REDUCTION OF HIGHER RATE

HC Deb 11 May 1976 vol 911 cc242-300

4.2 p.m.

Mr. David Howell (Guildford)

I beg to move Amendment No. 2, in page 10, line 26, leave out '12½' and insert '10'.

The Chairman

With this it is proposed to take the following amendments:

No. 1, in page 10, line 26, leave out '12½' and insert '8'.

No. 4, in page 10, line 26, leave out '12½ per cent.' and insert 8 per cent.'.

Mr. John Pardoe (Cornwall, North)

On a point of order, Mr. Murton. May I raise a question about Amendment No. 5? I understand that this has not been selected because it is out of order. I knew perfectly well that it was out of order when I put it down. It would, however, be helpful if we could get on the record a ruling on why the House is denied the right to raise taxation as opposed to lowering it.

We shall during the course of the debate be accused, no doubt, from the Treasury Bench, of widening the borrowing requirement. It seemed sensible, therefore, to put down an amendment such as Amendment No. 5, and it would be very useful, Mr. Murton, to have on record the reason for indulging in this crazy practice.

The Chairman

This particular practice has gone on for the last 500 years. It is a matter for the Select Committee on Procedure and not for the Chair.

Mr. Howell

Perhaps I should make one thing clear at the outset. The Conservative Party believes that the high rate, now proposed at 12½ per cent., and the standard rate of 8 per cent., should be consolidated into a standard rate of 10 per cent. The hon. Member for Cornwall, North (Mr. Pardoe) has been good enough to draw our attention to the fact that there is a certain difficulty in expressing that belief in the form of amendments. As the hon. Member said very engagingly, the Liberal amendment was, of course, out of order, and all we have been able to do within the rules of order is to put forward half the proposition in the amendment. I hope that that makes the position clear and that the Treasury Minister who speaks in the debate will resist the rather predictable temptation to talk about reducing the revenue when our proposals would lead to a very substantial increase in the revenue and a reduction in the colossal public sector borrowing requirement.

I hope, therefore, that the Treasury Minister will take out his pencil and cross out that part of his brief which refers to reducing revenue. Our proposals will not do that. They will increase it very substantially indeed. I am not quite sure what is the estimate, but in the light of the new rates it could be as much as £400 million.

There is no doubt that the 25 per cent. high rate introduced last year was a major error of judgment. Everything that was predicted by my hon. Friends, and by hon. Members on both sides and in all parties, and every warning that was given, has come about. Treasury Ministers turned deaf ears to all we said, and yet all we said has come true.

People have been thrown out of work. We said they would be. Industries have been very severely hit, on top of the difficulties they already faced in the recession. We said that would happen. Exports have been damaged and imports favoured. We said that would happen. The domestic applicances industry has been hammered. We forecast that. The television and radio industries have been placed in grave difficulties, and there have been substantial closures and lay-offs. We said that would happen, and it did. The caravan industry has been placed in great difficulties. Many boat yards have had to close. Many other firms have been placed in additional difficulties.

We said that all these things would come to pass, and they did, despite the denials of Treasury Ministers. We do not expect a Chancellor of the Exchequer to admit that, of course, but it may be that the Chief Secretary and the Financial Secretary between them will admit what is now universally recognised—that this was yet another fiscal blunder and misjudgment for which this country has had to pay a quite unnecessary price. When a new government come in, with commitments to tax reforms of this kind ringing in their ears, they would do well to pause and listen to clearer advice before rushing in with damaging legislation of this kind.

The figure of 12½ per cent., which appears in the clause which we are seeking to amend, is the Treasury's attempt to put the matter right, having made the mistake in the first place. But in putting the matter right the Treasury have made another mistake. That is one reason why we are pressing our amendment. The Treasury has made another mistake for a number of reasons. The first is one which existed last year and persists now. It is that by having a higher rate—the 12½ per cent. on top of the 8 per cent.—the Treasury is still stuck with the appalling problem of deciding which cuts are less essential. which cuts are more essential and—in the immortal phrase of the Financial Secretary last year—which cuts will reflect the right social attitudes and which cuts reflect the wrong social attitudes.

We are still stuck with a mad situation in which we have a schedule which declares that electric irons, refrigerators and electric kettles reflect the wrong social attitudes and are socially less desirable cuts. So are lawn mowers and liquidisers. Other items of a humbler kind apparently reflect the right social attitude and are socially more desirable cuts.

This is an absurd and unhealthy situation, and one that has led to countless anomalies and difficulties. It deserves the ridicule which has been poured upon it. That problem still remains, but because of the reluctance of the Treasury Ministers to come clean and to admit their mistakes fully, and because of their insistence on hanging on to the l2½ per cent., we still have these absurd distinctions running through the application of the value added tax.

The second reason for the Treasury making another mistake is even more serious. By pushing the rate up first to the high level of 25 per cent. and now lowering it to 12½ per cent.—if it had the chance. Heaven knows where the Treasury would put it next, in the light of its latest assessment of social attitudes—the Treasury has turned the value added tax back into a sort of regulator. It has brought back into the VAT legislation all the worst aspects of the old purchase tax and created the very fiscal instability which it was hoped had gone for good when VAT was first introduced, and which was so absurd and made to seem so absurd by the endeavours, among others, of the late Sir Gerald Nabarro under the old purchase tax regulations and purchase tax provisions.

It is a very serious mistake indeed to bring into an unstable enough industrial situation this additional element of fiscal instability, by treating the VAT as a yo-yo to be pushed up and down in accordance with this mistake and that and this fashionable belief and that. The whole attitude demonstrated by pushing VAT around the different rates is wrong, it is mistaken, it is damaging to industry, and it will create more instability than has been generated already.

The third problem which persists under the continuing 12½ per cent, high rate is the components problem. My right hon. and hon. Friends and I spent a great deal of time and effort in trying to inject into the heads of Treasury Ministers the difficulties that would arise and have arisen in massive proportion.

We pointed out that wherever we were dealing with complicated equipment, with many component parts, enormous difficulties would arise when we tried to work out the designation of the component and said that if it went, say, to a commercial refrigerator, it would be charged at 8 per cent., and if it went, say, to a domestic refrigerator, it would be at 25 per cent. The same point applies even more to the vast range of electronic components.

During the year, as we warned, the Customs and Excise, together with a number of industries, including electronics and refrigeration, got into the most appalling jungle. There were very great difficulties. Enormous burdens were placed on the Customs and Excise in having to decide which components ranked for the higher rate and which ranked for the lower rate. Because we still have the higher rate those problems remain.

One item has been called to my attention—a minor example of the complexities that arise—in the area of assessing different types of electronic components for 25 per cent. or 8 per cent. I learned from the Customs and Excise that in respect of discrete semi-conductors with transistors, triacs and binary systems, plastic encapsulated, of less than 3 oz. in weight, the rate will be 25 per cent., but if they weigh more than 3 oz. the rate will be 8 per cent. If I may turn to capacitors, it appears that paper capacitors of greater than 0.5 microfarad and all-metal cased are rated at 8 per cent. but if of less than 0.5 microfarad, the rate is 25 per cent.

The Financial Secretary to the Treasury (Mr. Robert Sheldon)

Before the hon. Gentleman gets too fully launched into his disclosure of these anomalies I would point out that it was his Government who introduced value added tax. Even with the single rate, there were anomalies, which I should be delighted to quote, which would make those which the hon. Gentleman has just quoted seem the height of moderation. Is he aware that under the original VAT legislation by his Government, whether gloves were rated at the standard rate or were zero rated depended on the size of the fingers of each glove and the width across the palm. There are other examples which I shall be delighted to give the hon. Gentleman if lie wishes me to continue.

Mr. Howell

The Financial Secretary tried this argument, nobly, but in vain, last year. It is a bizarre argument. He is saying that where there are complexities—and certainly there are—he thinks that there is a case for more. If he considers that the examples I am giving are modest, that accounts for much of the Government's economic policy. These are lesser examples of the extraordinary difficulties in which Ministers have placed this industry. I do not know whether the Financial Secretary has ever been in a warehouse where wholesale electronic parts and components are kept.

Mr. Sheldon

I know what a capacitor is

Mr. Howell

I am very glad to hear of the Financial Secretary's experience and skill in this area. But clearly, whether or not he knows what a capacitor is, he has not the slightest idea of the vast problems of administration that are involved when there is a change in the VAT rate on electronic components. Every item among tens of thousands has to be reprogrammed and rearranged as to location, price and availability. This means a great deal more work. The hon. Gentleman may say that it is the Government's aim to make more work at the present time but it is a very bizarre way to go about it, and not, I would have thought, in line with the Government's policy for the future.

Mr. Nicholas Ridley (Cirencester and and Tewkesbury)

Would my hon. Friend consider the appalling thought that if this warehouse full of electronic components, at two different rates of VAT, gets classified as dock work, it will be taken over by dock workers?

Mr. Howell

All these possibilities loom up. The Chief Secretary and the Financial Secretary know that they are heading for another fine mess, that there is another fiscal banana skin in the offing, and, bless them, our two heroes are about to slip on it. They know, as they knew last year, that this will not do and that before this year is out, if they are still here—from which I hope we are preserved—more changes will have to be made. Last year men were thrown out of work and this year people will be kept out of work. New investment will not be made. Jobs will be diverted. Administration will take up time which should go into productive effort. That is what lies behind this 12½ per cent. rate.

Last year we discussed where the idea came from. It was said that the trade unions wanted it and therefore the Government brought it in. I cannot believe that the trade unions were as misguided as to say that they wanted the 25 per cent, rate, any more than I suspect that they want the 12½ per cent. high rate. I believe the truth of the matter was that the right hon. Gentleman the Chancellor of the Exchequer was perhaps over-eager to meet what he thought were the trade unions' wishes, and like a collie dog, he jumped up to lick his masters' face because he thought that it would please them. It did not please the trade unions. It did not please those people who were thrown out of work. It does not please us, and our advice is that the trade unions should now say "Down, Bonzo, down" and we should get back to 10 per cent.

4.15 p.m.

Mr. Ridley

I should like to congratulate my hon. Friend the Member for Guildford (Mr. Howell) on his speech. I agree with every word of it and I need not go over the ground he has so ably covered. First, however, I should like to ask where the Chancellor is. Is he not to come here and listen to the debate, when he should be here with the tears streaming from his eyes, apologising profusely to the House for the blunder he made last time? I do not know where he is. Perhaps he has locked himself in his room, as his right hon. Friend the late Prime Minister did on a similar occasion of defeat. He ought to come here and have the grace to apologise to the Committee for the appalling muddle he has got everybody into with this high rate VAT. He rather reminds me of Christopher Columbus who, when he set out, did not know where he was going, when he was there did not know where he was, and when he came back did not know where he had been—and did it all on borrowed money. That is what we should have had from the Chancellor.

Dr. Jeremy Bray (Motherwell and Wishaw)

The hon. Gentleman might also have added, of Christopher Columbus, that somebody else had done it already.

Mr. Ridley

This has not been done already because nobody else has been foolish enough to try a higher rate of VAT. Surely, having admitted that he was wrong, the Chancellor should have had the grace to go back to the 10 per cent. rate overall. I cannot tell the Financial Secretary how much kudos the Government would have achieved as a result, because for once a Government would have admitted that they were wrong. They could have said, "We believe that we were wrong and we shall go back to what the Conservative Government did." That would have created a vast sigh of relief in the country as a whole—that for once, in the long history of politics, a politician had admitted that he was wrong and had gone back to what was known to be right. That would have been the right thing to do.

