Value Added Tax (Hansard, 7 August 1975)

§ 1. Mr. Townsend
asked the Chancellor of the Exchequer what representations he has received about the operation of VAT so far as small traders are concerned; and if he will make a statement.

§ The Minister of State, Treasury (Mr. Denzil Davies)
We have had a number of representations about various aspects of the operation of the tax.

§ Mr. Townsend
Bearing in mind that VAT has been in force in this country for several years, and taking account of the rates of inflation in recent years, is it not high time that the commencement rate for VAT was drastically raised? Would not this bring real benefit to a large number of small traders in my constituency and elsewhere?

§ Mr. Davies
This point was raised by the National Federation for Self-Employed when it met the Financial Secretary a few days ago. There are problems about raising the threshold from £5,000. Such action would mean that many traders who were not registered would not get credit for the input tax. We shall consider this matter, as we shall consider other representations made to us by the federation.

§ Mr. David Mitchell
Will the hon. Gentleman consider allowing small traders to make estimated quarterly returns and then a final return when their auditors have been in at the year end which would adjust any errors made in the estimated returns?

§ Mr. Davies
That was one of the matters put to us. It was suggested that there should be just annual returns. Another variation is the proposal mentioned by the hon. Gentleman—an estimate every three months and a reckoning at the end of the year. These matters are being carefully considered, and I cannot say more at this stage.

§ Mr. Grimond
I am grateful for what the hon. Gentleman has said about examining the threshold and relieving small 701 traders of some of the VAT load. Has any estimate been made of the cost in money and resources falling upon small traders, because many of them have complained to me that they are finding it difficult to get people to deal with the problems of VAT and they are thinking of going out of business partly because of it?

§ Mr. Davies
I cannot give an estimate of the cost, but most Community countries have a much lower threshold than our £5,000. The burden on people in those countries is probably even greater than it is on people in this country. We accept that there is a burden with VAT. We are considering the matter very carefully.

§ 5. Mr. Michael Marshall
asked the Chancellor of the Exchequer, how many representations he has now received objecting to the imposition of 25 per cent. VAT on sales by the boating industry.

§ Mr. Denzil Davies
About 350.

§ Mr. Marshall
Is the hon. Gentleman aware that among those representations are many of the views put to me by boat-builders in Littlehampton who are clearly facing the direct impact of lost business because of the imposition of the higher rate of VAT? The introduction of a multi-rate VAT brings us back to the worst absurdities of purchase tax. Will the hon. Gentleman admit that the Government are wrong and tell us when the matter will be put right?

§ Mr. Davies
I do not accept those remarks about multi-rate VAT. We accept that the introduction of the 25 per cent. rate has had a marginal effect on employment in boat building, but it should be remembered that the major drop in orders occurred in the first three months of this year. There was a 40 per cent. drop. This is now agreed with the Ship and Boatbuilding National Federation. It had nothing to do with VAT. It was caused by the world recession. We are keeping the situation under review. We are having discussions with the federation and will keep the matter under close scrutiny in the next few months.

§ Mr. Fairgrieve
When will the Chancellor of the Exchequer consider putting the VAT rate back to 10 per cent., so 702 that he can both raise more money and get rid of the 25 per cent. rate?

§ Mr. Davies
This matter was discussed fully on the Floor of the House and in Committee during the passage of the Finance Bill, and we have nothing further to say.

§ Sir G. Howe
Does not the fact that orders in the boat building industry were falling by 40 per cent. even before the introduction of the higher rate of VAT underline the folly of singling out that industry as one of those to be subjected to the higher rate? Does the whole history not underline the double folly of making selective impositions of a tax which was originally intended to be across the board?

§ Mr. Davies
It is not correct to say that the industry was singled out. What is more, most other countries of the European Community have more rates of VAT than we do. The fact that we have introduced a 25 per cent. rate on less essential items is part of the strategy to raise more revenue and to try to deal with inflation.