§ 6.30 p.m.
§ Sir Geoffrey Howe (Surrey, East)
I beg to move Amendment No. 9, in page 13, line 3, at beginning insert 'The Treasury may by order vary'.
The Second Deputy Chairman
With this amendment we may discuss the following Amendments: No. 10, in page 13, line 4, leave out 'shall have effect'.
§ No. 13, in page 13, line 11, leave out 'the rate of 25 per cent.'.
§ No. 14, in page 13, line 11, at beginning insert 'a rate not higher than 10 per cent.'.
§ No. 15, in page 13, line 11, leave out '25' and insert '10'.
No. 18, in page 13, line 14, at end insert:
'But this subsection shall not take effect unless approved by resolution of the House of Commons'.
§ No. 27, in page 13, line 34, leave out subsection (7).
§ No. 28, in page 13, line 36, leave out subsection (8).
§ [Mrs. LENA JEGER in the Chair.]
§ Sir G. Howe
The purpose of this group of amendments is to enable the Committee to discuss the principle involved in the proposal to introduce and extend the higher rate of VAT along the lines set out in this clause. It will be apparent to the Committee that the effect of the amendments is to postpone the coming into operation of the clause till a Treasury order to activate it is brought to the House, because we believe that the Government ought not to be proceeding in this way. We have made it very plain that it is the view of the Opposition that in respect of the increase proposed in vehicle excise duty and the extension of 25 per cent. VAT the Government ought to have proceeded, if they had to meet this higher liability, to raise money by raising the original rate of 8 per cent. VAT back to 10 per cent. I will tell the Committee very shortly what the substance of our complaints is, then return to the details of them.
In the first place, it is our view that the introduction and extension of the 25 per 718 cent. VAT is fiscally wholly unnecessary. If the Government are spending as much as they are—and we have criticised them often enough for that—so that taxes have to go up, and that must follow, the money ought not to be raised in this way. They ought never to have cut the 10 per cent. to 8 per cent., but, having done that, they ought to meet their present gap by restoring the 10 per cent. across the board. It is quite apparent from the figures that the yield from sticking with a 10 per cent. VAT for a full year is significantly higher than the yield from 25 per cent. VAT and the higher vehicle excise duty. That is my first point, that their proposal is a fiscally unnecessary consequence of their fiscal lack of wisdom in bringing in the lower rate last July.
The second criticism of the Government is that this is an example of the worst possible kind of change for the sake of change in the tax system. My hon. Friend the Member for Hendon, North (Mr. Gorst), in the Second Reading debate, illustrated why so many people are anxious at the endless tinkering with the structure of the tax system—change for the sake of change. The community was getting accustomed to the basic 10 per cent. VAT that had been introduced two years before. The pattern of concessions around it had been accepted and was understood. The administrative system was being run in. It was totally foolish, quite apart from being electorally corrupt, to reduce the rate from 10 per cent. to 8 per cent. Any relief that followed from that temporary reduction of the rate was wholly overshadowed by the administrative chaos that has since ensued.
By going down to 8 per cent. and now to be advancing to a two-tier structure of 8 per cent. and 25 per cent. alongside each other, at 14 days' notice, deliberately, with their eyes open, the Government have produced a prescription for administrative chaos. Confusion will abound, and does. That is the third reason why we criticise what the Government are doing.
To move away from the basic, single-rate structure of VAT into this two-tier pattern now proposed is indeed a prescription for administrative chaos. As I pointed out when it was rumoured that the Chancellor had this horror in mind, the administrative difficulties for traders 719 in operating a multi-rate tax will be enormous, most important of all for smaller businesses, and particularly, perhaps, those operated by the self-employed, who are already groaning under the many burdens imposed by this Government. Multi-rate VAT will probably be the last straw.
The Government have sought to suggest that only a modest number of traders will be affected by this. In fact, it is now becoming apparent that many more people will have to face this administrative burden. One has only to look at the huge volume of mail which I am sure, all hon. Members have received complaining of particular examples of this to appreciate the position. Look at one particular case, the antique trade, the impact of the multi-rate VAT proposal, with its curiously discriminatory impact, on gold, silver, jade and jewellery. The antique trade, which had already had special provision made for it complains in a letter sent to my hon. Friend the Member for Hornsey (Mr. Rossi) that as from 1st May when the new VAT rates came into forcewe shall accordingly have five different schemes to administer: export—zero-rated; 8 per cent. general scheme, 8 per cent. special scheme; 25 per cent. general scheme, 25 per cent. special scheme.To impose upon the many small businesses in that trade the bookkeeping burden involved in running five different collection systems alongside one another is administrative lunacy.
Not to mention the astonishing situation facing another retailer who wrote to my hon. and gallant Friend the Member for Winchester (Rear-Admiral Morgan-Giles) drawing attention to the fact that VAT at the higher rate was to be charged on needles for sewing machines but not on needles for ordinary use; that VAT at the higher rate was imposed on, of all things, the paper bags with which one lines vacuum cleaner linen bags. This is the kind of lunacy that brings the tax system and those who design and administer it and the Ministers responsible for it into total disrepute.
The fourth thing we say by way of criticism is this. It will involve a very substantial and quite unnecessary addition to the costs of collecting and adminis- 720 tering the tax. The Chancellor told us in his Budget Statement that in respect of this change he had in mind 1,000 additional tax collectors being recruited. It is not only the burden of the tax collectors that costs money. I would reckon that for every person who mans the ramparts on the side of Customs and Excise, two or three hapless citizens with less expertise are desperately trying to defend their side of the ramparts against the burden of administration.
I will give one example, to which we shall return at greater length in Committee—the electrical components manufacturing industry. What kind of design can it be that proposes to impose tax on a huge range of components which are used in a variety of electronic equipment if it is possible that those components may also be used for radio, television or domestic appliances? I have received a letter from a constituent who is concerned with a prosperous and substantial exporting company in Ealing manufacturing capacitors. He says:We manufacture no capacitors for the radio, television or domestic appliance market, but it is conceivable that a fair number of our types could be used in one of these applications. For us to decide whether a type is in the 8 per cent. or 25 per cent. VAT category is going to be an impossible task … it is going to involve us in considerable extra clerical work … our customers are not going to understand if we apply the 25 per cent. rate to a capacitor that is destined for, say, a radar set. We shall have to expend a lot of time in answering customers' queries.That is only one example out of the many which my right hon. and hon. Friends have received protesting about this form of expensive administrative lunacy. The tragedy is that it was foreshadowed clearly in the report on VAT produced by the National Economic Development Office in 1969. Its report studied the experience in other countries and said quite simply:Having more than a single VAT rate has been estimated to increase the government's administrative costs by 50 per cent. to 80 per cent. That multiple rates must also increase costs correspondingly for business enterprises is obvious".That must have been apparent to the Government.
It is no answer for the Financial Secretary to say "But we already had more than one rate." He would be the first to complain had there not been a sensibly 721 designed zero rate for the commodities exempted from the standard rate. That is no justification for going down this multiple-rate road to which the Government are now committed.
The fifth reason why we complain about what is being done has to do with the mass of anomalies that will be created by the proposals. I will return to those in a moment. The sixth reason concerns those anomalies and the inevitable diminution in respect for the tax system they will bring about. Equally important, they will add significantly to the temptations to evade taxation.
Finally, and this is the heart of our case against the Government's proposal, it is quite impossible to justify the move on the grounds put forward by the Government. The proposal does not create any significant or greater sense of social justice. There is no extension of reverence for the tax system. The proposal, instead, provokes fury at yet another round of Treasury tinkering. There is the absurdity of seeing Ministers pursuing, like mediaeval monks engaged in discussions about the number of angels that can dance on the head of a pin, the distinction between essentials and non-essentials.
The change does not even help the export industry nor even hinder imports. On the contrary, it does damage to industry on all sides in a way that is wholly destructive. The Committee will not want to be wearied with a long list of anomalies, but it is important to give some illustrations to show why this proposal ought not to be before the Committee and ought never to have been before the House.
What is the sense in imposing the higher rate of VAT on electric kettles, electric irons, electric blankets and yet to exempt from that rate gas rings, trousers presses, ordinary radiators and heaters? It is not even designed as a policy for creating fuel efficiency. It is no foundation for a plan to provide heating appliances for those who need them for health or other reasons.
What is the sense in exempting from the higher rate of VAT the hand-operated "push me-pull me" lawnmower and extending the higher rate only to the powered type of lawn mower? We look in vain for any social justification. Young, vigorous, well-paid, athletic creatures like 722 the Financial Secretary, able to charge up and down pushing a hand-driven mover, have the advantage of getting the mower at the lower rate of tax, but fragile, ageing creatures, like some members of the Government, needing to equip themselves with a powered lawnmower, have to pay the higher rate.
What is the sense in exempting hand saws and putting the higher rate of tax on chain saws, to the disadvantage of 10,000 to 11,000 people employed in forestry? What kind of sporting activities do the Government engage in? What kind of sporting activities, if any, do Treasury Ministers engage in? They impose a higher rate of VAT on boating, sailing, canoeing, gliding and flying, those affluent luxury-ridden sports, and yet leave the lower rate in operation for golf—we can understand the Prime Minister's affection for that—tennis, football, sub-aqua fishing and water skiing as well as hunting and shooting. I know not which members of the Government have an affection for those last two. Presumably sub-aqua fishing and water skiing are treated with such respect in view of their popularity around the Scilly Isles. What sort of division is this? Marine engines, esential for the safety of boats equipped with them pay the higher rate of 25 per cent. while motor car engines taken to the ordinary garage attract the 8 per cent. rate.
Turning to televison rental, to which we shall return later, the Government exempt from the higher rate television sets purchased before 1st May and yet impose retrospectively the higher rate on all rented sets when rental is the method used by the great majority of people. After all, it was the rich who were able to afford to buy television sets for cash on the nail before 1st May, and it is the great mass of consumers who naturally and sensibly rent sets throughout the year. Here again we search in vain for the difference between what is essential and what is non-essential.
In the past the Treasury Bench has been accustomed to make something of the existence of the frontier in the tax as originally designed between take-away food and non-take-away food. It had better take away that argument from its armoury now because it has achieved the distinction of drawing a line between take-away lavatories and non-take away 723 lavatories. A toilet which is installed in a boat or caravan attracts the 25 per cent. rate. If it is a nice, convenient, take-away toilet it bears the 8 per cent. rate. That is surely the ultimate in lunacy.
My hon. Friends will be dealing with the impact of the higher rate of VAT on the whole question of the servicing of domestic appliances. Apparently the lower rate is to apply to the servicing of cooking and heating appliances. Washing appliances, refrigerators, television sets, even those sets bearing the horrendous warning on the back about not opening because of the high voltage inside—all of those things which if not properly serviced can create fire hazards—will attract the higher rate of VAT. How can there possibly be any justification in that?
That leads me back to the sixth point I made earlier. This is bound to lead directly to an evasion of the tax. People will either be making use of the services of the inexpert man around the corner—perhaps sending for a Treasury Minister—to do a running repair on their electrical appliance and paying him cash on the nail or, worse still, we shall find people rendering invoices for having serviced one of the exempt appliances when they have actually serviced something on which the higher rate should be paid. This is not a frivolous point. Every change Governments make to add to the complexity of a tax that started out with a basic simplicity is a change that threatens the credibility of the tax system as a whole.
The Financial Secretary can hardly laugh at a point such as this. It is a familiar argument from the Treasury Bench that in 1957 purchase tax achieved the condition of having seven different rates. However, it is not for a Labour Government to compalin about that. When we left office in 1964 there were three purchase tax rates of 10 per cent., 15 per cent. and 25 per cent. At the end of the following Labour Government we ended with four rates between 131 per cent. and 55 per cent. The next Conservative Government gradually lowered the rate, restored the simplicity and finally introduced value added tax on the basically accepted design to which many people had become accustomed.
724 Finally, it is impossible to justify the shape of this tax on the grounds put forward by the Government. We shall be debating later its impact upon particular activities such as television rentals and consumer servicing. However, how can we justify the random selection of sailing and boat-building being burdened by this higher rate of tax? Last year the boat building industry employed some 30,000 people. Since then it has been facing rising unemployment. This tax could put an end to the jobs of about 10,000 people in that industry. Exports from that industry exceeded £40 million last year. What will be the impact on those exports of this higher rate of tax?
Boats are a source of pleasure for up to 3 million people, who are far from rich, from all sections of the community. More than 1 million people are registered as the owners of small dinghies. All this has been upset and disturbed for the sake of a yield of less than £10 million.
It is particularly mean and pointless to extend the tax to canoeing. Canoeing is a sport probably most enjoyed by the young. Almost every school one has ever visited and almost every youth club in the country has either got, or is in the course of constructing, a canoe. Even these activities are singled out as nonessential. No wonder that the Central Council for Physical Recreation protests at the absurdity of this change, which is likely to produce less than £2 million in one year. What a way to perform, when this year there are three world championships taking place in Britain in rowing, water ski-ing and youth sailing. Thousands of young people will face risks that are increased because of the additional tax affecting the provision of safety boats for that particular sport.
What about gliding and flying? Again they are not sports for the pleasure of the rich and they are not even sports indulged in by large numbers of people. Perhaps 10,000 people go gliding in this country and, perhaps, 3,000 or 4,000 private pilots exist for light aircraft. Why should they be singled out as operating non-essential services? In particular why should light aircraft have to face higher charges than those who hire boats, caravans and cars for recreational purposes?
What about the caravan industry? About 1½ million people enjoy caravans, 725 and three-quarters of them are certainly very far from the rich or wealthy classes. It is an industry that contributes to exports. Why should that have been singled out in this way?
I turn to the last argument that I wish to demolish—that in some way this skilfuly-designed artifice of Treasury Ministers will help to save imports and promote exports. By driving caravanners to take non-taxed package holidays, by driving television set renters to buy smaller and cheaper imported Japanese sets, by exposing manufacturers in the television, boat and caravan industries to the cyclical suffering of endlessly changing tax systems that have done so much damage to the industries in the past, and by exposing component manufacturers to the particular inconvenience I have mentioned, the Government can hardly hope to bridge the gap in our export situation by the promotion, which is what apparently they seek, of a larger exodus of gold, silver, jade and jewellery even before people try to get it out of the country to prevent the Government getting their hands on it in some other way.
The truth is that this change cannot possibly he justified. I wish to make it entirely plain that the Conservative Party is strongly opposed to the introduction and now the extension of the additional rate of value added tax. We shall continue to oppose it as forcefully as we can throughout the debates on the Bill.
I have no doubt that the advantages of a simple, single-rate structure are overwhelming. We shall certainly want to do everything possible to restore the original simplicity of the design of tax when we return to office. As it is now presented to the House, it is wholly characteristic of the fumbling lack of strategy that underlies this Budget. It will be seen as a futile, irritating irrelevance in face of the grave economic crisis that faces our nation.
§ Mr. Monro
I warmly support everything that my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) has said in relation to this pernicious increase in value added tax. I want to deal with one central issue which arises in Clause 17. This does not mean to say that I am not equally interested in the many other matters such as television rentals and services.
726 I want to come to the issue of why the Chancellor has singled out three sports from well over 100 in this country and increased their rate of VAT from 8 per cent. to 25 per cent. According to an answer to a Question, this increase would produce about £5 million of the £325 million which this tax is expected to produce.
Sport is responsible and it understands the Chancellor's problems and those of the country. However, it wants a fair deal. I should like to quote a letter from the chairman of the Central Council for Physical Recreation, Mrs. Glen Haig, to the Chancellor to bring home firmly that sport does not wish to be given any special priorities. She says:It will come as no surprise to you that the governing bodies of water sport in this country greeted with dismay the news that boating and associated activities have been singled out for especially severe treatment in respect of Value Added Tax.Let me say from the outset that we fully appreciate the tremendous problems facing you in your efforts to balance the national economy and we have no objection whatever to restrictive measures which are fair in concept and which have a bearing on the whole of sport, if such measures are felt to be within the national interest.There is no question of sport wanting a preferential position. All it wishes is fair treatment.
I most certainly join my right hon. and learned Friend in saying that in this instance the Chancellor has his priorities wrong. He knows perfectly well that if we had continued with 10 per cent. VAT, this increase to 25 per cent. on certain items would not have been necessary. The figure of £5 million out of the £325 million borrowing requirement in the Budget is a comparative drop in the ocean. The Chancellor was somewhat vague in his announcement about what the tax will yield. This gives the impression that it has been an ill-thought-out and ill-conceived increase.
In reply to the hon. Member for New-ham, South (Mr. Spearing), the Financial Secretary said:Further study on any reasonable scale is unlikely to produce accurate estimates along the lines indicated by my hon. Friend",who was requesting a breakdown of the tax.Probably rather less than half the expected £10 million p.a. yield from Groups 3 and 4 of the higher rate schedule will accrue from Group 4 (caravans) and most of the rest will 727 accrue from boats, parts and accessories".—[Official Report, 28th April 1975; Vol. 890, c. 65.]There was a little over £5 million for boats, aircraft and gliders and a little less than £5 million for caravans. It was a pretty vague estimate from the start.
If the Chancellor or the Financial Secretary says in reply that there has to be a £5 million yield from Group 3 and a £5 million yield from Group 4, we would entirely disagree with the Government's priorities. We could give a long catalogue of Government savings in other directions, particularly from the Department of Industry, that could have made this insignificant total in the nation's Budget one that could have been omitted entirely.
Why has the Chancellor singled out boating, gliding and flying as sports and leisure pastimes which must be clobbered in this Bill? I know that the Minister has had a flood of complaints. Indeed, he has received a petition which was handed in by my hon. and gallant Friend the Member for Winchester (Rear-Admiral Morgan-Giles) on behalf of the Ship and Boat Builders Federation, the Royal Yachting Association and many others. That petition showed that at least 2 million people are messing about in boats in the summer, cruising, sailing and being actively competitive at weekends. These are things that all of us ought to be supporting. Indeed, more people take part in these activities than attend football matches at any weekend in the winter. This is a valuable weekend recreation in every way, for families and young people alike. Why is there an increase in the rate of VAT on boats and associated equipment to 25 per cent.?
As my right hon. and learned Friend the Member for Surrey, East said, this is not a luxury sport. The Chancellor has put the purchase or joint ownership of dinghies or small boats outwith the pockets of many people. For instance, on an Enterprise dinghy of 131 ft. the tax alone rises from £40 to £100. A Fireball, a slightly bigger dinghy of 16 ft. 2 in., is subject to a rise in tax from £60 to £250. That is a staggering increase for young people keen on small dinghy sailing.
728 It is not only sailors who face this penal increase but the boat builders too. They know, as the car industry knows, that they must have a strong home market in order to export. They have made a splendid effort in producing £40 million worth of exports annually. About 30,000 people are employed in British boatyards. Yet both these groups are at risk. Certainly they cannot continue to maintain this level of exports if the home market collapses—and collapsing it is. This is bound to have a direct impact on those employed in the industry. One day the Secretary of State for Industry comes in offering jobs at all costs—literally at all costs—and the next day the Chancellor comes in hammering away and causing unemployment just because he has not bothered to think through what he is doing.
These exports are influenced and emphasised by our splendid Olympic and international record as a sailing nation. Why are the Government setting course tonight to destroy the asset that we have built up over generations? It is sad to see the Chancellor so incredibly out of touch with the wishes of the nation.
My right hon. and learned Friend the Member for Surrey, East gave some anomalies. I should like to give one or two—only a few, because I know that many will be discussed in detail when we discuss the schedules in Standing Committee. It seems incredible that oars are subject to VAT at a rate of 8 per cent. yet rowlocks are taxed at 25 per cent. What on earth can be the use of an oar without a rowlock—unless the Financial Secretary is still on fixed pins at Oxford University in the 1930s?
Batteries to start outboard motors and other motors are taxed at the 25 per cent. rate. However, one may buy a car battery for one's boat and it is taxed at the 8 per cent. rate. The Minister is really setting out to cause all manner of chaos in ship chandlers' businesses and elsewhere.
Ropes, lines and mainsheets are taxed at the 25 per cent. rate. I can visualise that around all the yachting centres nylon clothes line at only 8 per cent. VAT will have an enormous increase in sales, for obvious reasons. The Minister is setting out to make this country a very dishonest place in which to live.
729 Rightly, my right hon. and learned Friend mentioned the question of safety. The Royal National Life-Boat Institution is zero-rated and quite clear of all this. If, however, a sailing club has a safety boat to supervise young children and others sailing in their dinghies, it must be at the 25 per cent. rate of VAT. Indeed, the same is so with rowing. We shall have the world championship in rowing here in August this year. What a thing it will be to face our visitors with the knowledge that all racing shells in Britain are subject to VAT at 25 per cent. It is hardly the way to encourage a country that is trying to raise its standards in international sport in every way.
What about canoes? If ever there was a form of sport to encourage our schoolchildren, youth clubs and educational establishments and to get youth afloat at weekends, which is something we all want to see, canoeing is it. But the rate is to be 25 per cent. on canoes. I do not suppose that the Minister has even considered what a canoe costs. When we move up to the higher echelons of international and Olympic competition—again, we are putting on a tremendous effort in coaching for next year's Olympics—we find that the price of a competition kayak will rise from £361 to £452. Where is the encouragement to get on in this competitive sport?
I hope that the Minister will bear in mind that kayaks in particular face frequent damage, especially in slalom and white-water racing. Here again, the replacement rate of boats is high. What will people do when they have to spend much more on these boats? All in all, in sailing, rowing and canoeing, we have had a mortal blow to the expansion of water sport and recreation.
Much of what I have said about boating applies also to gliding. I should like to declare a non-pecuniary interest as the President of the Dumfries Gliding Club and as a private pilot. Why has the Chancellor trebled this burden on a minor sport, which is, however, popular and includes the slightly eccentric occupations of hang-gliding—which the Chancellor might enjoy—and ballooning? This sport is enjoyed by thousands and is run by people who give their time voluntarily at weekends. I know that from my club's point of view this has meant frequent 730 changes of location, building hangars, assembling winches and making runways—all through their own free enterprise and without pay. That is the sort of thing that is to be clobbered by the Government. It has given many young people their first chance to fly. It is very sad indeed that this will no longer take place. Gliding has had an exceptionally high standard of maintenance and airman-ship over generations, yet this is all the thanks that people get—the raising of VAT to 25 per cent.
We have an international prestige, and some of the world's finest glider pilots operate within Britain. Their reputation has gained exports for the comparatively small number of gliders made in Britain.
There is here a strange anomaly, because VAT is at 8 per cent. on dual instruction but at 25 per cent. if one goes up solo. Normally one does a couple of circuits dual and then the instructor says "Have a trip round on your own." What about all the accountancy and paper work which will have to be carried out while a chap does a 10-minute circuit?
One can hire a boat for a row on the Serpentine or elsewhere at 8 per cent. VAT, but a trip in a glider is at 25 per cent. It is quite incredible that the Treasury and Treasury Ministers could have thought up anything quite so stupid.
I come lastly to light aviation. Perhaps someone will explain to me why the particular limit of 8,000 kg was chosen. Why is there to be an attack on light aviation and recreational flying? It is solely those categories which are being attacked, because business flying will be able to recover the tax in the normal way. The Government and the country should be pleased that young men and women are training to fly. We were certainly pleased that they were able to do so in 1939 and 1940, but I do not see any enthusiasm for them in this proposed penal taxation.
Recently we have frequently discussed ways of saving petrol. We have discussed whether less fuel would be used if we increased the cost of the road fund licence or put up the price of fuel. The Financial Secretary might care to note that over almost any distance less fuel is used in travelling by light aircraft than by car. This, therefore, is another way 731 of saving fuel, and in their approach the Government are going against what they say they want to achieve. There are 55,000 jobs tied up in light aviation and there could be a severe cutback. I am sure that this will be appreciated by the Secretary of State for Industry.
There is also the question of the invisible exports which are obtained through flying training for commercial pilots from overseas. The dual training will be taxed at 8 per cent. but for solo flying the rate is 25 per cent., even though the Civil Aviation Authority regulations require a certain number of hours to be flown solo before a pilot can obtain a licence. The cost of a commercial pilot's licence will therefore go up from £610 to £1,190. This means that flying schools will either close or move out, probably to Ireland or the Continent. It is illogical to expect commercial pilots from overseas to train here if they are to be treated like this.
There is also the question of radio equipment, which in aircraft is safety equipment. Transmitters, receivers and radio direction-finding equipment will be taxed at the 25 per cent. rate. Why are the Government taxing safety? Are they afraid that someone will buy a radio direction-finding set or a VHF transmitter so that he can listen to Radio 2 in his bedroom? People do not buy radio sets costing thousands of pounds to play them at home. Surely we can trust aviation purchasers who intend to fix the radios permanently in their aircraft. Can we not stick to the 8 per cent. rate in the interests of flight safety?
Before we reach Schedule 7 in Standing Committee, will the Financial Secretary meet representatives of sailing, gliding, and flying for further consideration of the incredible anomalies and the whole principle of the tax? The sum involved here is minute by comparison with the total borrowing requirement.
Will the Minister bear in mind next month that the Minister responsible for sport will be producing a White Paper on how sport, leisure and recreation can be developed? What will the Minister say when he has to discuss the development of sailing, rowing, canoeing and gliding with the interested parties? He will surely look rather foolish. I say to 732 the Government, for Heaven's sake think again.
§ 7.15 p.m.
Mr. A. E. P. Daffy (Sheffield, Attercliffe)
I subscribe entirely to the remarks by the hon. Member for Dumfries (Mr. Monro). I wish particularly to endorse what he said about sailing, gliding and flying. I wish to confine my plea to boating and to show briefly the effect of the Bill on the British boating industry. I do not know why hon. Members should get so excited because I wish to speak. I made a plea on behalf of the boat building industry on Second Reading of the Bill, and I am anxious to do it again in the hope that some of my hon. Friends might support me. It is important that such a plea should be as broadly based as possible and should not be seen as party issue.
I hope that my hon. Friend will see as a measure of their success the fact that we are now moving into an era when flying, gliding and sailing are pursuits for all the people of this country, but especially for the working classes. It is for that reason that I am so pained that the Chancellor should have said in his Budget Statement that he intended to concentrate the 25 per cent. VAT on less essential items so that the better off, who bought more of those goods, particularly the expensive goods, would bear a larger share of the taxation burden.
I wish to question the application of this policy to boating since nearly 3 million people in Britain take their weekend recreation in that form. The vast majority of them can by no stretch of the imagination any longer be classed as among the better off. They are the ordinary people of this country, and nowhere is this more evident than in the northern industrial areas. In that part of the country one cannot get a berth for a boat on the coast and it is becoming increasingly difficult to find space on the reservoirs.