Mr. Ian Gow (Eastbourne)

My hon. Friend may have misunderstood recent developments in the Chancellor's mind. Far from returning to reality, he said yesterday that we were living in a world of economic miracles, and therefore the flight from reality continues.

Mr. Ridley

But he has to do it because he has shaped the whole of his spending plans for the next five years on the achievement of an economic miracle. Therefore, he has to say that it is happening, otherwise he will be forced to change his expenditure plans. He is in a strange world because the Government's expenditure plans have not yet been agreed by the House—in fact they have been thrown out by the House—but we are proceeding on the basis that they are agreed and on the basis that an economic miracle will take place. But my hon. Friend diverts me. We should be talking about VAT.

It seems to me that the timing of this has been particularly unfortunate because the time when the recession was perhaps at its deepest, when the damage that could be done to demand was highest, was the time when the Chancellor chose to put these tax increases on to boats, caravans, electrical goods, television tubes and all kinds of other things.

The effect of this was probably to cause much more damage to employment and business than if it had been done at any other time. If this had happened at the height of a boom it might not have been quite such a bad thing to do, but to do it at the depth of a slump and now to take extra tax off shows an incredibly poor sense of timing.

The reason why it was done was that there is a prejudice in the mind of the Labour Party. One sees it in everything. There is a prejudice in terms of what is socially desirable and what is not. Even people who work very hard but produce something that is thought socially undesirable are to be sacrificed. That is the extraordinary result of Socialism. It is better not to have prejudicies of that sort and to be impartial about what is produced.

If I were to criticise VAT at all it would be on the ground that there was no need to exempt food. That is perhaps making a sacrilegious statement, but I have always believed that the anomalies will remain and that the point of the tax is destroyed if there are different rates and if the tax is not applied across the board, to everything. The more rates that one has, the more difficult and damaging it will be.

Shopkeepers will now have to keep registers of goods carrying 8 per cent. VAT and of goods carrying l2½ per cent. VAT—and of zero-rated goods. The difficulty caused by the carrying of the two rates is the administrative nightmare. As the two rates are now so close together—the 8 per cent. and the 12½ per cent. rates are not so far apart in regard to the ultimate price of items—it would surely be much better if the Government returned to a flat rate right across the board.

I want to stress the point made by my hon. Friend the Member for Guildford. I hope that the Financial Secretary will not accuse us of wanting to cut taxation at a time of a high borrowing requirement. I do not think that anyone has ever accused me of wishing to be irresponsible about tax cuts in our Finance Bill debates. I want to see a 10 per cent. rate right across the board, which would bring in more money and not less. The fact that there are differing amendments, each trying to do it in different ways, is because we cannot move to raise taxation. It would be totally offside for the Financial Secretary even to mention that point. My amendment would reduce the rate to 8 per cent. and the amendment in the name of my right hon. and learned Friend the Member for Surrey, East (Sir. G. How) would reduce it to 10 per cent.

I am interested to see, incidentally, that the right hon. Member for Devon North (Mr. Thorpe) has joined the Tory finance team as a junior member and that his name is at the bottom of the list of sponsors of the main amendment. Although he is not present, I should like to offer my great and deep condolences in the terrible tragedy that has befallen him. How good he was as a leader of the Liberal Party was demonstrated by his immediate desire to join my hon. Friends even in a junior capacity at the bottom of the list of names. I certainly welcome him. I am glad that he will be supporting us in the debate.

Finally, I should like to refer to the share of our gross national product that VAT and direct taxes take. Income tax has risen from taking 10.9 per cent. of GNP in 1974 to taking 13.4 per cent. in 1975. It is impossible yet to say what it will take in 1976, but it will clearly take more because GNP is falling and income tax is rising. However, indirect taxes have fallen from 13.8 per cent. in 1974 to 13.6 per cent. in 1975. Therefore, we have a situation in which indirect taxes are taking less and less and direct taxes are taking more and more.

I believe that this is the wrong balance. I believe that we have to have both direct and indirect taxes. I do not want to talk about direct taxes now, but there comes a point at which one can take too much off people in income tax and too little off them in indirect taxes, because in a way, it gradually erodes people's freedom to choose. If they have very little money left anyway, it is not much help if goods are cheap. It is better to allow them to keep a greater proportion of their money even if goods are dearer, because they can then decide to buy X, Y or Z or to buy nothing at all. In a way, there is scope for such things.

The whole VAT level is getting too low. Not only do I think that it should be restored to a single rate, which should certainly be 10 per cent., but I should prefer to see the level of VAT rise overall in the future. I would not even mind if it were 12½ per cent. across the board if that enabled reductions in income tax to be made. When we have the poverty trap and the taxation of people on very low incomes, it cannot be right that we should continually allow the share that indirect taxes take to dwindle while we increase income tax.

Perhaps one does not need to dwell upon this debate. However, I think that the Chancellor should have come to the House and said that he realised what a mistake he had made, and he should have gone back to a flat rate. There is no virtue whatsoever in the 12½ per cent. rate as against the 8 per cent. It is not bringing in a great sum of extra revenue. It involves very little extra revenue. However, it is causing immense complications, and the whole series of anomalies that my hon. Friend has mentioned is close in our memories from last year's Finance Act.

I have one last thought. In these debates my hon. Friends and Labour Members are very assiduous. A number of hon. Members do not attend as much as others. But we sit here day after day, night after night, and we sit here for long hours. We do not do it just because we like it or because we cannot think of anything better to do. We do it because we hope that the Government are listening.

Last year the Financial Secretary spent many hours listening to the argument against the higher rate of VAT. Why did something not happen? Why did we have to wait a year, until now? Could he not have said during last year's Finance Bill debates "Yes, I agree. I accept that this is the wrong way to do it, and we shall drop the higher rate."

There are so many instances that I remember from last year's Finance Act, and that of the previous year, where the Government have rebutted arguments from the Opposition and then a year later they have enacted them—for example, capital transfer tax. I do not want to stray into that subject, but it is a prime example of something on which, if only the Government were listening and were prepared to accept the veracity of the points put in Committee, not only would they save themselves, traders and taxpayers a great many problems but they would make this place more real and they would make it worth while for hon. Members to come here and argue the case and to put points to the Government.

However, there is that awful brief that says at the top "Resist". The word should be banned from Treasury briefs. The Minister should be trusted—I trust the Minister; I have great respect for him—to make up his own mind and to listen and to accept the arguments, if he thinks they are right, and to accept amendments. That is what Parliament is for. We should not have to wait for a year. It was a sorry day when the Government did not drop the higher rate last year. I hope that they will now agree to accept the amendments so that we can return to the flat rate, which is what we should have. That would be at least some justification for the existence of Parliament.

4:30

Mr. Jerry Wiggin (Weston-super-Mare)

I find it a very attractive idea that the word "Resist" be replaced by "Listen, and then make up my mind". It is a wonderful idea and perhaps it could be implemented in the rest of the proceedings of this Committee. It would certainly make them infinitely worth while.

I must declare a personal interest in that, as set out in the register of interests, I advise in particular the Ship and Boat Builders National Federation and the Racing and bloodstock industries, both of which have serious problems with VAT which I shall be mentioning.

I am sorry that the Government have seen fit to table a Budget Resolution that so constricts the debate on VAT because this tax—a universal tax, I think one could say—applies to virtually every shopkeeper and retailer in this country and certainly to every individual consumer. It surely is right that during the passage of a Finance Bill we should have the opportunity to discuss the anomalies and problems created by the decision of the Government last year to introduce two rates of VAT.

It would be ungenerous if one were not to start by saying that we are grateful and thankful for the 10 per cent. reduction in the higher rate. I think I am right in saying that the reduction from 25 per cent. to 12½ per cent. makes in real life a reduction of 10 per cent. on the price of the article to the consumer. It would be wrong not to be grateful for that concession, which recognises a need, as my hon. Friend the Member for Guildford (Mr. D. Howell) so amply demonstrated in his opening remarks.

I suppose it is true that if one were to be knocked down and one's assailant placed his foot firmly on one's throat it would be a great relief to have the foot taken off the throat. Indeed, in the Middle Ages it used to be considered a prerogative of Royal mercy if one were condemned, to be hanged, drawn and quartered and the monarch removed the drawing and quartering from the sentence. It is only because of the disastrous decision and its evil effects last year that one is expressing gratitude today for the mercy shown by the Government.

We warned, during infinite debates on the matter, of the consequences on employment, company solvency and indeed, first and foremost, the revenue that would be received from this higher rate. Every one of those forecasts from this side of the Committee has come true. The employment situation in all the industries concerned, with the possible exception of photography and some hi-fi equipment, the majority of which is imported, has in every case suffered seriously. It has been the same, sadly, as regards solvency and revenue.

It seems appalling to me that the Government consistently seemed to be unable to tell the House what the revenue was from the higher rate because the necessary statistics were not available from the Customs and Excise. It seems a very odd way of collecting this tax if it is not possible to find out what are its effects.

My hon. Friend the Member for Guildford has so wisely and rightly put the case for a standard rate of 10 per cent. that I need not pursue that point. I am certain that if the Financial Secretary also had "think" at the top of his brief he, too, would accept the great advantages of adopting such a solution.

The problems with collecting value added tax are surely well known by now to all hon. Members, but the extra burden of record-keeping and stock-keeping imposed by the dual rate has meant a vast increase in the number of hours put in by many small businesses or their part-time clerical assistants, who quite rightly resent being employed as unpaid tax collectors.

Last year the Government said that the goods chosen to be taxed at the higher rate were mainly high-priced items available through a restricted number of retailers, but the reality has turned out to be that the actual items, particularly those goods suitable for use as parts of higher rated items, are available from a multitude of retail outlets, and this involves most High Street shops.

Of course, there are anomalies with any system of taxation of this kind—I agree, for instance that it would have been better in some ways if children's clothing had not been exempted because many of the anomalies introduced with that concession would then not have arisen—but it is accepted that most of these anomalies had been sorted out by 1974. The operation of the standard and zero rates was no longer causing difficulties and the Customs and Excise and most industries had come to terms with it. Thus to reintroduce all the complexities and all the anomalies made a mockery of even the old purchase tax rules in many cases.

One of the points concerning the application of VAT that disquiets me most is the decision making in the operation of a dispute between the Customs and Excise and a retailer or manufacturer, or an organisation which is asked to help adjudicate in this matter. There is a clear temptation for human judgment alone to be relied upon and for the appeal procedures not to be carried out, because of expense and complexity. I accept that this is part of VAT and was part of the original legislation, but it deters the trader who is having difficulty with one small line from pursuing the matter. The inevitable result is that he ceases to stock that line. Rather than have a dispute with the Customs and Excise he decides not to bother with that item. So the matter rolls on, and it is astonishing how complicated some of these matters become. I have a letter here with which I shall trouble the House later on the subject of a simple item such as pumps.

This point was accepted in last year's legislation and the items of general use that were quoted there, such as nuts, bolts, screws, batteries and road vehicle parts, are subject only to the standard rate of VAT. But this list is grossly too restrictive and a widening of the list would prevent a great many difficulties. Such items as electrical and electronic components—my hon. Friend the Member for Guildford has already raised the matter of electronic components—create severe difficulty, as do hardware and non-road vehicle parts, wire and fibre rope fittings, and many other items which various organisations have put to the Treasury. The Treasury can do something about this with an Order under Section 17(2) of the Finance Act, and I sincerely hope that it will.

