) | Morris, Alfred (Wythenshawe) | Spearing, Nigel |
| Johnson, Walter (Derby, S.) | Morris, Charles R. (Openshaw) | Stallard, A. W. |
| Jones, Barry (Flint, E.) | Moyle, Roland | Steel, David |
| Jones, Dan (Burnley) | Mulley, Rt. Hn. Frederick | Stewart, Rt. Hn. Michael (Fulham) |
| Jones, Rt. Hn. Sir Elwyn (W. Ham, S.) | Murray, Ronald King | Stoddart, David (Swindon) |
| Jones, T. Alec (Rhondda, W.) | Oakes, Gordon | Stonehouse, Rt. Hn. John |
| Judd, Frank | Ogden, Eric | Stott, Roger (Westhoughton) |
| Kaufman, Gerald | O'Malley, Brian | Strang, Gavin |
| Kerr, Russell | Oram, Bert | Summerskill, Hn. Dr. Shirley |
| Kinnock, Neil | Orme, Stanley | Swain, Thomas |
| Lamborn, Harry | Oswald, Thomas | Thomas, Rt. Hn. George (Cardiff, W.) |
| Lamond, James | Pardoe, John | Thomas, Jeffrey (Abertillery) |
| Lawson, George | Parry, Robert (Liverpool, Exchange) | Tinn, James |
| Leadbitter, Ted | Pavitt, Laurie | Tope, Graham |
| Lestor, Miss Joan | Pendry, Tom | Torney, Tom |
| Lewis, Arthur (W. Ham, N.) | Perry, Ernest G. | Tuck, Raphael |
| Lewis, Ron (Carlisle) | Prentice, Rt. Hn. Reg | Urwin, T. W. |
| Lomas, Kenneth | Prescott, John | Varley, Eric G. |
| Loughlin, Charles | Price, William (Rugby) | Wainwright, Edwin |
| Lyon, Alexander W. (York) | Radice, Giles | Walden, Brian (B'm'ham, All Saints) |
| Mabon, Dr. J. Dickson | Reed, D. (Sedgefield) | Walker, Harold (Doncaster) |
| McBride, Nell | Rees, Merlyn (Leeds, S.) | Wallace, George |
| McCartney, Hugh | Rhodes, Geoffrey | Watkins, David |
| McElhone, Frank | Roberts, Albert (Normanton) | Weitzman, David |
| McGuire, Michael | Roberts, Rt. Hn. Goronwy (Caernarvon) | White, James (Glasgow, Pollok) |
| Machin, George | Roderick, Caerwyn E. (Brc'n & R'dnor) | Whitehead, Phillip |
| Mackenzie, Gregor | Roper, John | Whitlock, William |
| Mackie, John | Rose, Paul B. | Willey, Rt. Hn. Frederick |
| McMillan, Tom (Glasgow, C.) | Ross, Rt. Hn. William (Kilmarnock) | Williams, W. T. (Warrington) |
| McNamara, J. Kevin | Rowlands, Ted | Wilson, Alexander (Hamilton) |
| Mallalieu, J. P. W. (Huddersfield, E.) | Sandelson, Neville | Wilson, Rt. Hn. Harold (Huyton) |
| Marks, Kenneth | Sheldon, Robert (Ashton-under-Lyne) | Wilson, William (Coventry, S.) |
| Marsden, F. | Shore, Rt. Hn. Peter (Stepney) | Woof, Robert |
| Marshall, Dr. Edmund | Short, Rt. Hn. Edward (N'ctle-u-Tyne) | |
| Mason, Rt. Hn. Roy | Short, Mrs. Renée (W'hampton, N.E.) | TELLERS FOR THE AYES: |
| Meacher, Michael | Silkin, Rt. Hn. John (Deptford) | Mr. Donald Coleman and |
| Mellish, Rt. Hn Robert | Silkin, Hn. S. C. (Dulwich) | Mr. James Hamilton. |
| Mendelson, John | Siliars, James | |
| NOES | ||
| Adley, Robert | Clegg, Walter | Grant, Anthony (Harrow, C.) |
| Alison, Michael (Barkston Ash) | Cockeram, Eric | Gray, Hamish |