If it ever was the sport of a class, it was the sport of a class which was the backbone of those who were needed in 1939 and 1940. I am thinking of the old Royal Naval Volunteer Reserve, with which I was connected, the people who took the little ships to Dunkirk in 1940. I was not among them. I was a rating in barracks in Devonport, but I was close 733 enough to know their value and I know that that class of person—not a social class—helped to man the coastal forces and the many small inshore ships during the war.
That is not the only interest that I have. I was also close to the industry at that time and I was able to see something of the way in which it supplied the small ships that were needed. This was at the beginning of the war, but it provided a strong basis which half way through the war was giving us a remarkable flow of indispensable boats. I am therefore concerned for the industry.
The Government have frequently declared that they favour small industry and small firms. I see boat builders as being precisely in that category. They are essentially small enterprises and they have made and are making an increasing contribution to exports which in relation to the scale of the industry is remarkable. About one-third of its production is exported, yielding more than £40 million annually in foreign earnings. The annual import savings of the boat industry amount to about £140 million, which is equal to 45 per cent. of the sales of the entire British shipbuilding industry. Not all these figures are readily available but I hope that these points may be developed by other hon. Members because many false impressions are created and there is insufficient appreciation of the contribution of the industry to exports.
The industry is of value to us in another sense. Its work force is highly skilled and specialised, yet this new tax, coming on top of earlier marine mortgage restrictions, may cause a scaling down and redundancy as great as 20 per cent. In view of the unique character of the industry, there is little chance of alternative employment in some areas. If this work force were dispersed, it would be most difficult to reassemble it when demand recovered. Likewise, export markets once lost could be irrecoverable. I am assured that this has been the experience of the comparable Dutch industry, which when penalised by domestic taxation lost export markets which it has since been unable to recover.
We have also heard of the anomalies which could arise from the application of the tax not merely to the industry but 734 also to its accessories and equipment. There will be administrative problems. I do not want to deal in detail with the multi-rate structure. My hon. Friend the Financial Secretary knows my views on that. I have argued consistently against the introduction of such a structure. He knows that there is very little support in our party for such a structure. I know of no one on our back benches who favours a multi-rate structure as opposed to a single rate who, over the last few years has put forward a convincing argument to support his case.
That makes me wonder where the pressure has come from in recent weeks. It has not come from within my party. That makes me wonder whether the pressure has arisen from within the Treasury, from people who cannot be as close to this matter as the people who actually do the work. I am referring not merely to the boat industry but to all retailers. The administrative nightmares that have been referred to are by no means confined to boating enterprises.
As my hon. Friend the Financial Secretary knows, I was concerned that there should be no departure from the standard rate of VAT. I knew of the burden produced by the standard rate. I knew that it was becoming too great for retailers and commerce generally. I wanted no departure from the standard rate, but not on those grounds alone. I did not believe that the time was right, even if it ever will be right. That it should be introduced at this time, given some of the warnings that were directed towards my right hon. Friend as recently as last November, took me by considerable surprise.
I want my hon. Friend to know that some of his hon. Friends were concerned on those grounds alone. We wanted it to be known that we were aware of the problems that our late system of VAT had produced for commerce. We did not want the burden to be increased.
I am sorry that my hon. Friend the Minister of State is no longer in his place. He replied to a Written Question that was put by the hon. and gallant Gentleman the Member for Winchester (Rear-Admiral Morgan-Giles). The hon. and gallant Gentleman asked whether the Chancellor had estimated what reduction 735 of turnover in the boating and boat building industry would result from the proposed 25 per cent. VAT levy. My hon. Friend replied:It is not possible to give separate figures for individual industries; these will depend, among other things, on how consumers adjust their discretionary expenditure. The Budget estimates of the revenue effect of the higher rate VAT have assumed a fall of rather less than 7 per cent. in the turnover of the producers of all the goods covered by the higher rate, other than road fuel."—[Official Report, 1st May 1975; Vol. 891, c. 200.]I have been at pains to find out how far that is true. I have with me some figures from one of the largest members of the boat building industry. I shall not go into them because of the time, but I assure the Committee that in the number of weekly orders, monthly inquiries and forecasts for the next four months there has been the most dramatic fall. I am bewildered as to why my hon. Friend should have thought that the reduction would be no more than 7 per cent.
No other sport is being subjected to discriminatory taxation. Why has boating been singled out? Can my hon. Friend put forward any justification in logic or equity for this discrimination? Will he bear in mind the final plea of the hon. Member for Dumfries? Will he agree to receive representations soon from the representatives of the boating, gliding and sailing industries?
§ Mr. Edward du Cann (Taunton)
I count myself fortunate in following the hon. Member for Sheffield, Attercliffe (Mr. Duffy). I am sure that all of us who had the privilege of hearing the hon. Gentleman's speech would want to tell him how much we enjoyed it and admired it. The hon. Gentleman's clarity, forthrightness and good common sense were greatly appreciated by us all. If I may add a personal note, I very much appreciated his references to the West Country. I had no idea of the old wartime connection that he described. I am sure that I am not alone in the West Country in saying how much we relished the reference which he made to the prewar yachtsmen who pioneered in the early days of light coastal forces in the RNVR. There is a moral in that point in contemporary circumstances.
736 It will not have escaped the attention of the Financial Secretary that we have now had three speeches which have all contained devastating criticisms of these extraordinary proposals. I would describe them, as did my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe), supported by my hon. Friend the Member for Dumfries (Mr. Monro), as damaging, destructive and unfair. Indeed, they are miserable and clumsy. What is worse, they are thoughtless. It is no surprise to my right hon. and hon. Friends to notice how empty during this debate have been the Government benches. It is almost as if the Chancellor's right hon. and hon. Friends are ashamed of what he is proposing.
I agree with my right hon. and hon. Friends in the criticism that they have made, but there is more to say. I dare say the hon. Member for Sheffield, Attercliffe feels, as do my right hon. and hon. Friends, that these proposals are bound to bring our taxation laws into further disrepute. That is something we can ill afford. Last but by no means least, I suspect that they will make substantial problems for the Customs and Excise. The Public Accounts Committee, of which I have the honour to be chairman, has been taking evidence from the Customs and Excise. My hon. Friend the Member for Folkestone and Hythe (Mr. Costain) will recall the circumstances which indicated to us the immense difficulties experienced by the Customs and Excise when the tax was originally imposed. I have no doubt that the Department carried out its work, as it always does, with tact and carefulness. All the same, it is clear that a great deal of tax was under-recouped. I suspect that the problems that will result from this great jump, this selective jump and this unfair jump from 8 per cent. to 25 per cent. will cause the Customs and Excise even more administrative headaches. That is a thoroughly bad thing.
I now quote from a document prepared by the Information Division of the Treasury. It is one of a series of documents which I usually find helpful. I dare say that every right hon. and hon. Member is assisted by them. I refer to issue No. 62 for May 1975. It is called the Economic Progress Report. It will be understood that it is not a document whose chief characteristic is that of 737 historic accuracy. It begins with a note about the Budget. It reads:The Spring Budget—It seems to suggest that the Budget was a matter for gaiety and rejoicing, but no doubt it was so described to differentiate it from others in the series—presented to Parliament on 15th April proposes measures designed to divert resources into the balance of payments and to alleviate the structural problems which have caused the economy to lag behind its competitors.It continues:The proposals included … a variety of measures designed to help build up our industrial base and encourage exports.Further on it reads:The Budget's main purpose is to make sure that the economy will be ready to take advantage of the recovery in world trade which is expected next year.Probably the point is already clear to the Committee—namely, that in the case of those industries which it is now proposed to tax at a very much higher rate, the Chancellor's proposals will act in precisely the opposite way to the approach of his Budget strategy.
The point that I wish to make to reinforce the argument that has been put already by my right hon. and hon. Friends, and by the hon. Member for Sheffield, Attercliffe, is that the Chancellor should undertake—there would be no loss of face—to reconsider this proposal, and to do so promptly.
I turn to the boat building industry and to the aircraft industry merely to attempt to complement what has already been said. I have to declare an interest which will be within the knowledge of many right hon. and hon. Members, namely, that I own a boat. I do not know whether I am one of the people whom the Chancellor wants to sock, but I see nothing dishonourable or unreasonable in spending one's savings on a boat rather than dissipating them in other ways. I also have the honour—and perhaps it is not inappropriate as we have a bipartisan case to put here—to be Admiral of the all-party House of Commons Yacht Club.
The facts about the boat building industry are these. The total production is £140 million and its exports of more than £40 million are about one-third of that total. The production of the boat 738 building industry is no less than 45 per cent. of the whole shipbuilding industry in the United Kingdom.
When I look back over the last 20 years—my time in the House—and consider the various forms of aid that have been given to shipbuilding, and all that the House has tried to do to keep shipbuilding viable and prosperous in face of foreign competition and often subsidies from other shipbuilding nations, all I can say is that in trebling the rate of tax paid by the boat building industry the Chancellor is flying absolutely in the face of history and logic.
The hon. Member for Attercliffe and my hon. Friend the Member for Dumfries said that if we are to have a successful export industry it must have a sound home base. How true that is. I draw to the attention of the Financial Secretary experience which the Dutch have had. The Dutch had a thriving boat building industry, they decided to tax it more heavily and in the end they did it irreparable harm. Our view is that the Chancellor would be foolish to run risks in respect of our home boat building industry, which consists of many small firms in which the standard of the craftsmen is still, I rejoice to say, as high as any in the United Kingdom, and that is saying a great deal.
Moreover, it is an industry which is already in recession. How extraordinary it is to clobber an industry at the time when it is not doing well. Home sales declined in the first three months of this year, because of the economic scene in general, by about 40 per cent. Unemployment has increased by 5,000. If I may speak again of the West Country, six boat building firms have gone out of business already during the past 12 months. This is in an area—Devon, Cornwall and Somerset—which cannot afford any more unemployment.
However one looks at the matter, the case for abandoning the Government's proposal is overwhelming. There is no logic in increasing the amount of tax to be paid by the boat building and boating industry. We have heard something about administrative difficulties and anomalies, and I shall not labour the point.
I do not know whether it is feasible for the Financial Secretary to answer a specific question but, having heard something 739 about these anomalies and knowing of them, I should like to know how many pages of detail the Customs and Excise instructions will be likely to contain to deal with items in the boat building industry. Will it be two or three, 10 or 20, or 50? Why is it that in England today we seem to have almost a death wish to complicate everything we do almost beyond endurance? If the proposal is not changed—or, better still, abandoned—the Chancellor of the Exchequer will deal the boating industry a near-mortal blow. He will also leave the United Kingdom market wide open to foreign competition just as soon as the economic situation improves.
I now turn to the subject of light aircraft, gliders and the like. The imposition of this higher VAT rate means that for a modern sport which should attract growing support from a wide cross-section of the public, costs must increase, the administrative burden of voluntary officials must increase, the danger of cost-saving economies in servicing and replacement of parts must increase and the threat of redundancies to workers in the light aircraft servicing and production industries must increase. There is also the danger, as with the boating industry, of irreparable harm to the British light aviation industry.
I recall, being an enthusiast for helicopters, having spoken of them in the House and having complained of our unenthusiastic attitude towards the helicopter as a form of transport. Incidentally, we have in the West Country the largest producer of helicopters in the world, which has one of the best export records of any industry in the United Kingdom and whose business it should be of all of us in the Committee to support and encourage.
Again, the Government always seem to adopt the attitude that here is something new, exciting, modern and worth while—therefore, "find out what little Johnny is doing and stop him", or at any rate make it as difficult for him as possible, tax him out of existence or endurance. Perhaps I am old fashioned, but I happen to think that the Government have a duty to encourage industries which are helpful and modern, which give 740 people innocent pleasure and carry through a useful economic or social purpose.
At a time when the Government are seeking to expand sport and recreational facilities in Britain, these new VAT proposals, if pursued, will deal a crippling blow to an expanding sport whose participants seek little or no Government financial help. Perhaps that is the mistake they make—being largely self-supporting. To attack a sport which is educational and particularly relevant to twentieth century technology is completely contrary to the announced public policy of every political party in this Parliament.
Unless the Financial Secretary is prepared to say to the Committee tonight that he will have a complete re-examination of this situation, his life will surely be made a misery in the future. It is within the memory of us all how the late Sir Gerald Nabarro—a remarkable man and one of the great parliamentarians of our time—used to tease Treasury Ministers constantly about the anomalies of purchase tax. They are as nothing to the anomalies of disparate rates of VAT, and the Financial Secretary's life will indeed be made uncomfortable for him unless he seeks to amend these proposals. I repeat, they are damaging and destructive, they are foolish and they should be scrapped.
§ Sir David Renton (Huntingdonshire)
Unlike my right hon. Friend the Member for Taunton (Mr. du Cann) I cannot claim to be the admiral even of a small elite yacht club, but I am president of the Huntingdon and Peterborough schools sailing club, with hundreds of members, young people coming from ordinary homes. The Government's attitude towards the activities which those people pursue reminds me of the Victorian educationist who acted on the principle that he could teach boys anything as long as they disliked it enough.
These young people have been given an opportunity which their fathers never had. At Graffham Water, in my constituency, which is the largest artificial lake in this country, until Empingham is flooded, we find on any summer weekend afternoon 300 small sailing boats sailed by young people from our schools. It is tragic to 741 think that those types of boat should be caught by this tax.
The hon. Member for Sheffield, Attercliffe (Mr. Duffy) was right when he referred to the 1939–40 period. I was reminded of the fact that most of the boats which evacuated the British Expeditionary Force from Dunkirk would have been subject to this tax, if it had existed in those days. I do not know why, but the Government do the most extraordinary things. However, the case about the boats has been so well made that I need not add very much.
On the river Great Ouse, which is also in my constituency, there are about half a dozen marinas and three small private enterprise boat builders. A young man who has just been apprenticed to one of those firms came to Parliament today, together with about 100 other young men from other parts of the country, to complain of the way in which this tax will threaten their jobs. That young man is training to be a craftsman of the type of which we have always been proud.
I know that every Chancellor of the Exchequer worth his salt keeps something up his sleeve for the Committee and Report stages of the Finance Bill. I hope that the Financial Secretary, having heard the case which was made today, will let us know that he has something up his sleeve to help in this matter.
I now wish to speak about domestic appliances. There is a factory in my constituency which makes ordinary domestic refrigerators and employs 1,000 people. I regard a refrigerator as a necessity of life, not as a luxury. A refrigerator is of great value in saving food, which is becoming a scarce commodity. Most modern homes, even of the humblest kind, are built with space in the kitchen for a refrigerator and are provided with suitable electric sockets.
The 1,000 people employed in that factory belong to five important trade unions. I have had a friendly and constructive meeting—the Secretary of State for Industry will be pleased to learn—with their representatives. I was assured by those people that they have excellent relations with the management. They volunteered that fact; I did not ask about it. They informed me that that company produces other domestic appliances in factories situated in other constituencies. 742 For example, washing machines are produced at Llandudno, which is in the constituency of my hon. Friend the Member for Conway (Mr. Roberts). Electric kettles are produced at Northallerton, which is in the constituency of my hon. Friend the Member for Richmond, Yorks (Sir T. Kitson). He has to attend the annual council meeting in his constituency tonight and asks me to say that he wishes to be associated with the case I am making. Electric irons are being produced at Mexborough, in the Dearne Valley. The servicing of all those appliances made by this company is carried out from Lutterworth, which is in the constituency of my hon. Friend the Member for Blaby (Mr. Lawson), who has also asked to be associated with this case.
The Secretary of State for Industry must know that of those 1,000 people the management—having gone into the matter with the trade union representatives—estimate that 400 people will become redundant within a year as a result of the application of the 25 per cent. VAT rate. The Secretary of State for Industry should therefore complain to the Chancellor about those redundancies instead of doing what he did yesterday, when he made vigorous and irresponsible attacks upon those of us who tonight are trying to save people's jobs.
§ Mr. Wyn Roberts (Conway)
My hon. Friend referred to a factory in my constituency which employs 1,500 people. It is the only major employer in that area, where there is now 8.2 per cent. male unemployment.
§ Sir David Renton
I am grateful to my hon. Friend. That reinforces my case.
The trade union representatives whom I met are in consultation with their colleagues in the factory situated in my hon. Friend's constituency.
There is not only the question of the falling off of sales in relation to domestic appliances, thus depriving people of the necessities of life. There is a great deal of difference between a VAT rate of 8 per cent. and one of 25 per cent., or indeed 10 per cent. and 25 per cent. There is also the safety factor. If people decide to carry out work themselves instead of calling in someone to do it they run a 743 risk of accidents. "Do it yourself", they say.
Today I put down a Question to the Chancellor of the Exchequer askingwhether, in view of submissions that his proposal to charge 25 per cent. VAT on the cost of labour in the repair of televisions, radios and electrical goods will increase the danger of accidents and fires being caused by electricity, he will change that proposal.I have just received the written reply, which reads,No, Sir. I have noted the submissions but I do not agree with their conclusions.That is surprising since more accidents are caused in the home than on the roads. There are more accidents in the home than in the factory.
The Financial Secretary seems oblivious of the fact that one of the results of the 25 per cent. VAT rate on the cost of repairs will be that some people will blow themselves to smithereens in their own homes. That alone should cause him to think again.
I think that we are in a procedural trap over the way in which this matter is discussed. Clause 17 and Schedule 7 must be read together and should be discussed together. However, they are to be voted on separately. The clause will be voted upon in Committee on the Floor of the House, whilst the Schedule will be voted on upstairs. I do not complain that detailed items are included in the schedule, as a matter of drafting and legislative convenience. However, I think that the arrangements should have enabled Schedule 7 not only to be referred to in discussion with Clause 17 on the Floor of the House but the items in it to be voted on separately. It is an important matter. I hope that in his selection of amendments on Report, Mr. Speaker will, if necessary, allow the House to vote upon separate items in the schedule.
§ [Mr. ARTHUR JONES in the Chair.]
§ Mr. Pardoe
I shall not go over the Opposition points which have already been made in the debate, as I agree with them.
The multiplicity of tax rates is confusing for the individual trader. I think that it will add to the compliance costs of those who have to collect the tax. 744 I ask the Financial Secretary to give the Treasury estimate of the increase in compliance costs which will be borne by those collecting the tax. Here I refer to the retailers. I do not mean the Civil Service. What is the estimate of the increased compliance costs arising as a result of increasing the VAT rate to 25 per cent.?
Secondly, I oppose the 25 per cent. rate on the ground that it will cause grave economic distortion. The multiplicity of these forms of tax rates, as with the old purchase tax, will distort the market place. Indeed, there were those who wished to have them even when VAT was introduced. By setting up the Government as the body who will decide what we ought or ought not to buy, this multiplicity of tax rates will grossly distort the market place, and I do not hold with anything that does that.
It is a good thing to let consumers choose and to have a level tax across all forms of industry unless it can be shown that there is a cost to the public of allowing the use of their products. Where that can be shown it would be better for a direct charge to be levied related to the social cost.
Why do it? The hon. Member for Sheffield, Attercliffe (Mr. Duffy) said that there was no great pressure from within the Labour Party to have this 25 per cent. rate. I was a little surprised at what he said. However, his knowledge of the Labour Party is a good deal better than that of hon. Members on this side of the Committee. But if we call it a luxury tax, we can detect some of the reasons behind the thinking. It is extremely appealing to those members of the Labour Party with whom the hon. Gentleman has less in common than even most hon. Members on this side to impose what they can flourish in radical terms as a luxury tax. Perhaps it is part of the price that the Government are paying for the non-existent social contract.
I hope that the Financial Secretary will give us the exact figures of yield. Looking at the Red Book, we see that the yield before the Budget change for VAT in 1975–76 would have been £3,054 million. That was at 8 per cent. Therefore, a rough calculation leads us to suppose that at 10 per cent. it would bring in another £760 million a year. 745 That is by putting it up by an extra 2 per cent. The Red Book shows that after the Budget the yield will be £3,275 million—an increase of £221 million. Therefore, it appears that the luxury rate will bring in a net yield this year of £221 million against the yield of about £760 million that we could have had if the Government had gone back to the 10 per cent. rate which they abandoned. It was a grotesque mistake.
It is incredible when we realise that that was done in July of last year to fiddle the retail price index so that the rise in the three-monthly index at an annual rate would work out at 8.4 per cent. in the month before the election had to be fought. Now, almost a year later, we are seeing changes in the Budget which tomorrow will give us a rise in the retail price index of over 2 per cent. in one month. Therefore, the rate of inflation over the last three months as from tomorrow, on the Chancellor's calculation, will be not 8.4 per cent. but just short of 30 per cent. We do not imagine that there is an election in the offing, and I guess the Chancellor does not imagine that there will be one either. Although the yield of £221 million is not to be sniffed at, £760 million is an awful lot more and would have closed the borrowing requirement gap much more than the Chancellor has.
I accept what the right hon. and learned Member for Huntingdonshire (Sir D. Renton) said about our being in a procedural difficulty in discussing this matter. I want to make my position clear on this measure. My vote tonight is not to reduce the Government's revenue from VAT but to increase the yield from VAT by about £500 million. That would have been the right decision for the Chancellor to take.
I should like to touch briefly on some constituency points. I represent a development area, a coastal area and a holiday area. Boating does not employ a large number of people in my constituency, but it does employ some. It is an industry which ought to be encouraged in a coastal development area such as mine. It fits historically and geographically. It fits historically, because my most illustrious predecessor as Member of Parliament for Cornwall, North was Sir Francis Drake. He did 746 not actually represent Cornwall, North, but he represented Bossiney, which was a rotten borough in it.
I think that the Government have been extraordinarily mistaken in picking out this sporting activity which, certainly in North Cornwall, is by no means the prerogative of the rich. I cannot claim to be either an admiral or a president but just an ordinary member of the Padstow sailing club. Members of the Padstow Sailing Club are not wealthy boat owners.
Cornwall, North is a holiday area. Therefore, there is a considerable contribution from caravans. Of course, caravans are not to everyone's taste, but they represent the only holiday that many families of moderate, middle and low income can afford. Hotels are beginning to price themselves out of that sort of family's holiday.
Lastly, I should like to take up the point about hi-fi. A small town in my constituency—to most hon. Members it would be a village, having an electorate of about 1,400—has become extremely dependent on one firm, Esselwood, which makes hi-fi and small radio cabinets. It took over a factory which formerly manufactured metal windows. That was withdrawn and there was a very long gap before the Department of Trade—in the old days the Board of Trade—was able to find a replacement. We managed to obtain this firm. Not long ago it ran into financial troubles and it was saved by being taken over by Fidelity.
I know that the Chancellor thinks that hi-fi is largely imported, but there is a flourishing medium range hi-fi production in this country. Indeed, Fidelity is one of the largest manufacturers, if not the largest, in that sphere. The Camel-ford factory, although it does not employ thousands of people, employs enough to be very significant in the town's unemployment figures. This factory produces a large number of cabinets.
It is an interesting industry in this context for other reasons. The Financial Secretary ought to consider seriously the extraordinary changes in taxation on this industry which have taken place. Before 1973 there was purchase tax at 25 per cent. There was then the change to VAT at 10 per cent. That gave the industry a considerable boost. In July 1974 the tax was reduced to 8 per cent. 747 and that gave it a further boost. Now, in May 1975, we have VAT at 25 per cent., which is equivalent to the old purchase tax at 30 per cent. How can industrialists plan their investment if they are to be subjected to these constant changes in taxation policy?
This is or has been a healthy industry until now. I fail to see how it can remain healthy. I do not know how anyone can have confidence to invest in this kind of industry if Governments, as they come and go, make these substantial changes in taxation affecting industry. It is largely because of this kind of nonsense that there is increasing awareness among British business men that the two-party system must go. British business cannot possibly go on working in the kind of climate where one party comes in and because of its nostrums of one sort or another makes this sort of fundamental change in the whole taxation structure of an industry. Heaven only knows whether, if the Tories come back, they will knock it back to 10 per cent., but there must be continuity of purpose otherwise investment will never get off the ground.
§ 8 p.m.
§ Mr. Robert Adley (Christchurch and Lymington)
I agree with a great deal of what the hon. Member for Cornwall, North (Mr. Pardoe) has just said. Indeed, I agree with almost everything that every right hon. and hon. Gentleman has said so far. Like the hon. Member for Cornwall, North, I can state that my constituency is not blessed with many large employers. My constituents do not have the opportunity of going to nearby places to pick and choose employment. Like the hon. Gentleman's constituency, both historically and geographically, my constituency is closely linked with the sea. I cannot say this with absolute certainty, but I suspect that more of my constituents are employed in boat building, sailmaking, chandlery, broking, designing and shipwrighting than in any other industry.
I emphasise to the Financial Secretary that my constituents are bitter and disillusioned. They are angry and worried sick about the future. They want to know what they have done to deserve being kicked in the teeth. They have extremely good industrial relations. They employ and train skilled and qualified 748 men. They have excellent export figures. They are no burden on the nation whatever. What reward have they for being good citizens? As my right hon. Friend the Member for Taunton (Mr. du Cann) said, perhaps their crime must be that they have not continually had to have recourse to the begging bowl and to the Government to bail them out of trouble.
I am bound to say—looking and searching as one does for reasons why the boating industry has been picked on in this way—that the only conclusion I can come to is that the Chancellor has looked at the political complexion of those constituencies that are most likely to be affected and decided that he and the Labour Party will not lose very many votes by what they are doing to the boating industry. I tell the Chancellor, as other hon. Members have already told him, that in terms of exports and lost revenue he is making a very foolish mistake.
Not all the 3 million boating enthusiasts referred to by the hon. Member for Sheffield, Attercliffe (Mr. Duffy) sail around in "Morning Cloud". However, I detected when the Chancellor was making his Budget speech—and I am sorry to say this in his absence—a most unpleasant leer in the direction of my right hon. Friend the Member for Sidcup (Mr. Heath) when he gleefully announced his 25 per cent. VAT on the boating industry.
There are many other industries which will be severely affected. I know that many of my hon. Friends will be discussing the problems of the caravan industry and the television rental industry, to name but two. I should like to concentrate, mainly, in the few minutes at my disposal, upon the boating industry and what I can regard as the deliberate creation by the Government of unemployment and appalling anomalies in the taxation system.