I have here a list of anomalies. I shall not bore the House with all of them but will just mention one or two. For example, the rowlocks on a rowing dinghy are higher rated because they are suitable for use as part of a boat, but the oars are standard rated because they are an accessory to a boat. A lantern hung in a yacht's rigging is standard rated, but proper navigation lights are higher rates because they are fitted to the boat. One could go through a whole list of such difficulties. One particularly interesting example is that a trailer or trolley is higher rated under Schedule 7 when it is sold as an accessory to a boat but a recent tribunal decision has resulted in the coupling end of the trailer and trailer winches being standard rated. This leaves the framework and chocks as the only higher rated bits. So there is a whole new area here for do-it-yourself trailer kits with some parts at one rate and other parts at another rate.

I wish to show the House how simple it is for the Customs and Excise to resolve this problem by reading a letter dated 27th April 1976 from Her Majesty's Customs and Excise to the Ship and Boat Builders National Federation concerning bilge pumps: That which are suitable for fixing to and use on boats within Item 1 of Group 3 are regarded as chargeable at the higher rate under Item 6 of the Group whether they are electrically operated or hand operated. This ruling applies whether or not the particular bilge pump is also used for other purposes (e.g. in agriculture or industry). Portable bilge pumps, however, are regarded as accessories to boats and since they are not specified in Item 5 of Group 3, they are chargeable at the standard rate. As regards fresh water pumps (e.g. for galley use) these are not regarded as parts of boats and are not therefore chargeable at the higher rate under Group 3. However, certain of these pumps may be within the scope of Group 1 of the higher rate schedule if they are electrically operated and of a kind suitable for domestic use, which is regarded as covering use in any house, caravan, houseboat, etc. My colleagues who deal with Group 1 have recently had discussions with the British Pump Manufacturers Association to consider which types of pumps can be regarded as suitable for domestic use. It finishes by saying:

We trust therefore that the problems you have raised will now he resolved, but if this is not the case please do not hesitate to contact me again. That was 12 months after the higher rate was introduced, and I know that there have been hundreds of such letters to this one Federation alone. I know, further, that there are many other problems with various trade organisations being drawn to the attention of the Customs and Excise, and they can make their decisions based only on a few lines in last year's Finance Act. I believe that we ought to have a very close look at that again and I certainly hope that my hon. Friend's propositions will not this time fall on deaf ears.

I turn from the anomalies created by the higher rate of VAT to the racing industry for which VAT has, inadvertently perhaps, created problems in relation to its foreign competitors. The racing industry provides a substantial income to the Treasury in racing duties of about £100 million a year. Therefore, putting aside the employment, investment and export earning virtues of the industry, it should be of interest to the Financial Secretary because, without a prosperous racing industry, the Treasury will lose a great deal of money.

Substantial evidence is building up that VAT is deterring foreign investors in race horses from bringing their horses here to race and to sell. In particular, they are sending their horses to France and to Southern Ireland. In Southern Ireland there is no VAT on bloodstock. France adopts a Gallic compromise by valuing the animal at its carcase value. For example, foals are valued at 7 per cent. on £200, yearlings at 7 per cent. on £282 and two-year olds and over at 7 per cent. on £400. That means that foreign owners will go to France or to Ireland, where there is other assistance as well, rather than to this country.

This argument has been put to the Chancellor in great detail. As I know that many hon. Members wish to speak, I shall not go over the argument in detail again.

There are two simple solutions. The first is to treat a race horse in the same way as a car, a boat or an aeroplane—namely, VAT only on the profit margin. That would be of great help. That system has been applied to so many inanimate objects that there is no reason why it should not be applied to horses.

Alternatively, we should adopt the French solution which requires no legislation. It requires only an interpretation by the Customs and Excise of the value of the bloodstock concerned.

I accept that there will be a small loss of revenue of perhaps £500,000 or £750,000. However, that seems a very small price to pay for keeping within our shores one of our great national assets which has been built up over 200 to 300 years—the British thoroughbred race horse.

It is no use pretending that, because the drain on our resources will go on for only two to three years, the damage can easily be repaired. It cannot. The blood lines which have been built up here are of inestimable value and are the future seedcorn of this industry.

If the Treasury allows the export of our bloodstock to go on, the country itself will suffer. Last year 83 per cent, of all horses sold in this country were going abroad. I hope that the Financial Secretary will take note of this special pleading. This is not a big industry. It employs only 100,000 people including those in the betting industry. The proposal is important for both revenue and pleasure. We have a national investment in this industry.

Value added tax can be made simple. It was introduced with the philosophy of being a simple tax. In my view, it is vital that it be so again.

Mr. David Mitchell (Basingstoke)

I agree with my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) on the need for us to support moving away from taxing earnings towards taxing spending. One useful step in that direction would be the standardisation of VAT at 10 per cent. instead of 12½ per cent. and 8 per cent. The irony is that we should raise more money with a great deal less work for the trading community.

The Chancellor of the Exchequer in his Budget Statement recognised the importance of easing the work load of the small business man, but, frankly, there is no difference in the work load in calculating 12½ per cent. or 25 per cent. We must he grateful for the reduction, but I remind the Financial Secretary that gratitude in politics has been translated as a lively anticipation of further benefits to come. We shall look forward to those benefits as we progress in Committee.

The Chancellor's error last year resulted from his failure to listen to arguments from the Opposition. We indicated that if he imposed a 25 per cent. rate of VAT on so-called luxuries—items which are in general use in old-age pensioner and 100,000 other households—he would bring about unemployment. The Chancellor introduced an experiment which did bring unemployment. He may say "Those people are not unemployed. We are experimenting to see what happens when VAT is suddenly rocketed up." The experiment has failed. It is a pity that the right hon. Gentleman is not here today to apologise for not having followed the advice which he was given last year.

5.45 p.m.

There are two great needs in the VAT system. The first is simplicity. Everybody thinks in terms of VAT being at 12½ per cent. and 8 per cent., but there is also the zero rate. Therefore, the trader has to deal with three different rates of VAT. The work load involved is the most important matter for many small businesses. I suggest that two changes could make a useful contribution. here.

The work load is most severe on small businesses. The large business has a computer. It does not matter to the operation of the computer whether one presses the buttons for 12½ per cent., 8 per cent., 10 per cent., or 25 per cent., because out comes the answer automatically. But the wife of a small business man probably takes home the books to work on over the weekend. That happens in thousands of small businesses. If the hon. Gentleman does not believe what I am saying, I suggest that when he calls at his local garage to fill up with petrol he should ask "Who does the VAT in your business?" Almost invariably he will find that it is the proprietor's wife who does it—[Interruption.]—and that is the way in which the evenings and the weekend are spent. I gather that the hon. Gentleman is supporting—

Mr. James Dempsey (Coatbridge and Airdrie)

I was merely saying that she does it with a pocket computer.

Mr. Mitchell

The hon. Gentleman refers to the use of a small calculator. That is very different from having one's books run through a computer. The small business man has to keep records of all his sales and individual purchases and to apply the various rates of VAT to them. If the hon. Gentleman had ever done a VAT return, he would not smile so benignly considering the work load involved. I have done one. It is a long, tedious and unpleasant job for anybody to do.

Mr. Dempsey

I have done more than that.

Mr. Mitchell

Therefore, this is a serious matter for the small firm.

VAT was introduced with a cut-back limit at the bottom of £5,000. That was in 1972. That is now equivalent to £8,600 in round figures. By the time that this Finance Bill becomes law, taking account of the rate of inflation, I have no doubt that it will be £9,000. Before next year's Finance Bill £9,000, or more, will be equivalent to £5,000 in 1972. If it were right in 1972 to exempt small businesses which had a turnover of £5,000, it must now be right to exempt small businesses with a turnover of £9,000. I urge the Chancellor to examine carefully the possibility of making such an exemption.

I have been doing some research into this matter. I have turned up the astonishing fact that no fewer than 250,000 firms would be exempt from VAT if that exemption were brought in. They would also not have the work load which goes with calculating the VAT. Therefore, the time that is taken in that exercise now could be devoted to getting on with and running those businesses. That is what they are in business for—to produce things for the country, to provide a service for the local community or whatever it may be. I strongly urge on the Chancellor that he should take this step.

The complexity of VAT is well illustrated by the case of a small business man, a constituent of mine, who came to see me in my surgery last week. He is a plumber. He had a vague idea about the tax but did not quite understand it. He registered for VAT when, in fact, his turnover was below £5,000 and he did not in fact have to register. He thought it was necessary to collect VAT off those customers with whom he traded who were registered for VAT. This confusion may perhaps cause a certain smile in some quarters of the House, but in reality, it is so complex that this is the sort of confusion which arises in the minds of some hon. Members and very large numbers of small business men.

This plumber collected VAT off three companies for whom he was doing plumbing work and received about £60. He kept it carefully and made his VAT return on that basis. Naturally he was told that this was not right. He explained what he had done and was told, "Give us the £60 and that will do". He gave them a cheque for £60. He then became acutely aware of just how complicated it is to try to run a small business in this day and age with all the returns, regulations and problems with which one has to comply. VAT was just about the last straw. He decided to give up, stopped running the business and went to work for somebody else. Then, last week there arrived through his letter box a letter from Her Majesty's Customs and Excie demanding immediate payment of £183.10 which appeared on the return for 1973–74. The letter added: Unless this is paid immediately at the above address an authorised person will be directed to levy distress on your goods and chattels without further delay and you will be left to pay the cost of charges incurred. If I give the Financial Secretary the name and address of this particularly unfortunate gentleman, will he look into it? It seems to me that to harry a man to pass over money which he has not collected is to misuse the whole purpose of VAT. I urge the Minister to take steps to see that the smallest small business men are taken out of the tax as a whole, as was the intention of Parliament when it was first introduced.

Mr. Douglas Crawford (Perth and East Perthshire)

I do not want to cast myself in the rôle of Christopher Columbus but I am delighted to be sitting on the same bench as a fellow-countryman of Madoc, who beat Christopher Columbus by several centuries. In this context I would congratulate my hon. Friend the Member for Caernarvon (Mr. Wigley) and his party, Plaid Cymru, on their magnificent success in Wales last week.

One should not be too carping in the criticism levied against the reduction of VAT from 25 per cent. to 12½ per cent. A decrease is a decrease, and I suppose that we should welcome that as such. I would like to ask the Treasury Minister one or two questions. Does he not agree that most traders would not object to the bottom rate being raised from 8 per cent. to 10 per cent., and has he bothered to ask them? Has he paid attention to what Chambers of Commerce and Chambers of Trade have said on this matter? I presume he is aware that small traders do not have an army of civil servants to help them do their VAT returns.

The Minister may know what a capacitor is, and, obviously, from the little word at the top of his brief he will know what a resistor is, but has he actually run a small business or have any of his hon. Friends run a small business?

Mr. Douglas Henderson (Aberdeenshire East)

That is what they are doing at the moment.

