§ 11.34 p.m.
§ Mr. Michael Marshall (Arundel)
I begin by declaring an interest as a member of a small sailing club. I should declare that interest although I am not a boat owner and my future interest is more likely to be found in training my children to sail rather than having time to sail myself.
I welcome the fact that the Under-Secretary of State for Industry is to reply to this debate as I shall be approaching the problems of the boat industry in general and the problems that concern small businesses in particular. I welcome the fact that my hon. Friend the Member 1175 for Dumfries, (Mr. Monro) is present on the Opposition Front Bench, reflecting his interest as our spokesman on these matters.
I turn quickly to the problems of the industry and to small business in this context. What are the problems of the boat building and repairing industry? It will come as no surprise to the Under-Secretary when I say that the chief and most pressing problem is the recent imposition of 25 per cent. value added tax. In this connection I draw attention to Early-Day Motion No. 422, which stands in the names of myself and my hon. Friends, and which describes the effects of the increase in VAT on the boating industry. The wording of the motion summarises effectively the problems of the industry. It says:That this House deplores the Chancellor of the Exchequer's proposal to levy 25 per cent. VAT on the boating industry; regards such discrimination as totally unfair, affecting as it does some half a million owners of small boats; views the extension of multi-rate VAT as indefensible; and further warns the Government that this higher tax will substantially reduce home and export sales capacity worth £140 million while causing widespread unemployment of craftsmen engaged in boat building and repairing.That motion has already been signed by 54 Members, who are not confined to my party. My main theme tonight is that the general argument—indeed, the general unrest and worry in the boating industry—extends across all parts of the House.
I think the Under-Secretary will be aware of the Committee proceedings on the Finance (No. 2) Bill last Thursday. One of the most notable speeches came from the hon. Member for Sheffield, Attercliffe (Mr. Duffy), who put forward many arguments that I shall seek to reiterate tonight. I do so—
§ Mr. Deputy Speaker (Mr. George Thomas)
Order. Perhaps I may help the hon. Member. It is necessary for him to realise that he can make only incidental references to the need for legislative changes. I have been checking up the position quickly, because I did not want to interrupt the hon. Member unnecessarily, but I find that he cannot base his Adjournment motion on the need for a change in legislation.
§ Mr. Marshall
I am grateful for that advice, Mr. Deputy Speaker. I shall seek 1176 to confine my remarks to the general problems of the industry, but I have unfortunately to put them in the context of the tax changes without seeking changes in the legislation as such.
I turn to the first of the basic problems which the industry faces. I shall not reiterate all the arguments which have been advanced on taxation matters generally, but we have first to recognise that the boating industry employs about 30,000 craftsmen, and those 30,000 craftsmen are people who cannot readily be assimilated into other industries. The boating industry generally serves about 2¾ million people in this country, of whom the vast majority can by no stretch of the imagination be regarded as among the better-off. That is common ground among hon. Members on both sides of the House.
Secondly, most of the 2¾ million people who indulge in boating have been introduced to sailing through sailing clubs and youth organisations, such as the Sea Scouts. The Government provide subsidies for coaching and sailing centres but in some strange way they seem to be attempting to negate this by their current legislation, which wipes out the benefit through taxation.
Thirdly, the boating industry has an outstanding record in exports, which amounted to over £40 million last year. The export market depends on a strong United Kingdom domestic market. It is necessary to remind ourselves that, after all, new models cannot simply be launched into export markets; they must be tried out in home waters first and have their sailability tested in the home market. Only when they are successful in the domestic market can the export market be built up.
In addition—this is particularly important at this time of year—there is an important seasonal balance, because foreign sales of boat builders are generally geared to the International Boat Show in January, with deliveries to be made at the start of the sailing season, which is about now. It is therefore essential for United Kingdom sales particularly to mop up capacity during the autumn and winter, to maintain year-round production.
Fourth, this feature is typical of the problems arising in terms of cash flow as a direct result of Government action, 1177 because clearly the payment of VAT on spares and on maintenance generally imposes an immediate cash burden on the industry, and this at a time of reduced home sales.
These problems cannot be judged in isolation. It is part of my charge and my view that the problems of the industry have stretched across both Governments, particularly over the past two years.