Regarding the creation of taxation anomalies, I should like to refer to a letter which I have received, but it does not refer to boats. It is from the editor of a fine newspaper in my constituency called the New Milton Advertiser and Lymington Times. The editor wrote to me as follows:The new 25 per cent. VAT on electrical equipment is apparently being interpreted very widely by Customs and Excise or the Treasury.749I ordered a number of integrated circuits for an interface for one of our computers, and was told by Texas Instruments, that those devices will in future bear VAT at 25 per cent.Asked for an explanation, I was told that it was because they could conceivably be used in a radio! The same also applies to all resistances capacitors and tuning condensers. Who is to decide at what wattage a resistance could not be used in a radio? How is a computer manufacturer when he sells his article to claim back his VAT and work out which bits were 8 per cent. and which 25 per cent.? There could conceivably be a situation whereby the working out involved more labour than the construction of the article.The editor added a postscript:The last year it was practical to build a set from components was about 1930.I feel that this Budget was framed with about the mentality of the 1930s. The unreality of what the Treasury are doing is quite staggering even by the standards of this Government.
When my right hon. Friend opened the debate he referred to the fact that people will switch their purchasing habits in order to avoid paying 25 per cent. VAT, but apparently that has not occurred to the Treasury.
Recently I asked the Financial Secretary,Whether he proposes to take steps to ensure that purchasers of equipment, fixtures and fittings used on and in boats do not switch their purchases to retail outlets other than recognised suppliers of equipment for boats, in order to escape the 25 per cent. VAT which he proposes to levy on boats and ancillary equipment.I shall not read the whole of his answer but the final part of it was as follows:There is, therefore, no tax advantage in purchasing such goods from retail outlets other than recognised supplies of equipment for boats."—[Official Report, 6th May 1975; Vol. 891, c. 389–390.]This is absolute nonsense. All the chandlers in my constituency know perfectly well that the batteries, the switches, the rope, the cutlery and the plastic cups which they supply at the moment will simply be purchased by people in the high street at 8 per cent. VAT rather than with 25 per cent. VAT which they would have to pay if they bought goods in a shop which was clearly identified with the boating industry.
My hon. Friend the Member for Taunton referred to the valuable part played by the marine industry in the economy. I should like to compare the 750 marine industry which we are considering this evening with the shipbuilding industry that has attracted Government largesse on an almost unprecedented scale. The marine industry—and I take my figures from those given to me by the Secretary of State for Trade a few days ago—for 1973 to 1974 showed a total turnover of £140.49 million and exports of £41.74 million. The big boys, shipbuilders of 100 gross tons and over, including naval ships, had in 1974 a total turnover of £295 million, with exports of £94 million. Therefore, the marine industry's turnover was almost half the turnover of the shipbuilding industry including naval vessels.
However, when we compare the amount of public funds made available to both industries we see a shattering difference. Taking the three years 1972 to 1975 inclusive, the shipbuilders have received in grants and loans £114.945 million from Her Majesty's Government. During that period the marine industry has received a mere £1,200 in interest relief grants and £30,000 in loans.
Here we have it in a nutshell. An industry doing its best, with good industrial relations and a good export record—everything that we should expect of our industries—is to be spitefully clobbered and kicked in a way which will inevitably damage it irreparably. I believe that we shall see a loss of exports, revenue and jobs, and the inevitable creation of a fiddler's charter to try to escape this iniquitous tax.
Therefore, I again plead with the Government to reconsider what they are doing, to consider hon. Members' requests not to reduce taxation but to revert to a 10 Per cent. rate of VAT overall, which I am sure would do a great deal more for the Government, the nation and my constituents than the Government's proposals would.
§ Mr. Robert Hicks (Bodmin)
One of the fundamental arguments for the introduction of value added tax was that it was simple and had a straightforward structure, particularly when levied at the 10 Per cent. rate. Above all, it did away with the anomalies and inconsistencies associated with the former purchase tax, with its numerous rates and the arbitrary distinctions between the various products and services it covered.
751 The Government's proposal to introduce a multi-rate system is ill conceived and ill thought out, as well as being clumsy to operate. It will be unfair in its arbitrary application. I believe that it will revive all the problems experienced by those who had to operate purchase tax and those who had to pay the price.
I cannot understand the motivation for the Government's decision, particularly in view of the comments of the hon. Member for Sheffield, Attercliffe (Mr. Duffy). The increased tax cannot be classified as a revenue raiser, because in answer to a Question I asked on 30th April the Financial Secretary told me that the estimated yield in 1975–76 as a result ofraising the standard rate of VAT from 8 per cent. to 10 per cent. on 1st May 1975 would be about £400 million. The estimate for higher rate VAT in 1975–76 is £200 million".[Official Report, 30th April 1975; Vol. 891, c. 168.]Like my parliamentary neighbour the hon. Member for Cornwall, North (Mr. Pardoe) with whom I do not necessarily always agree, I make this short contribution in support of the argument that the Government should have reverted to a standard 10 per cent. VAT rate across the board. Like the hon. Gentleman, I represent a rural area with a large coastline. That is not to say however that we do not feel equally strongly about the other products and services to be singled out to bear the 25 per cent. rate.
No mention has yet been made in the debate of garden machinery. My right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) singled out the example of lawnmowers. A lawnmower that is pushed is subjected to 8 per cent. VAT, but if it is powered it will be subjected to 25 per cent. Parallel inconsistencies are found with other gardening machinery. One example is the small garden Rotavator. With the cost of living soaring, and particularly the cost of fresh foodstuffs, including vegetables, many people are beginning to cultivate their own gardens and allotments again.
I am not saying that we have returned to the siege economy and digging for victory, but there is no doubt that there is again a groundswell in the practice of gardening. I am certain that most people are doing it not only for exercise but for 752 the fresh vegetables they can grow. It is also an import-saving activity. If we grow our own lettuces, we do not have to import them from Holland. If we grow our own early potatoes, we do not have to import them from Cyprus. Therefore, it is a mean act by the Chancellor to single out garden machinery to bear the higher tax.
Boat building has been discussed at considerable length. We have heard of the industry's turnover of £140 million. It employs about 30,000 people throughout the country and has annual exports amounting to £40 million. In my constituency we have boat builders, but we have many more boat users, coming from all sections of society, right across the income scale. They are a genuine cross-section of people, sailing during the week and at the weekend on the sea and on inland reservoirs. They cannot understand why the boat industry has been singled out when the yield to the Chancellor will be less than £10 million a year.
In my constituency, located in a development area, there are a number of small boat-building companies in small coastal villages and towns such as Looe, Polruan, Calstock and Cremyll. Their jobs are threatened. They make an important contribution to the local economy. The South-West development area already suffers from lack of alternative employment opportunities. To the Chancellor, sitting in his office in Whitehall, these small companies in small coastal locations may seem to involve small numbers. They are isolated pockets on a map, but 25 people out of work in Polruan are comparable to tens of thousands out of work on, say Merseyside. Boat building is a modern growth industry and, therefore, one that the country should be backing rather than clobbering.
I should also like to say something about the effect that the multi-rate will have on the caravan industry. That industry is another success story, with an export record of about 37 per cent. of its production of caravans. It is dependent upon a soundly-based home economy. The caravan manufacturing industry directly employs 5,200 people. People's livelihoods are threatened. Again, many caravan-making centres are 753 in areas where alternative employment opportunities are limited.
In a constituency such as mine, on the receiving end of the tourist industry, we are in part dependent on that industry, and the touring caravan is an important component of it. Some 618,000 households are involved, and touring caravans provide a basic form of holiday making and general leisure activity for them. To these families, the ownership of a caravan is not a luxury but a way of affording a holiday in areas such as mine. Recent surveys indicate that the touring caravan is increasingly being used by all sections of society, but in particular by young marrieds with young children. For such people, the touring caravan provides probably the only means of holidaying as a family unit.
I hope that the Minister will be prepared to listen to the very strong representations from all sides of the Committee. I consider his proposals to be not only ill-conceived and ill-based. Many of them are very mean in their application. I hope, therefore, that he will be prepared to consider withdrawing the proposal to introduce the multi-rate concept and replacing it by a flat rate of 10 per cent.
§ Mr. John Horam (Gateshead, West)
I appreciate the sincere speeches from the Opposition, and also by my hon. Friend the Member for Sheffield, Attercliffe (Mr. Duffy), on the subject of multi-rate VAT. I well understand the employment difficulties which may be created and the very real hopes which may be damaged in the case of the boat building industry in parts of the West Country, the South Coast and elsewhere.
I would not like anybody to think, however, that the idea of a multi-rate VAT was not in accord with Labour Party policy. The relevant copy of the 1973 programme of the Labour Party is not, unfortunately, in the Library, but the concept of multi-rate VAT was included in that source document for both the February and October manifestos of the party. It was therefore perfectly apparent that the Labour Party would go some way towards implementing this if it attained office. Therefore, the writing was on the wall and nobody could complain of not being warned or told about it. Nobody could complain that this was not the policy of the party.
754 Although I respect the remarks of my hon. Friend the Member for Attercliffe—who is chairman of the economic and finance group within the Parliamentary Labour Party, of which I am the vicechairman—I think he will admit that there was at least majority support, though certainly with some dissentients, for such a policy being implemented by the Government.
The hon. Member for Cornwall, North (Mr. Pardoe) rightly said that it really was indefensible to change particular rates of VAT from Government to Government. It is almost certainly wrong to have a 10 per cent. rate, then an 8 per cent. rate, then a 25 per cent. rate and then—if my party were to lose the next General Election—be back to 10 per cent., 5 per cent. or whatever is thought to be the right rate of VAT at the time. That is economic nonsense.
If the general opinion of the country—not merely of those who support the Labour Party—were taken on this issue, I speculate that the prevailing view would be that it was right to have two rates of VAT. I suspect that most people would think it right, as a matter of taxation equity, to have two rates of VAT. I agree that what is to be included in the higher rate is a matter for considerable debate. Whether colour television sets, which make a great deal of difference to the lives of elderly people and widows on low incomes, should be included in the higher rate is a very real subject for debate, quite apart from items like boats and caravans.
If there were to be a general public opinion poll on the subject of VAT and how to organise it, I would feel confident in predicting that general consent would be given to the idea of two rates, one for necessities and one for items not quite in that class, however one defines it—certainly not exactly luxuries, I would agree. In that respect I should not like to hear in this debate any more of the pleadings which have quite justifiably been made but without that general point also being made.
§ Mr. Horam
I accept that, too. It may be that there are three kinds of categories—the items which are zero rated, those which are at 8 per cent. and those which are now at 25 per cent.
One of the objects brought out in the debate on the introduction of VAT was that the Labour Party in principle preferred the flexibility and greater equality of a multi-rate tax on purchases to a single-rate VAT. Therefore, I would defend myself on that ground.
§ Mr. Pardoe
The hon. Gentleman has made two statements which interest me. First, he said that he believed that, if there were an opinion poll, people would say that they preferred the higher rate. Secondly, he said that reference had been made to this proposal in the Labour Party's programme, so that no one had any excuse for saying that it had come as a surprise. May I remind him that recently we had a very good opinion poll and that only 38 per cent. of the electorate voted for the Labour Party whereas 62 per cent. voted against it? Does not that opinion poll prove him wrong?
§ Mr. Horam
I suggest that that is a rather different point. I was talking about a poll on a specific subject. If we had such a poll, I believe that it would not show as low a percentage as 38 in favour of two rates of VAT. That is the simple point which I make in support of the Government's measures.
§ Mr. Robert Banks (Harrogate)
I wish to draw attention to the uncertain and highly regrettable position of the effect of the proposed higher rate of VAT on certain burglar alarms and their systems.
That burglar alarms should be value added taxed at all is totally unjustified and bewildering. A recent Customs and Excise circular refers to the 25 per cent. rate applying to burglar alarms "suitable for domestic use". Most systems are the same whether they are for domestic or for industrial use. The unit is basically the same unit which performs the function of protecting the building that it is designed to protect. There is no real difference between domestic burglar alarms and industrial ones.
756 I am told that the rate may apply only to equipment sold over the counter. This means, for people who wish to install themselves, their own burglar alarm systems. But if installations are fitted professionally, I believe they are exempt from VAT, though there is some uncertainty about that.
The question remains whether the appliance itself is or is not charged at the 25 per cent. rate, and that would include the ancillary equipment of the burglar alarm machine, by which I mean the underfloor mats, various electric eyes and other pieces of equipment which comprise a burglar alarm system.
I hope that, before the Financial Secretary seeks to clarify a wholly contusing and regrettable situation, he will propose a zero rate for burglar alarms, systems and installations.
Crime is increasing. Up to September of last year, the annual burglary rate was 22 per cent. In some areas of the country, the number of cases of burglary rose by nearly 30 per cent. The efforts of the police to prevent crime have been to encourage householders and people in small companies—and, for that matter, large ones—to install burglar alarm systems. I see this regrettable step as gravely discouraging the police and the work which they are trying to do.
Whether an installation is installed by a professional company or by a man who seeks to save costs and do it himself is a matter which does not warrant the rate of VAT being upped to 25 per cent.
What of the small shop, where the shopkeeper lives over his shop? Part of the building is domestic, and the rest is the shop and the stockroom at the rear of the shop. Is he to be forced to pay the higher rate of 25 per cent. VAT for a burglar alarm system, whether installed by a professional company or by himself? This is the sort of example which pinpoints the disaster area of bringing in a multi-rate VAT.
The simple and essential requirement is to zero-rate burglar alarms, their associated systems and their installation. The person who has a few possessions that he wishes to protect or the person who merely wants to ensure that intruders do not break into his house should not be discouraged from taking steps to prevent a burglar from entering the premises.
757 This is a case which warrants special care by the Financial Secretary to ensure that all that we do prevents crime and supports the police in what they are doing to encourage people to be aware of crime and to install systems which will prevent it.
§ 8.30 p.m.
§ Sir John Eden (Bournemouth, West)
I should like to say one thing at this stage in the debate to the Financial Secretary, and that is a word of gratitude—the only word of gratitude I shall direct his way—for his attendance throughout the debate so far. I hope that the way in which he has been heeding the course of the debate augurs well for the content of his reply. At any rate, I am sure he would wish to reflect the courtesy with which he has listened to all the speeches that have been made so far in the answer he gives by conceding the validity of the case which has been put so effectively and forcefully. In general, all those who have spoken have condemned both the complexity and the unfairness of the imposition of the higher rate and the manner in which it has been proposed in the Budget and in this Bill.
As to the complexity, the point which really needs to be taken on board by Treasury Ministers is that traders have got to breaking point. They cannot take much more. I do not know whether the hon. Gentleman really understands this. He must have contact with the individual traders in his constituency, just as we all have. He must know as well as we do what a tremendous extra burden and impost this is on people who are trying to run their businesses in circumstances of increasing difficulty. Why place this further burden on them? Why add to the complexity of their lives? Already they are experiencing a degree of frustration and irritation, but that is nothing to what will be shown after they have had experience of trying to cope with the clerical burden of this additional tax.
Then, of course, there are the administrative costs at the centre, to which my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) referred, and the additional burden we shall all have to bear through taxation for the administration of the complexities of this extra tax, this high rate of VAT.
One wonders whose idea this was in the first place and who really dreamt it up. 758 The hon. Member for Gateshead, West (Mr. Horam) claimed some credit for it and implied that this was to the glory of the Labour Party and would be part of its monument and memorial. I am sure he cannot be proud of what he is doing here. I suspect that there is more to it than simply the concept, as the hon. Member for Cornwall, North (Mr. Pardoe) said, of a tax on luxury goods. One is tempted to wonder whether the whole thing has not been dreamed up in a dark, dank room by some curious creatures who have no understanding of how ordinary mortals live and go about their business—and what miserable, wretched people they must be to set about working out such difficulties for the generality of our people.
I do not think that that is the explanation either. The real explanation for our having this 25 per cent. higher rate of VAT is to be found in the position the Chancellor took before the election in reducing the rate of VAT to 8 per cent. to win the election. He was then in his mood of deceiving the British people and keeping the facts from them. That was what he was about. I hope he will now face the realities of our economic situation and realise that he has to carry the British people with him.
As part of the process the Chancellor says that it is necessary to increase taxation. He was not man enough to go back on his earlier decision and accept that he was wrong to reduce VAT. He was not man enough to face up to his responsibility and accept, as we have suggested, that we should return to the 10 per cent. rate. I am sure that that would have been accepted as necessary by the majority of our people. This approach is not so accepted. The truth is that the Chancellor has failed to live up to his responsibilities. He thinks that he has found the easier way out by adding to the burdens on our people.
There are many grotesque anomalies in the tax. Attention has been drawn to them already and we shall no doubt hear of further anomalies. My right hon. Friend the Member for Taunton (Mr. du Cann) was right to remind us of our former colleague Sir Gerald Nabarro and what he would have made of this situation. We can remember the way in 759 which he exposed the application of varying rates of purchase tax. Yet we have to go through the whole exercise again. I would have thought that even the Treasury Bench would have learned from that experience. It appears that it has learned nothing at all.
The anomalies are apparent when we consider what has hapened with television. A 25 per cent. VAT rate is to go on television sets. If someone had bought a set a few days before the Budget he would have paid the 8 per cent. rate, yet someone who rented a set, not just a few days before the Budget but many years beforehand under an agreement which was felt to be binding on both parties, now finds that with virtually no warning the terms of that agreement are to be broken and he will have to pay the 25 per cent. rate.
§ The Financial Secretary to the Treasury (Dr. John Gilbert)
Was there not precisely the same effect when VAT was first introduced?
§ Sir J. Eden
I am not concerned with what was introduced in the first place. I am talking about what is happening now. Agreements entered into are being torn up as a result of this tax. If the hon. Gentleman does not understand the extent of the extra burden on ordinary people, I do not know in what rarefied atmosphere he spends his time. He will quickly come to realise, when we develop this line of argument later, how strongly people feel about this. It is but one of the many issues on which hon. Members are being pressed by their constituents.
This higher rate of VAT smacks very much of petty partisanship. The Chancellor has struck the wrong people in the wrong way at the wrong time. I am grateful to my right hon. and learned Friend the Member for Surrey, East for making it abundantly clear that when the Conservative Party gets back to office it will return to the greater simplicity of a single rate system. That will be welcomed by the people of the country.
§ Colonel Sir Harwood Harrison (Eye)
First, I declare an interest in that I am a boat owner. I am also a past commodore of the House of Commons Yacht Club.
We have heard a good deal about the South Coast and the West Coast. I 760 happen to come from the east of England and my constituency has a coastline of some 20 miles. The county of Suffolk extends a long way up the East Coast. There is the River Orwell and there is a big new marina near the thriving port of Ipswich. Then we come to the River Deben, and the coastline continues past Bawdsey. Up the River Deben are the lovely villages of Ramsholt and Waldringfield, where I keep my boat, and then we come to Woodbridge. If we continue up the coast we reach the Rivers Ore and Alde which pass Orford and which eventually reaches Aldeburgh. Along those banks can be found many small firms which build and repair boats and which give a service to the people there.
I have intervened in the debate because this afternoon about 125 representatives of the boat building industry came to the House. They were met by a number of hon. Members. For a short time towards the end of the meeting I had the privilege of taking the chair. It would have done all hon. Members good if they had seen those people, most of whom were young and were from small firms, although one or two represented larger firms. I thought that they represented the salt of the earth. They were the people whose forebears built the ships that saved this country from disaster hundreds of years ago, and who built other ships which traded during peace-time.
Those young people were full of despair at this rise in the rate of VAT. I should like to have the attention of the Financial Secretary. I know, from serving on a committee with him, of his great interest in naval affairs. I ask him to convey to the Chancellor, who represents part of Leeds and who does not perhaps understand the boating industry as well as the Financial Secretary, the following anomalies. If a boat has an anchor, it has to have a chain. They attract only the 8 per cent. rate of VAT. But what about a shackle? I am sure the hon. Gentleman knows what I mean by the shackle which connects the anchor and chain even if the Chancellor may not. That carries a 25 per cent. rate of VAT. One of the representatives I met said that if a a keel boat was brought to the quayside, time was spent in bringing it from the mooring to the quay, and this would carry a 25 per cent. rate of VAT, quite apart from the work that was done.
761 I was more influenced than anything by the man who asked what would happen when the bills were sent. He said that the customers would say that the price was too high and that in future they would do the job themselves. This will affect the safety of many small boats. We all know of the number of accidents that occur every year. Distressing as they are, there will be even more breakdowns because engines will not have been looked after properly. It alarms me that this may well cause loss of life.
I agree with all that has been said by my hon. Friends. We are not trying to give the Treasury less revenue. The representatives I saw today feel that their export sales, which are quite high—the figures have been given—will suffer because their home sales are decreasing. There are not one or two cancellations but tens, twenties and hundreds according to the size of the firms. This could mean a loss of revenue in VAT. I am sure that this is not what the Treasury wants. It will mean a big loss in our export trade, which we cannot afford. We cannot afford more unemployment, particularly in the areas of high unemployment which have already been mentioned.
I know from experience that the Financial Secretary is very able and understanding on these matters. I believe that more boats would be built if there were a 10 per cent. or an 8 per cent. rate of VAT than with this sudden increase to a 25 per cent rate. This applies to caravans and everything else. Above all, however, we cannot afford to sacrifice a lot of our export trade at present. I know the argument that not all these items will be subject to VAT at 25 per cent., but unless we have a flourishing home trade we shall not keep our export trade.
I should like the Financial Secretary to act on this matter on his own, but I cannot quite expect him to say more than that he will look at this subject again and confer with the Chancellor of the Exchequer. I think that enough has been said by the Opposition to satisfy him tonight that it ought to be looked at again.
§ 8.45 p.m.
§ Mr. Wyn Roberts
In opening this debate, my right hon. and learned Friend the Member for Surrey, East (Sir G. 762 Howe) talked of the damaging effect upon industry that this increase in VAT will have. A very wide range of industries has been discussed in the debate. I shall talk about a particular manufacturing industry which is concerned with domestic appliances.
I am sure that there are many factories and types of manufacturing which we have not been able to mention but which will be affected seriously by this increase in taxation. It is not simply which will be damaged. It is also employment. I am concerned about employment in my constituency, where, as my right hon. and learned Friend the Member for Huntingdonshire (Sir D. Renton) said, there is a British Domestic Appliance factory making Hotpoint washing machines and employing about 1,500 people. This factory is a major employer in the area and is located at Llandudno Junction, just inside the development area boundary. Unemployment in the district is already very high.
In the Llandudno-Conway area, from which the factory draws many of its employees, male unemployment in April was 8.2 per cent. and the average for men and women was 5.6 per cent. The 8.2 per cent. figure was above the male unemployment percentage for Wales as a whole and above the average for the development areas in Wales, while the total percentage of unemployment of 5.6 per cent. was just below the similar figures for Wales as a whole and for development areas in Wales.
There is no doubt that the total unemployment percentage in the district was reduced by the fairly low unemployment rate among women. This is partly due to the opportunities given to women at this BDA factory. I must stress that it is the only major factory of its kind in the area and that the general prosperity of the area is, therefore, very dependent on its trading position. Quite clearly, the increase in VAT could lead to a cut-back in production, because about 90 per cent. of the 7,100 washing machines made in the factory every week are for home sales and only 10 per cent. are for export.
As a result of the increase in VAT the prices of the machines made in this factory will increase by about £18 to £20. The price of tumble-driers will rise by about £10 and the price of spin-driers 763 by about £5. With the new prices, demand will clearly fall and this may well mean lay-offs and redundancies. I hope that the Government Front Bench are listening to me, because I am talking about growing unemployment.
The shop stewards at this factory, representing the AUEW, the Transport and General Workers' Union and the ETU came to see me on Saturday. They are coming down to lobby the House next week. They have expressed their concern, and I certainly share it.
How the Chancellor reconciles this increase with the aims of his Budget on employment I fail to understand. How does he reconcile the effects of this increase with the policies of the Secretary of State for Industry who is busy investing in keeping people in employment? I fail to understand that, too. The union shop stewards argue, quite rightly, that washing machines are no longer luxury goods, that they are essentials. They are certainly not in the same category as radio and television sets, boats, aircraft, photograph equipment, furs and jewellery which are also subject to the higher rate. If anything they are more akin toappliances for water heating ordinarily installed as fixturesreferred to in the list of exemptions in Group 1 in Schedule 7.
According to the Digest of Welsh Statistics, 75.1 per cent. of households in Wales had washing machines in 1972 compared with 65.5 per cent. of households for the United Kingdom generally. Our higher percentage is probably related to the fact that we have a higher proportion of men working in the rather dirty, messy extractive and manufacturing industries compared with the United Kingdom as a whole, and a smaller percentage working in the cleaner, service sector. It is these hard-working people who will be hit by the increase in tax, and it particularly affects the large families who must have washing machines.
I appreciate the Chancellor's concern at the economic situation and the need to reduce the borrowing requirement by increasing taxation, but it seems in the circumstances that he is defeating his own ends. He is causing unemployment and he could clearly bring more money 764 into the revenue by a return to the 10 per cent. across-the-board rate.
There is a great deal of foreign competition in the washing machine market, especially from Italy. I am making inquiries with the EEC Commission in Brussels whether this competition is absolutely fair. My constituency is not the only one where the manufacture of washing machines is a major industry. There is a very large Hoover factory at Merthyr. To do anything which hits employment in South Wales at this time of steel closures and threatened redundancies of about 7,000 or 8,000 men is folly of the first order. There were 60,000 unemployed in Wales last month, the highest April figure since 1946. I urge the Chancellor to look again at the proposal and to consider its effect on employment throughout the country.
My hon. Friend the Member for Bodmin (Mr. Hicks) said that the Chancellor could bring in twice as much revenue by returning to the 10 per cent. rate and dropping the selective application of the 25 per cent. rate. If my hon. Friend is right I see every reason for the Chancellor to reconsider his proposal.
§ Mr. Michael Marshall (Arundel)
I have been in the Chamber since the Committee began to discuss this series of Amendments and I have listened to a number of constituency speeches. Of course, there is nothing to be said against that. On the contrary, there is a good deal to be said in its favour.
I think that the Financial Secretary will agree that one of the great problems of our system under our budgetary arrangements is that only when decisions are announced do the nationwide representations start to flow. The Financial Secretary has in one sense been the unfortunate recipient of many representations. We salute him for taking them on the chin over an extended period. Having said that, I must tell him that I shall need to refer to him a good deal as regards his recent discussions with the boating industry.
I have had to say one or two hard things about the Treasury Bench in recent months. I do not suppose that it is purely because of that that the Budget has been brought to bear so heavily on my constituency. However, if that is the case and if the scale of selection on the part 765 of the Treasury Bench is of that order, it has done an incredible job in threatening to undermine my constituency.