Mr. Crawford

As my hon. Friend for Aberdeenshire, East (Mr. Henderson) says, "That is what they are doing at the moment." The administrative difficulties of multi-rate VAT and its affect on small traders mean that they have to work literally night after night after night. In addition there is the levy on the self-employed first proposed by the Conservative Government in 1973 and increased by the Labour Government subsequently. The imposition of mult-rate VAT will continue to demoralise small traders and, as the hon. Member for Basingstoke (Mr. Mitchell) said, will drive them out of business.

This is all the worse now that inflation has eroded the threshold at which VAT becomes payable. The £5,000 threshold of a few years ago has risen by between £3,000 and £4,000 today. The Scottish National Party would like to see the threshold raised to at least £10,000 or £15,000. Having said that, I can add my party's view to that of the Conservative Party in urging the Treasury Minister to accept the amendment.

Mr. George Younger (Ayr)

The first question the Minister must not shirk answering this afternoon is why almost everything the Government argued this time last year had to be swallowed as true yet by a remarkable turnabout, the 25 per cent. rate last year has now been abandoned and the 12½ per cent. rate substituted for it. In asking the Minister to say something about this I should point out to him the shortness of the time in which clearly the Government have changed their mind. Last year's debate on the Finance Bill lasted, as such debates usually do, right through the summer and did not terminate until July. Now, in the following May, with the Budget only one month old, the Government have done a complete U-turn. Since the Government did not resist our final amendments until July last year and they clearly decided on the change some time in February or March, at least a few weeks before the Chancellor made his Budget Statement this year, the difference is little more than seven or eight months.

The Minister must tell us why all the arguments we put forward for so many weeks last summer were resisted week after week by the Chancellor and then only such a short time later were reversed. As my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) said, it does not help Parliament when it is seen that it is powerless to force such a sensible change on the Government and yet seven months later the Government. propose the change as if they had thought of it themselves. I hope that the Minister will come clean with us. What was it which happened between July 1975 and February 1976 which convinced the Chancellor that what we said last year was right and that what he and his Ministers said was so wrong? It would help the proceedings of this Committee if the Minister would come clean on that point.

I would like to say a word about the whole concept of luxuries which last year led the Chancellor to introduce the 25 per cent. higher rate of VAT. The concept is still here this year albeit reduced from 25 per cent. to 12½ per cent. The Chancellor must tell us more about why he was wrong last year in the degree, at least, of this concept of luxuries. He must tell us why he still sticks to the idea at all. It would help him, if he is to carry any public credibility for what is being done, to explain to the House, and through the House to the country, why it is that the Government consider that all these things should still have a high rate of VAT and why they are said to be a luxury.

5.0 p.m.

The Chancellor and the Government seem to have a distorted view of the value to the community of making and selling these goods. They have a fixed vision of some well-heeled people luxuriating in the goods listed in the schedules to last year's Finance Act, as if that were the only thing that mattered. But surely, even if some particular luxury is ultimately enjoyed by one well-off individual who can look after himself financially, such goods are still of great importance to many people besides that individual.

This is what caused so much resentment in the past year among workers and those who run businesses and are engaged in making and selling these goods. It is not their fault that the Government consider that the use of these goods is somehow undesirable. When they are put out of work, they do not feel any better about it because someone who might have enjoyed using those luxuries will no longer do so. All that matters to them is that their job or their firm is being severely hit, in some cases put out of business, because the Government have decided that the eventual purchaser is in some way undesirable.

Therefore, will the Financial Secretary come clean on that as well? Does he still think, with this "lower higher rate", that there is something undesirable about people using these goods? Does he think that they are anti-social, and if so, why? Would he explain to those whose only job is making these goods whether they, too, are undesirable to the community? He could not argue last year, and certainly cannot argue now, that those who are still being put out of work by the higher rate will be able to give up those jobs and to get others easily. Other jobs are difficult to get at present.

One point made last year is every bit as true now—that some of these goods which appear to the Government to be luxuries are necessities for some people. Much has been said about the desirability or otherwise of the higher rate on yachts. I can at least understand, although it was ridiculous, the argument that Ministers made about that. But many people in the remote areas, particularly the Highlands of Scotland, where I come from, regard a boat as essential for their normal lives, not for business purposes but purely for getting about. They have been particularly hard hit by the higher rate when life is already pretty expensive. I hope that the new medium rate will help them, but it would be better to forget all about the concept of luxuries.

We now have evidence—last year it was speculation—that that higher rate has hit the boat building industry hard. The industry has been exporting with growing success for many years and it is certainly important in some areas of the country. We now know that the higher rate has hit domestic sales so hard that many of these firms will either have to go out of business or curtail their activities. This is having a direct and adverse effect on their exports. That cannot be in the interests of the Government or the country and certainly not in the interests of those working in boat yards who are in danger of losing their jobs, if they have not already lost them.

Finally, in the hope that the Minister will listen more sympathetically than he did last year, I add my voice to what has been said about making VAT simple. As a new concept, the tax was complicated to those who had to operate it. The first time that I studied VAT documents with constituents, I also found them complicated. But once one has become familiar with them, the system becomes easier and can at least be dealt with.

I emphasise to the Minister the absolutely fatal mistake of adding extra rates. The system depends for its suitability to small businesses on there being the smallest possible number of rates. Two rates is as many as are reasonable. Like many other hon. Members I believe that the evidence of the past year is that three rates brings us near the point at which the last straw breaks the camel's back. As my hon. Friend the Member for Basingstoke said, literally hundreds of thousands of small businesses have been brought into the VAT net and have to do their returns under pressure, often in their spare time. Reducing the number of rates would make all the difference in the world to them.

If the Minister listens to these debates with any intention of being prepared to change his mind, I beg him to look again at the problem of three rates. Our suggestion, which cannot be properly expressed in amendments, is, I hope, perfectly clear—that it would be far better to abolish the higher rate and to return to one standard rate of 10 per cent., even though that would mean raising the rate on some goods. These are not new points—my hon. Friends have raised them powerfully before—but I hope that the Minister will consider this year's Finance Bill as a different operation from last year's.

Last year, the new brooms were anxious to show that their tax methods would work irrespective of difficulties, but this year we know that major mistakes were made which could have been avoided if they had listened to the Opposition. That is why I hope that the Government will pay attention to us this year and make it clear that they are prepared to do so.

Dr. Bray

Like other Labour Members, I have been defending the 25 per cent. rate for the past year and I shall do my best with the 12½ per cent. rate in the coming year. But could the Minister help me a little? The 25 per cent. rate was defensible in that it departed substantially from the 8 per cent. and thus had undoubted economic effects, for better or worse, in shifting the balance of demand, which is presumably one point that the Government had in mind. The 12½ per cent. rate differs so little that it is difficult to see it having a major effect on the balance of demand.

I should have thought that any economic regulator significance of the 12½ per cent. must be minimal, but presumably there is a revenue case. The yield from l2½ per cent. is over half as much again as the yield from 8 per cent. and that is substantial, but there is also a cost for some people. We can directly estimate the cost to the small business in making out two different sets of returns, which must be a significant burden. What we cannot estimate are the additional costs to the Customs and Excise in raising the tax at the two different rates.

I was somewhat concerned that, in reply to a parliamentary Question from me the other day, the Financial Secretary could not estimate the savings to the Exchequer of a reduction to a single rate at 10 per cent. or 8 per cent. I wonder whether he could estimate those savings today. If they are totally trivial, clearly the 12½ per cent. rate becomes a little more defensible. I refer to only one equity consideration in the distinction between the 8 per cent. and the 12½ per cent. rate—the inclusion of domestic equipment in the higher rate. Legislation in the House is often dominated by male chauvinist pigs but it is arrant nonsense to tax the capital equipment of housewives while subsidising the capital equipment of male workers.

Mr. Dafydd Wigley (Caernarvon)

I should like to thank the hon. Member for Perth and East Perthshire (Mr. Crawford) for his kind remarks about my party's fortunes last week. Merthyr Tydfil may not be entirely irrelevant to today's debate because 5,000 employees in a washing machine factory there were laid off partly because of the effect of the 25 per cent. rate of VAT on washing machines.

I want to take up the point the hon. Member for Ayr (Mr. Younger) made about the three-tier system of VAT. I do not object to the concept of a higher rate of tax on luxuries but what I do not agree with is the Government's definition of luxuries. The Government had a strange idea of luxuries last year. It is not difficult to accept higher rates of tax on jewellery and furs, for example, but it is very odd to put that higher rate on washing machines and domestic equipment. There was another anomaly. Garden rollers carried the lower rate whereas garden cultivators were taxed at the higher rate. The roller is used mainly on lawns which could be regarded as a luxury whereas the cultivator is concerned with the more necessary process of growing food.

But the system of VAT was introduced by a Conservative Government. It falls short on all the definitions of a good tax. There are three criteria for a good tax. It should be equitable and seen to be so but, as we have heard from hon. Members today, VAT is not equitable. It should be cheap to administer, but VAT is not because it is such a complex system. The hon. Member for Motherwell and Wishaw (Dr. Bray) mentioned the cost to the Government, and certainly the cost to small businesses is astronomical. Businesses employing only two or three people have to allocate an employee on three half-days a week to deal with the tax.

Not only should the Government look at the possibility of raising the threshold from £5,000 to £10,000 to take account of inflation but they should consider some form of rebate of, say, 20 per cent. up to the value of between £1,000 and £2,000 a year, in acknowledgement of the work that small businesses have to do on behalf of the Government. Other countries have carried out such experiments, including, I believe, Canada. It is only fair to compensate small businesses for the loss of labour which they could otherwise use for more profitable work. There should be some recompense for collecting the tax.

Thirdly, a good tax should also be easy to understand. We have been told today of an instance of a person misunderstanding the tax. I have heard of a number of similar examples recently and before I became a Member of the House. The tax is difficult to understand and it is, therefore, not ideal.

5.15 p.m.

Given that we must live with it for some time, ways of simplifying it must be examined. Although there may be good social arguments for a higher rate on luxuries we must face the reality that since there is now such little difference between the two rates it is logical to have only one rate. The arguments in favour of easier administration are overwhelming and whether the standard rate is 8 per cent., 10 per cent., or 12½ per cent., the Government must think again.

The tax is forcing small companies out of business. Two or three firms in my constituency have given VAT as a reason for going out of business. Many small companies struggling against the system are in an almighty tangle with their taxes, and that could come home to roost in the future. I urge the Government to consider the possibility of a standard rate for the future and not to repeat past mistakes. I urge the Government to ensure that there is a stable tax policy which. even if it is not entirely ideal to everyone. is generally acceptable, and certainly more practical.

Mr. John Wakeham (Maldon)

I support the amendment. Many arguments in favour of it have already been made by my hon. Friends.

I wonder whether my hon. Friends and I are being too charitable to the Chancellor of the Exchequer in suggesting that he has learned the lesson of last year's mistake. In his Budget speech the Chancellor said the changes that he was introducing arose from today's different circumstances. If the circumstances are now different, can the Chancellor explain in more detail what those differences are—or is it that a mistake was made and that a welcome correction has now been made?

I should like to know more about the Government's thinking on multi-rate VAT as opposed to a single rate. The present system is complex and cumbersome. Many of its disadvantages have been described, both today and previously, by my hon. Friends. The Government must clarify the advantages that they see in the present system, particularly now that the rates are so close together.

Have the Government taken on board the staggering lessons to be learned about the effect of a change in taxation upon industry and the country? Multi-rate VAT is a clear example of how little Ministers outside the Treasury know about the effects of a sudden, dramatic change in taxation.