Here I must touch briefly on the recent history of the industry and, indeed, the way in which Government actions have affected it. I can go back further than the past two years and remind the Under-Secretary that it was his right hon. Friend the Foreign Secretary, who was then Chancellor of the Exchequer, who in January 1966 said that the boating industry would not be subject to further taxation provided that it maintained its export record. That was at a time when the industry's export record was something under the £ 10 million mark. It has since quadrupled to over £ 40 million. The industry has played its part.
Since then the industry has seen under successive Governments the introduction of VAT on boats at 10 per cent. in April 1973; the limitation of credit in October 1973; and in December 1973 the Consumer Credit Branch of the Department of Trade and Industry, as it then was, ruled that the hire-purchase order applied to traditional marine mortgages in excess of two years. This was followed by a directive issued to finance houses by the Bank of England which imposed further stringent financial restrictions upon the industry.
Following that, there has been a general rundown in sales on the home front and, although repair and maintenance work by the early part of last year was in reasonable shape, the fact was that the industry was beginning to feel the general impact both of taxation changes and, indeed, of the general state of the economy.
We therefore come to the problems arising from the Budget in the autumn of last year, when loan interest was disallowed as an income tax deduction for consumer purchases, including boats. By January of this year boat sales had slumped further, as judged by the Boat Show, and the 1974 industry statistics showed that while export sales had 1178 doubled, the home market had dropped by nearly 40 per cent. It was expected at that stage that unemployment would reach 6,000 by the spring.
Following that sequence of events, it was both sensible and appropriate that the Ship and Boat Builders National Federation should seek meetings with the Department of Industry and with the Treasury. As the Under-Secretary will know, his noble Friend Lord Beswick held a meeting with the federation in January of this year. At that time representations were made to ease the mortgage restrictions in view of the state of the trade in the boating industry.
On 24th March, as a follow-up to that meeting, only three weeks before Budget Day the federation met the Financial Secretary to the Treasury and put forward its views for further easement in view of the particular problems the industry faced. Only three weeks later we had the imposition of VAT.
These are the basic problems. They have undoubtedly had their impact on the industry. It is very difficult to be dogmatic so soon after the Budget, but the figures which are now coming through bear out the difficulties which I have described. Whereas in 1973–74 one major company in the Ship and Boat Builders National Federation had orders averaging seven boats a week, in the two weeks of the VAT "holiday"—that is, between the date of the announcement of the VAT increase and the time when VAT actually applied at the higher rate—orders went up to 30 boats. In the week succeeding 1st May those orders completely disappeared. Similarly, for monthly inquiries, whereas the average was 260 for 1973–74, in the two weeks of the VAT holiday 350 inquiries were received, and in the last two weeks since 1st May inquiries have dropped to seven for two weeks. This is a measure of the way the business is already declining further.
In the light of this dismal saga, I turn to the rôle of the Department of Industry. I am sure that hon. Members will wish to fight their own fight in relation to the Finance (No. 2) Bill, but at this stage we are at least entitled to seek an expression of views from the Department of Industry. I therefore put three specific questions to the Under-Secretary.
1179 First, can the hon. Gentleman say what consultations took place between the federation's meeting with his noble Friend and the further meetings which it held with the Financial Secretary, between Jannuary and March of this year? Secondly, will he confirm his willingness to make sure that the views of the Department of Industry are fully known and expressed to the Treasury in the light of the undoubted difficulties which the boating industry faces?
I had considered tonight sounding out the Under-Secretary's views on the applicability of Sections 7 and 8 of the Industry Act 1972 should the problems of the industry assume the proportions that I fear. I shall be interested in any comment he may have to make on that point. Frankly, however, such action is unlikely to be of much help because it would come too late, and equally nationally it would not make any kind of sense to have that kind of help when the answer lies clearly in the Government's hands in the field of taxation.
I close with this thought. It is, after all, when industries in this country are seeking support that they turn to the Department of Industry. It is that Department which they expect to fight their corner with the Treasury or with any other Govrenment Department. It is because we know that the Under-Secretary has an interest in small business that we look to him especially to give us assurance tonight.
§ 11.47 p.m.
§ Mr. Wakeham
May I first congratulate my hon. Friend the Member for Arundel (Mr. Marshall) on raising this subject on the Adjournment and thank him and the Minister for allowing me a minute of their time so that I may speak in support of what my hon. Friend has said.
I should first declare an interest as the owner of a small boat, although I had frankly forgotten that I have such a thing since I arrived in this House, so little have I seen it. Nevertheless I associate myself with my hon. Friend's remarks. His constituency is on the 1180 South Coast and mine is on the East Coast, in Burnham, Maldon and Tollesbury, areas with which I know the Minister is familiar.