My constituency has three basic industries, all of which are affected by the amendments. First, there is the retirement industry. Here I take up the point made by my hon. Friend the Member for Conway (Mr. Roberts). One of the very first representations that I had against the Budget, which has since been repeated again and again, was from a pensioner who regards the use of a washing machine as a necessity. Whatever one might say about the good old-fashioned virtue of working hard in the kitchen, it is a godsend for the elderly to have a device such as a washing-up machine. Pensioners feel very much hit by this impost. Equally, they regard the increases in service charges as a totally unfair imposition. That is an increase which many elderly people do not properly understand. They do not understand why it should suddenly come out of the blue when they made long-term agreements many years before. That increase is a matter that they cannot be persuaded to accept.
I do not believe that the Committee would accept that such increases are ever properly matched by pension increases. We must face the fact bluntly that there is no way in which pension increases can be properly computed to take account of the sort of item that we have been discussing. My first charge is that VAT increases have hit the lives of many pensioners in my constituency.
I move on to another industry in my constituency which manufactures electrical appliances. I refer to the firm of LEC, which manufacture refrigerators. It will be hit immediately by this impost. It is a company which has diversified to the extent of having joint manufacturing facilities in France and in this country. That is typical of the kind of company throughout the country which will suffer as a result of the VAT impost. It is the sort of company for which the basic United Kingdom home market is essential if it wishes to develop an export market. An impost of this order is threatening its home market. That in turn will have its impact on exports. It will also threaten employment.
I, too, have many small traders in my constituency who are involved in tele- 766 vision rental. They, too, have made representations to me. I also have companies involved in matters such as process measurement. As the Financial Secretary will know from his encyclopaedic knowledge of his correspondence, I have been in touch with him about Process Measurement Systems of Arundel, a company which has raised a number of specific points which I know he will consider in due course.
I find that of all the industries in my constituency it is the boat building industry to which I must turn in particular. Littlehampton, for example, is almost entirely dependent on the boat building industry and its infrastructure, such as ships chandlers. The local trade has built up around the boat building industry. The Littlehampton community will be gravely threatened by the increased rate of VAT.
Here I turn to one or two matters which were brought out at a meeting earlier today at the House attended by more than 100 representatives of the boat building industry, representing builders from all parts of the country. It was a helpful occasion that encapsulated in one meeting views from right across the country not confined to the views of any one political party. It was said that VAT on a chain and anchor now stands at 8 per cent., but for the tackle, the piece that goes in between, the VAT is 25 per cent. Equally, a person who builds a boat from a kit will have to pay VAT at the 25 per cent. rate but a youth who decides to spend his money on building a motor cycle will have to pay VAT at the 8 per cent. rate. The social priorities there do not seem right.
The cash flow problems of the boat industry have accelerated in the last few years, yet the Treasury is seeking to impose a VAT tax of 25 per cent. payable on demand. That type of cash flow financing is difficult for the small boatman.
Some of my hon. Friends mentioned the problems of employment for younger people, and what they said was borne out by what we were told this afternoon. We heard from representatives from Southend that school leavers in the boat building industry were already being made redundant. There were references 767 to boat builders in Waterlooville who, having taken on six apprentices earlier this year, had to cancel their recruitment programme for a further six later this year.
The picture right across the country is the same. Representatives from the Midlands told us of the studies that had been made of the effect of VAT on the boat building industry in Holland. They described the decline of Dutch boat building as dating specifically from the high impost of VAT in that country. They put the question to us: will the Government never learn? We were unable to give an answer because, not representing the Government entirely in spirit and mind, we did not feel capable of producing a reply, even if there is one, which there is not.
I end by touching briefly on matters in which the Financial Secretary has a particular interest and, I trust, concern. One has to relate the taxation of the boat building industry to the saga of events over recent years. In 1966, when opening the International Boat Show in London, the then Chancellor of the Exchequer, the right hon. Member for Cardiff, South-East (Mr. Callaghan), said that he did not see any future occasion when taxes on boat builders would be increased provided they kept up their export record. At that time the boat building industry had exports below £10 million. In the near-decade since then it has quadrupled that effort to reach more than £40 million. By any token, the pledge of the then Labour Government in the sense of performance has been fully matched.
Let us come a little nearer to the present. Earlier this year sales at the Boat Show were declining, and problems were beginning to appear. By the middle of last year, although the repair and maintenance work was going well, new home sales were dramatically down. In the Autumn Budget of 1974 came a major body blow with the disallowance of loan interest as an income tax deduction for consumer purchases, including boats. The Boat Show this year saw sales once more further down and the lowest attendance in any year in its history, except in 1973 when there was a bomb scare. So the story goes on.
It was against that background that the Ship and Boat Builders National 768 Federation sought a series of meetings with the Government. Earlier this year the federation met the Minister of State, Department of Industry to put its case for the easement of mortgage finance. At that time the Government promised to give careful consideration to the matter. They said that they were impressed by the case put forward by the boat-building industry.
We come to March 1975. Three weeks before the Budget debate the representatives of the Ship and Boat Builders National Federation met the Financial Secretary. The minute of that meeting, reads:He indicated that he could not anticipate the Chancellor's Budget statement, but made the point that it was an appropriate time to make representations. His attitude was helpful throughout and the Federation delegates came away with the impression that because of its effect on other industries, no relaxation of credit restrictions would be forthcoming, but neither would any further burdens.Three weeks later a VAT rate of 25 per cent. was imposed. I know that the Financial Secretary could not have envisaged the Budget statement. However, it is clear that here we have a major industry which is vital to people living in constituencies on the coast. In this case they have identified the Government's good will and good faith in this matter with the hon. Gentleman personally.
I shall have the opportunity on the Adjournment to discuss those problems more widely. Although there will be other occasions when I shall be able to develop my arguments further, I hope that the Minister will take this opportunity to consider carefully whether the Government have been misunderstood in this matter. I think that he would do well to make the Government position clear. I hope that he will accept the arguments that this industry has been greatly affected and deeply threatened by redundancies. We shall look to him personally for assurances regarding this industry.
§ [Mr. GEORGE THOMAS in the Chair.]
§ Mr. Crawford
In Scotland VAT is in danger of being regarded as a very addled tax. However, my objection and that of my party to multi-rate VAT does not stem from the plight of the boat 769 builder, the glider pilot or the private flyer, although I was surprised to hear that private flying is not the province of the rich.
During Second Reading of the Finance Bill the right hon. and learned Member for Surrey, East (Sir G. Howe) spoke about the English disease. I said in that debate that Scotland did not suffer from that disease. However, Scotland is being made to pay for the profligacy of the South East of England. As usual, the House of Commons has failed to listen to the authentic Scottish voice. Scotland can sustain economic growth without overheating. Scotland must have lower tax levels in general. A VAT rate of 25 per cent. is not required in Scotland. That is the exact opposite of what is required there.
The hon. Member for Dumfries (Mr. Monro) said that he was worried about the effect of the higher rate of VAT on the nation's Olympic sporting activities. I remind him that when we have our own Government in Scotland and a Scottish Olympics team, we shall not impose high rates of VAT on these items.
There was discussion in a previous debate about the exemption to be given to different areas and different social classes. The Scottish National Party believes that there should be different treatment for Scotland. No Government of Scotland would impose a tax at this swingeing level.
I shall not make a constituency speech. Other hon. Members have already made speeches providing copy for the local papers. There are just as many caravan manufacturers and dealers in my constituency. One of the largest air training companies is situated in my constituency. Like other hon. Members, I have received petitions from men in small businesses, especially chemists, who are worried about multi-rate VAT. In small businesses at least one-half of a senior man's day at the end of the week is spent doing the books.
I have received a letter from a jeweller and optician who states:We find that the carrying out of the system laid down is an impossibility. It means that each shop assistant has to be versed in all the procedures and that each assistant must separately record each item they are dealing with, and frankly they cannot do so. For instance, when a sporting club leave their trophies with 770 us for engraving the trophies that are of silver have to be charged VAT at the higher rate and those that are silver-plated at the lower VAT rate.I could go on, but I shall not do so because it is getting late.
Small businesses have been hit hard enough. The SNP is opposed to further fiscal penalisation of the individual and of initiative. We are opposed to a multi-rate VAT which seems to appeal only to the bureaucratic mind. The trouble is that bureaucrats do not create wealth. Wealth is created by initiative. Multi-rate VAT will stifle initiative.
We support the amendment, but probably not for the same reason as other hon. Members on this side of the Committee. We support it for the reason that Scotland cannot bear to suffer any higher tax than in the past.
§ Mr. Robert Boscawen (Wells)
Hon. Members on both sides of the Committee have made an overwhelming case for this 25 per cent. VAT discrimination against certain industries and pursuits to be dropped. I hope we can persuade the Financial Secretary to come forward with better suggestions than he has already made.
This tax rate is an ignorant and pernicious move which makes me very angry. The Chancellor told us in one sweeping sentence that the goods concerned were not essential. But what is non-essential to him may be extremely essential to some people.
I shall quote only one example of how essential certain things are to one family, although this is typical of many hundreds. I refer to a disabled family. The Chancellor tends to forget that today many electric domestic appliances are essential to certain people. In a letter to me, a constituent says:I have psomatic arthritis which makes life difficult for me as I cannot use my right hand do any menial tasks—no lifting, gripping, squeezing, wringing. I cannot cut a slice of bread without my electric carverI have a family of seven—six beds and sheets etc. to wash—and consider a washing machine essential, not a luxury. Now my model, worn out with hard work, has broken down and I must"—the lady underlines the word "must"—have a new one. I cannot wash without one. So why must I pay 25 per cent. tax on luxury goods?771There are hundreds of women in the same condition and much worse than myself. I have spent time with them in hospital.Those are the sort of people for whom these goods are essential. That is why this is a thoughtless tax.
The case for the boating industry has been well made by all hon. Members who have spoken. I have been connected with the boating industry for half a century and have many friends in it. I know that this is a body blow to the industry.
Boats of all sizes are expensive. They have to be seaworthy. They have to be well made to be safe. They require a lot of skill and craft, and that costs a lot of money. Therefore, to impose 25 per cent. VAT on them is bound to be a body blow to the industry. It will create unemployment in a highly-skilled industry which has never been very profitable but is essential to many parts of the country. This applies not only to coastal areas, such as the West Country where I come from, but inland, since many boats and much equipment are today made inland.
Therefore, it is a very ignorant action to have singled out this industry, together with the caravan trade. For families who like to have a family holiday together, there is no other way of getting away from their homes than by caravan, because they cannot possibly afford to go to a boarding-house, hotel or the like. Again, therefore, I say that it was ignorant in that respect.
The third point I wish to make briefly to explain why I think it is a pernicious thing to have done is that one of the most loathsome things about British society today is the growing measure of dishonesty in practically everything in life. It is not that the British people want to be dishonest, but they are tempted and encouraged in it largely by the legislation, regulations and taxes that come from Parliament. Year after year we have taxes that can be circumvented easily because of anomalies. It has been said that one can buy a hand-operated mowing machine at 8 per cent. VAT and the next week buy an engine at another shop and screw it in oneself, whereas if one bought a motor mowing machine the VAT rate would be 25 per cent. There are plenty of people who will take pride 772 in having got round the 25 per cent. rate by some little fiddle because of one of these anomalies.
It is a loathsome thing to increase the amount of dishonesty that exists already, but the Labour Party has done as much as anybody in this country to make people as dishonest, petty and mean-minded as they are becoming today. I am very sorry indeed that this 25 per cent. tax has been imposed.
§ Mr. Robert Kilroy-Silk (Ormskirk)
It seems rather extraordinary that in debating this amendment we should have a major attack on the Government for having caused dishonesty among the public. While I might have many criticisms to make of my right hon. Friend, I find it inconceivable that the hon. Member for Wells (Mr. Boscawen) should now suggest that this tax will create dishonesty within the country.
§ Mr. Boscawen
Does the hon. Gentleman mean that this sort of tax which is being imposed in this way will not create an enormous quantity of petty fiddling?
§ Mr. Kilroy-Silk
I cannot speak for the hon. Gentleman's constituents, only for my own, and I would certainly say that my constituents would not stoop to dishonesty. [Laughter.] Hon. Gentlemen opposite show an extraordinary degree of cynicism about their own constituents. I happen to believe that mine are honest, otherwise they would not have elected me. I am sure you will agree, Mr. Thomas, that it is a rather extraordinary situation that hon. Members opposite should now cast doubts on the integrity of the British people and should even suggest that the British people would stoop to dishonesty in order to evade the tax.
§ Mr. Ridley
Does the hon. Gentleman think perhaps that his constituents elected him because the Chancellor said inflation was down to 8.4 per cent.?
§ Mr. Kilroy-Silk
That is the kind of irrelevance to which we are accustomed from the hon. Gentleman.
Having listened to some of the speeches of hon. Members opposite, one could be forgiven for believing that it was not a Tory Government that imposed VAT. It seems strange that Conservative Members have discovered for the first time tonight 773 all the manifest difficulties and anomalies of VAT, which have been pointed out many times in the past. After all, they imposed it on the public, ruthlessly, resolutely and—dare we suggest it?—even perhaps a little dishonestly. The tax originates from that institution that they all admire and of which they so much approve, the Common Market, entry into which they forced upon the British public without even seeking their approval, let alone obtaining their consent.
Opposition Members make constituency speeches for consumption back home, with no intent to debate the issues. They should think a little more clearly about the origins of the tax and about their own record.
§ Mr. Norman Tebbit (Chingford)
If the hon. Gentleman and his hon. Friends think that VAT is such an awful tax, why do not his Government advocate abolishing it and advocate coming out of the Common Market to do so?
§ Mr. Kilroy-Silk
We shall, after 6th June. I had not expected to arouse so much animosity from the Opposition. I wandered into the Chamber almost like Wordsworth's lonely cloud to see what was going on. Seeing the paucity of Members on the Labour benches I thought that I might lend the Government a little support. I had hoped for the quiet, moderate reception that my hon. Friends accorded to Opposition Members. [HON. MEMBERS: "They were not here."] Precisely. Opposition Members have been heard in almost deferential silence, the kind of silence that is generally accorded only to the right hon. Member for Down, South (Mr. Powell). [HON. MEMBERS: "Oh"] The Financial Secretary to the Treasury should never be deferential.
The hon. Member for Wells said that my right hon. Friend the Chancellor seemed to have a peculiar notion of what was essential and what was a luxury. I agree, but Opposition Members seem to have spent most of their time defending the boat makers. There is a major distinction between washing machines quoted by one Conservative Member as essentials, or electric irons, and large luxury boats clogging up so many of our sea lanes. I do not think that hon. Members can sincerely suggest that there is 774 the same kind of case for the exception of boats from the increased value added tax as for exemption of a large range of our normal consumer durables.
My right hon. Friend the Chancellor seems to exhibit the Puritan ethic to a certain extent, in defining as luxuries many items that many people now consider part and parcel of their everyday lives, tools and implements for carrying out their everyday affairs. Yet my right hon. Friend described them in a sweeping statement as luxuries and imposed a higher rate of tax on them. I do not regard washing machines or electric irons, for example, as luxuries, and I do not believe that many people would.
I know that the debate later tonight will be concerned largely with the higher rate of VAT on television rentals. I have received many complaints from constituents, particularly pensioners, about that imposition. For many people who lead lonely and isolated lives, especially pensioners, television is one of the few sources of company and the only source of entertainment. Many such people are not only having to pay the higher rate of tax but are having to pay it retrospectively. I ask the Chancellor of the Exchequer to look at this again very seriously and very sympathetically. Television for such people, many of whom are disabled, handicapped and housebound, is not a luxury. It has come to be regarded as an essential.
In many cases they will not, because of the higher rate of VAT, give up their television. They will wish to retain the kind of company and conviviality that can be provided to such people only by their television sets. They will presumably go without more necessary things in order to retain their television. In particular, I suspect that they will go without food. I should like to support Opposition Members who have made the same point.
One of the very disturbing features of the Chancellor of the Exchequer's raising of the rate of VAT is the effect it will have upon employment levels in the country as a whole. Increasing the price of consumer durables must inevitably mean a reduction in the demand for them, because this demand is not inelastic. The demand reacts very quickly and accurately to changes in price. If the demand 775 for those consumer durables falls, so also will the demand for the labour that produces those consumer durables. A large part of the industrial estate at Kirkby is concerned with making the kind of consumer durables that the Chancellor of the Exchequer classes as luxuries and commodities such as are now to suffer this much higher rate of tax.
Kirkby and Merseyside as a whole, is an area of very high levels of unemployment. The level in Merseyside alone is well above the national average. The level in Kirkby is even higher. It is also, paradoxically, a low pay area. This new imposition of tax will seriously jeopardise any future employment prospects that that area might have had. The area already suffers from a series of very severe and very difficult handicaps. What is needed is help, and one would have looked to the Chancellor of the Exchequer for a more discerning, a more discriminatory and a more sensitive approach, than the somewhat blunt instrument of virtually across-the-board increases in VAT that we have had from him.
In particular, there are many juveniles in my constituency who are unemployed, and who have no prospect of obtaining a job today, tomorow, next week, or perhaps in many cases next year. There are 230 who are aged 18, who left school two years ago and have yet to find their first job, not because they are lazy, lack ability or are unwilling to work, but simply because they are unable to find suitable work in the area to which to apply their talents. It is the Government's responsibility to provide employment and career opportunities to those young people. The Government instead have reluctantly, in effect, jeopardised whatever employment opportunities those juveniles and many of their parents may have had.
It is ironic that on the one hand we should express such concern for the level of unemployment and for the plight of the people who are unemployed, and then, on the other hand, take measures which we know full well can only have the result of increasing the numbers unemployed. It is strange that a Chancellor of the Exchequer should take these measures, and admit in his speech that the effect 776 will be to increase unemployment, at one and the same time as my right hon. Friend the Secretary of State for Industry is attempting to bring far more industry to Merseyside and to Kirkby. Indeed, twelve advance factories have been located in Merseyside—six in Kirkby in the last year—yet whatever employment opportunities they may have created will be largely vitiated by the Chancellor of the Exchequer's measures in imposing a higher rate of VAT on consumer durables of the kind that are manufactured in my constituency.
The Kirkby Industrial Estate encompasses a range of industries, very largely engineering. Some of them are not directly manufacturing the products which are now subject to the higher rate of tax, but they are manufacturing the parts and components of those products, and any reduction in the demand for the products themselves inevitably will have its impact upon the demand for components and on the employment opportunities of my constituents.
I have on another occasion indicated my attitude to my right hon. Friend's Budget package as a whole. I should like to think that the Chancellor of the Exchequer will at least take time to reconsider some of the specific measures that he is proposing, and that he will sympathise and have the time to consider their impact not just upon the economy as a whole but upon certain sections of the economy and certain groups of individuals in society. I ask him specifically to devote more of his time to employment in areas such as Merseyside and the part of the world which I represent rather than, as he seems to be, creating unemployment. Perhaps, too, he might reconsider his decision to increase the VAT on rented television sets, especially as it applies to pensioners.
§ 9.30 p.m.
§ Mr. Ian Lloyd (Havant and Waterloo)
I hope that the hon. Member for Ormskirk (Mr. Kilroy-Silk) will not mind if I do not pursue his tour d'horizon of the industrial estates of Kirkby. It is obvious that the Committee has a great deal to learn from the hon. Gentleman, but I do not think that the reciprocal of that is true.
This has been an interesting debate. I must first express my sympathy for 777 the Financial Secretary. During the greater part of the debate he sat on the Treasury Bench entirely alone, like some Robinson Crusoe on a desert island. For several hours his only company was his Man Friday, the hon. Member for Gateshead, West (Mr. Horam). Finally, even Man Friday departed into the fiscal undergrowth leaving the Government benches deserted until about 20 minutes ago, when the Financial Secretary was joined by a group of political maidens.
§ Mr. Lloyd
No, only about the hon. Gentleman's political experience, which may or may not be the same thing.
Understandably, this debate has almost been monopolised by hon. Members representing West Country constituencies, and we have sympathy for them in the expression of their concern about the plight of the boating industry there.
The debate has also shown a surprising degree of unanimity. Perhaps that is less surprising than many might normally think in terms of the usual political controversy. Clearly there has been unanimity on all sides about the undesirable nature of this tax not only on boats, to which I intend to refer specifically, but on caravans, electrical goods and the whole range of commodities to which it will apply.
The only disagreement is about which of us has the largest boat building interest in his constituency. I only just heard my hon. Friend the Member for Christchurch and Lymington (Mr. Adley) claim that distinction for himself. I had intended to claim it for myself. This is a controversy which probably can be solved by our being invited to each other's constituencies to verify the claim.
§ Mr. A. P. Costain (Folkestone and Hythe)
If this tax is enacted, I doubt whether my hon. Friend will have any boatyards left in his constituency.
§ Mr. Lloyd
I am inclined to accept that.
May I declare an interest? First, I have no hesitation in saying that in my leisure moments I am a yachtsman. [HON. MEMBERS: "Oh!"] I wish that more 778 Government supporters were yachtsmen. They would be more understanding of our predicament if they were.
Secondly, I have in my constituency probably the largest—though I am prepared to make a concession about that—and some of the most distinguished firms in the industry. I name a few of them. There is Halmatic, a firm which makes the plastic hulls for most of our yacht industry. Then there is Lewmar, the firm which makes winches which are used by our Admiral's Cup team and which exports 85 per cent of its production. A very large proportion of its exports go to the United States. It is one of the largest dollar earners in my constituency. Twice it has won the Queen's Award. There is also Westerly Marine, which is a very successful boat building firm. It has expanded dramatically over the past few years. It exports over 50 per cent. of its production, a very considerable proportion going to the United States. This is an industry which is in the forefront of the world yachting industry not only in this country but also in the United States. My experience of firms in my constituency is that the majority of them export 50 per cent., or more of their production.
What is the motivation for this tax? Is it the chip on the national shoulder flashing like a strobe light on top of the highest mast of the largest yacht in the country? Is it possibly the use of a national sledgehammer to crack—I was about to say a celebrated nut, but perhaps that phrase is likely to be misinterpreted. Even if I change the wording to "a few celebrated nuts", including possibly myself, it would still be liable to misinterpretation.
Therefore, I ask, is it the purpose to crack down on that group of distinguished and publicly conspicuous yachtsmen who spend considerable sums and a considerable proportion of their private fortunes every second year launching yachts to compete in the Admiral's Cup? That may be the intention of the Treasury, but at least if Britannia can no longer send a cruiser in circumstances similar to those in which the United Staes acted yesterday perhaps we can field a cruiser in the Admiral's Cup and bring recognition and glory to this country in a way that we cannot do by more military means.
779 Is it, perhaps, the triumph of an obsolete political stereotype over sensible economic judgments? It may be all of these things in some combination.
What will be the results? I suggest that they are wholly predictable. Many of them have been summarised in some of the speeches that we have heard today. There will be a catastrophic fall in the turnover of the industry. My right hon. Friend the Member for Taunton (Mr. du Cann) mentioned Holland and France, which have already gone along this road and have discovered how disastrous it has been for firms in those countries. They have lost a national lead, because at one time they were very close on our heels.
This tax will lead to the collapse of numerous firms already strained by the hire-purchase restrictions. It will undoubtedly lead to serious and perhaps, more important, highly localised unemployment. This again is something which, in the present context of our national affairs, no Government would cheerfully or honestly support.
It will certainly lead to the loss of British supremacy in significant areas of yacht technology. I have mentioned hulls, winches, rigging, instrumentation and a range of other important products in which we have a very dominant position in the world market, not least in the United States. It will lead to the whole commerce of this industry being strangulated by all the labyrinthine regulations of multiple VAT.
I very much endorse the comments of my right hon. Friend the Member for Taunton about our penchant for introducing 50 pages of regulations for each new Act that we introduce, whether it is in the fiscal or any other sector.
Finally, as another of my hon. Friends has pointed out, the tax will result in repairs and refits being drastically pruned, possibly to the detriment of safety at sea.
What are the alternatives? The onus rests on those of us who wish to eliminate a tax of this kind to propose how the Treasury can obtain its revenue elsewhere. I go along wholeheartedly with all those who have said that what should have been done was to put VAT as a whole back to 10 per cent. I say that not only because I believe that the addition 780 of some £200 million or £200 million-plus to the revenue would be right in the present circumstances but because I am prepared to go on record and say that within three to six months at the very latest, the Chancellor will come to the House and ask the House for a further turn-round of approximately £2,000 million in net revenue for the central Government—obtained either by a reduction of a further £1,000 million of Government expenditure plus a further £1,000 million of taxation or by some combination of the two.
When we compare the figures we are talking about with these prospective magnitudes, I have no doubt where the Government will stand. If the Chancellor will not give an inch, let him at least remove the restrictions on hire purchase if he wants some of his tax paid. Otherwise, because of the financial situation in industry, there will be no one to buy the products and pay the tax.
If neither of these alternatives appeals to the Chancellor, let him consider some fiscal means to prevent the collapse of the export markets of these firms. The Chancellor may not know left from right, politically or otherwise. Certainly he does not know port from starboard. The Prime Minister's continual boast which we hear so often, that the Government have taken the country from a three-day week to far better economic horizons, is now beginning to wear thin and sound hollow. This is an example of what I can only describe as 3-D Government—doctrinaire, damaging and disruptive. If I may choose alternatives to those three adjectives, I would use "discriminatory", "disinterested" and "disillusioned". This tax will add a severely disillusioned industry to a profoundly disillusioned country. It should not be put on the statute book.
§ Mr. Peter Snape (West Bromwich, East)
It is with some reluctance that I intervene at this stage. I hope that in the short time I have been a Member of the House I have not given the impression of being an unduly truculent character. But listening to some of the speeches by Tory Members, I never fail to be amazed by their general hypocrisy. They and many of their equally patriotic friends in Fleet Street are rampaging the country—some of 781 them are rampaging Western Europe or even further afield—selling this country short and telling everyone how this wicked Socialist Government are undermining confidence and how, if this wicked Government remain in office for much longer, the whole economic structure of our nation will be eroded.
At the same time as Tory Members and their friends spread their pernicious doctrine, they regularly propound in the House fiscal policies which they proceed to attack outside it. Neither they nor their friends in Fleet Street can say that personal consumption should be reduced and then complain when a Socialist Chancellor decides to do just that. Many Labour Members are critical of some aspects of this Finance Bill, particularly Clause 17.
§ 9.45 p.m.
§ Mr. Michael Marshall
Will the hon. Member tell us when he came into the Committee? He is quoting what some of my hon. Friends have said. Since we have been debating this from about half-past six, it would help if he could confirm the time that he arrived here. It will give us some idea how much he has heard of what we have said.
§ Mr. Snape
The hon. Member thinks that financial matters are the prerogative of the Conservative Party. I and my hon. Friends have an equal right to speak in this or any other debate. If the hon. Gentleman resents Labour Members making contributions, irrespective of whether he agrees with them, I suggest that, like many of his hon. Friends, he is not the democrat he professes to be.