I take as an example a constituency interest, the building of small boats. As soon as the 25 per cent. rate of VAT was announced I put down many Questions to a number of Departments which I believed should have been interested in the effects and should have been considering what was likely to happen in the country. I was staggered to find that there were very few answers. Certainly the Treasury had a rough idea how much revenue it would raise, or intended to raise, though I am not sure that it was even correct about that. But apart from that, the tremendous effects that I thought were likely to be apparent to anybody who thought about the increase in taxation appeared to have been considered by none of the Departments concerned. For example, the Department of Employment had no idea of the effects on employment or training opportunities.

The small boat building industry, of which I am talking in particular, is highly skilled. The necessary skills are acquired not by book learning but by long apprenticeship and experience gained in many years' work. Once such a labour force is dispersed, it is likely never to be replaced.

There was little idea of the likely effects on home sales, and there was little evidence of any thinking by the Government as a whole about the effects on exports. We all pay credit to those firms which managed to save themselves by exporting. A number of firms in the small boat building industry have done a good job in maintaining their business by exports, but many found severe difficulties in surviving and therefore being able to export.

In supporting the amendments, I think that the lessons to be learnt are very clear. I hope that the Government have taken them on board. Obviously, a 12½ per cent. rate is better than 25 per cent., but I hope that the Government will now investigate the effects throughout the country of their foolish steps last year, so that we learn the lessons for any future changes in VAT.

Mr. John Loveridge (Upminster)

We welcome the Government's reduction of the upper rate of VAT to 12½ per cent. At least the Chancellor of the Exchequer can learn, but he learns at someone else's expense and suffering.

We have heard how 5,000 jobs were temporarily lost at Merthyr because of the high rate, and we know that Thorn Electrical lost 1,400 jobs largely for the same reason. There are also innumerable small firms which cannot be named in the same way which have lost staff and therefore added to the unemployment caused by these widely differential rates.

It would be simpler to have a single 10 per cent. rate. That would give more revenue to the Government and would be easier for those who have to administer the work. It would be easier especially for the small business people who have to do the computations themselves when they are tired in the evening. How much of the effort and energy of industry is being lost by adding these endless small items of administration on to people who are trying to produce goods for the home market and export?

The Chancellor said last year that unemployment that year was not an instrument of policy. Did the right hon. Gentleman mean that? It does not seem that he did, because we see how, with the higher rate of VAT alone, his Finance Act brought about higher unemployment and the misery that goes with it.

It is not only a question of jobs at home. It is also a question of selling British goods overseas. Surely the Government wish to encourage that. We all know that high sales in the home market lead to higher sales in overseas markets, as unit costs fall because factories are more fully employed when they sell to the maximum of their productive capacity. How much of British industry is at a very low level of output, barely covering overhead costs from sales?

What was done to research the change? Who knew what effect the different taxes would have? The Government called them luxury taxes at one time. We can see how they differentiate with care between the rowlocks and the oars mentioned by my hon. Friend the Member for Weston-super-Mare (Mr. Wiggin)! But are there not other factors even more important than the luxury element? We know that industries with a high capital base in relation to their turnover will be more affected by a high level of VAT than those with a low capital base in relation to turnover. Did the Government take that into account in deciding on 25 per cent. last year and now 12½ per cent.? I cannot help doubting it.

My hon. Friend the Member for Maldon (Mr. Wakeham) spoke of the need to know more about what we are doing when we set and change tax rates. Of course that is so. There is a great deal of confusion about what happens when we change our taxes. There is a much greater effect of a change in taxation at one particular point of trading than at another.

Here I want to quote from the First Report from the Expenditure Committee for the Session 1975–76 on "The Financing of Public Expenditure", based on the great deal of evidence that was taken. It said: Ministers and Parliament could be better informed by the results of modern research methods and it might even be that some controversies over taxation would be eliminated once research into them had been done. We therefore recommend that the Treasury, in conjunction with the Revenue Departments and the Social Science Research Council, should review their arrangements for taxation research with a view to providing published research into matters of current interest on a more regular and adequate basis. That is certainly necessary. I remember asking what research was being done in this country and being told that Professor Brown was doing some research.

Mr. John MacGregor (Norfolk, South)

At Stirling University.

Mr. Loveridge

I am grateful to my hon. Friend. I wish Professor Brown luck. Is he alone to bear the burden of discovering how tax affects the public? Should there not be more research by the Government themselves?

The view was also put forward that decisions about levels of taxation and their results were matters for Ministers. That is true, but we might as well have Ministers who are well informed by good, modern research. We do not, however, need research everywhere. There are some places where a little common sense might serve.

My hon. Friend the Member for Basingstoke (Mr. Mitchell) pointed out that possibly 250,000 businesses were busy on value added tax work when a simple adjustment for inflation, raising the cutoff point from £5,000 to £9,000, would allow up to that number who chose to opt out to do so. It seems to me sometimes that this Government are not so keen after all on stopping unemployment. That is in the tradition of Labour Governments! If we go back over half a century we find that from 1929 to 1931 unemployment more than doubled under that Labour Government. Between 1945 and 1951 it doubled again, and between 1964 and 1970 it went up 50 per cent. From 1974 to date, unemployment has already doubled.

The point I am making is that the setting of one element of VAT at a much higher rate than another inevitably brings higher unemployment, loss of sales in the home market, and loss of sales abroad.

The need for research on this, and other taxes as well, is vital to the welfare of this country. Would the Financial Secretary ensure that greater knowledge, greater research and more informed advice is given to Ministers about the effects of their decisions, through establishing a new department at the Treasury.

5.30 p.m.

Mr. Hector Monro (Dumfries)

I want to support what my hon. Friends have said in relation to these important amendments. I believe we should go back as soon as possible to the single rate of taxation in aid of simplicity and cutting down administrative work.

When the Minister replies he should tell us more about the reasoning behind the welcome change from the 25 per cent. to 12½ per cent. higher rate of VAT. Perhaps he could tell us how much the Government gained or lost by increasing the rate of VAT last year, because many of us believe that he gained nothing at all, on account of the diminishing returns. Did the higher rate of VAT do the country any good whatsoever in relation to domestic goods? If the Minister can face the test of eating more humble pie perhaps he would tell us why he turned down our valid arguments against the 25 per cent. rate this time last year, but has now apparently accepted what we said then, and has reduced the tax substantially this year.

I hope he will tell us why the Chancellor has at long last seen the light in relation to sport and recreation, after 12 months of contemplation. My hon. Friend the Member for Weston-super-Mare (Mr. Wiggin) argued very firmly about the impact of 25 per cent. rate on the boat-building industry, and the sports of sailing, canoeing, gliding, and flying light aircraft, all of which had a very difficult year as a result of last year's decision. It would be very interesting to know why the arguments which were unacceptable 12 months ago are right now—right enough, in fact, to cut the rate back to 12½ per cent.

Like my hon. Friends I would prefer to see a 10 per cent. rate even on so-called luxury goods. Many of these goods are not luxuries. They are essentials. The arguments in favour of a flat 10 per cent. rate are so clear that the Minister has a strong case to answer if he still wishes to retain variable rates.

The boat-building industry was hit so hard that we would like to know whether the Minister collected any figures showing the substantial loss of jobs because of a very difficult home market in the sale of boats in the last 12 months. Can the Chancellor offer any form of apology for the damage he did to the industry by increasing the rate to 25 per cent?

I hope the Minister will accept the arguments of my hon. Friends in relation to small businesses, and on the additional simplicity of one rate in dealing with the administration of VAT. He, and many of his colleagues, under-estimate the large amount of work involved filling in forms and sending them to Southend, or where-ever it is, and caused by the operation of this tax at more than one rate. If we stick to one rate it cuts out a large amount of work.

In supporting these amendments I rub home with some degree of pleasure and satisfaction the fact that the Minister must admit that 12 months ago he was wrong in putting the rate up to 25 per cent., as this has had extremely damaging effects on industry, sport and recreation. Could he explain in clear terms why he could not accept a lower rate last year, but can do so now?

Mr. Dempsey

I would like to thank the Chancellor and his colleagues for reducing the rate of VAT on, for example, repairs to washing machines. I was one of the Members on the Government side who criticised the Chancellor and his colleagues for introducing a tax on essential services such as washing machine repairs, to the detriment of the housewives of this country. I said at the time that a washing machine is not a luxury item, but an essential part of a housewife's equipment, and it should have been spared the charge of 25 per cent. tax. As one of the Chancellor's most bitter critics over the introduction of such a high rate of tax, I take this opportunity of thanking him publicly for paying attention to the representations that were made, and reducing the rate to 12½ per cent. I still think it is too high, because we all know that a washing machine is an integral part of household equipment and is something the housewife cannot possibly do without.

I would have preferred to see the 25 per cent. rate kept on pleasure yachts and other such luxuries, and the very lowest possible rate operating on producing parts for and carrying out repairs to essential equipment such as washing machines.

Conservatives are complaining about the operation of VAT, but they are the ones who introduced it. I voted against it, because I did not think it an appropriate tax to introduce into this country, probably because I am not very pro-European. One hon. Member of the Opposition had the temerity to suggest that I did not know anything about the operation of these taxes. He could not be further from the truth. I spent most of my life applying purchase tax, and there were more than two rates of purchase tax.

Some of the rates which operated in my time were 2½ per cent., 5 per cent., 7½ per cent., 10 per cent., 15 per cent., 20 per cent., 25 per cent., 33⅓ per cent. and even 40 per cent. They had to be applied to many essential articles of domestic equipment under Conservative administrations. Even then it was shown quite conclusively that it was well-nigh impossible to operate revenue collection with a proliferation of rates of purchase tax on different types of commodities. We should be fair and honest about this, irrespective of which party is in power. It is impossible to operate a system of taxation involving multiple rates without creating anomalies.

We spent years with the late Sir Gerald Nabarro drawing attention to all the different types of anomalies of taxes imposed by the Conservatives. There was the brush for brushing down a horse; it did not attract tax; but the brush for brushing a waistcoat did. We talked about well-built young school girls of 13 who required larger sizes of shoes and had to pay tax upon them while young female workers who were not so well built and took a smaller size paid no tax. An umbrella used in the street attracted tax, but if one sat on the bank of a river fishing for salmon the umbrella one used to keep off the rain did not attract tax.

There are still dozens of anomalies and it is well-nigh impossible to eliminate them. Nevertheless I should like to see them minimised. People who run small businesses would prefer a single rate of tax, and if it is prudent for the Exchequer to pursue such a policy it should be done. For that reason I should like to know how much the Chancellor would expect to lose in revenue if the 12½ per cent. race of VAT were reduced to 10 per cent.

In any comprehensive system of revenue raising such as we pursue it would be morally wrong and unjustifiable to tax everything at the same rate. There are luxury goods and there are essentials. The trouble is that Governments seem unable to get their priorities right. A washing machine is essential, as is an electric cooker. The replacement of spare parts for and the repair of these items is equally essential, and therefore, we should reduce the tax on them. I hope that the Government will bear these important points in mind and that everything will be done to ensure that the right item is subject to the right tax, and that commodities which are so necessary for the day-to-day use of families attract as little tax as possible.

5.45 p.m.

