HC Deb 15 April 1975 vol 890 cc302-5

I start with VAT. As I explained in my Budget Statement in March last year, the structure of VAT which we inherited from the previous administration suffered from the major inadequacy of its dependence on a single positive rate. I recognised that adequate preparation was essential if a change in this structure was not to cause excessive difficulties to traders, and accordingly I authorised Customs and Excise to consult representative trade bodies. In preparing my proposals this year, I have taken careful account of all the views which have been expressed, particularly those relating to difficulties for retailers.

The House will recall that in November last year I introduced a special rate of 25 per cent. VAT on petrol, and I have now decided to make this 25 per cent. rate a more general feature of the VAT system, by taxing a wider range of goods at this higher rate.

I recognise that very few classes of goods are now generally accepted to be luxuries. Their sales are limited and, because of this, a higher rate of tax restricted to such goods would produce relatively little additional revenue. It is therefore inevitable that the higher rate has also to cover some goods which are used in most homes. However, I have concentrated on the less essential items, so that the better-off, who buy more of these goods—particularly of the expensive kinds—will bear a larger share of the tax burden. I have also concentrated, as far as possible, on items which represent large or fairly large purchases and are usually purchased separately, rather than on small items that are commonly sold across the counter in "corner shops" and other small, mixed businesses. This, I hope, will minimise the impact of my proposals upon small retailers, such as newsagents and chemists, whose difficulties I fully understand and whose hard work in adapting themselves to the new responsibilities of VAT I very gratefully acknowledge.

Accordingly I propose that from 1st May the 25 per cent. rate of VAT should apply not only to petrol but also to most domestic electrical appliances, other than cookers, space heaters and fitted water heaters—to radios, television sets, hi-fi and similar equipment; to boats, aircraft and caravans, other than those which are at present zero-rated; to cameras and binoculars; and to furs and jewellery. Full details of my proposals are set out in the Budget Resolutions.

The 25 per cent. rate is not out of line with other countries' VAT structures. Belgium also has a top rate of 25 per cent.; Italy has 30 per cent.; France 33⅓ per cent. and the Irish Republic 36¾ per cent.

The right hon. and learned Member for Surrey, East (Sir G. Howe) suggested the other day that 500,000 small shopkeepers might be driven out of business by a multi-rate VAT system and that thousands of extra civil servants would be needed to administer it. He allowed his imagination too free a rein, though perhaps this is easier to understand and even to forgive since it was under a Government of his party that the purchase tax reached its maximum complication of seven different rates. No doubt he was envisaging something comparable in VAT terms.

Nothing like 500,000 shopkeepers will be affected by my proposals. It is difficult to make a precise estimate of the numbers who will be affected, since, of course, one has to take account of secondary lines of business as well as of the main trade classifications. I would expect that the total number of retail businesses affected might be 50,000 at the very most.

As regards numbers of civil servants, last spring I approved an increase of 2,250 staff for the Customs and Excise for work on the control and administration of VAT, making a total of nearly 11,000 to be employed on this tax. This figure included an allowance of 1,000 for the contingency of a multi-rate VAT. At present there are still some 500 posts to be filled, but when this is complete I do not expect more staff to be required because the 25 per cent. rate is now to be extended beyond petrol.

I do not propose any change in the standard rate of VAT, which will thus remain at 8 per cent.

However, I should mention a small change I am proposing to make in the VAT regulator. At present this provides for variations by order within overall limits set 20 per cent. either side of the rate in force at the time. This means that, with the standard rate at 8 per cent., full use of the regulator up or down would produce the inconvenient rates of 9.6 per cent. or 6.4 per cent. Accordingly I shall be moving a resolution to increase the limit for variation by order to 25 per cent. on either side of the going rates. This will mean that the use of the regulator would result in a standard rate between 6 per cent. and 10 per cent.

I estimate that my proposals for extending the 25 per cent. rate will bring in an additional £325 million of revenue from VAT in a full year.

In the last 12 months I have relieved from VAT aids for the disabled, protective hoots and helmets, and charitable donations of medical and scientific equipment. I realise that many hon. Members are hoping that I shall be able this afternoon to announce more reliefs from VAT for articles or activities to which they attach particular importance. I have considered most carefully and with much sympathy the many cogent arguments which have been put forward on their behalf. It is with the greatest reluctance that I have been forced to conclude that I cannot propose any further reliefs from VAT at a time when I am looking for such sacrifices in other fields.