No one would say that household goods are luxuries. We all regret that the Chancellor has imposed the 25 per cent. rate of VAT on such commodities. As my hon. Friend the Member for Ormskirk (Mr. Kilroy-Silk) has said, there is a majority in the Tory Party that embraces wholeheartedly the principle of VAT as representing one more step on the road to Rome. That majority can hardly complain that multi-rate value added tax is a feature unknown within the Common Market. They can hardly complain that what the Chancellor has proposed is an innovation as far as this tax is concerned. On this, as on so many other issues, they want it both ways. They want to make 782 nice constituency speeches. They want to make the local newspaper readers appreciate their wholehearted devotion to the task of looking after their constituents in this House and in Committee, and yet they wish to attack the Government for attempting to reduce public consumption one way or another.
There are some Labour Members who, I hope, are a little less cynical about these matters than some Conservative Members. I listened with some interest to the hon. Member for Wells (Mr. Boscawen) talking about tax evasion and how this measure, like others, would increase the tax evasion industry in this country. Far be it for me to cast aspersions upon Conservative Members, but one or two hon. Gentlemen have made a fairly lucrative living out of advising other people on how to evade their financial responsibilities. There are quite a few Labour Members who deplore the attitude taken by the hon. Member for Wells, knowing the backgrounds of some of his hon. Friends.
I should like also to refer to the contribution made by the hon. Member for Havant and Waterloo (Mr. Lloyd), who I notice has left the Chamber despite the fact that it is custom and practice in Committee to listen to the speech following one's own. The hon. Gentleman referred to the 25 per cent. rate of VAT on boats. I do not think that any of us in our wildest dreams or by any stretch of the imagination could say that a boat was an essential in this day and age. All of us deplore the employment effect of VAT on the boat building industry.
Again we come back to the double standard inequitably adopted by the Conservative Party. Conservative Members are quite prepared to attack the car workers, the builders, the railwaymen and the coal miners for the amount of money they spend. They are quite ready to attack those groups of workers for demanding, in the case of the railwaymen, the horrific sum of £35 a week for 40 hours' work. From what I know of railwaymen, there are comparatively few railwaymen who would have their names down or their orders in for any boats. Surely it is a matter for my right hon. Friends to decide which sections of this community are best able to bear the financial penances which we must all undergo.
783 Without wishing to be accused of expounding the politics of envy, I argue that those with the broadest backs should certainly bear the biggest burden. If a particular section of society feels that a boat or the acquisition of a boat is essential to the maintenance, preservation or even the increase of its standard of living, I am not one of the people who say that it should not have one. But in the current economic circumstances the Minister is quite right to say to those people that if they can afford a purchase of that kind, they should be good patriots—as hon. Gentlemen opposite always profess to be—and, perhaps, contribute a little something to the Exchequer in order to alleviate or reduce the burden of others.
§ Mr. Toby Jessel (Twickenham)
Is the hon. Gentleman aware that 62 per cent. of boat owners are in what the advertising industry describe as "socio-economic group C", which includes skilled workers, teachers, bus drivers and people like that? Does he not accept that the true reason for the Government putting this penal tax on boats and boating is that it is a sport for doers rather than for watchers?
§ Mr. Snape
I shall be charitable enough to ignore the second part of the hon. Gentleman's intervention for the nonsense that it was. On the first part of his question, I never like to categorise into socio-economic groups A, B, C or D. As far as I am concerned, people are people. Unlike the hon. Gentleman, I do not read the sort of journal which categorises people in this fashion. I can only say that the hon. Gentleman has attained some publicity lately because of his proposed one-man Common Market meeting. What he has just been expounding is perhaps a doctrine which he could better expound at that meeting. Not only could he put that point forward, but he could answer it himself.
I turn to the whole question of multi-rate VAT, on any commodities or any range of goods. I have received petitions from various retail groups—like many hon. Members, I presume. One of these petitions was signed by over 400 people. They have been asking that multi-rate VAT should not be introduced in the current Bill. Obviously the administrative problems which such an introduction will bring about will be considerable. They 784 will add a great deal to the burdens already being borne by many small shopkeepers and others who work in the retail trade. But again, when VAT was introduced as a successor to selective employment tax we were told what a splendid and logical piece of tax raising machinery it was. With the benefit of hindsight, perhaps, after a couple of years or so of VAT, I have come to the conclusion that compared with VAT, selective employment tax was a charitable gift from the gods to British industry, and that the whole principle behind VAT is surely a nonsense. I know that my hon. Friend the Financial Secretary shares my view about the origins and background of the introduction of VAT.
However, we return to the question of credibility. Opposition Members, as is their wont, have been talking about political honesty. The hon. Member for Wells said that the present Socialist Government were bringing about a general lowering of standards of honesty. It was surely the epitome of dishonesty to suggest two years ago that the introduction of VAT would somehow be far more beneficial to industry and to the payer than its predecessor, SET. Now, after two years of VAT it is being suggested that because on a comparatively minor range of commodities VAT has been increased to 25 per cent. the whole structure, fabric and integrity of British society has been damaged.
§ Mr. Boscawen
Perhaps I may interrupt the flow of eloquence about this matter and repeat what I was trying to suggest. The more we load this country with detailed legislation and ever more complicated taxes, the more we invite the anomalies and the opportunities for people to try to find a way around them. That creates petty dishonesty, going wider and wider, and that is what I object to.
§ Mr. Snape
The hon. Gentleman does not seem to wish to understand the point that tax evasion within the Common Market is recognised as a thriving business. Some of his hon. Friends have thriving businesses in the same sort of thing. Multi-rate VAT, as I tried to say earlier in the hope that the hon. Gentleman and some of his hon. Friend would at least try to understand, is not an innovation in the EEC, and tax evasion within the EEC is a thriving industry.
785 Many thousands of much maligned workers in Britain have no opportunities to evade their taxes or financial responsibilities. The hon. Member for Hertfordshire, South (Mr. Parkinson) can shake his head until it falls off, but that happens to be true. Those of us who are members of the PAYE club have no opportunity to evade our taxes—nor do we desire any such opportunity. Unlike some Opposition Members, we do not set ourselves up as super-patriots because of that, but at least we have some measure of self-respect because we can contribute towards bringing about the sort of society which we wish to embrace.
§ Mr. Cecil Parkinson (Hertfordshire, South)
The hon. Member should take a look some time for his own education at the scale of travelling expenses and subsistence allowances that, for instance, the old ETU collected. Many people who are assessed PAYE draw subsistence allowances and travelling expenses which more than cover the cost of subsistence and travel.
§ Mr. Snape
I must apologise for having been drawn up the electrical path by the hon. Member, but he seemed to be making a relevant, if obscure, point on the clause.
The Opposition may huff and puff about what they term an unjust, drastic and terrible imposition on the people of this country, but in their honest moments, perhaps in reflective mood, I am sure they would agree that the imposition on boats and shipbuilding will affect a comparatively small number of people.
786 I join my hon. Friends in regretting the imposition of VAT on electrical goods and the inevitable financial penalty which will be imposed on those least able to bear the burden. Unlike the Opposition, however, I try to make some effort to understand the Chancellor's problems. We know, the Opposition know and the whole country knows that they were contributed to in no small way by the incompetence of the previous Conservative Government.
§ Mr. Tebbit
I shall not take up the points raised by the hon. Member for West Bromwich, East (Mr. Snape). The only thing I shall say about his speech is that it was probably a good one the first time it was made, round about closing time some weeks ago. As for his general remarks about tax avoidance, I am sure that on some other occasion the Chief Secretary would like to deal with those who have made a very good living, a lucrative living, out of advising people on how to avoid the more ridiculous taxes which have been imposed upon them. At times I am tempted to believe that he feels that he might soon be made redundant and that the Bill is part of his pension fund, because no doubt he will return to his former job.
I do not propose to add to the general case that 25 per cent. VAT is a particularly stupid measure even from this particularly stupid Government. I do not intend to deal with the items which are covered by this higher rate. My hon. Friends have dealt with those aspects throughout the debate when the Labour benches were empty, except for the unfortunate Minister who sat there listening. It is very unfortunate for a Minister to have to listen to a succession of speeches telling him that his policies are wrong when he does not have any of his hon. Friends to support him. We should return straight away to the general 10 per cent. rate of VAT. No doubt we shall do so before very long.
I deal with the imposition of the 25 per cent. rate as it is to be levied on aircraft and flying. First, the revenue will be extremely small compared with the work created for the individuals involved in the industry and for those involved in its collection, including the Treasury. Even when we consider the 787 Chancellor's somewhat erratic aim, it is clear that there are a host of grotesque anomalies. The Bill proposes to place 25 per cent. VAT on aircraft of less than 8,000 kilogrammes that are designed for recreational or pleasure use. If anyone can find in this country an aircraft of more than 8,000 kilogrammes that has been designed or adapted for recreational pleasures, he will surprise all the experts in the industry.
§ Dr. Gilbert
I am grateful to the hon. Gentleman for giving way. I am sure that he is making a forceful point, but will he explain why that distinction was introduced in the Finance Act 1972 by the then Conservative Government?
§ Mr. Tebbit
I am not responsible for that Act. I am making my own speech. I am speaking about the distinction between 8 per cent. and 25 per cent. VAT. If the Minister is proposing to take without criticism any legislation that was passed by my right hon. Friends, all well and good, but let him explain his legislation right now. It may be that he wants to include in item 3(b) of Group 3 of Schedule 3 aircraft which are used for what is known as joy-riding. If so, I should remind him that that is not a different operation from tourist trips on London Transport buses.
Does the description to which I have referred mean anything at all? Is the weight of 8,000 kilogrammes the dry weight, the empty weight, the equipped weight, the maximum authorised take-off weight, the maximum authorised taxi weight or what? Why the limit of 8,000 kilogrammes? Is it to catch the recreational flier but not the business and commercial flier? Presumably that is so. If that is so I must tell the Financial Secretary that he has the wrong weight.
I have before me a copy of Flight of 6th March, which contains a private aircraft guide. The largest aircraft listed in the guide are light twins of up to 6,000 lbs. gross weight whereas 8,000 kilogrammes is approximately 17,600 lbs. A typical light twin is the Cessna 310. The aircraft has a maximum weight of 5,500 lbs. That is less than a third of the Chancellor's limit. That aircraft, when equipped with reasonable avionics and deicing equipment, is priced at over £60,000 excluding VAT. That is hardly the sort 788 of thing that the private owner is likely to buy for fun.
An 8,000 kilogramme aircraft is something like a Learjet. They are priced at £500,000 a time. They are obviously not intended for private use. That sort of aircraft is bought by business concerns for business use and by air taxi operators. Not even light twins are normally bought by private owners. There are approximately 1,400 privately-owned singleengined aircraft in this country and 200 privately-owned light twins. Those are aircraft that are used for purely private purposes. I doubt whether more than 10 of those aircraft are above 5,000 lbs., let alone anywhere near 8,000 kilogrammes.
One class of aircraft which presumably will be caught and I hope that the Financial Secretary will reassure us about this—is the vintage military aircraft which is preserved by museums and individuals in private flying collections. A Gloster Meteor, for example, weighs in at 14,700 lb. and on this the Chancellor will have his pound of flesh. But to what end, except to wreck the prospect of saving these aircraft which give pleasure to many millions of people? Will there be an exemption for aircraft which are more than 10 or 15 years old? That would be helpful. Does "aircraft" in the Bill include aircraft no longer in flying condition?
§ Sir David Renton
It is not merely that these aircraft as museum pieces give pleasure to people in our generation. If they do not find their way into museums in our generation later generations will resent our folly in preventing that from having happened.
§ Mr. Tebbit
My right hon. and learned Friend is right, but that will not be the only folly of this generation which succeeding generations will regret. That is for certain.
If aircraft are no longer in flying condition, can they be classed as something else, for example as scrap, subject to 8 per cent. VAT? If they are classified as scrap, supposing some are then restored to flying condition? Would they then go back to being subject to 25 per cent. VAT? The Chancellor has to think these things out.
My feeling on reading the Bill is best summarised in the expression "Gerald 789 Nabarro, please come back, all is forgiven". Unless his ghost is seen during the proceedings on the Bill, I for one shall never believe in ghosts. This is the stuff that Gerald Nabarro fought against for years and now the same rubbish is coming back again.
I give the Minister a piece of advice. If the Chancellor must persist in this idiocy he should at least choose the right weight, the right cut-off limit, which is probably 5,000 lb. not 8.000 kilograms, which is the CAA AOC weight limit, at the very highest.
Then there is the question of the definition of parts and accessories. Schedule 7, Group 3, Item 7, tells us that the 25 per cent. will be levied on parts of aircraft which are of a weight of less than 8,000 kilograms, and we find that there are certain exceptions:except parts within the exceptions from Item 5 of Group 1".If we turn to Item 5, Group 1, we find that among the exceptions are wheels other than steering wheels, casters and tyres and parts of such goods. Does that mean that an aeroplane is taxed at 25 per cent. but its wheels are taxed at 8 per cent.?
What sort of lunacy is the Bill? Who drafted it? Was it drafted by a "temp" brought in from Rentaclot who had never drafted anything before? It is an absolute mess. Apparently, parts will carry 25 per cent. VAT and accessories 8 per cent. What is a part of an aircraft and what is an accessory? Are navigational lights part of an aircraft? Is de-icing equipment an accessory? The British Light Aircraft Centre does not seem to know—and it does not know because the Treasury cannot tell it.
Lunacy of lunacies in a lunatic Bill, what about a hook fitted to an aircraft for the purpose of towing a glider? The aircraft is taxed at 25 per cent., the glider is taxed at 25 per cent. but the hook to tow the glider is taxed at 8 per cent.
Even more extraordinary, the British Light Aviation Centre has been told—and I quote from the BLAC newsletter:Although the Customs and Excise Officials are seeking clarification of the situation, a glider flight winched into the air carries 8 per cent. VAT but an aircraft-towed launching carries 25 per cent. VAT.790 What on earth is anyone to make of this legislation? By the time the avoidance experts have got to work on it there will not be much revenue for the Chancellor, but the work he will cause and the hurt he will cause will do many small businesses and many people a great deal of harm.
It is all very well to say that nobody needs a boat, but somebody needs a job building a boat, and someone needs a job in the aircraft clubs and in the small aircraft firms conducting these operations—
§ Mr. Tebbit
No. I regret that I cannot give the hon. Gentleman the courtesy of giving way, but he did not give the Committee the courtesy of listening to the debate which had been going on long before he came in.
Not least, the proposals are a tax on safety. For example, it is proposed that aircraft radios will be taxed at 25 per cent. Yet those radios are safety equipment not only for the aircraft on which they are fitted but for all other aircraft using the same air space. The maintenance charge is to be taxed at 25 per cent. There will be a 25 per cent. tax on the charge made for the issue of a maintenance certificate, which is also required for safety purposes. Whether that tax will be levied at all times I doubt, but it will certainly bear heaviest on those who are least able to pay it.
The Opposition suggested that yachting and flying were minority sports of the rich. I should like to quote a letter from the London Transport central road services sports association flying club. It was written by the chief flying instructor and addressed to the BLAC. The chief instructor, Mr. Parker, wrote:As you know, this club is run for employees of London Transport and it enables our bus driver and conductor members to enjoy the pleasures of flying at a price which is within their means.That is what private flying is all about now. One of the contestants in tomorrow's national air race, who will be flying a Tiger Moth aircraft, is a London bus driver. This is not a sport which is reserved only for the rich.
§ Mr. Tebbit
The CAA report showed a few years ago, as did last year's report on businesses and general aviation in the south east, that approximately 30 per cent. of owners of private aircraft had an income of less than £3,000 a year. That referred to 1973. Again, that is hardly a rich man's sport.
It is not only the purchase price of aircraft which is subject to VAT. The aircraft hire charge is also subject to it. That hurts the bus drivers and others of modest means who wish to fly, glide or fly a balloon as opposed to taking a holiday in Majorca, or a package trip—and a good many of them do that, too.
It is a total idiocy that a 25 per cent. rate of VAT should be imposed on flying and not on other sports. Even within the ambit of those items which are to be taxed at 25 per cent. there is extraordinarily discriminatory treatment against flying. People can hire a boat by the hour, a holiday boat, or a caravan for up to 28 days and pay 8 per cent. VAT. However, the hire price of a glider, a balloon or an aeroplane is subject to the 25 per cent. rate. Will the Financial Secretary tell us why that should be so? I imagine that the reason is either prejudice or ignorance. It is prejudice and ignorance which is unfair to many people. It damages trade—not least the invisible earnings arising from the training in Britain of pilots from overseas. Solo flying will bear a VAT rate of 25 per cent. However, the rate will be only 8 per cent. if a student is accompanied by an instructor. Solo flying is a requirement for the issue of a pilot's licence and for its retention.
Mr. Rex Smith, the managing director of CSE Aviation, tells me that his company now earns £1.5 million a year from training foreign pilots in Britain. He tells me that this new imposition will add £580 to the cost of training a commercial pilot. Although companies can recover the cost, individuals cannot.
Competition from overseas schools is already tough. This tax will lose business to firms like CSE. It will lose jobs for their employees and good trade for this country. It would be surprising if, under the twin burdens of 25 per cent. 792 VAT and the CAA's grossly inflated charges on licence holders and aviation generally, firms like CSE did not go abroad to the Republic of Ireland or the continent of Europe where business matters seem to be better understood than here in Westminster.
This part of the Bill in its attitude to aviation and those who find their living or pleasure within it encapsulates the whole of the Government's failings which are the cause of our rocketing unemployment, our soaring inflation and our plummeting pound. It is, again, ignorance and prejudice. The whole of the Bill, particularly this part of it, is ill-considered, badly drafted, complex and shot full of nonsensical anomalies. It will be ineffective for its declared purpose. It is unfair, arbitrary, senseless and hurtful to those who have no need to be hurt. Above all, it embodies the greed, the envy, the malice and the incompetence which are the hall marks of British Socialism today.
I know that all my hon. Friends will be in the Lobby tonight to vote against the 25 per cent. VAT [HON. MEMBERS: "All?"] All my hon. Friends will be in the Lobby tonight. I hope that the Liberals will also be in the Lobby. I hope that the Scottish nationalists, especially those who spoke against the 25 per cent. rate of VAT, will stay on to vote against it, although I rather doubt that.
This is a particularly scruffy and obnoxious part of a particularly scruffy and obnoxious Bill. I will say nothing about what I think of those who bring it forward.
§ Mr. Winterton
I shall endeavour to be brief, but I should say straight away that I am delighted to have four Treasury Ministers to listen to my contribution.
I believe that multi-rate VAT is a crass stupidity and deplorable nonsense. However it is not my intention to attack the Government but rather to point out the error of their ways and obtain their sympathy and support for some of the points which I intend to make, so that at a later stage amendments can be brought in, not necessarily by the Opposition but by the Government, to improve the Bill and remove some of the more unpleasant anomalies.
793 Much has been said about the big yachts and boats and all the equipment that goes with them. I want to direct the attention of the Committee to the boats and canoes at the other end of the scale. Canoes and small sailing dinghies are used by youth-training organisations, youth clubs and voluntary bodies such as the scout movement to train young people and to give them an awareness of safety in sailing. I believe that boats at the smaller end of the boat building scale should have applied to them the 8 per cent. VAT, not the 25 per cent. rate. Otherwise many of these bodies, already sadly affected by inflation and the inability of local authorities to help them because of their serious rate burdens, will have to do without the accessories and equipment which are vital for youth training and youth recreation.
I should like to mention a very human matter. Some people in this country suffer from hypothermia and arthritis and live in thoroughly unsatisfactory housing conditions. These people need low-voltage electric blankets. Often those blankets for people suffering from hypothermia and living in unsatisfactory housing conditions are provided by local authorities. But the rate of VAT on the low-voltage electric blanket is to be increased from 8 per cent. to 25 per cent. I ask for the sympathy of the Treasury Bench in this matter. I hope that at least this item can be left at the present rate.
I move on to a ding-dong subject, that of bell-pushes and accessories, bells and chimes. Here again there is an anomaly. Many people in the building trade believe that such items constitute a fixed electrical installation, just like a ceiling rose, socket outlet and so on, and should have the 8 per cent. VAT rate levied on them. The Government have slipped up again, because bell-pushes and chimes, which must be considered vital in multistorey blocks of flats, maisonettes and other modern housing, will bear the higher rate.
I ask Treasury Ministers to consider these anomalies. I am not just trying to make constituency points or trivial points to the Government's disadvantage. I am trying to draw attention to the error of this legislation which will cause much suffering and hardship to many people.
At this point it is perhaps right to mention the smaller business man who, 794 because of multi-rate VAT, will perhaps have to fork out extra money, at a time of serious liquidity problems, to change his accounting machines and stationery. The Government have loaded enough burdens on to business people. This could well be the last burden which will drive many of them out of business.
I conclude with a reference to the caravan industry, which a number of hon. Members have mentioned. Touring caravans are now an important part of our society. Many people on low wages and salaries use them for their family holidays. They cannot afford to stay in hotels and therefore take a touring caravan when they go away to the seaside.
The industry is a big exporting industry. In 1974 the home market took about 25,000 units and the export market just under 14,000, which is a fine export record. The industry needs a stable home market order to have a good export market. The Government would gain a great deal of popularity by removing the anomaly affecting this industry and by ensuring that the lower rate of VAT applies to caravans, particularly touring caravans.
I have tried to be brief. This has been a long debate. Before some of the interventions from the benches below the Gangway on the Government side of the House, it was a constructive and useful debate. I congratulate the Financial Secretary on having listened to the whole of it, and I thank him.
I have tried to be non-controversial and to be helpful to the Government, which is not my wont. I see an injustice here and I want it to be put right. That can be done only by the Government. I ask them to make sure that it is done before the Bill goes on to the statute book.
§ Dr. Gilbert
Thanks to the generosity of the Chair, we have heard very little about the amendments in the course of this long and vigorous debate. It is not surprising—
§ The Chairman
Order. Even Ministers are not allowed to cast reflections on whoever has been in the Chair. No doubt the Minister would like to withdraw that remark.
§ Dr. Gilbert
Of course, Mr. Thomas, I would withdraw if you thought that was intended as a reflection on yourself. I 795 never meant anything of the sort. I was trying to compliment you and your predecessors in the Chair on your generosity.
If hon. Members will listen to the effect of the amendments for a moment they will possibly think that my remarks are not very wide of the mark. Amendment No. 28 would cause the clause to have effect from the date of Royal Assent, which in the first place would involve a great deal more forestalling. We have already had to alter our own arrangements to help the trade. Another consequence of Amendment No. 28, and I do not recall hearing any Tory Member refer to it, is that tax paid since 1st May would have to be refunded. The question would arise as to whom the refund would go and how it would be possible for traders to identify the customers who should receive the refund. In addition to that, it would cost the Exchequer £80 million this year.
Amendment No. 27, if taken with the other Opposition amendments, would maintain the 25 per cent. rate on petrol and similar products but would eliminate the regulator power for petrol. I should be surprised if that was the intention of the Opposition. The other amendments. Nos. 9, 10, 13, 14 and 15, would, if adopted, produce the most extraordinary situation. They would result in a multi-rate structure with not two positive rates but three. They would produce an 8 per cent., 10 per cent. and 25 per cent. rate structure.
The Opposition have been saying that they wanted to get back to a one, positive rate system. The right hon. and learned Member for Surrey, East (Sir G. Howe) talked about the essential purity of a one-rate structure. The effect of these amendments would be to produce a three-rate structure with a much lower yield than the two-rate structure which is before the Committee. The effect of all of these amendments taken together would be to reduce the yield from £200 million to £20 million in 1975–76 and from £325 million to £50 in a full year. I hope that Tory Members, who presumably will divide the Committee shortly, will bear in mind the nature of the proposals upon which they will be voting.
It will come as no surprise to hon. Members when I say that it is no part of 796 my defence of the multi-rate system to say that it is free from anomalies. Of course it is not. Anomalies are inescapable in any system of indirect taxation. What sticks in my gullet is to hear Tory Members talking about all the anomalies of the multi-rate system and then to think of all the hours that I and my right hon. and hon. Friends and the hon. Member for Ives (Mr. Nott) spent during the 1972 Finance Bill proceedings dealing with anomalies. They kept us at it day after day, night after night.
The right hon. Member for Taunton (Mr. du Cann) warned me that I should have to spend a great deal of time dealing with anomalies as a result of our proposals. That may be so. That is probably the burden of any Financial Secretary. I am glad to have the right hon. Gentleman's acknowledgment of it. I can tell him that I am spending far too much of my time now dealing with the anomalies left over from the proposals introduced by his colleagues when they were in government and for which he presumably voted in 1972.
Let us look at one or two of them. Tory Members zero-rated medicines but left it to us to zero-rate appliances for the disabled. They zero-rated new construction but it was left to us to zero-rate "do-it-yourself" house builders. They zero-rated fuel but it was left to us to zero-rate wood logs.
Only this week I took a decision which flowed directly from the legislation of the last Conservative Government. The hon. Member for Worthing (Mr. Higgins), who was Financial Secretary in that Government, wrote to me drawing my attention to an anomaly concerning pensioners' rail cards. We intend to eliminate that anomaly and to zero-rate these cards by an extra-statutory concession. That is one more anomaly we have removed which was inherent in the VAT legislation introduced by the Tories.
Conservative Members say that they want to get back to the simplicity of the single rate. I take it that they would resist proposals for any harmonisation with the typical rate structure to be found in the EEC. Of course VAT involves burdens for traders, and of course the Government are grateful for their co-operation in the collection of the tax. I 797 refuse to believe that businessmen in this country are so much less efficient than their counterparts in the other member States of the EEC or that they are unable to cope with tax systems as complex as those of the other EEC States. If the business men of France and Belgium can cope with four positive rates, if the business men of Ireland can cope with six and those of Italy with seven, it is hard to believe that two positive rates will bring the economic ruin to this country that Opposition Members have been suggesting.
Of course nobody wants to put up taxation, but everybody knows that it was inevitable that the Chancellor of the Exchequer should put up taxation in the circumstances of his last Budget and that this had to involve increases in indirect taxation.
I was asked why VAT should not be 10 per cent. across the board instead of the multi-rate system. The answer is perfectly simple. We did not want at that time, if we could avoid it, to tax the more essential items. However the higher rate is not intended to be a tax solely on luxuries, and possibly some of my hon. Friends may have got the wrong impression there. My right hon. Friend in his Budget Statement made it perfectly clear that the need for revenue was so great that the higher rate of tax would have to be applied to a great many items found in consumption in the great majority of households.