There is very deep concern about the future of boat building and small boats. We are deeply concerned about their prospects as a result of various things which have happened in the last two years. I hope that the Minister can give us some assurance that he is fully aware of the problems and some hope that when we are back in our constituencies we can explain to the many people involved the concern that the Government have for those problems.
§ 11.48 p.m.
§ The Under-Secretary of State for Industry (Mr. Gregor Mackenzie)
May I first say that, representing the Department which is responsible for sponsoring the boat building industry, I have a great deal of concern about its future. I am very much indebted to the hon. Member for Arundel (Mr. Marshall) for having put the case so effectively tonight. We are also indebted to his hon. Friend the Member for Maldon (Mr. Wakeham) for his support.
This is the first Adjournment debate—and I have attended them with what seems monotonous regularity—in which I have seen so many Members in the Chamber at one time. Indeed, one of my colleagues from Scotland occupies the Opposition Front Bench. I am therefore rather overcome by the interest which is shown in this subject.
I wish to stress that we in the Department are concerned about the whole question of boat building, and I hope in the course of my comments to put some of the problems into perspective and to shed a little light on some of the misconceptions which have arisen.
Although the industry may feel that it has been hard done by in the last two years, I want to make it clear from the outset that the Government are not bent on using fiscal measures to victimise boat builders and boating enthusiasts. Neither do they intend to do so in the future.
It is important for the industry to bear in mind that boating has not been singled out among sports or other recreational activities for special treatment. As the hon. Member for Arundel reminded us, the previous Conservative administration 1181 introduced credit restrictions extending over a wide range of goods, many of which were designed for recreational use. These imposed a minimum down payment of 33⅓ per cent. and a maximum repayment period of 24 months on certain goods, including boats. In addition, finance houses were directed to comply with the spirit of these restrictions, with the effect that marine mortgages were reduced from five years to two years. Undoubtedly this measure affected the boat building industry's sales, as it did those of the other industries. Since we came into power we have carefully considered whether any changes to these terms could be made, but in the face of continuing economic difficulties my right hon. Friend the Chancellor of the Exchequer did not feel able to grant any relaxations in respect of boats.
My right hon. Friend explained in his recent Budget Statement that the current economic situation has made it necessary for him to restrict consumer spending and to raise additional revenue. This was to be achieved in part by imposing a higher rate of VAT on what he described as less essential goods such as those large items which are usually purchased separately, and boats fall pretty squarely into that category. There is, however, no question of boats having been singled out for taxation at the higher rate, which applies also to a wide range of other goods used in recreational and leisure pursuits, including caravans, hi-fi equipment, light aircraft and so on.
I know that the application of the higher rate of VAT to boats and the complex range of related accessories, parts and services has caused some uncertainty among those in the boating trade. In particular, there were fears that retailers specialising in boating goods would be required to charge the higher rate of VAT on items which could be sold by general hardware retailers at the standard rate.
The special problems of the higher rate of VAT relating to the boating industry have been kept in mind by Customs and Excise, which has maintained contact with the boat builders' federation to try to iron out some of the administrative difficulties which could occur. I understand that together they have produced a schedule which defines exactly which 1182 items are liable to the higher rate of tax and those which are covered by the standard rate. Retailers in the boating industry can now be assured that the rate of VAT applicable to any item is covered by the schedule and does not depend either on where the item is bought or on the nature of its intended use. This schedule, I understand, has been distributed among the federation's membership and can be made available at any of the VAT offices.
Having made that point, I now turn to the implications of these measures for the industry. Obviously, stringent measures to limit spending will affect home demand. Indeed, that is precisely what the Budget was intended to do. The boat building industry has drawn attention to the fall in home sales in the last year, although how much of that was due to the general economic situation and how much to credit restrictions it is not possible to say. A higher rate of VAT is likely to lead to a drop in home demand, but just how much this will affect employment in the industry will depend on the level of total demand, taking exports fully into account, and the extent to which the industry will be able to adapt to changing circumstances.
Because of the structure of the boat building industry, it is difficult to make an accurate assessment of the effect that a reduction in demand is likely to have. The trade association has nearly 900 members, and these include firms producing a wide range of goods and services associated with boats and boating—not only boat builders themselves but manufacturers of marine engines, makers of the multitude of items which come under the general heading of equipment, and also firms involved with the hiring, mooring and storage of boats.