There has been some grudging admiration from the Opposition for the Chancellor's response to pressure on him to reduce the 25 per cent. rate on many items of household equipment and to meet the needs of small business. We should be courageous enough now to say that we are grateful for small mercies, and that we hope that the reduction in this rate of tax will continue.

Mr. Gow

The Committee stage of the Finance Bill is by definition concerned with the minutiae of the measure. Hanging over the Committee and the clause today, however, is the Government's borrowing requirement which runs at the terrifying figure of £12,000 million.

I want to begin by examining the history of VAT during the two years in which the Chancellor has held office. When he arrived at the Treasury there was a single rate of VAT at 10 per cent. In July 1974, three months before the General Election, he reduced the 10 per cent. rate to 8 per cent. Some of my hon. Friends and I voted against that reduction. One month after the election he increased the rate of VAT on petrol from 8 per cent. to 25 per cent. and then in his Budget Statement last year he said

As I explained in my Budget Statement in March last year, the structure of VAT which we inherited from the previous administration suffered from the major inadequacy of its dependence on a single positive rate." —[Official Report, 15th April, 1975; Vol. 890, c. 302] The Government are beginning to recognise that there is not a vice but a clear virtue in a single rate of VAT. Slowly, reluctantly and with ill grace the Treasury Bench is moving towards precisely that situation which it inherited from my right hon. Friends.

The arguments advanced by my hon. Friend the Member for Ayr (Mr. Younger) calling for simplicity in the tax system are accepted overwhelmingly outside this Committee. It is time that in framing our fiscal legislation the Government put at the top of their list the objective of simplicity. We must be thankful for small mercies. It is true to say that provisions related to VAT in this Bill cover only seven clauses. But the administration of VAT with the present three rates plus zero rating imposes upon traders and industry complexities which would be removed in part by a single rate of tax as we now advocate.

There is another and much more serious aspect of Clause 14. I have referred already to what I regarded at the time and still regard as the highly irresponsible attitude of the Chancellor in July 1974 in reducing the rate of VAT. There is a strong case for going even further than the amendment. If we are to reduce the public sector deficit, there will be two essential ingredients, the first of which is an increase in certain rates of taxation in the short term, with a reduction in public expenditure.

There is a strong case for increasing the 8 per cent. standard rate and 12½ per cent. so-called luxury rate to a combined rate of 15 per cent. That would make the necessary psychological impression on the British people that we can no longer continue with the policy of deception which is involved in the borrowing of £12,000 million a year.

The Committee should support the amendment because a single rate of 10 per cent. would produce more revenue than the dual rates of 8 per cent. and 12½ per cent. It is a step in the right direction. However, we need to recognise on this side the possibility that it may be necessary to go beyond the amendment and to have a single rate of 15 per cent.

Mr. Tony Newton (Braintree)

I wish to speak fairly briefly and to raise just one specific point. However, I should first like to make a few observations on some of the earlier speeches.

The hon. Member for Coatbridge and Airdrie (Mr. Dempsey) constructed a most delicately balanced platform for himself by saying that he had supported the 25 per cent. rate, now supported the 12½ per cent. rate and, as far as I could judge, would support any rate brought forward by the Government. He justified his views on the ground that the Chancellor of the Exchequer needed to be able to alter the balance of demand—which is a nice way of saying that he is creating unemployment in a wide range of industries.

Having built this platform, the hon. Member put his foot right through it by accepting the argument which we put forward last year about domestic equipment. Though there are no clear figures, most of the revenue raised by the higher rate of VAT came from this kind of equipment— refrigerators, washing machines and even garden equipment. Once the argument is accepted that it is unfair to tax this domestic equipment when subsidies are being given on industrial equipment, the whole case for the higher rate is destroyed.

My hon. Friends seemed to have been unduly kind to the Ministers on the Front Bench and even more so to those who are not at present on the Front Bench but should be. My hon. Friend the Member for Guildford (Mr. Howell) implied the Government had got it wrong but suggested that it was an honest mistake of the kind anybody could make and that it was a pity that they had not taken the advice offered to them. My hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) suggested that it was the fault of officials in the Treasury and Inland Revenue and that if only Ministers had heeded their own innate political wisdom, we should not have got into this mess.

The truth is that this was a political decision. That is how we got into this mess. Surely no one believes that the Customs and Excise or the Treasury wanted the problems of a dual rate VAT. It was dreamed up because the Government were looking for a good story to sell to the electorate in order to get a quick election after February 1974. One part of the story—which enabled the Chancellor of the Exchequer to use the celebrated 8.4 per cent. claim in the middle of the campaign—was to cut VAT from 10 per cent. to 8 per cent. during the summer.

After the election, the Government found that they had got their sums wrong and that they needed the money after all. They could not put the rate back to 10 per cent. because that would have been an open admission that they had tried to con the electorate. Consequently, we had this ridiculous 25 per cent. rate which has caused considerable damage to industry and considerable unemployment.

The Government still do not want to go back to square one and to admit that the whole sorry episode has been a mess, so now we have a 12½ per cent. rate—only 2½ per cent. different from the original 10 per cent. rate.

This is precisely the kind of thing which gets politics and Parliament a bad name and which causes the accusation which, as practising politicians, we hear too often, that someone is "playing politics". I am not suggesting that this is confined to one side of the House. That would be absurd. But this episode has been one of the worst examples of its kind in recent years and it goes a long way to explain why so many people hold our proceedings as Governments and Oppositions in so much contempt.

This Government action was not only playing politics. It was also playing with people's jobs. There are many people who were made unemployed because of this political gamesmanship. I hope that Ministers will not be allowed to forget this fact in those areas where real problems of hardship have been caused by the Government's decision last year.

It is important that this lesson should be taken on board if we are to avoid making the same mistake again. This business of using the so-called luxury or less essential industries as economic regulators by vast changes in their taxes or the hire-purchase controls on their goods has been one of the most damaging single features of British economic policy since the Second World War. If we have not learned that lesson by now, heaven help us. That is the reason our motor car, television and domestic equipment industries are facing their present difficulties and why we are facing a flood of imports. We have constantly messed about with the basis on which these important industries operate. If we get nothing else from the Government, I hope that we shall have an assurance that there will be no more messing about on these lines in future.

The 25 per cent. rate was both damaging and idiotic. The 12½ per cent. rate may be a little less damaging—though a great deal of damage has already been done—but it is certainly no less idiotic. I support what my hon. Friends have said about getting back to a single, sensible, moderate rate of VAT across the board, and I shall have no hesitation in supporting the amendment.

The specific matter to which I referred at the beginning of my speech was brought to my attention by a constituent. I have no direct financial interest in the matter. It concerns submersibles, which is a technical word to describe the midget submarines which are being used extensively in exploration work in connection with North Sea oil and gas. Because they are less than 15 gross tons—the definition contained in last year's Bill—they are regarded as boats and taxed at the higher rate. This has been causing financial and cash flow difficulties for at least one of the companies which makes these vessels.

I think that the Financial Secretary will be aware—certainly some of his staff will be—that there has been extensive correspondence on this matter with his Department and with others. The problem was brought to my attention when the higher rate was 25 per cent. Obviously it is not so much of a problem at 12½ per cent. Nevertheless, matters remain that much more difficult than they need be because the payments have to be financed—and the interest charges can be very high—before the repayments come along. It seems ridiculous that these pieces of equipment, which for all practical purposes can be used only for business work, and principally for exploration in the North Sea, should attract the higher rate at all.

6.0 p.m.

I understand that the Treasury has raised the argument that the problem may be resolved by a certain amount of shuffling of accountancy. That is because the supplying firm is part of the same group as the operating firm. I understand that that shuffling is not seen to be a solution by the companies involved and that efforts along those lines would not entirely resolve the problem. Secondly, even if they would resolve it for the two companies within the group, they would

not resolve it for other companies involved in similar work which are buying submersibles from suppliers outside the country, and which are often in competition with them. The Treasury's argument does not hold.

The second Treasury argument is that there is a difficulty in defining submersibles. That is an argument that I do not understand. Surely there is no great problem in defining a submarine. Most of us would know a submarine if we saw one. Surely the Customs and Excise would know a submarine if it saw one. Surely it would not be difficult to draw up a framework of definition to distinguish a submarine from a boat.

In last year's Finance Bill, life rafts were exempted from the general provisions. If we can define a life raft by comparison with other forms of craft, I cannot believe that it is impossible to define a submarine.

The other problem of definition raised by the Treasury involves submarines used for business purposes and those used for recreational or pleasure purposes. That is clearly a distinction that would have to be drawn. I find it difficult to believe that that is impossible. It was done for a number of categories within last year's Bill. Even domestic equipment such as television sets are put in Finance Bills in the form of those used for domestic purposes or otherwise. Surely it would not be beyond the wit of the Customs and Excise, or the parliamentary draftsmen, to devise some way of using a similar formula to distinguish submarines used for business purposes and to exempt them from the higher rate of tax.

I shall not take up much more of the time of the Committee at this stage by elaborating the argument any further. I stress that it would be of some help at least to some companies operating in the North Sea, at a time when they are facing intense overseas competition, if they were relieved of the burden of having to finance, even for a short time, the payment of high-rate VAT on their purchases of submersibles, bearing in mind current interest rates. It does not seem that it should be beyond the bounds of possibilities for that to be done. I hope that the Financial Secretary will feel able to take another look at this matter.

Mr. MacGregor

I hope that my hon. Friend the Member for Braintree (Mr. Newton) will forgive me if I do not take up his argument on submersibles. However, I shall say something about why we have the two-tier VAT towards the end of my remarks. I believe that my hon. Friend was right in what he said on that issue.

I support many of the matters raised by my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley). First, I support his complaint about the Chancellor's absence. Since my hon. Friend has spoken the Chancellor has popped his head in the Chamber twice to see how we are getting on. Presumably he is waiting for the vote. It is a pity that he has not listened to some of the arguments that have been raised in this debate as well as in previous debates when he has introduced proposals such as that which we are now having to put right.

On looking back at Finance Bills during the two years that I have been a Member, I can recall a number of occasions on which the Chancellor has come forward with proposals, has failed to listen to the Opposition arguments and has then had to go into reverse shortly afterwards. That is what happened with his proposals for loans as regards advance corporation tax. The Committee will recall that six months later he introduced stock relief for businesses. He introduced that proposal when companies were short of liquidity. We shall be turning to capital transfer tax at a later stage. For some time he made it clear what he would do to middle management. He said that he would make the pips squeak. He is now trying to put that situation right. He has also sought to put right the VAT situation. As many of my hon. Friends have made clear, time and time again throughout the long summer months of last year we drew his attention to the economic effects that the higher rate of 25 per cent. would have.

I take up the remarks of my hon. Friend the Member for Cirencester and Tewkesbury about the balance between direct and indirect taxation. There is no doubt that in a period of high inflation such as that which we have suffered, unless the Chancellor has the courage to index tax thresholds and tax allowances, which inevitably involves curbing public expenditure, the effect of inflation is that the balance between the two forms of taxation gets out of hand. That is highly relevant as it means that the revenue from direct taxation creeps up all the time whereas the revenue from indirect taxation, unless the Chancellor has dealt with public expenditure, which patently he has not, stays reasonably static.