What we have sought to do is, as far as possible, to confine the application of the higher rate of tax to what I believe are generally known as "big ticket" items so as to eliminate problems for the small shopkeeper. Before the multi-rate tax proposals were known, I was inundated with petitions from pharmacists and representations from chambers of commerce and small traders up and down the country. I cannot recall having had a single letter from a pharmacist since the proopsals were known. They have been very carefully tailor-made to avoid the sorts of problems for the small trader of which hon. Members were fearful in advance.
Let me say quite clearly that we on this side of the Committee are emphatically in favour of a discriminatory system of indirect taxation—and so also, I suspect, 798 are the Liberal Party, the Conservative Party and all other parties, whatever they may say. If we are not in this Committee as a whole in favour of discriminatory taxation, why do we have zero rating at all? Why do we have excise duties at all? If hon. Members are not in favour of discriminatory taxation, they should be standing up and saying that they want a one-rate sales tax to apply to every item of expenditure, whether it is alcohol, tobacco, mink coats or children's shoes. Such a proposition would, of course, find no friends anywhere in the House of Commons.
I make no apology at all for the introduction of a multi-rate system. In Committee upstairs we will look at all the detailed points put to us by hon. Members today, though I must say that my right hon. Friend the Chief Secretary and I might be forgiven for having certain reservations about that commitment, bearing in mind the experience we had in relation to the capital transfer tax. Every time we undertook to look at something, it was treated as an indication of weakness rather than as an indication of open-mindedness and being prepared to look at a case put fairly to us.
However, be that as it may, a lot of what appears in our proposals before the Committee today rests in fact upon the lessons of Sir Gerald Nabarro. That is precisely why, where items attract a 25 per cent. rate, the parts of those items and the servicing of those items also attract the 25 per cent. rate.
I know that a great many Opposition Members are particularly concerned about the affairs of the boating industry. We have listened to many very serious and, I quite accept, non-partisan speeches on behalf of the boating industry. In particular I have in mind those of the hon. and gallant Member for Eye (Sir H. Harrison), who is the ex-commodore of the House of Commons Yacht Club, and the hon. Member for Dumfries (Mr. Monro).
There is no question whatever of boating having been singled out as one form of recreation against all others. One had only to listen to other parts of the debate to hear complaints that gliding was being singled out, that sailing was being singled out, that flying was being singled out, that caravanning was being singled out 799 and that television watching was being singled out. There is no singling out of any one individual form of recreation.
I was asked whether I would see a deputation front the boating, flying and gliding interests. I am always prepared to see a deputation. I saw a delegation from the boating trade before the Budget. I was able to give its members no encouragement. Whether they still want to see me, I do not know. If, however, the hon. Member for Dumfries cares to make the necessary arrangements, I shall be happy to see them.
When we come to discuss the detailed points of our proposals in Committee upstairs, I shall be able to set a great many fears at rest, including those concerned with some of the matters raised by the hon. Member for Chingford (Mr. Tebbit). But I am quite clear that the principle of this tax is absolutely right. I am grateful for the support of those of my hon. Friends who have taken part in this debate to say so.
I commend these proposals to the Committee.
§ [Sir MYER GALPERN in the Chair)
§ Mr. David Howell (Guildford)
It seems to be the unhappy lot of the Financial Secretary to be left on the burning deck defending the indefensible. It is clear from what he said that, when he had to do the same thing with regard to the capital transfer tax, it scorched into his soul. There is something deserving of sympathy in the picture that he paints of himself, working away, amending and improving, as a Financial Secretary should, existing tax legislation on the statute book, only to find, when he feels that he is making some progress, that suddenly he is overwhelmed by this new 25 per cent. absurdity which is dumped on his desk.
The hon. Gentleman must have felt in need of more support than his own benches gave him. The only support that he had was from the hon. Member for Gateshead, West (Mr. Horam), who came rushing into the Chamber to report that distinct traces had been found in Labour archives of support for a multi-rate VAT and, therefore, that we should not have been surprised by these present develop- 800 ments. Apart from that, the hon. Gentleman received very little support, and it is not surprising, after what we heard, that support should be so thin from both sides of the Committee for the absurdities of this new proposal.
I begin not so much with the consumer end, though I shall come to that, as with the industrial end and the industrial effects of this proposal. The 25 per cent. high-rate VAT is a marvellous example of the remotness of economic policy makers and advisers on taxation, whether in the Treasury or Transport House—and there has been some discussion about its origins—from industrial realities.
The hope of home manufacturers and home producers when VAT came in was that the days of yo-yo taxation, with tax levels going up and down so that it was impossible to plan long runs and to provide productive programmes had gone for ever. That was the intention, and my hon. Friend the Member for Bodmin (Mr. Hicks) described it eloquently. There was a real hope—and it was echoed on both sides that, for all the anomalies and difficulties about VAT, from now on we should create the right tax environment in which industry could proceed, insulated as far as possible from the overall vagaries of demand management and of world and home demand.
It was believed that, in terms of fiscal reform, we would minimise the burdens which successive Governments had succeeded in imposing on our home industries.
Now we are back to square one. We are back to the high rate for certain items, and this will result in a definite setback for many industries. It will mean that new investment plans do not go on, that new products are postponed and that plans for new marketing endeavours are put back. It will also mean that the capacity of home industry to produce new products for foreign markets will be significantly weakened.
The idea which seems to be in some minds—perhaps not in the Financial Secretary's that in some way, by placing the high-rate VAT on certain items, imports would be restricted, is already being proved totally and utterly wrong. It is the foreign manufacturers of these goods who will be unscathed. They will 801 not worry too much that the British market has collapsed a little this year. They will be getting on with their plans and thinking up new products. When things pick up here once again, as one day I hope they will, they will be the manufacturers who will sweep into the market as never before, because our firms in these groups and schedules have been penalised.
This is a heavy price to pay for the void which exists between the making of tax policy and industrial policy. It is something we shall live to regret when we see the way in which certain people are kicked and the ideas come bouncing out of the Treasury as to whom to kick next.
Let no one argue that we are pleading for lower revenue to the Chancellor now. Perhaps some would make a case for lower revenue. There may be a good case for saying that more should be done by cutting Government expenditure and less by trying to take it out by higher revenue. But we have in no way argued for lower revenue this evening. On the contrary, we have said—although for procedural reasons we cannot table amendments to further that aim—that we are in favour of the 10 per cent. rate of VAT. We do not believe that it should ever have been fiddled down to 8 per cent. for electoral manoeuvres last autumn. We have said that if it stayed at 10 per cent. the revenue gained would be far greater than the revenue which will be forthcoming from the 25 per cent. rate. Moreover, it is obvious to anyone who knows anything about industry, wholesaling or retailing, that it would save enormous administrative costs not merely in Whitehall and the Customs and Excise but in every shop at every counter in the High Street.
That is our position. Therefore, we have no hesitation about pressing the case against the 25 per cent. rate. We believe that far from arguing for a lower revenue, our proposals would secure the revenue more fully than the 25 per cent. rate.
As for the arguments for and against the principle of that 25 per cent., the difficulty is that the Treasury believes—I do not know whether the Financial Secretary or the Chancellor believe it—that there is a category of goods which can be called less essential. The difficulty, of course, is that in the real world no such category exists. For some people, some things are essential. For others, other things are 802 essential. This explains the extraordinary muddle into which the Chancellor and Ministers have had to get in order to explain which is which.
We have had discussions about powered equipment in the kitchen. For those who put up their feet and watch the dishwasher, that is a luxury. But for a working housewife with a family to look after, who has to provide a proper home and a safe and secure background, a washing machine or a dishwasher may be an essential piece of equipment.
As for television, again the Chancellor obviously believes that is less essential. Indeed, in his Budget speech he told us that he had concentrated on less essential items so that the better off, who he said bought more of these goods, particularly of the expensive kind, would bear a larger share of the tax burden. I do not believe that a man who could say that realised at the time—perhaps he did—that 12 million households have rented televisions, including all the poorer, lowest income groups. Those two things are not consistent, yet the Chancellor thought it necessary to say that.
As for repairs and servicing, we shall be returning to that matter in further debates. But again, it is almost incredible that repairs and servicing could be classified as non-essential. One has only to imagine a little how people will be inclined to poke into the back of machinery with screwdrivers to think of the risks.
This tax will fall at random on all sorts of firms quite regardless of whether they are connected with luxury goods. The reason that that is so is that one cannot divide industry between the firms making the luxury items and the rest. Industry is made up of a myriad of individual services, and producers of components and items, some of which will be taxed, some of which will not. Some firm making a component will be told that it is for use in a refrigerator, while others will be told it is for something else and will escape the higher rate.
We are set for exactly the same non-senses as we had with the old favourite SET, which came from the same cloistered world and under which, we were told, the economy could be divided between manufacturing which was good and services which were bad. Now we 803 are told that clocks are good and radios are bad; cookers are good and kettles are bad; stoves are good and servicing is bad; telephones are good and toasters are bad; cricket bats are good and boats are bad. As an ultimate idiocy, we are even told in one of the schedules that terrestrial telescopes which produce an upright image are good but that astronomical telescopes which produce an inverted image are bad. It is the astronomical telescope that we shall need if we are to look at the inverted and absurd logic of the new rate of tax.
We have had a long debate and it is time to bring together the obvious and overwhelming fact that this 25 per cent. rate has no basis on which to stand. In sum, it is a poor deal for the Revenue with its high administrative costs. It is unjust for the consumer and is bad for the sportsman and the canoeist. It is a tax on the little ships. Above all, it is wickedly damaging to British industry.
§ It will create a climate of instability and be a major bonus to foreign imports. These are the three reasons why we believe it to be disastrous—a hat trick of reasons, and that is quite an achievement even for this Chancellor and the present Government.
§ The hon. Member for Sheffield, Attercliffe (Mr. Duffy), in a very honest and frank speech, said that he thought—and he should know—that most of the Labour Party was against this sort of thing. Others of his hon. Friends have tried to support their Front Bench but were obviously inclined his way too. They and the whole Committee will therefore be wise to show what we all really think of this absurd proposal and press the amendment to a vote.
§ Question put, That the amendment be made:—
§ The Committee divided: Ayes 116, Noes 140.805
|Division No. 209.]||AYES||[10.47 p.m.|
|Adley, Robert||Howell, David (Guildford)||Ridley, Hon. Nicholas|
|Arnold, Tom||Hunt, John||Ridsdale, Julian|
|Atkins, Rt. Hon. H. (Spelthorne)||Irvine, Bryant Godman (Rye)||Roberts, Wyn (Conway)|
|Bain, Mrs. Margaret||Jenkin, Rt. Hon. P. (Wanst'd & W'df'd)||Sainsbury, Tim|
|Benyon, W.||Jessel, Toby||Scott-Hopkins, James|
|Boscawen, Hon. Robert||Kilfedder, James||Shaw, Giles (Pudsey)|
|Bowden, A. (Brighton, Kemptown)||King, Evelyn (South Dorset)||Shaw, Michael (Scarborough)|
|Brittan, Leon||Knox, David||Shelton, William (Streatham)|
|Brotherton, Michael||Langford-Holt, Sir John||Shepherd, Colin|
|Bryan, Sir Paul||Lawrence, Ivan||Silvester, Fred|
|Buck, Antony||Lawson, Nigel||Sims, Roger|
|Budgen, Nick||Lloyd, Ian||Sinclair, Sir George|
|Carlisle, Mark||MacCormick, Iain||Smith, Dudley (Warwick)|
|Chalker, Mrs. Lynda||Macfarlane, Neil||Speed, Keith|
|Churchill, W. S.||MacGregor, John||Spicer, Jim (W Dorset)|
|Clarke, Kenneth (Rushcliffe)||Marshall, Michael (Arundel)||Stewart, Donald (Western Isles)|
|Cockcroft, John||Maude, Angus||Stewart, Ian (Hitchin)|
|Cope, John||Maxwell-Hyslop, Robin||Stradling Thomas, J.|
|Corrie, John||Mayhew, Patrick||Taylor, R. (Croydon NW)|
|Costain, A. P.||Moate, Roger||Tebbit, Norman|
|Crawford, Douglas||Monro, Hector||Temple-Morris, Peter|
|Crowder, F. P.||Moore, John (Croydon C.)||Thomas, Rt. Hon. P. (Hendon S.)|
|Dean, Paul (N Somerset)||Morgan, Geraint||Thompson, George|
|Eden, Rt. Hon. Sir John||Morrison, Charles (Devizes)||Thorpe, Rt. Hon. Jeremy (N Devon)|
|Fisher, Sir Nigel||Mudd, David||Townsend, Cyril D.|
|Godber, Rt. Hon. Joseph||Neubert, Michael||Tugendhat, Christopher|
|Gorst, John||Newton, Tony||Viggers, Peter|
|Grimond, Rt. Hon. J.||Normanton, Tom||Wakeham, John|
|Hall, Sir John||Nott, John||Walker-Smith, Rt. Hon. Sir Derek|
|Hall-Davis, A. G. F.||Onslow, Cranley||Wall, Patrick|
|Hamilton, Michael (Salisbury)||Oppenheim, Mrs. Sally||Watt, Hamish|
|Hannam, John||Osborn, John||Weatherill, Bernard|
|Harrison, Col. Sir Harwood (Eye)||Pardoe, John||Welsh, Andrew|
|Hayhoe, Barney||Parkinson, Cecil||Wiggin, Jerry|
|Henderson, Douglas||Penhaligon, David||Wilson, Gordon (Dundee E.)|
|Heseltine, Michael||Percival, Ian||Winterton, Nicholas|
|Hicks, Robert||Raison, Timothy|
|Higgins, Terence L.||Rathbone, Tim||TELLERS FOR THE AYES:|
|Hordern, Peter||Rees-Davies, W. R.||Mr. Anthony Berry and|
|Howe, Rt. Hon. Sir Geoffrey||Renton, Rt. Hon. Sir D. (Hunts)||Mr. Spencer Le Marchant.|
|Anderson, Donald||Atkinson, Norman||Bidwell, Sydney|
|Archer, Peter||Barnett, Rt. Hon. Joel (Heywood)||Bishop, E. S.|
|Armstrong, Ernest||Bates, Alf||Blenkinsop, Arthur|
|Ashton, Joe||Benn, Rt. Hon. Anthony Wedgwood||Booth, Albert|
|Bray, Dr. Jeremy||Hoyle, Doug (Nelson)||Parker, John|
|Brown, Ronald (Hackney S.)||Huckfield, Les||Parry, Robert|
|Canavan, Dennis||Hughes, Mark (Durham)||Pendry, Tom|
|Cartwright, John||Hughes, Robert (Aberdeen N.)||Phipps, Dr. Colin|
|Castle, Rt. Hon. Barbara||Irvine, Rt. Hon. Sir A. (Edge Hill)||Powell, Rt. Hon. J. Enoch|
|Clemitson, Ivor||Irving, Rt. Hon. S. (Dartford)||Richardson, Miss Jo|
|Cocks, Michael (Bristol S.)||Janner, Greville||Roberts, Gwilym (Cannock)|
|Coleman, Donald||Jenkins, Hugh (Putney)||Rodgers, George (Chorley)|
|Concannon, J. D.||John, Brynmor||Rooker, J. W.|
|Cook, Robin F. (Edin C.)||Jones, Alec (Rhondda)||Roper, John|
|Cox, Thomas (Tooting)||Jones, Dan (Burnley)||Ryman John|
|Cryer, Bob||Judd, Frank||Shaw, Arnold (Ilford South)|
|Cunningham, G. (Islington S.)||Kerr, Russell||Sheldon, Robert (Ashton-u-Lyne)|
|Dalyell, Tam||Kilroy-Silk, Robert||Silkin, Rt. Hon. John (Deptford)|
|Davidson, Arthur||Kinnock, Neil||Silkin, Rt. Hon. S. C. (Dulwich)|
|Davies, Denzil (Llanelli)||Lamborn, Harry||Silverman, Julius|
|Davies, Ifor (Gower)||Lamond, James||Skinner, Dennis|
|Deakins, Eric||Leadbitter, Ted||Snape, Peter|
|Dormand, J. D.||Lee, John||Spearing, Nigel|
|Douglas-Mann, Bruce||Lestor, Miss Joan (Eton & Slough)||Spriggs, Leslie|
|Duffy, A. E. P.||Lipton, Marcus||Stallard, A. W.|
|Dunn, James A.||Loyden, Eddie||Strauss, Rt. Hon. G. R.|
|Dunnett, Jack||Lyons Edward (Bradford W.)||Thomas, Ron (Bristol NW)|
|Dunwoody, Mrs. Gwyneth||MacFarquhar, Roderick||Urwin, T. W.|
|Edelman, Maurice||Mackenzie, Gregor||Varley, Rt. Hon. Eric G.|
|Edge, Geoff||Mackintosh, John P.||Wainwright, Edwin (Dearne V.)|
|Edwards, Robert (Wolv SE)||Maclennan, Robert||Walden, Brian (B'ham. L'dyw'd)|
|Ellis, John (Brigg & Scun)||Madden, Max||Walker, Terry (Kingswood)|
|Ellis, Tom (Wrexham)||Magee, Bryan||Watkins, David|
|Evans, Ioan (Aberdare)||Marks, Kenneth||Watkinson, John|
|Evans, John (Newton)||Masson, Rt. Hon. Roy||Weetch, Ken|
|Faulds, Andrew||Maynard, Miss Joan||Weitzman, David|
|Flannery, Martin||Mendelson, John||Wellbeloved, James|
|Fletcher, Raymond (Ilkeston)||Millan, Bruce||White, Frank R. (Bury)|
|Ford, Ben||Molloy, William||Williams, Alan Lee (Hornch'ch)|
|George, Bruce||Moonman, Eric||Williams, W. T. (Warrington)|
|Gilbert, Dr. John||Moyle, Roland||Wise, Mrs. Audrey|
|Hardy, Peter||Mulley, Rt. Hon. Frederick||Woodall, Alec|
|Harper, Joseph||Murray, Rt. Hon. Ronald King||Woof, Robert|
|Harrison, Walter (Wakefield)||Newens, Stanley||Young, David (Bolton E.)|
|Hayman, Mrs. Helene||Ogden, Eric|
|Heffer, Eric S.||O'Halloran, Michael||TELLERS FOR THE NOES:|
|Horam, John||Orme, Rt. Hon. Stanley||Mr. David Stoddart and|
|Howell, Denis (B'ham Sm H.)||Ovenden, John||Mr. Laurie Pavitt.|
|Question accordingly negatived.|
§ 11.0 p.m.
§ Mrs. Sally Oppenheim (Gloucester)
I beg to move Amendment No. 11, in page 13, line 7, leave out 'or services'.
This is a paving amendment to prepare for a more specific amendment to Schedule 7 in Committee or on Report. Our purpose then will be to seek to exclude services such as installation, maintenance and repairs and the replacement of spare parts from the application of higher rates of VAT, particularly in the case of domestic appliances, radios and television sets.
We believe that it is intolerable that hard-pressed consumers who are struggling to make ends meet at a time of unprecedented inflation should have to pay 25 per cent. on these items—VAT not only on new domestic appliances such as radios, electric kettles and irons but also on such luxuries as the maintenance and repair of items such as irons, electric kettles and small domestic appliances that they already have.
For example, if a pensioner who has perhaps arthritic or unsteady hands takes his radio—a very important item to an elderly person living alone—to have a new battery fitted, or an iron to have a new plug fitted, he will have to pay 25 per cent. VAT, apparently, not only on the service but on the plug itself, whereas if he were able to fit such items himself he could buy them at a lower rate in the shop and take them home.
I hope that the Financial Secretary will be able to clarify this point. It is not entirely clear to me that this provision is in the schedule, but in the notice put out by the Commissioners of Customs and Excise it seems clear that these things are not to be excepted where they are supplied in connection with a service, which is itself chargeable at the higher rate. It will be intolerable if elderly people unable to carry out these services for themselves—I must admit that I cannot fit a plug—have to pay additional VAT because they are unable to do so.
If it is so, those who get the crumbs according to the Chancellor's own words are indeed having to pay the bill for those who have snatched the plums—a perfect example of Socialist justice. The whole concept of levying a luxury rate of tax on 808 repairs and maintenance is fundamentally mistaken and unfair.
I do not accept the Financial Secretary's view that the tax must be levied on repairs if one has it on the supply of goods themselves. In such a situation, the consumers are left with no choice as to whether they have the service if something is in need of repair; they have to have it.
The Chancellor, in levying 25 per cent. VAT on items he considers to be less necessary—something with which we do not agree—is also attempting to reduce demand on these things, but to apply this concept to servicing and maintenance costs is manifestly absurd. Consumers who are trying to avoid having to buy new appliances by keeping those which they already own in good repair are being penalised for doing so, and this will be contrary to what we understand to be his aims.
Whereas it may not be essential to buy a new kettle and refrigerator—and in many cases it may be essential—it is surely essential, at a time when the cost of these and alternative items is greatly increasing, to be able to afford to repair existing equipment. As I am sure the Committee is aware, the cost of servicing and maintenance has risen to a fantastic degree over the past year, and not the least is the element of labour costs. Not surprisingly, many firms find it necessary to charge for travel time by employees carrying out servicing and maintenance. There is widespread concern amongst consumers that the Government should be exacerbating the problem now to the extent of 25 per cent.
Moreover, these tax increases impose not only considerable price increases but also continuing price increases, because servicing is a continuing cost. They are price increases on items which the people who bought them in the first place did not have the slightest idea would involve them in this kind of cost of maintenance. Does the hon. Gentleman think, if the family refrigerator breaks down and a week's food is wasted if it is not repaired, that that, to use the Chancellor's own words again, is less necessary expenditure?
Then there is the additional point made by my right hon. and learned Friend the Member for Surrey, East (Sir G. 809 Howe), that this is a tax on safety, especially in the servicing of electrical appliances and television.
The Financial Secretary must be aware that many electricity boards will not allow people to buy and fit spare parts to electrical appliances themselves because of the safety aspect. I speak as a vice-president of the Royal Society for the Prevention of Accidents when I assure the Committee that a very high percentage of fires and other accidents in the home—many of them serious and involving deaths—are caused by inadequate wiring and defects in all manner of electrical appliances, particularly in television. These appliances may not be defective in the first place, but if they are older models and have been in use for a long time, they are likely to become defective with time.
The figures put out by the joint fire research organisation in its annual statistics for 1972, which are the latest statistics available, show that there were 1,909 television fires in 1972 and 1,660 faulty electric blanket fires. Many television fires are incendiary explosions, so that they are very serious. Does the Chancellor want to be responsible for adding to the number of those accidents? Many people, faced with having to pay 25 per cent. VAT, if they happen to see a loose wire in their electric blanket will leave that wire loose or fiddle about with it themselves rather than have it properly maintained or repaired by an expert. Fiddling about with the loose wire is even more dangerous than leaving it alone.
As to the strange non-essential concept, of which we have heard since the proposal was made to introduce this 25 per cent. rate of VAT, I remind hon. Members that, in relation to refrigerators and their servicing, the Food Standards Committee, in recommending open date stamping for perishable foods, emphasised that the temperature at which these foods should be stored in transit, in shops and in the home was as important as the date stamping. There is a considerable health risk if foods, especially cooked foods, are stored at home at a temperature which is not sufficiently low. If 25 per cent. VAT has to be paid on repairs so as to keep refrigerators in order—and refrigerator repairs are very expensive because 810 the parts are costly—many people will not be able to have these repairs carried out because their money will have run out.
Above all, our overwhelming objections to the imposition of this level of taxation on servicing and spare parts is that it will add unavoidably to the cost of living of nearly every family and every pensioner in the country, while the return is likely to be very small. Neither the Chancellor nor the Treasury has any idea how much the return on servicing is likely to be, as the Financial Secretary confirmed to me in a Written Answer on 12th May. Onerous as this tax will be on individuals, it will form a very small proportion of the £175 million to be raised in higher rate VAT on domestic appliances, radios, and television sets. That amount could be offset easily by economies in other directions.
As a number of my right hon. and hon. Friends said in a previous debate, multi-rate VAT inevitably brings in its wake not only intolerable pressures on shopkeepers, large and small, but also the ridiculous anomalies which have been pointed out before, which I have described tonight, and which our amendment seeks to remove. This is a typically insensitive measure of the kind that we have come to expect from this Government. It is just part of the price that is being paid by consumers and taxpayers for pre-election bribery and post-election Bennery, and for the fact that the Government have failed to bring inflation under control.
§ Mr. Bruce Douglas-Mann (Mitcham and Morden)
Although I do not wish to associate myself with the motive expressed in the speech of the hon. Member for Gloucester (Mrs. Oppenheim), there were ingredients of good sense in what she said.
A little while ago the Labour Party published a document called "Politics of the Environment", in which we discussed the question of bringing in taxes which would encourage the retention of goods rather than their replacement. We toyed with the concept of a time-graded car tax, for example. A tax which positively discriminates against repairs is economically undesirable and is disadvantageous as regards the conservation of resources.
811 We already have a great tendency to scrap rather than to repair or adequately to maintain goods. There is a great disincentive for many retailers to provide much needed repair services for electrical appliances. The hon. Member for Gloucester rightly referred to the dangers of leaving goods unrepaired. I cannot say that I am acutely worried about that, although there was an element of truth in what she said about the old lady trying to repair her electric blanket. However, there is a serious danger that shops which provide repair services will find an inadequate demand for such services in future and it will not be worth their while keeping skilled repair men.
The object of the measures in the Budget is to reduce the demand for some of the articles that we are consuming. But this proposal will go against that. It will encourage demand. Although that may be beneficial in some ways, it will be highly disadvantageous in others.
I urge my hon. Friend to reconsider whether it would be practicable to exclude the item on services, particularly repair and maintenance services, from the clause. I appreciate that it is administratively complicated whichever way we do it. But as we are to have the complication of the multi-rate VAT, I do not see why it is impracticable to distinguish between the goods and the services provided. It will be a burden for shops whatever happens. I suggest that it is not impracticable to exclude services from the clause. I hope that, on reflection, my hon. Friend will find that it is practicable. If not, we shall go completely contrary to the purpose of the Budget regarding both the economic situation and the use of resources.
§ Mr. John MacGregor (Norfolk, South)
I intervene only briefly to support the amendment.
When I first heard that the 25 per cent. VAT was to be attached to services, I reacted with almost profound disbelief.
The speech by the hon. Member for Mitcham and Morden (Mr. Douglas-Mann) was typical of nearly all that we have heard from Government supporters today. First, they say that they wish to dissociate themselves from our general approach, then sotto voce that they agree with the general arguments, and then 812 clearly express their profound concern about the 25 per cent. VAT.