§ Mr. Michael Marshall
I appreciate the Minister's difficulty in being precise, but does he accept the vital connection between exports and a sound home domestic market?
§ Mr. Mackenzie
The hon. Gentleman anticipates my comments. I am very concerned about that point.
The net effect on the industry of changes in the level of demand will depend on exports, which represent about 30 per cent. of turnover, as well as home 1183 sales. Export sales in recent years have accounted for an increasing proportion of the industry's turnover, and even though home sales have fallen in recent months the export market is still very buoyant.
The larger firms, therefore, which make up the bulk of the industry's output, are far less dependent on the home market and now have a greater incentive to divert spare capacity to the export market. It is true that these companies depend to a certain extent on the stage payments received for home orders to finance their export sales, but the placing of home orders in the fortnight immediately before the Budget measures came into operation means that companies should be able to maintain a reasonable cash flow position for a while. In addition, I should point out that the full range of the Export Credits Guarantee Department's credit insurance and associated financing facilities is in principle available to all firms, including the smallest, and no doubt the industry will continue to make use of them.
§ Mr. Peter Viggers (Gosport)
If the Government are not hitting the export business, presumably they are hitting the home market and the 21 million people who sail dinghies and yachts. This will prevent those people following their hobby in this country and may encourage them to take holidays overseas.
§ Mr. Mackenzie
My right hon. Friend the Chancellor of the Exchequer obviously takes all these considerations into account. When he took these measures, he no doubt knew the effect of them and, indeed, knew that they would have a serious effect. That is the whole point of the strategy involving either putting money into the economy or taking it out. On this occasion my right hon. Friend thought that that was the right thing to do in taking the action he did.
Of course I am very concerned about exports, and I hope that the industry will take up as much of the potential for exports as it can. Whatever we in the Government can do, we certainly shall do to assist that effort. There is great opportunity available to the industry. There are big problems—the 1184 hon. Member for Arundel mentioned some of them—for people in the small firms, which is a matter of particular interest for me with my responsibilities in that area. I am very much concerned about the adverse conditions affecting small businesses and that closures and redundancies which have resulted. However, I wish to point out that my Department will look carefully at these matters and that we shall do all we can to ease the situation.
I am sure the industry will recognise that my Department fully understands its views and fears for the future, and that we have always been anxious to give what help we can. We have an excellent relationship with the federation. The rôle of sponsor is not an easy one. We have always been concerned to take account of the industry's views and difficulties in formulating Government policy, but I am talking of economic circumstances in which it is difficult to make exceptions even for what appear to be the most deserving cases. This is why we sometimes have to explain unpalatable decisions which the industry may feel are directed against it. As I have said, this is not the case.
I know of the hon. Member for Arundel's interest in this matter. The federation has been in touch with my right hon. and noble Friend the Minister of State who has assured it that careful consideration will certainly be given to more lenient terms. My Department has been in close touch with the Treasury about this. I regret that, in the light of the economic difficulties of all sectors of industry, it has not been possible to grant relaxation to boats. However, the Financial Secretary said in the House only the other evening that he would gladly receive representatives of the industry to discuss their problem further. It would be useful if they took up this offer when the time was ripe.
§ Mr. Hector Monro (Dumfries)
I have already taken up the Financial Secretary's offer and am arranging a deputation to see him as soon as possible. Why has sailing, alone of the 125 physical sports, been singled out for this penal increase in VAT? It will apply to sailing, canoeing, rowing boats and racing shells. We find it inexplicable.
§ Mr. Mackenzie
Then the hon. Gentleman had better read the Official Report with some care.
I said that I did not believe that this activity had been singled out as the hon. Member suggests. If he wants a debate on VAT, he knows what line to take. It is not to raise the matter on the Adjournment with my Department. As the sponsoring Department concerned with boats, particularly small boats, we shall continue to watch developments closely, particularly those affecting the small firms, and give the most sympathetic consideration 1186 to the industry's claims as soon as circumstances permit.
The last Conservative Government first introduced measures affecting the boat building industry in 1973, and we have not been able to relax the decisions taken then. No doubt, if the hon. Gentleman had thought about it, he would have raised the matter in the latter part of 1973. As soon as we can, we shall put these views to the Treasury and trust that any discriminatory action taken against boat building and sports of this kind will be ended as soon as economic circumstances permit.
§ Question put and agreed to.
§ Adjourned accordingly at three minutes past Twelve o'clock.