One of the urgent priorities is to achieve a balance between direct and indirect taxation. The events of the past two years have done much to put them out of equilibrium. We must seek to reverse that trend. As my hon. Friend the Member for Guildford (Mr. Howell) has said, the spirit of the amendment would be to start us on that process. I have before me some figures which the Financial Secretary gave in answer to a Written Question last week on 6th May. He was asked to estimate the change in revenue which would occur in 1976–77 if all items now eligible for VAT were levied at 10 per cent. or 12½ per cent. respectively. He replied that revenue would increase by £550 million or £1,350 million respectively.

If we leave aside the arguments about the public sector borrowing requirement and public expenditure as it is clear that in this Bill the Chancellor will not be doing anything on those fronts, if the Chancellor had had the courage to introduce an overall 10 per cent. or even 12½ per cent. VAT—I tend to feel that in our present circumstances 12½ per cent. may be right—he would have had much greater scope for beginning to deal with the burden of direct taxation. If he had taken that action he could have quadrupled the concessions on the higher rates, doubled child allowances, or at least increased them compared with the situation two years ago, and done much more to help widows or the over-70s. I believe that a great opportunity was missed.

I turn specifically to 25 per cent. VAT, and now 12½ per cent. VAT. It has not been sufficiently stressed in this debate, but it emerged quite clearly last year that 25 per cent. VAT—there was the dramatic jump from 8 per cent. to 25 per cent.—enormously increased the impact on companies producing goods attracting the higher rate, as well as having a greatly increased impact on the products in the shops.

I very much agree that there is a need for more research to be undertaken on the effects of such changes in taxation. I too served on the General Sub-Committee of the Public Expenditure Committee. Earlier this year it took evidence on that matter, and there was a period when we were questioning the Inland Revenue and subsequently the Treasury. Both Departments were trying to shuffle responsibility on to the other. They both claimed that the necessary research was being undertaken. As my hon. Friend the Member for Upminster (Mr. Loveridge) said, it became clear in the end that they were taking some advantage of the work being done by Professor Brown of Stirling University.

I believe that it would greatly aid taxation decisions if much more work was done on the effect of taxes in terms of employment, for example, before they were introduced. At present we have to wait a year before we can judge whether our arguments of last year have been proved correct, as they have been. Perhaps it would have brought light to the Chancellor when he was considering the possibility of 25 per cent. VAT to get him out of the political difficulties to which my hon. Friend the Member for Braintree has referred, if he had had access to evidence about the economic effects of what he was proposing as a purely political device.

The boat builders in my area, and no doubt in others, were greatly relieved when the rate was reduced to 12½ per cent. One boat builder, as reported in the Eastern Daily Press, said We never sold a single boat to an individual in this country when the tax was 25 per cent. That example was mirrored throughout the country and had the economic consequences that we predicted. The Financial Secretary will recall from our debates last year that we sought to underline the fact that damage was often done to rural areas where little or no alternative employment could be offered because the smaller industries were concentrated in those areas. It must be said that employment is still difficult in those areas.

The Financial Secretary has assured us that he has monitored the effects of the 25 per cent. rate. It is his responsibility to give us the results of that monitoring exercise. I should like the Minister to give information on two fronts. First, will he give information in the context of the unemployment figures which have been caused as a result of the imposition of VAT at 25 per cent.? Secondly, will he say what has been the net increase to the revenue? It is necessary to take into account the costs involved in paying unemployment benefits in so many areas. If he cannot give hon. Members that information now, perhaps he will do so in due course.

Mr. Nicholas Winterton (Macclesfield)

Will my hon. Friend also direct the Minister's attention to the fact that the Government proposals introduced last year affected youth organisations and similar bodies which provide training for young people in boating and canoeing activities? Obviously those organisations were restricted in their purchases, and facilities for young people were thus reduced.

Mr. MacGregor

My hon. Friend has made his point clearly, and I am sure that the Financial Secretary noted it.

Many references have been made to various anomalies. I accept that no form of indirect taxation will overcome all the anomalies, but I hope that we can do something to limit them.

I wish to refer to the question of television rentals. As I understand the situation under the Bill, those who took out contracts prior to May 1975 will continue to pay 8 per cent. VAT, but those who now take out new television rental contracts will attract a rate of 12½ per cent. That is a great advantage over the previous figure of 25 per cent. but is still 50 per cent. higher than the rate paid by people with existing contracts. It is another anomaly and is a disincentive to people to change their sets and to take up new contracts. Undoubtedly, this will have an adverse effect on the industry.

So many points have been made in the debate with which I agree that I shall not seek to labour them again. My hon. Friend the Member for Ayr (Mr. Younger) asked the Financial Secretary to make clear why the differential between the two rates still exists. Last year I formed the impresion from discussions in Committee that junior Ministers had a considerable distaste for the arguments which they were putting forward in seeking to justify a 25 per cent. rate. As they produced one argument and it was countered, and that counter argument proved to be correct, so the Ministers turned to another argument—until eventually all their arguments were stripped away. The truth was that the tax was imposed for a purely political reason. I regret that the Chancellor of the Exchequer is still not man enough to admit the mistake made two years ago and to return to a single rate.

6.15 p.m.

Mr. Robert Sheldon

The hon. Member for Norfolk, South (Mr. MacGregor) joined his hon. Friend the Member for Upminster (Mr. Loveridge) in asking for further research into the operation of taxes. Indeed, the hon. Member for Upminster asked for research to be undertaken into the operation of taxes on incentives.

I willingly respond to those requests because over 10 years ago I made the same plea from the Back Benches. At that time there was virtually no research being undertaken in the universities or elsewhere. I pay tribute to the work carried out by Professor Brown of Stirling University.

But although research has been carried out, a certain amount of disappointment has been displayed at the paucity of results. Many of us hoped that those results would have enlightened some of our proceedings and given foundation to the many claims frequently made from both sides of the House—or at least would have established a certain consensus on some of these matters. Alas, it has failed to do so. Therefore, I am delighted to see such work continuing and I shall be more than interested to see any results. However, we must accept the present limitations on such research in terms of our day to day consideration of these matters.

I understand the points made by the hon. Member for Norfolk, South who asked about my monitoring exercise. The Committee may recall that following the introduction of the 25 per cent. rate last year, I said that I intended to conduct a close monitoring of its effects. It is right to draw a distinction between research and monitoring, since monitoring involves acting within a time scale and may mean we bring about changes as a result of observing what has happened.

The monitoring exercise which I carried out resulted in an easing of hire-purchase restrictions last December and also had a part to play in the reduction of the higher rate of VAT, the subject we are now discussing.

The hon. Member for Guildford (Mr. Howell), in moving the amendment, said that he hoped I would resist the temptation to seize on the amendment as increasing the public sector borrowing requirement. I assure the hon. Gentleman that I find it easy to resist that temptation. I believe that in discussing amendments one needs to have in mind, because of the complicated rules under which Parliament discusses these matters, the purpose lying behind any proposal. Therefore, one should seek, where possible, to reply to the spirit of an amendment rather than to concentrate on niggling details of the results of any such amendment if carried into operation. I accept that what the movers have in mind is a uniform rate of 10 per cent.—a proposal which they cannot put in amendment form because of our rules of procedure.

To take the purpose of the amendment as I construe it, if the higher rate were reduced from 12½ per cent. to 10 per cent. it would result in the additional revenue falling from £140 million a year to £65 million a year, both figures being for a full year. The result of bringing both the standard and higher rates to 10 per cent. would involve a total increase in revenue of £550 million, or almost 1 per cent. addition to the retail price index. There are those who accuse the Government of being RPI watchers, but I do not accept that accusation. I believe that the agreement which we have been successful in achieving with the TUC has been very valuable. Therefore, when we speak of the standard of living the RPI is a crucial part of our consideration. Being the component that it is at the present time, although in the long term it would be wrong to make policy changes too heavily dependent upon alterations in the retail price index, a particular and quite exceptional case can be made out in current circumstances.

Mr. Gow

Was it a condition of the so-called agreement between the Government and the TUC that there should be no increase in the rate of VAT?

Mr. Sheldon

Not at all, but clearly the Government had in mind the burden that any increase in VAT would have on all members of the community, including those who are represented by trade unions or are in employment, and whose standard of living—as has been accepted by both the Government and the unions—will be reduced during the current year.

In his Budget Statement the Chancellor of the Exchequer said that he had considered the 25 per cent. rate to be necessary last year, and he gave his reasons. He said also that in the longer term the 25 per cent. rate was clearly too high, and could damage some parts of manufacturing industry and jeopardise employment. As a result of this, the rate is reduced in the present proposals to 12½ per cent. Perhaps I may go more fully a little later in the course of my remarks into the reason why the figure is 12½ per cent.

The hon. Member for Basingstoke (Mr. Mitchell) quite rightly pointed to the complications for small traders. It is a matter of which we must all be extremely conscious, and because of this we have introduced a number of simplified schemes to take their particular reactions into account.

There have been a number of criticisms of the value added tax structure. I confess that I strongly criticised its introduction. It was brought in as a comprehensive, broad-based tax, free from anomalies. That was a wholly misleading description to which the Office of Fair Trading might well have objected had it been in operation at that time. It was certainly not comprehensive. It was certainly not broad-based, in view of the exclusions of food, books and other items. As to its being free from anomalies, we have discussed that so often in the past that there is no need for me to repeat the argument now.

But VAT was one of the gems of the tax policy in the Tories' heyday, when it was believed—this was a wholly exceptional experience—that the country could largely be put right by changes in the principles of taxation. I do not believe that taxation reform had ever been accorded so high a position in our country. At a time when there were many other matters requiring attention, taxation policy seemed to be the prime interest of the Government. It is very difficult, however, to point to any beneficial results in the light of the problems that were faced both then and subsequently.

I said something about the monitoring exercise, and it will, of course, continue. I intend to maintain the contacts established over the past 12 months with industry and to continue the open-door policy in the Treasury, so that those who have representations to make as to the way the tax may be affecting their own particular industry, employment, investment and so on, can have access to me personally, as they have had in the past 12 months. I look forward to receiving further representations.

The Committee may be aware of the announcement I made this year, for the second year running, that if people have criticisms of the details of the Finance Bill legislation, I shall be more than willing to receive their representations. I add that I send a personal acknowledgment in all such cases. I believe that this contract is very valuable, and we are getting much more understanding of some of the measures that we undertake in this House.

I have been asked, quite fairly, why the stopping place of 12½ per cent. was chosen in reducing the higher rate of value added tax of 25 per cent. There are two reasons for this. The first follows the experience we had when hire-purchase restrictions were lifted in July 1971. The problem we had then was that the domestic industry was not able to meet the demand, and we had a large increase in the imports of certain products covered by the hire-purchase restrictions which were then removed.

I shall give an example of what happened in those years. Referring to what are known as white goods—that is, refrigerators, washing machines and so on—in 1970–71 imports, as a percentage of domestic demand, were about 10–11 per cent. In 1972 the figure rose to 15 per cent., and in 1973 it rose to 23 per cent. a total domestic demand. The figure for colour television sets likewise rose from 11 per cent. in 1971 to 19 per cent. in 1972, and to 25 per cent. in 1973. There was, therefore, an enormous surge of imports following the increase in demand caused by Government changes.

The lesson we have learned is that it does not end there, for when the situation giving rise to the flood of imports is reversed, those imports do not go down, because the overseas manufacturers, once they have a foothold in the market here, fight fiercely to retain it. Any Government need to be convinced that, in bringing about taxation changes of this kind, full account is taken of the amount of import penetration to which the Government may unwillingly be giving rise.