I reacted with profound disbelief for five general reasons. First, I cannot believe that the revenue from the 25 per cent. VAT in relation to the total revenue will be very high. The Financial Secretary said that he could not give an estimate. If it is possible to give an estimate for the total revenue from the 25 per cent. VAT proposal, it must be possible to give some idea of what is expected from the service charge. I cannot believe that it is a large element in the total revenue raised.
Secondly, as has been said, this tax will apply to many articles which are not luxuries but essentials in the home. We are talking about a situation in which many goods will go out of service because people will not be able to afford the new charges.
Thirdly, I turn to the safety aspect. It is significant that not only the Opposition, but many consumer organisations are concerned about this matter. I refer to official bodies like the consultative councils in the electricity industry.
I should like to quote from a statement made after a meeting of the Eastern Electricity Consultative Council considering the application of the 25 per cent. VAT to repair services. The council stated:It was felt that many people would be forced to delay the repair of unsafe appliances because of the high cost, or attempt unskilled repairs themselves.The Council went on to say:In the Committee's view, the added risks to life were totally unacceptable".11.15 p.m.
Fourthly, there is the point that this will bear particularly hardly on those such as old age pensioners and others on low incomes whose goods of this sort have been in operation for a long time and require repairs. Pensioners will neither have the skill nor the opportunity to repair them themselves.
Again to come to what the Electricity Consultative Council said on this point:As the Council is well aware, repair charges are already a serious financial burden on old age pensioners and other consumers with low incomes. For example, Eastern Electricity operated a minimum charge for service calls to customers' homes. At 8 per cent. VAT this 813 minimum charge worked out at £4.48. At 25 per cent. VAT the charge would increase to £5.19, a 16 per cent. overall increase in the minimum charge.Bearing in mind that further increases in service charge would result from recent wage negotiations … the increase in VAT would make the burden intolerable.It would not be possible within the range of pensions and low fixed incomes to meet this sort of charge, a large part of which is due to VAT.
The final point, which concerns me most of all, is the effect on service industries. It will have one of two results. It will put a lot of people out of business—and I have already met many self-employed people suffering from increases in national insurance contribution rates who feel that the demand for their services will so diminish that they will have to get out of the business they are in, such as electrical goods and gardening machinery, and find employment elsewhere. The effect will be that it will not be easy to find someone to do the servicing.
The second alternative is that it is bound to lead to widescale evasion by the consumer and by the supplier of services. I have heard many people refer to the extreme likelihood of that. It would be wrong to ignore the fact that it will go on. People will produce invoices and claim that they are for servicing to goods which attract only the 8 per cent. rate, or they will not produce invoices at all.
It is the magnitude of the increase from 8 per cent. to 25 per cent. which will cause the evasion and make the consumer and the supplier feel that it is right to do it because it is the only way the supplier can stay in existence and the only way the consumer can get the repair done.
For all these reasons, the Government would be right to think again about the inclusion of services. If they cannot do anything about it this evening, I hope that we shall press it in Standing Committee.
§ Mr. Ronald Brown (Hackney, South and Shoreditch)
I intervene because I take great exception to this item. As I look at the Treasury Bench, I see no engineer present to inquire into an area where one would expect the expertise of an engineer to be and to tell the Government how ridiculous they are in stopping 814 people from having their equipment serviced.
The Treasury do not seem keen to stop Japanese equipment coming in, or equipment from other countries, but they are well aware that the electrical standard of that equipment is often not in accordance with the standards of equipment in this country. Having accepted that, it follows that people who have, wrongly in my view, purchased that equipment, will discover that it is not in accordance with the standards of safety in this country and they will be liable to pay a 25 per cent. surcharge to have it put right.
The Minister cannot possibly argue a case for it. It is no good producing the argument that because we have put the charge on the new equipment, it is only fair to put it on the charge for servicing as well. That is not an answer but an excuse. I am not sure that they were right in the first place, but if they were, they should not then penalise everybody else, particularly in ways affecting safety, to justify their first action.
Secondly, the Treasury is aware that television set cabinets are being made in dangerous material, rigid polyurethane foam. I have been campaigning against polyurethane foam for many years. Because of its use in cabinets, some sets are virtually time bombs in the home.
If the Government are to dissuade people from having their equipment properly serviced, they will have an enormous problem on their hands. It will be no use my hon. Friend the Financial Secretary wringing his hands and saying "I didn't know. Nobody told me." We are telling him tonight. By stopping people from having their equipment serviced he is making it as sure as night follows day that women and children will be burnt to death, because equipment catches fire.
My hon. Friend frowns. I beg him to understand what he is doing. This is not a matter of words, of playing accountancy games. He is playing with people's lives. He is saying "I shall surcharge you on your equipment." The ordinary person who cannot afford that surcharge will do the next best thing. He will go to someone whose normal job could be just anything at all and who offers to do the work cheaply.
My hon. Friend is breaking down the results of years of work that many of us 815 have done to dissuade people from using unqualified service staff. Is he taking us back many years, to encourage just anybody to take on electrical work, advertising in the newsagent's window "Electrical repairs done. No VAT"? This vast impost has no relationship to the service.
This is pure bureaucracy. It smells of the civil servants saying "Minister, because we have done it here we must do it there. Fob them off with a story about equality. It is difficult to draw the line, and therefore we should cover it all." That will not satisfy me. This is much too serious a matter.
I hope that my hon. Friend will reconsider the matter. I can understand that he must take advice, but I ask him to tell us that he will ensure that we place the safety of our people uppermost.
§ Mr. Patrick Mayhew (Royal Tunbridge Wells)
The argument about safety, so eloquently put by the hon. Member for Hackney, South and Shoreditch (Mr. Brown) and other hon. Members on both sides of the Committee, is overwhelming. The resources argument and the after-sales argument are also overwhelming.
I want to say a few words about the social justice side. It is unarguable that those who most depend on television sets are the old, the sick and the disabled. It is extraordinary for this Government of all Governments to seek to penalise them by putting a 25 per cent. rate of VAT on the cost of the repair of their sets. The old, the sick, the disabled and the poor are the very people who can least afford to pay the increase. These sections of our population will inevitably feel a sense of injustice that the 25 per cent. surcharge is levied on them, as a kind of punishment, as part of the Government's anti-inflation measures, when they deserve least of all to be punished for any contribution towards inflation.
Many people think that if they have made a contract to hire a television set for a fixed time it is unfair if half-way through the term of the contract they have to pay more—in other words, if the terms are made more severe. It may not stand up in a lawyer's close analysis, but that is something that ordinary people feel, and I share their feeling.
816 It is odd that a Government who were elected upon what they called the social contract, who said in their manifesto that they believed that people would rise to difficult challenges if there were an underlying sense of fairness, should resort to this measure which will cause such hardship to those who are least in a position to cope with it.
I hope very much that the Government will pay attention to what I call the social justice argument as well as to the arguments relating to safety, to the use of resources and to after-sales that we have heard tonight. This is a totally indefensible measure on each of those four heads, and I trust that the Government will have the humility to remove it.
§ Dr. Gilbert
May I first welcome the hon. Member for Gloucester (Mrs. Oppenheim) to the Opposition Front Bench on a Finance Bill debate. It is a pleasant novelty for those who spend much of their time engaged in this activity. I thank the hon. Lady for the reasonable way in which she put the case about which she feels so strongly, but I shall probably have to disappoint her and my hon. Friends.
I understand that there are strong feelings here. Whenever questions of safety arise it is right and proper that people should feel strongly on the subject, but I think that possibly the concerns expressed by the hon. Lady and others are somewhat exaggerated.
There are serious problems and anomalies here. First, if the servicing that was comprised in an overall rental contract was charged at 25 per cent., whereas servicing under a maintenance contract for people who owned their own sets was charged at 8 per cent. that would be an anomaly, and I am sure that I carry the hon. Lady with me in that.
Then we come to whether parts should be charged at a lower rate than the goods themselves, and whether servicing and parts should be at different rates. On the question of parts being charged at a lower rate than the complete unit, I am sure the hon. Lady needs no reminding that it was problems of this sort which led to some of the greatest anomalies which were properly spotlighted by the late Sir Gerald Nabarro, whose name has been invoked more than once during the debate.
817 When parts are treated at a different rate from the unit itself, immediately one sees the springing up of do-it-yourself kits, which were a feature of the old purchase tax system. If parts were chargeable at only 8 per cent. whereas television or radio sets were charged at 25 per cent. we should rightly face floods of amendments from Tory Members pointing out how the whole tax was riddled with loopholes and anomalies.
§ Mrs. Sally Oppenheim
Is the hon. Gentleman suggesting that people will start building their own television sets if parts are lower rated?
§ Dr. Gilbert
People started building their own radio sets when the purchase tax rates were different. They might end up by building their own television sets for all I know. This is precisely the sort of thing that used to happen under the purchase tax régime when parts were taxed separately.
§ Dr. Gilbert
I have not the faintest idea, but I am sure the hon. Gentleman would be in the van pointing out the anomalies of a tax system which did not tax parts at the same rate as the complete unit.
Then we come to whether servicing, labour and material costs should be treated separately. I have to say to the hon. Lady—and she has great experience of dealing with small traders—that if we were to treat servicing, labour and material costs separately this would present enormous complications for the small trader and the small repair man.
I take issue with the hon. Member for Norfolk, South (Mr. MacGregor). I cannot imagine a greater incentive to tax evasion than a situation where, with respect to the same piece of work, the part is rated at 25 per cent. and the labour cost at 8 per cent. It would be impossible. There would be a wide open invitation to people to weight the charge one way or another where the two elements of the operation were taxed at different rates. The hon. Gentleman, who is reasonable in these matters, must recognise that.
Therefore, in terms not only of efficiency of administration of the tax but 818 of the equity of the system and the efficiency of administration for the retailer and the small service man, I am quite clear that we are right to tax both the material and the labour costs of servicing it at the same rate as the cost of the item to which the servicing relates.
My hon. Friend the Member for Mitcham and Morden (Mr. Douglas-Mann) is, of course, in general terms, if I may so put it, on a very good point about the need for society at large to encourage repair rather than replacement of obsolescent equipment. I do not dispute the general principle he was putting forward. I would, however, say to him that that general principle, like all general principles, is subject to certain reservations. I would have thought that the question whether one should repair or replace ageing electrical equipment is a particular case where the balance might come down in favour of replacement rather than repair.
I was grateful to my hon. Friend for what he said about the danger of the old lady doing repairs on her electric blanket herself. That brings me to the point—
§ Mr. Ronald Brown
To arrive at the decision which my hon. Friend has just postulated, a person would have to pay 25 per cent. VAT to get the advice before finding out whether the item was worth replacing or being repaired.
§ Dr. Gilbert
I am not an engineer, but I do not think that most people charge that much for advice whether an ordinary piece of domestic equipment should be replaced or repaired.
Generally speaking, people who contemplate repairing their own electrical domestic appliances will do it whether there is an 8 per cent. or a 25 per cent. rate. There are people who either repair their own appliances or they do not. I simply do not believe that an individual who would normally go automatically to get his equipment serviced, as I would, for example, and as I imagine most hon. Members would, by somebody who knew how to do it would suddenly try to do it himself because he found that there was a modest increase in the charge. He would be out of his mind to interfere with electrical equipment in that way if any element of it was dangerous.
819 Most servicings, I am sure my hon. Friend will agree, relate to breakdowns of electrical equipment—of refrigerators or washing machines, for example—rather than to a situation in which there is an element of safety at stake.
My hon. Friend referred to certain types of television cabinet as being unsafe and called them, I believe, potential time bombs. I bow to his great knowledge in these matters as I know of his long experience in the furniture trade, but I understand, though I am obviously subject to correction, that where there is an inherently unstable or unsafe situation of this sort with a television set which might go up in flames, particularly if it is left on all night, which is often the circumstance which brings about a danger of that sort, no amount of servicing will protect a person from a risk of that sort if he leaves the television set on all night and, therefore, it becomes overheated.
If my hon. Friend made a case for saying that we should license the repairers of electrical equipment to ensure that people do not fall into the hands of unqualified handymen dealing with electrical equipment, just as people should not fall into the hands of unqualified doctors and dentists, that would be another matter and he might well have a strong case to make on those lines. But that is not a matter for which I have responsibility or which I can properly discuss now. These may be the lines on which it would be preferable for us to move. In all sincerity, I say to my hon. Friend that I think that these fears about safety are exaggerated. If we were not to have the same level of tax there would be far more anomalies, far greater incentives to evasion, and far more difficulties for the trader and for Customs and Excise.
§ Mr. Douglas-Mann
I would be grateful if my friend would clarify his case. Is he saying that the only valid reason for excluding the labour costs from this level of tax is that it would be difficult for the small trader to administer it? He has said that many of our fears are groundless. That may or may not be so. But his only argument adduced to support his view that what we are proposing is not practicable is that it would be difficult for the small trader to dis- 820 tinguish between the rate of tax on parts and the rate of tax on labour. Has he ever taken his car to be repaired and had petrol put into it and looked at the bill, showing VAT at 8 per cent. on the work done and 25 per cent. on the petrol put in? Can he clarify whether there is any argument other than administrative convenience against the separation of labour costs from the costs of parts?
§ Dr. Gilbert
I am sorry if I did not make myself clear. That is only part of the case. Of course there will be greater administrative problems for the small handyman and the repair shop. What I hoped I made clear to the Committee, in particular reference to the remarks of the hon. Member for Norfolk, South, is that, if one did not have the supply of materials and of labour in any repair job at the same rate of tax, that would constitute a direct incentive to tax evasion and fiddling.
§ Mr. Newton
I should like to make two brief comments. First, it is quite clear from what the Financial Secretary has said that he is not living in the real world at all. He appears to be unaware that it now costs about £5 to get a man to the doorstep just for advice on a piece of equipment, let alone putting in a part or doing anything about it—[HON. MEMBERS: "Nonsense".] Government supports say "Nonsense", but that is, roughly speaking, the official charge by the electricity boards, the gas boards and the telephone people. One can get the little man whose name appears on the newsagent's board, and who may or may not know what he is doing, for less than £5. All the pressures that exist already will be markedly increased. People will go for the fly-by-night operator.
Anyone in the Metropolitan area who has been concerned with servicing work of any kind over the last few years will know that there has been a massive growth in the use of the services of the little man who, in effect, says, "Pay me cash and it will be cheaper—you will avoid your tax." All this will be exaggerated, and it will have dangerous side effects. If the Financial Secretary does not accept that, I believe he is living in a dream world.
He said at the beginning of his speech that the fears about safety were exaggerated. He then gave no single argument 821 to support that statement. The whole of the rest of his speech was couched in terms of administrative anomaly.
My conclusion from listening to him was that there would be administrative problems but that what he provided was a convincing argument against the whole notion of a 25 per cent. VAT rate. If these dangerous aspects of the tax cannot be separated from the rest of it and there is no argument against points such as those referred to by the hon. Member for Hackney, South and Shoreditch, the very basis of the argument advanced by the Government is defeated.
We have listened to a very inadequate reply from the Financial Secretary which did not deal with the main arguments and confirmed the fears which many hon. Members have expressed.
§ Mr. Giles Shaw (Pudsey)
The Committee has had an extremely interesting and informative debate. I am grateful to those of my colleagues who normally handle matters touching on Finance Bills for allowing those of us involved in the Consumer Affairs Group to draw attention to this amendment and to argue it before the Committee. Our main reason for wishing to do that concerns, first, the area of safety, secondly, the area of social unfairness, and, thirdly, the area of servicing, its availability and its cost.
The contributions of hon. Members have indicated their widespread concern that, with the application of this rate of tax to servicing, there will be a disincentive—I put it no higher than that—to continue the same level of servicing and to go as frequently, if at all.
My hon. Friend the Member for Braintree (Mr. Newton) was right to take the Financial Secretary a little to task for the apparent casual way in which he considered some of the fears expressed to be exaggerated. We know that there are very many old people who find it difficult to handle electrical appliances and who will now be deterred from seeking the professional service. The sum of £5 quoted by my hon. Friend appeared to create astonishment among Government supporters. But I can confirm that that is the charge made for a call from a representative of an electricity or gas board. There is the prospect of infrequency of calling and of maintenance, and a positive 822 increase in the danger of appliances. The hon. Member for Hackney, South and Shoreditch (Mr. Brown) drew attention to the problem in his own way. We feel strongly that there is a case to be answered, and we have not had the answer tonight.
We are equally aware of the problems to which the Financial Secretary draws attention continually about anomalies. He thinks that it would be difficult to make a separation of the rate of tax on components or the servicing element and the rate applied when the article is sold in its entirety. There will be anomalies as soon as we move into a multi-rate VAT system. In a sense, we are not moving into one. We have one already. We have a zero rate and a standard rate, and many shops handle goods covered by both categories.
The least excusable anomaly is that we have in the sale and maintenance of electrical appliances very important standards to be maintained. It does not seem to be an anomaly worth calling much if someone says, "Very well. I would rather have the 8 per cent. of the 8 per cent. appliance and the 25 per cent. of the 25 per cent. appliance", when we want to encourage the maintenance of a high standard of electrical equipment and the long life of appliances, which are expensive in themselves.
Any shop keeper dealing in the maintenance and sale of electrical appliances already has a vast range of materials which will be at different rates.
To make a brief constituency point, a company in my constituency manufactures components for the caravan trade, already a subject of great anxiety among hon. Members earlier. It makes window frames, windows and doors, and, although a large proportion of its output goes to static homes, mobile classrooms, contractors' huts, and so on, it has been asked by Customs and Excise to charge a flat 25 per cent. rate on all its windows and doors. I suggest that that is a major anomaly. The correct tax should be assessed according to the destination of the goods. I am sure that the Financial Secretary would wish that to happen.
However, in relation to safety we have to adopt certain standards and to abide by them. We have already made it clear 823 that there are grave consumer problems here. There are questions of consumer protection, of cost and of availability. The availability of servicing will be put at risk. The Financial Secretary may say that it might lead to the setting up of "do-it-yourself" procedures if he produced a variable in the rate of tax for servicing. That would be a small consequence if it resulted in higher standards of maintenance of appliances and in greater consumer satisfaction.
We feel that this is a tax on safety and one which will have a disproportionate effect on people for very little revenue. No comment has been made by the Financial Secretary on what sums would be involved. My hon. Friend the Member for Gloucester (Mrs. Oppenheim) sought to find out, and of course, at that point the figures were not available.
§ Dr. Gilbert
I apologise to the hon. Gentleman. I do have a figure. The total revenue in relation to labour and materials that we calculate for servicing of the higher rated articles would be about £30 million a year.
§ Mr. Shaw
I am grateful for that information. No doubt we shall set that alongside the total income from the VAT rate the hon. Gentleman is seeking to levy and draw our own conclusion whether that is a relatively small sum to be put at risk if it results in a proper handling of equipment and a particularly high standard of safety.
Just in case the Financial Secretary is getting worried about the comments that have been made from both sides of the Chamber, I want to make it clear that we shall not be pressing this amendment to a Division. However, we are taking that view simply because we are very confident that when it comes to handling this problem in Standing Committee, point by point and vote by vote, we shall endeavour to put right what we believe to be an unjustified anomaly in the proposals for VAT.
I conclude by drawing attention to the schedule and pointing out that the unfortunate trader dealing with articles in which components are involved will have an absolute nightmare in determining whether a plug he sells is to be used by a person for an oven, in which case it is 824 an 8 per cent. article, or used by a person for a washer, perhaps, and thus as a 25 per cent article. The same plug used for different purposes will be liable to different rates.
The anomalies exist, as we knew they would. The greatest problem behind this amendment is to try to ensure that a high standard of safety is maintained, that servicing and its availability continue and, above all, that the consumer gets full and fair satisfaction.
With the agreement of the Committee, we would propose to withdraw the amendment, but we look forward with some confidence to voting this through in Standing Committee.
§ Amendment negatived
§ Dr. Gilbert
I beg to move, Amendment No. 16, in page 13, line 13, leave out 'shall' and insert 'may'.
§ Dr. Gilbert
These two Government amendments are complementary in their effect. Their purpose is to give greater flexibility in the use of the VAT regulator power. I think they are self-explanatory. Unless hon. Members wish me to dilate upon them, I think I can commend them to the Committee without further ado.
§ Amendment agreed to.
Amendment made: No. 17, in page 13, line 14, at end insert
'or to one only of them, and an order applying to both may make the same or different provision in respect of each'.—[Dr. Gilbert.]
§ Mr. MacGregor
I beg to move Amendment No. 19, in page 13, line 14, at end insert'except that the higher rate shall not apply to existing contracts of hire'.
The Second Deputy Chairman
With it we shall also discuss Amendment No. 54, in page 13, line 37, at end add—'(9) This section shall not have effect in relation to a television set supplied on hire 825 for a period beginning before May 1975 and continuing after April 1975'.
§ Mr. MacGregor
These amendments are markers for debates we intend to have on Schedule 7 when the Bill reaches Standing Committee. We wish to discuss them now, however, in view of the extremely strong feeling which exists over this aspect of the 25 per cent. VAT charge among consumers, the retail and rental trade and the television manufacturing industry.
Many of the effects of the increase on rented televisions are similar to those often described in other contexts in the earlier debates today. There is, however, an additional factor of retrospection. Very large numbers of people are involved here. About 12 million sets in this country, about two thirds of the total, are rented as opposed to being on hire purchase or being bought. It is the 12 million with which the amendments are concerned.
The amendments seek to remove from the 25 per cent. charge those sets which are, in the case of the first amendment, already on existing contracts of hire. In the second amendment a specific date is mentioned. The second point concerning the 12 million rentals is that by and large—although one cannot generalise—people who rent television sets tend to come from the lower income groups. This fact was highlighted by the events in that extraordinary period between the Budget Statement and 1st May, from which date the increase to 25 per cent. applied. Those who could see the significance of having to move up to a 25 per cent. rate on rental knew that if they could buy their sets before 1st May they could do so at the 8 per cent. rate. The people who could afford to buy did so leaving the poorer sections still on rental. This, therefore, is now a particular charge on the poorer sections of the community, in many cases on the very poorest.
One point which has cropped up consistently in our debates concerns the magnitude of the increase. It is not as though we are talking about an increase from 8 per cent. to, say, 12 per cent. With the tax going up to 25 per cent. the extra rental becomes a significant element in the household budgets of many people. The increase for a black and white set is about 50p a month, and 826 for colour the rise will be £1.40 per month or more. Those who have had substantial wage increases over the last year, keeping them well ahead of the rise in the cost of living, will not regard that increase as being particularly significant. There are many people, however—and I am thinking of pensioners and those who have not benefited from substantial pay rises—who will find this extra charge very difficult to bear since all the time their other living costs are rising. I have received representations from such people.
There is then the retrospective element. It is retrospective in the sense that most of the contracts, and all the contracts to which the amendments refer, were entered into before the Chancellor's Budget Statement. Those who took out those contracts thought that for the period of hire they would pay a clear and fixed rate. In the middle of the term, however, the Chancellor has increased the tax. This factor has caused total confusion and great bitterness among people renting television sets.
On a wider approach, the impact of the increase also affects the whole television industry. If we could get the Government to accept the amendments the industry would be spared the severe impact of the increase. Take the case of the retail and rental industry. About 80,000 people are employed in it. The industry believes that there will be significant redundancies if something like our amendments is not accepted.
Earlier this evening the Financial Secretary said that the Chancellor had done much to try to help retail pharmacists and people of that sort and that he had concentrated 25 per cent. VAT on certain groups. The point that has been missed is that by putting the 25 per cent. on special groups the right hon. Gentleman is adversely hitting the specialist shops. He is singling out for special treatment not only the electrical goods shops but shops which specialise in television rentals or in the sale of television sets and associated equipment.
Yesterday I had a long conversation with a shopkeeper about his position. He feels that he is almost certain to go out of business. I am sure that his situation is mirrored in many cases elsewhere. The extra charge on his customers comes 827 on top of the extra costs that he is having to bear in higher rates, rents and everything else over the coming year.
In the short period since 1st May—admittedly it is a short period and it is difficult to say exactly what the impact will be—that shopkeeper has had to incur a bill of £200 to circularise all his customers about the increased charge. That bill is one which he finds difficult to bear at present. His turnover on television rentals is down almost 50 per cent. Already a trickle—and it is a significant trickle—of television sets are being returned. Those who have contracts feel that they cannot meet the extra charge. My shopkeeper is wondering what he will do with the televisions that will be left on the shelf as they are returned to him.
Equally, he has had no sales of tape recorders or audio equipment since 1st May. That will also have an effect on his turnover. He believes that he could easily have absorbed a 2 per cent. increase in VAT on television rentals and on everything else, but the 25 per cent. will probably be too much for him to bear and he will go out of business. If he does not go out of business he will be left with a great deal of stock.
That is when the impact is felt by the manufacturer. I happen to have a television component manufacturer in my constituency. Since the 25 per cent. he has had to declare 25 per cent. of his staff redundant. In nearby constituencies he has had to close down two factories, both employing 140 people. That is in an area where there is little other employment. Again we see effects of the sort we were talking about earlier on industries and employment and in special pockets both industrially and geographically.
I understand that a working party in the electrical "little Neddy" is investigating the effects of the 25 per cent. and that it will report by 30th May. I hope that the report will be made public and that we shall be able to discuss it in Committee.
I believe that the amendment is justified because it removes the retrospective element which has caused such bitterness. It is justified because this area of VAT bears most heavily on the less-well-off sections of the community. It is justified 828 because it will help to keep in existence those parts of the rental and retail trade which are now worrying very much about their future. It is justified because it will have a follow-through effect on the television manufacturing industry.
The only issue that gave me cause to wonder whether my arguments were sound was when I saw this morning Early-Day Motion No. 477 in the name of the hon. Member for Bolsover (Mr. Skinner) and some of his hon. Friends, including the hon. Member for Keighley (Mr. Cryer). I was most surprised to find that the hon. Member for Bolsover and I were in agreement. We shall not press the amendment to a vote this evening, but I hope that we shall do so in Committee.
§ 12 midnight
§ Mr. Bob Cryer (Keighley.)
I thank the hon. Member for Norfolk, South (Mr. MacGregor) for giving us the opportunity to discuss the amendment. As he said, several of my hon. Friends and I have tabled an Early-Day Motion. That has been done in response to letters which we have received. They have been written in crabbed style on tatty pieces of paper and they come from pensioners who are impoverished, not from people in the upper income bracket who write on scented notepaper.
