New Clause "A" (Hansard, 21 March 1973)

§ Mr. Patrick Jenkin

I beg to move, That this House doth agree with the Lords in the said amendment.

598 In another place my noble Friend the Minister of State, Lord Colville, explained the purpose of the clause at some length. That explanation is on record, and I think that at this hour of the night it is unnecessary for me to do more than give a brief explanation of it.

The purpose of the clause is to allow a short cut in the case of local authorities outside London to enable them to authorise fare increases in the case of the taxi trade to take account of VAT. My right hon. Friend the Chancellor of the Exchequer decided to adhere to the decision reached in this House last year that taxi fares should be charged to VAT. We have had many representations. We took due note of those, as well as of the report of the Select Committee which recommended us to give careful consideration to zero rating of taxi fares. We did so, but we felt unable to accede to that. On balance we felt it right that taxi fares should be charged to VAT.

But the fares are fixed by law, and as a result, in the absence of any change in fares, it would mean that VAT would be borne not by the consumer but by the trade itself, and that is not the intention of the Government. Where VAT is charged where a tax has not been charged before, we recognise that it is legitimate to raise the price of the service or of the commodity to allow for the tax. The same applies to the exempt taxi driver, who, although his fares are not charged to tax, has to bear the hidden tax on the various chargeable inputs which he cannot pass on to his customer.

The consequence of this is that taxi fares will have to go up a little to take account of VAT. In London, we estimate, a 3p increase on the initial hiring charge will be ample to compensate taxi drivers and taxi companies for the effects of VAT.

My right hon. Friend the Home Secretary has power to make this fare increase by regulation, and this is being done. But outside London the situation is a little more complex. The fares are increased by byelaws, and there is a very rigid and time-consuming procedure for the passing of byelaws to raise fares. This may take, if not months, certainly weeks, yet the new fares must be in operation by 1st April or as soon thereafter as possible.

599 The clause provides an opportunity for local authorities to authorise increases in fares to take account of the effects of tax changes, and for no other purpose, at a very early date after 1st April. It empowers the appropriate Minister, whether the Home Secretary, the Secretary of State for Scotland or the Secretary of State for Northern Ireland, to make an order which will allow local authorities to amend their byelaws by resolution without having to go through all the byelaw-making procedure. It is intended that the order will allow the local authority to increase fares by a sum not exceeding an amount specified in the order for any one journey, and the specified sum will be fixed after consultations with the local authority associations and the representatives of the trade. Consultations have already started and are being pursued urgently.

Within the limits of the order, local authorities will have discretion to choose the amount of the increase, if any, which should be authorised in their areas. I say "discretion". This is necessary because VAT will not affect all taxi traders in the same way; the structure of the trade varies from area to area and not every place will require the same increase.

The power intended by the Clause is temporary. In due course it will be necessary for local authorities to take a longer look at the effect of VAT upon the taxi trades in their areas. They will then no doubt wish to make more permanent changes, and perhaps more sophisticated changes, by amending bye-laws through the normal procedure. But what is needed now is a quick, corner-cutting procedure to allow the immediate effect of VAT to be offset by allowing a small fares increase to the taxi trade.

§ Mr. Brian Walden (Birmingham, All Saints)

We shall not oppose the Lords Amendment, because obviously it would be unfair that the trade itself should have to bear the effect of VAT. But the Opposition again state their view that it is quite wrong that this tax should have been levied on the taxi trade at all. The Government are wholly at fault here in not considering what a sensible transport policy should be.

600 Obviously, it is sensible that both the public bus service and the private taxi service should, if anything, be subsidised by the Government to prevent people from bringing their cars into city centres. It is another example of the way in which the operation of VAT is wholly inimical to sensible social policy. The Government are in error. VAT should never have been levied in this way.

However, I see no point in prolonging the discussion. The Government have made their decision. It is wrong that the trade itself should have to bear the charge, so we can see no objection to making this amendment as a matter of detail. In principle, however, we completely object to the levying of value added tax on the taxi trade. It is a mistake in social policy and a mistake in transport policy.