| Archer, Jeffrey (Louth) | Cooke, Robert | Green, Alan |
| Astor, John | Coombs, Derek | Grieve, Percy |
| Atkins, Humphrey | Cooper, A. E. | Griffiths, Eldon (Bury St. Edmunds) |
| Awdry, Daniel | Corfield, Rt. Hn. Sir Frederick | Grylls, Michael |
| Baker, W. H. K. (Banff) | Cormack, Patrick | Gummer, J. Selwyn |
| Barber, Rt. Hn. Anthony | Crouch, David | Gurden, Harold |
| Batsford, Brian | Davies, Rt. Hn. John (Knutsford) | Hall, Miss Joan (Keightey) |
| Bell, Ronald | d'Avigdor-Goldsmid, Maj.-Gen. Jack | Hall-Davis, A. G. F. |
| Bennett, Sir Frederic (Torquay) | Dean, Paul | Hannam, John (Exeter) |
| Bennett, Dr. Reginald (Gosport) | Deedes, Rt. Hn. W. F. | Harrison, Col. Sir Harwood (Eye) |
| Benyon, W. | Digby, Simon Wingfield | Haselhurst, Alan |
| Berry, Hn. Anthony | Dixon, Piers | Hastings, Stephen |
| Bitten, John | du Cann, Rt. Hn. Edward | Hayhoe, Barney |
| Biggs-Davison, John | Dykes, Hugh | Hicks, Robert |
| Boardman, Tom (Leicester, S.W.) | Eden, Rt. Hn. Sir John | Higgins, Terence L. |
| Body, Richard | Edwards, Nicholas (Pembroke) | Hiley, Joseph |
| Boscawen, Hn. Robert | Elliot, Capt. Walter (Carshalton) | Hill, John E. B. (Norfolk, S.) |
| Bossom, Sir Clive | Elliott, R. W. (N'c'tle-upon-Tyne, N.) | Holland, Philip |
| Bowden, Andrew | Emery, Peter | Holt, Miss Mary |
| Bray, Ronald | Eyre, Reginald | Hordern, Peter |
| Brewis, John | Fenner, Mrs Peggy | Hornby, Richard |
| Branton, Sir Tatton | Finsberg, Geoffrey (Hampstead) | Hornsby-Smith, Rt. Hn. Dame Patricia |
| Brocklebank-Fowler, Christopher | Fisher, Nigel (Surbiton) | Howe, Hn. Sir Geoffrey (Reigate) |
| Brown, Sir Edward (Bath) | Fletcher-Cooke, Charles | Howell, David (Guildford) |
| Bruce-Gardyne, J. | Fookes, Miss Janet | Howell, Ralph (Norfolk, N.) |
| Buck, Antony | Fortescue, Tim | Hunt, John |
| Bullus, Sir Eric | Fowler, Norman | Hutchison, Michael Clark |
| Burden, F. A. | Fox, Marcus | Irvine, Bryant Godman (Rye) |
| Butler, Adam (Bosworth) | Fraser, Rt. Hn. Hugh (St'fford & Stone) | James, David |
| Carlisle, Mark | Gardner, Edward | Jenkin, Patrick (Woodford) |
| Carr, Rt. Hn. Robert | Gibson-Watt, David | Jennings, J. C. (Burton) |
| Chapman, Sydney | Gilmour, Ian (Norfolk, C.) | Johnson Smith, G. (E. Grinstead) |
| Chataway, Rt. Hn. Christopher | Gilmour, Sir John (Fife, E.) | Jones, Arthur (Norihants, S.) |
| Churchill, W. S. | Goodhart, Philip | Jopling, Michael |
| Clark, William (Surrey, E.) | Gorst, John | Joseph, Rt. Hn. Sir Keith |
| Clarke, Kenneth (Rushcliffe) | Gower, Raymond |
| Kaberry, Sir Donald | Nicholls, Sir Harmer | Spence, John |
| Kellett-Bowman, Mrs. Elaine | Noble, Rt. Hn. Michael | Sproat, Iain |
| Kershaw, Anthony | Normanton, Tom | Stainton, Keith |