Many of the letters have been to the effect that the 25 per cent. VAT on television rental is unjust. One such letter reads:As my contract for TV rental was entered into before 1st April 1973, before the introduction of VAT, the recent increase of the VAT rate does not apply and therefore my rental payments will be as laid down in the agreement.That is what the writer of the letter expects. It is a different matter if a person enters into a new contract. It is fair in that case that the increased tax should apply because both parties are aware of the situation at the time.
It is unarguable that people with little money and low incomes rent rather than purchase a television set. There was a gap between the Budget announcement and the application of the new rate of tax, and people with a bit of brass in their pockets were able to pay rental for two or three years ahead. Will they be required to pay the extra VAT on that money? If not, it appears that people 829 who are in a better financial position will be let off, and the people who cannot afford to pay rent for two or three years ahead will have to bear a more onerous tax burden.
Any indirect tax is unfair and anomalous. The people with low incomes pay a far larger share. VAT is a Common Market tax. If we stay in the Common Market we shall have to pay more VAT because the Commissioners will want to increase their income.
Another letter I have received reads as follows:I am writing in protest against the rise in television rents. After paying for seven years I do not think it is fair to put up the rents as we have already paid for the set and being pensioners we can ill afford to pay any extra.Radio Rentals Limited has made representations and ordinary people have made representations too, including members of the Union of Post Office Workers to whom I spoke at a branch meeting last Sunday. I spoke principally about the Common Market. Like sensible trade unionists, they agreed that it was not in the interests of the trade union movement for us to stay in the Common Market. They accepted my argument completely and they will vote "No", as will the majority of people. They also objected to the 25 per cent. VAT on television rentals, especially coming from a Labour Government.
Television is a very important source of entertainment for millions of people. In many houses which are not particularly well-furnished or decorated there is a television set in the corner. One might criticise people for their values, but for many the television set is a means of communication with the outside world. It is no longer a luxury but part of the civilised standards of communication and entertainment that we accept today.
Every hon. Member rejects television only if he makes a conscious effort to do so. We all accept it as part of our life. Will my hon. Friend consider reviewing the position so that some alleviation can be made in Standing Committee, at least for existing contracts? This matter is not perhaps of overwhelming importance, but it is slightly nettling to millions of people who support Labour in election after election. They did not expect such a nettling little injustice to occur. My hon. Friend 830 should recognise the great injustice and remove the 25 per cent. at least on existing television rentals.
§ Sir John Eden
My hon. Friend the Member for Norfolk, South (Mr. MacGregor) was right to emphasise that it is the magnitude of the increase which has caused such widespread injury and hurt to the people who rent sets. The size of the jump has come as a great shock to them.
My hon. Friend said that the number of people returning television sets is already a trickle. That may be so elsewhere, but in my constituency it looks as thought the trickle has gathered considerably more momentum, and I fear that the tendency will spread to other parts of the country.
There is a firm in my constituency called Supertel, which rents out a number of sets in the area. It has sent me copies of some of the letters it has received. I will not read them all but will give one or two as examples to bear out what the hon. Member for Keighley (Mr. Cryer) said.
The first letter says:We find now we cannot afford to keep the rental up now with this VAT Price on it.The second says:We have always been pleased with the television and it is only the new huge VAT addition which prices the rental of your television out of all reason.The third says:I am sorry but will you please collect your colour television set which I rent from you, because with the rentals going up we cannot now afford it on our OAP.The fourth says:The extra 25% added value tax would, in any case, put the rental beyond her means.These are illustrative of the fact that people are being adversely affected to the point where they are being caused to hand back the sets they have been renting.
Earlier, I referred to the sense of injustice felt by those who entered into agreements at what has overtaken them. A letter written by one of my constituents to Radio Rentals reads:In view of the fact that I signed my rental agreement several years ago, I wish to query that you have a legal right to raise my monthly payments because of the reasons stated.831To clarify the position—would you kindly send me a copy of my agreement, clearly indicating the section on the agreement, which gives you this right?Many hon. Members have been in the habit of making representations to successive Ministers responsible for posts and telecommunications—of which I was one—and now to the Minister in the Home Office who is responsible for the matter to abolish or reduce the amount that is paid by old-age pensioners for television licences. That case has been made strongly by hon. Members from both sides, especially by Government backbench supporters.
A strongly felt and compassionate case was made out that the television set was of great significance and importance, especially to the poorer sections of the community and to people living on the it own. That is the reality behind the case that is being made today. I am not trying to pick out one section of the community and suggest that they alone have been hard hit. That is not so. The step to be taken by the Government is unjust in any event. Many people are now having to return their sets because of the incidence of this higher VAT charge.
I hope that the Financial Secretary will say why it has been necessary to impose a 25 per cent. VAT rate on rental charges, why the rental charges could not have been excluded, especially where agreements were entered into before the Budget, and why he could not have restricted the increased VAT rate to rental agreements entered into from the time of the Budget onwards.
The firm to which I referred is feeling aggrieved by the way in which the VAT increase has been handled. It has written a letter to the Chancellor of the Exchequer expressing anger at and contempt for these proposals. Its feelings are summarised in one sentence, which reads:We are, however, infinitely more concerned with the effect of the ever-increasing legislation, much of it petty and unnecessary, fiscal control, discriminatory taxation and political denigration upon those engaged in the commercial life of our country.Those are strongly-held feelings. People are fed up with the way they are having to shoulder ever-increasing burdens largely because of the mismanagement of the economic affairs of this country by the Government.
§ Mr. Nigel Spearing (Newham, South)
I support what was said by my hon. Friend the Member for Keighley (Mr. Cryer).
The fact that the same views have come from both sides of the Committee shows that this is not a political party matter. It is one of those matters which come within the realm of good government. All hon. Members are concerned with good government, regardless of the political views they hold. I am concerned at the intensity of the reaction the proposal has evoked from my constituents.
I have had many letters on similar lines to those read by my hon. Friend the Member for Keighley and hon. Gentlemen opposite. This increase, which literally goes into every home, hits at an item which is not generally thought of as taxable.
What I think hurts more than anything is the rental agreement being put up by an announcement from the Dispatch Box and ordinary people being unable to do anything about it. This is felt particularly in areas which support the Government in their general policies.
There is considerable resentment about this matter. I have had many letters on the subject. Although in business there is always a risk of extra taxation contracts entered into particularly by old-age pensioners are not generally thought of as being subject to Exchequer whims and fancies. There is tremendous resentment at the fact that a contract of the type for which people budget several weeks ahead should be put up by 25 per cent., that being a contract for an item which, rightly or wrongly, is regarded as something to do with household consumption.
I put it to my hon. Friend that, in view of the way that this proposal has been carried out and the resentment which has been caused throughout the country, particularly in areas which give strong support to the Government, he should consider the matter again. There is great resentment not only at the tax but at the way that it has been proposed.
I am sure that hon. Members on both sides will agree with me that, with the changes which modern life brings, this sort of measure is confusing particularly 833 for the elderly and, indeed, for some of us who are not so old. This kind of proposal causes resentment, particularly among those who have to fork out additional expenditure on rentals, not only against the party in power, but against the total machinery of government because of the apparently arbitrary selection of the tax by the Treasury in Whitehall.
I hope, therefore, that when my hon. Friend considers this matter at a later stage he will bear in mind that this tax has caused great resentment in the country, particularly because of its effect upon rental contracts. People tend to think of rental contracts in this realm as not changing, and this tax has hit their purses very hard.
§ Sir Paul Bryan
My hon. Friend the Member for Norfolk, South (Mr. MacGregor) said that the main debate on this matter will take place in Committee upstairs. I hope that it does. I hope that the matter is pursued to its ultimate there. Unfortunately, I am unlikely to be selected to serve on that Committee, so I should like to make my point now.
I should declare an interest. I am a director of two of the Granada companies, although not of the television rental company. However, before I was a Minister I was for five years a director of Granada Television Rentals. Among the things that I learned in that period was that, whereas there was a debate whether it was cheaper to buy or to rent a new set—one could follow that debate in the columns of Which? or other such publications—there was not the slightest doubt that people who could not afford a high rent and were satisfied with an old set got by far the cheapest bargain from a television rental company. That was not because the company was particularly altruistic or charitable, but for a simple, practical reason.
A television set lasts many years longer in the hands of a television rental company than in the hands of an individual. The company has expert mechanics and it is in its interests to keep the set constantly serviced. Some of the sets now in service in people's homes are very old. It is a wonder that they are still functioning. Their value has been written off years ago. Therefore, the company is 834 able to offer a fantastically cheap, admittedly very old, rental set, but a perfectly satisfactory one if a person is happy with that kind of set.
Therefore, people who have such sets on low rental for a long time are astonished when the Budget, in effect, announces that their rents, which have always been so cheap, are suddenly to go up. But those who have plenty of money can go out and buy a set in the morning and pay no extra tax at all. From the angles of humanity and justice, it is utterly wrong, but that is also the case on practical grounds. We live in an era when we are supposed to be keen on recycling and on conservation and all those sorts of things, when we are supposed to maintain equipment and not to replace it. Yet we are to have a tax on maintaining equipments and a "let-off" for those who buy new ones.
§ Mr. Winterton
It is not often in debate in this Chamber that I find I am in agreement with the hon. Member for Keighley (Mr. Cryer) and his colleagues, but on this occasion I am in full agreement with much of what they said.
I direct my remarks entirely to existing contracts which will be affected by this high rate of value added tax. The hon. Member for Keighley was right in saying that people who entered a contract expected it to be honoured, not only by the people with whom they made it, but by the Government. An arbitrary decision at the Dispatch Box which can alter an agreement to their disadvantage can create tremendous frustration and anger.
I hope that Ministers who sit on the Treasury Bench and represent the Government in the Standing Committee will give sincere understanding to the feelings of hon. Members on both sides who feel so strongly on this.
I emphasise that I am referring to VAT at the higher rate being levied on existing contracts, not that on new contracts, because anyone who makes a new contract knows the situation exactly. He knows how that contract will be drawn up, bearing in mind all the circumstances of the Budget announcement.
It is the way my constituents feel which affects me most strongly as a Member. I received a letter from a rental company, 835 Telefusion Limited, whose registered office is in Blackpool. It has received letters from constituents of mine and has sent them on to me. It is the very moderate terms of the letters which most strikes me, and makes me sympathetic to their point of view.
The first is a letter from a constituent in Sutton, a small village outside Macclesfield. It reads:I regret I shall be unable to renew the above agreement when this present one expires in August 1975 as I cannot afford to pay the higher VAT increased rental, also increased licence.Here is somebody who genuinely cannot afford it. He is not criticising Government, not marching in Parliament Square, nor going on strike, but pointing this out in sober fashion. He cannot afford something which every Member of Parliament and 95 per cent. of the country take for granted: the use and facility of a television set.
Another constituent, this time living in Macclesfield, comments:In view of the rampant increases now appertaining, economies have to be made and quite frankly I am unable to afford the luxury of rented television.In this day and age, when people have to set themselves out so clearly in that sort of letter, it indicates that this is an additional burden which they cannot shoulder, and they are prepared to do without the use of television in 1975. Perhaps that will indicate to the Minister that this is an area in which he can act without costing the Exchequer a lot of money, and he will then be showing that the Government care about contracts and are prepared to honour them. I look to the Government to change the position in Standing Committee.
§ Mr. Edward Lyons (Bradford, West)
I share many of the sentiments expressed in the debate. When they enter into a contract, people do not expect the Government to intervene later in such a way as to change the calculations on the basis of which the contract was made. There is one exception, in the building society mortgages, but not on the scale of the 25 per cent. VAT on existing television rental contracts.
836 I should declare an interest, as I have a television set on rental at home. When people consider entering into a contract to rent a television set, they calculate what it will cost and the size of the set that they can afford. They decide whether to buy or rent. I am receiving letters from people saying that if they had known that there would be an increase in the tax on rentals they would have bought their set instead of renting it. The size of the set in relation to one's means is a material matter. If people had known of this imposition they would have had a smaller set. They are now faced with much greater expenditure than they expected.
The Government have made a poor job of explaining the reasoning behind the increased taxation on rental contracts. The very least they could have done was to publicise their reasons. In his Budget speech my right hon. Friend the Chancellor should have gone into the reasons why the Government felt justified in doing what they propose to do to existing contracts.
One looks for a logical reason for behaviour of this kind from what are otherwise a kind-hearted Government. I imagine that they will say that the television rental companies have to find the materials to repair the sets. The hiring charge includes a payment for the capital value of the set, interest on that value, and labour charges and components when the set is repaired. The companies presumably now have to pay 25 per cent. VAT when they purchase the components, and, therefore, I imagine that the Government will say "How could we let the hirers—the ordinary household, the old-age pensioner and so on—off the 25 per cent. imposition, when the companies will have to pay 25 per cent. VAT on the repair charges?"
We must bear in mind that only a small part of the television repair charge relates to the cost of replacement equipment. If that is an argument at all, it is an argument only for increasing VAT by a very small percentage above the current 8 per cent. It is certainly not an argument for increasing it to 25 per cent.
§ The Chairman
Order. This is a narrow amendment, which questions only whether the higher rate of VAT shall apply to existing contracts of hire, and not the whole broad question of VAT.
§ Mr. Lyons
I entirely agree, Mr. Thomas. That is exactly what I am talking about. I am only talking about the existing rental contracts, which include a component for the repair of sets, including new valves and so on. The charges are based on a number of calculations, including the cost of repairs. I am saying that the rental companies have to buy the components at 25 per cent. to go into sets which are subject to existing rental contracts. I have not departed from the amendment by one jot.
The other point is that the Government are motivated by the fact that a huge sum of money can be raised from 12 million sets which are subject to existing contracts. I do not know what the Government expect to raise on average per set, but if it is £5 they will get £60 million extra, and if it is £10 they will get an extra £120 million a year. We are talking in huge sums of money, and this is tempting to the Government. They would have to look in other directions to impose this extra burden if they did not get the money in the way they propose. I know that it would be difficult for them to find other means of raising the money, but this is interference with existing contracts in a most unexpected way.
This heavy impost will fall on many people who are poor and cannot afford it. They are committed to a contract and to working to a tight budget, and now they will have to find this extra money. The Government should say that they will not interfere with existing contracts, even if it means increased taxes in other directions. I appreciate that the Government must have the money, but they should not obtain it in this way.
§ Mr. Giles Shaw
I could not help smiling when I heard the hon. and learned Member for Bradford, West (Mr. Lyons) refer to a possible link between component costs and the cost of television rentals. You were not in the Chair a short time ago. Mr. Thomas, when we were arguing with the Financial Secretary about the problems involved in component costs and servicing.
The main reason why we are all expressing concern about this proposal is the sheer scale of it. About 12 million sets are involved, and large numbers of those affected are the poorest families in 838 our constituencies. I pledged a large meeting of pensioners that I should raise this Matter in the Committee to try to force the Government to change their mind about the retrospective, as it appeared to them, imposition of this cost in their rental agreements.
I think the anxiety of these people can be expressed by the fact that the rental of a television set—and many of them have been rented for 10 years or more—becomes a household cost and can be fixed precisely. These people have suddenly found that as a result of the Budget they are faced with this imposition on rental agreements. The pension increase to which they were looking forward in April had been committed largely to food and other costs, and when the rental increase came along there was a genuine feeling that the Government had acted almost vindictively towards those living on small pension incomes.
I believe, and I think many people do, that the television set is an essential for the pensioner. I say that because it provides not only companionship where there might be none, not only light where there might be darkness, but real friendliness at all times for those who may lack friends. I urge the Government also to review the television licence fee. That is not the subject of the debate and I know, Mr. Thomas, that you will rule me out of order if I mention it once more, but the Government should look again at the question of imposing this charge on existing rental agreements.
Those who have received correspondence since the Government announced this measure have been surprised at the scale of the anxiety expressed. This measure has hit hard at people's understanding. Why, they ask, can the Government do this to a contract which has been signed? Why can they do it when the contract has been in existence for 10 years or more? Why have they done this to a renter but given considerable relief to those who can purchase outright by not changing the rate of VAT between the date of the announcement and 1st May? This was a clear advantage to those who had money to buy during that period and thus avoid paying the increased imposition.
To television renters, the majority of whom, I suspect, live on less than average 839 earnings and certainly a large percentage of whom are among the disabled, pensioners and the housebound, the renting of a television suddenly became significantly more expensive and their personal income became sorely tried to meet it. When we have rightly heard so often that they face increased costs which the Government must take action to help them bear, their faith in the Government who took this view about rental agreements is what has been shaken most.
I greatly regret that we have had to draw attention in this way to what I consider to be an ill-judged measure. I recognise that the £100 million of revenue involved is a highly significant item.
§ Mr. Winterton
Does my hon. Friend feel that the Government might have overestimated the amount of revenue resulting from this increase in VAT on existing contracts? If the trend of people ending their contracts and returning their television sets turns into a flood, as I suspect it might, could it not be counterproductive so that what the Government have to pay out in unemployment benefit far outweighs the tax they collect?
§ Mr. Shaw
I have little doubt that this might be one of the actions taken in the Budget which might redound to the Government's disadvantage. The more important factor with which to concern ourselves, however, is whether this is a justifiable measure given the existence of the long-term rental agreements which we are discussing.
I urge my colleagues in Committee to pursue this measure with vim, vigour and determination. There is not, I suspect, a pensioner in the land who would not be at their beck and call if they wished to demonstrate the anxiety which they feel at this tax. Therefore, I urge my hon. Friends to pursue this to a vote in Committee. I am glad that even at this late hour we have had the chance to draw the Government's attention to this problem, and I urge them to think again.
§ Dr. Gilbert
I quite understand the strong feelings which have been aroused and which have been communicated to hon. Members which they have reported to the Committee in the course of the debate.
Possibly there may be some misunderstanding about this matter in the sense that one has heard the word "retrospection" used so often tonight. Of course there is no retrospective effect in the sense that, whereas the tax will apply to existing contracts, under our proposals it starts to run only from the date of introduction. [Laughter.] There is no retrospection. It is as simple as that. Perhaps I should say "the date of announcement" if hon. Members prefer it.
I assure the Committee that this change in the rate of VAT was not in any sense an ad hoc decision. The fact is that changes in the rate of VAT will operate almost immediately on the supply by rental of any goods where the supply goes over a long and indeterminate period. That is inherent in the main VAT legislation and is to be found in Part I of the Finance Act 1972.
To be technical for a moment, the tax has to be charged on the value of the supply of goods or services, which is determined by reference to the consideration given, under Section 10 of that Act. There is no means of doing this for a hiring of indeterminate length except by splitting the hiring into a series of successive supplies. This is inherent in the general corpus of VAT legislation, and we are doing nothing new in this particular change in the rate of VAT.
I am grateful to my hon. Friend the Member for Bradford, West (Mr. Lyons) for pointing out that it is impossible always to shield people from the effects of indirect tax changes, and other Government fiscal decisions which have effects on long-term contracts.
The effects on mortgage payments were instanced. These are far more onerous on a person buying a house on a mortgage than anything involved in these proposals. When the mortgage rates go up—very largely but not always as a result of Government action—or the rates on a house, it is far less easy for the individual citizen to shed himself of that contract and renegotiate another for 841 a more limited amount of money than it would be with respect to a change in the VAT on a television rental. Precisely the same conditions apply with the long-term hire of cars, which will be affected by changes in the rate of excise duty and the rate of tax on petroleum products.
Having said that, it is right to point out that the rate of increase, as far as the individual hire is concerned, while obviously appreciable, and one that we regret, is not all that great. For a monochrome set the average increase will be about 35p a month, or 8p a week. For a colour set we calculate that it will be about £1.10 per month. It has never been part of our case that television is a luxury. But I really think that it is a little difficult to suggest that colour television is essential. For somebody who can afford a basic rental of a colour television set, an additional £1.10 a month, while certainly undesirable and unwelcome, is not the sort of expenditure that will reduce that person to penury.
§ Sir John Eden
One has to bear in mind the other rises in cost that people are experiencing these days. One tends in dealing with a particular point in a Committee like this to look at it rather narrowly, but I hope the hon. Gentleman will understand that in many cases this straw is the final straw, in the light of the accumulation of costs that everybody has been experiencing. When this sort of thing comes along it does probably proportionately even greater damage than might appear from the study of the individual case.
§ Dr. Gilbert
I am obliged to the right hon. Gentleman for the moderate way in which he phrased his intervention, but, as I recall, it was he who a little earlier in this debate was saying how significant these particular price increases will be to the pensioner, and how the pensioner did not get the benefit of the big wage increases that other members of the community receive. I remind him that the old-age pensioner is now effectively "indexed" to increases in money wage rates, so that pensions will go up with increases in wage rates throughout the community. Obviously, again, the increases are of the sort that we would have preferred to do without, but the amounts of money involved are very considerable. I am not resting my case on that at all. I am quite clear in my mind 842 that there is not a question of inequality here.
Whenever the level of indirect taxation is changed, there are bound to be swings and roundabouts between purchasers and hirers of commodities. For example, at some future time it is not beyond imagination that we could find a Conservative Government back in office in this country, pledged to reduce the difference between the higher rate and the standard rate, and possibly eliminate it altogether. I imagine that hon. Members of the Opposition would have set as one of their first priorities the reduction of the higher rate of tax that we are discussing this evening. If this is to come about, the result will be that those who bought their sets at the old rate will be stuck with having had it incorporated in the purchase price. But, immediately, those renting equipment will get the benefit of the lower rate of VAT.
There is a swings and roundabouts effect here. When tax rates go up, those who are not renting are liable to get caught and those who bought ahead of the increase will have protected themselves. Similarly, when the rate goes down precisely the reverse considerations apply. There is an identical, mirror image effect.
My hon. Friend the Member for Keighley (Mr. Cryer) talked about people with brass in their pockets being able to anticipate a year or two's rental and thereby free themselves from the incubus of the additional tax. He is right. But this is one of the unfairnesses of this world. People with brass in their pockets are often able to protect themselves against increases in indirect taxation. They can go out on the very evening that my right hon. Friend has announced increases in excise duties and stock themselves with hugh quantities of whisky, gin and whatever else they may want from their local off-licences, where the person of more modest means is unable to carry stocks of that kind. Unfairnesses of this kind are inherent in our society, and it is not possible by any change in the fiscal structure to eliminate them in the future.
The hon. Member for Howden (Sir P. Bryan) raised one matter which interested me greatly. He talked about a 843 lot of rental sets being very old and having had their value written off years ago. We know, and make no complaint about the fact, that that is where the rental companies often earn their gravy. I recognise that maintenance costs rise when a set is old. But, generally speaking, a leasing company gets its large profits in the later years of a long-life piece of consumer durable equipment. But, in that case, when talking about a modest sum of 35p on an old black and white set, it is not impossible for the rental company to carry the charge itself and absorb it in its profits.
I am happy to tell the hon. Gentleman that if he had had the good fortune to rent his set from the Dudley Co-operative Society, that is precisely what would have happened.
§ Sir Paul Bryan
I was merely confirming the information that the hon. Member for Keighley (Mr. Cryer) obtained from his letters. I was confirming it from a practical point of view and saying that this is bound to happen, which is why they are so cheap. That is also why many television rental companies have special rates for old-age pensioners. They are able to do it for this reason.
§ Mr. Nott
I thought it was strange that the Financial Secretary should at one moment seek to justify the increased rate of VAT on television rentals by saying that if a Tory Government were to come to power and reduce the rate of VAT, the benefit would then be the other way. That is hardly an argument which is likely to appeal very much to the hon. Member for Keighley (Mr. Cryer), the hon. and learned Member for Bradford, West (Mr. Lyons), of the hon. Member for Newham, South (Mr. Spearing).
Then the Financial Secretary said that we could all be pleased that the tax did not begin to run before its introduction. We are open to expect any kind of novel revenue innovation from this Government, but we have yet to have a tax imposed upon us which begins before its introduction.
I think that there is more feeling about this measure in the Committee and in the country than the Financial Secretary, perhaps wisely, is prepared to admit. Having lictened to my hon. Friends the 844 Members for Norfolk, South (Mr. MacGregor), Bournemouth (Sir J. Eden), Howden (Sir P. Bryan), Macclesfield (Mr. Winterton) and Pudsey (Mr. Shaw) and to the four Government supporters who spoke, it seems to me that we have before us a little measure—although it affects 12 million sets—about which it is most likely that the Government may be forced to change their view.
In Standing Committee we shall be pursuing this matter extremely vigorously and tabling amendments to the schedule on all the various aspects, which unfortunately we are unable to do on the clause. I assure the Committee that we shall be doing our utmost to remove this increase. We understand that a lot of revenue is involved, but that does not make the imposition justifiable. The Financial Secretary talks about an extra 8p a week, but that does not remove the fact that a 16 per cent. increase is involved, which is no small increase to be imposed at one point of time on people who already have a television set rental outstanding and suddenly find that kind of percentage increase imposed. I assure the industry, whose representatives I have already met, that we shall be tabling amendments to the schedule and that we shall vigorously oppose it as best we can.
As many of my right hon. and hon. Friends said in earlier debates today, we believe that the higher rate is unjustified in equity and unnecessary for the Government's revenue. We believe that there would have been a much wiser and fairer alternative means of raising the equivalent sum, although I accept that about £100 million is involved here.
I leave the matter there for the time being. The Government will be hearing a great deal more about it during the passage of the Bill. We shall be doing our utmost to get rid of this proposal before it ends its progress.
§ Mr. MacGregor
Having listened to the debate, as I did to the two previous debates on VAT, and in view of all the criticisms and worries expressed from both sides of the Chamber and mirrored in the country at large, and having heard the most inadequate reply from the Financial Secretary, I am more than ever convinced of the mistake of going away from: the 10 per cent. rate of VAT.
845 This has been an object lesson to us all in thinking of the future of the tax. It is the very high jump from 8 per cent. to 25 per cent. which has caused so many of the worries. The Chancellor's need for extra revenue could have been so much better dealt with by a straight move from 8 per cent. to 10 per cent., which would have helped him in his public sector borrowing requirement needs.
No doubt we shall be arguing about these matters further in Standing Committee. My right hon. and hon. Friends have become accustomed on one or two occasions recently to having to go into the Lobby with the Government Front Bench and Government back-bench Members, supporting the official Government view in order to bail them out against the Tribune Group, who are the signatories of Early-Day Motion No. 477 to which I referred earlier. It looks as though on this occasion we shall have an unholy alliance of the reverse sort. I hope that there will be some members of the Tribune Group in Standing Committee, as there have been in the past, who will follow the line taken by the hon. Member for Keighley (Mr. Cryer).
With that hope and in the belief that we shall get some improvement and change in Standing Committee, I beg to ask leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Clause 17, as amended, ordered to stand part of the Bill.
§ To report Progress and ask leave to sit again.—[Mr. Pendry.]
§ Committee report Progress: to sit again this day.