| King, Tom (Bridgwater) | Nott, John | Stanbrook, Ivor |
| Kinsey, J. R. | Oppenhelm, Mrs. Sally | Stewart-Smith, Geoffrey (Belper) |
| Kirk, Peter | Osborn, John | Stodart, Anthony (Edinburgh, W.) |
| Knight, Mrs. Jill | Owen, Idris (Stockport, N.) | Stokes, John |
| Knox, David | Page, Rt. Hn. Graham (Crosby) | Stuttaford, Dr. Tom |
| Lamont, Norman | Page, John (Harrow. W.) | Sutcliffe, John |
| Lane, David | Parkinson, Cecil | Tapsell, Peter |
| Langford-Holt, Sir John | Percival, Ian | Taylor, Frank (Moss Side) |
| Le Merchant, Spencer | Peyton, Rt. Hn. John | Taylor, Robert (Croydon, N.W.) |
| Lewis, Kenneth (Rutland) | Pink, R. Bonner | Tebbit, Norman |
| Lloyd, Ian (P'tsm'th, Langstone) | Powell, Rt. Hn. J. Enoch | Thomas, John Stradling (Monmouth) |
| Luce, R. N. | Price, David (Eastleigh) | Thomas, Rt. Fin. Peter (Hendon, S.) |
| MacArthur, Ian | Prior, Rt. Hn. J. M. L. | Thompson, Sir Richard (Croydon, S.) |
| McCrindle, R. A. | Proudfoot, Wilfred | Tilney, John |
| McLaren, Martin | Pym, Rt. Hn. Francis | Trew, Peter |
| Maclean, Sir Fitzroy | Ramsden, Rt. Hn. James | Tugendhat, Christopher |
| Macmillan, Rt. Hn. Maurice (Farnham) | Rawlinson, Rt. Hn. Sir Peter | Turton, Rt. Hn. Sir Robin |
| McNair-Wilson, Michael | Redmond, Robert | Vaughan, Dr. Gerard |
| Madel, David | Reed, Laurance (Bolton, E.) | Vickers, Dame Joan |
| Morales, Rt. Hn. Ernest | Rees, Peter (Dover) | Waddington, David |
| Marten, Nell | Rhys Williams, Sir Brandon | Wader, David (Clitheroe) |
| Mather, Carol | Ridley, Hn. Nicholas | Walker, Rt. Hn. Peter (Worcester) |
| Maude, Angus | Ridsdale, Julian | Walker-Smith, Rt. Hn. Sir Derek |
| Maudling, Rt. Hn. Reginald | Roberts, Michael (Cardiff, N.) | Wall, Patrick |
| Mawby, Ray | Roberts, Wyn (Conway) | Ward, Dame Irene |
| Maxwell-Hyslop, R. J. | Rodgers, Sir John (Sevenoaks) | Warren, Kenneth |
| Meyer, Sir Anthony | Rost, Peter | Weatherill, Bernard |
| Miscampbell, Norman | Royle, Anthony | White, Roger (Gravesend) |
| Mitchell, Lt.-Col. C. (Aberdeenshire, W) | Russell, Sir Ronald | Wiggin, Jerry |
| Mitchell, David (Basingstoke) | Scott, Nicholas | Wilkinson, John |
| Moate, Roger | Scott-Hopkins, James | Winterton, Nicholas |
| Money, Ernie | Shaw, Michael (Sc'b'gh & Whitby) | Woirige-Gordon, Patrick |
| Monks, Mrs. Connie | Shelton, William (Clapham) | Wood, Rt. Hn. Richard |
| Montgomery, Fergus | Shersby, Michael | Worsley, Marcus |
| More, Jasper | Simeons, Charles | Wylie, Rt. Hn. N. R. |
| Morgan, Geraint (Denbigh) | Sinclair, Sir George | |
| Morgan-Giles, Rear-Adm. | Skeet, T. H. H. | TELLERS FOR THE NOES: |
| Mudd, David | Smith, Dudley (W'wick & L'mington) | Mr. Paul B. Hawkins and |
| Murton, Oscar | Speed, Keith | Mr. Hugh Rossi. |
| Nabarro, Sir Gerald |
§ Question accordingly negatived.