Mr. Wigley

Will the Financial Secretary accept that, as a background to the foreign manufacturers fighting tooth and nail to retain their proportion of the United Kingdom market, there is, in the case of washing machines, overwhelming prima facie evidence of dumping, particularly by Italian manufacturers?

Mr. Sheldon

I am sure that the Secretary of State for Trade will be pleased to take note of the hon. Gentleman's point, and perhaps the hon. Gentleman will give him any evidence he has.

In arriving at the figure of 12½ per cent. we had long consultations with the various industries concerned in order to get a feeling as to what level of value added tax might be acceptable without the particular problems I have described.

There is another reason for the rate's being reduced from 25 per cent. to 12½ per cent. and not to any other figure. It is concerned with the actual shape of the tax itself. It may come as a surprise to a number of hon. Members to know that, in the interests of simplicity, there are very few rates of tax which can be devised to suit the retail mechanisms which have been set up. This is largely because of the need to ensure simplicity, not only for the small retailer but for others. In meeting those requirements, one has only the rates of 10 per cent., 12½ per cent., 20 per cent. and 25 per cent. If we try to have rates between those figures, we have awkward retail fractions which we have been told are difficult to operate and to understand, particularly as applied to some of the small retailers.

6.30 p.m.

This naturally produces a number of constraints in the operation of the tax which are not apparent in other countries, with their different forms of VAT—and neither were they apparent with the old purchase tax. We cannot have any rate between 12½ per cent. and 20 per cent. without producing a number of difficulties, and this is a very considerable constraint. I am not saying that it cannot be done! I am saying that it would produce complexities of a kind that we try hard to avoid.

European VAT systems, differently based from ours, not only have a wider range of convenient rates which can be chosen but also have the advantage of as many multi-rates as may be required. Our form of VAT is much more restrictive than that which applies in other countries. This needs to be understood, because several consequences follow from it. Variations for economic reasons, in the light of changing economic conditions, and so on, become harder to arrange. There are, for example, the problems arising from the difference between the time of the announcement of changes in value added tax rates and their coming into effect, leading to the spending sprees with which we are so familiar.

The more this is generally understood, the more the problems of VAT and the less the attractions that were for so long foreseen are shown actually to have been realised. Because of this I believe that the changes which have been made in the higher rate are quite justified.

Mr. Younger

I am very puzzled by the hon. Gentleman's argument. It is all tremendously interesting but nobody who has spoken today has suggested any rate between 12½ and 25 per cent. We have concentrated entirely on bringing back the 10 per cent. rate, which the Minister has admitted is quite feasible. It seems to me that what he is saying is quite irrelevant to the amendment.

Mr. Sheldon

I do not know whether the hon. Gentleman heard his hon. Friend the Member for Eastbourne (Mr. Gow) arguing for a 15 per cent. rate.

Division No. 128]	AYES	[6.35 p.m.
Aitken, Jonathan	Bennett, Sir Frederic (Torbay)	Boyson, Dr Rhodes (Brent)
Amery, Rt Hon Julian	Bennett, Dr Reginald (Fareham)	Braine,Sir Bernard
Arnold, Tom	Benyon, W.	Britten, Leon
Atkins, Rt Hon H. (Spelthorne)	Berry, Hon Anthony	Brown, Sir Edward (Bath)
Awdry, Daniel	Biffen, John	Bryan, Sir Paul
Bain, Mrs Margaret	Biggs-Davison, John	Buchanan-Smith, Alick
Beith, A. J.	Boscawen, Hon Robert	Buck, Antony
Bell, Ronald	Bottomley, Peter	Budgen, Nick

Perhaps he missed that. But this is an important matter because it limits the range of possibilities open to any Government and the House and the Committee need to be informed about it.

I believe that the Committee would be right to reject this amendment. The reduction in the higher rate to 12½, per cent. has been welcomed, although many feel that it has not gone far enough. I can assure the Committee that the monitoring of this rate will be continued, and if any further change downwards is justified, I am sure the Chancellor will come to the House with further proposals. Meanwhile, I ask the Committee to reject the amendment.

Mr. Monro

The hon. Gentleman has not at all answered the argument in relation to unemployment in the boat building and electrical industries. Would he kindly tell the Committee a little more about the Government's thinking in terms of unemployment'?

Mr. David Howell

We have just heard from the Financial Secretary the story of a dismal blunder, and after the general recognition of the mistake that was made last year, against the advice of my hon. and right hon. Friends, it is very disappointing to have this dingy smoke-screen of arguments put forward as a cover-up for what the right hon. Gentleman the Chief Secretary and his hon. Friend know perfectly well was a major fiscal error, a major misjudgment, for which the House and the country, and those thrown out of work as a result, are entitled to an apology. We haxe not had a word of apology or explanation of why this unnecessary damage was done.

I urge my hon. and right hon. Friends to vote most strongly for the amendment and against this misjudgment, this fiscal error and this fiscal incompetence.

Question put, That the amendment be made:—

The Committee divided: Ayes 185, Noes 202.

Bulmer, Esmond	Kershaw, Anthony	Reid, George
Butler, Adam (Bosworth)	King, Evelyn (South Dorset)	Renton, Tim (Mid-Sussex)
Chalker, Mrs Lynda	King, Tom (Bridgwater)	Ridley, Hon Nicholas
Channon, Paul	Kitson, Sir Timothy	Ridsdale, Julian
Clark, Alan (Plymouth, Sutton)	Knight, Mrs Jill	Rifkind, Malcolm
Clark, William (Croydon S)	Knox, David	Rippon, Rt Hon Geoffrey
Clarke, Kenneth (Rushcliffe)	Lamont, Norman	Roberts, Wyn (Conway)
Cockcroft, John	Lane, David	Ross, Stephen (Isle of Wight)
Cope, John	Latham, Michael (Melton)	Rossi, Hugh (Hornsey)
Cormack, Patrick	Lawrence, Ivan	Sainsbury, Tim
Corrie, John	Lawson, Nigel	St. John-Steves, Norman
Costain, A. P.	Le Marchant, Spencer	Shelton, William (Streatham)
Crawford, Douglas	Lester, Jim (Beeston)	Shepherd, Colin
Dodsworth, Geoffrey	Lewis, Kenneth (Rutland)	Shersby, Michael
Drayson, Burnaby	Lloyd, Ian	Silvester, Fred
Durant, Tony	Luce, Richard	Sims, Roger
Elliott, Sir William	McAdden, Sir Stephen	Sinclair, Sir George
Evans, Gwyntor (Carmarthen)	MacCormick,Iain	Spicer, Michael (S Worcester)
Eyre, Reginald	McCrindle, Robert	Stanbrook, Ivor
Fairgrieve, Russell	Macfarlane, Neil	Stanley, John
Finsberg, Geoffrey	MacGregor, John	Steel, David (Roxburgh)
Fisher, Sir Nigel	Macmillan, Rt Hon M. (Farnham)	Steen, Anthony (Wavertree)
Fookes, Miss Janet	McNair-Wilson, M. (Newbury)	Stewart, Donald (Western Isles)
Forman, Nigel	McNair-Wilson, P. (New Forest)	Stewart, Ian (Hitchin)
Fraser, Rt Hon H. (Stafford & St)	Madel, David	Stokes, John
Fry, Peter	Marshall, Michael (Arundel)	Stonehouse, Rt Hon John
Gardner, Edward (S Fylde)	Marten, Neil	Stradling Thomas, J.
Gilmour, Rt Hon Ian (Chesham)	Mates, Michael	Tapsell, Peter
Gilmour, Sir John (East Fife)	Mawby, Ray	Taylor, R. (Croydon NW)
Glyn, Dr Alan	Maxwell-Hyslop, Robin	Taylor. Teddy (Cathcart)
Goodhart, Philip	Meyer, Sir Anthony	Thatcher, Rt Hon Margaret
Goodhew, Victor	Miller, Hal (Bromsgrove)	Thomas, Dafydd (Merioneth)
Gow, Ian (Eastbourne)	Mills, Peter	Thomas, Rt Hon P. (Hendon S)
Gower, Sir Raymond (Barry)	Miscampbell, Norman	Thompson, George
Gray, Hamish	Mitchell, David (Basingstoke)	Vaughan, Dr Gerard
Grimond, Rt Hon J.	Monro, Hector	Viggers, Peter
Grist, Ian	Montgomery, Fergus	Wainwright, Richard (Colne V)
Grylls, Michael	Morgan-Giles, Rear-Admiral	Wakeham, John
Hall, Sir John	Morrison, Charles (Devizes)	Walder, David (Clitheroe)
Hamilton, Michael (Salisbury)	Mudd, David	Wall, Patrick
Hampson, Dr. Keith	Neave, Airey	Walters, Dennis
Hannam, John	Neubert, Michael	Watt, Hamish
Harvie Anderson, Rt Hon Miss	Newton, Tony	Weatherill, Bernard
Heath, Rt Hon Edward	Nott, John	Wells, John
Henderson, Douglas	Oppenhelm, Mrs Sally	Welsh, Andrew
Holland, Philip	Page, Rt Hon R. Graham (Crosby)	Wiggin, Jerry
Hooson, Emyln	Pardoe, John	Wigley, Dafydd
Hordern, Peter	Parkinson, Cecil	Wilson, Gordon (Dundee E)
Howe, Rt Hon Sir Geoffrey	Penhaligon, David	Winterton, Nicholas
Howell, David (Guildford)	Percival, Ian	Young, Sir G. (Ealing, Acton)
Howells, Geraint (Cardigan)	Prior, Rt Hon James	Younger, Hon George
Hunt, David (Wirral)	Pym, Rt Hon Francis
Johnson Smith, G. (E Grinstead)	Raison, Timothy	TELLERS FOR THE AYES:
Jopling, Michael	Rees, Peter (Dover & Deal)	Mr. Carol Mather and
Joseph, Rt Hon Sir Keith	Rees-Davies, W. R.	Mr. Michael Roberts.

NOES
Abse, Leo	Coleman, Donald	Ewing, Harry (Stirling)
Anderson, Donald	Colquhoun, Ms Maureen	Faulds, Andrew
Archer, Peter	Conlan, Bernard	Fernyhough, Rt Hon E.
Armstrong, Ernest	Cook, Robin F. (Edin C)	Flannery, Martin
Atkins, Ronald (Preston N)	Corbett, Robin	Fletcher, Ted (Darlington)
Atkinson, Norman	Cox, Thomas (Tooting)	Foot, Rt Hon Michael
Barnett, Rt Hon Joel (Heywood)	Craigen, J. M. (Maryhill)	Ford, Ben
Bean, R. E.	Crawshaw, Richard	Forrester, John
Bennett, Andrew (Stockport N)	Cronin, John	Fowler, Gerald (The Wrekin)
Bidwell, Sydney	Cryer, Bob	Fraser, John (Lambeth, N'w'd)
Blenkinsop, Arthur	Cunningham, Dr J. (Whiteh)	Garrett, W. E. (Wallsend)
Boardman, H.	Davies, Bryan (Enfield N)	George, Bruce
Booth, Rt Hon Albert	Davies, Denzil (Llanelli)	Gilbert. Dr John
Bottomley, Rt Hon Arthur	Davies, Ifor (Gower)	Ginsburg, David
Brown, Hugh D. (Proven)	Davis, Clinton (Hackney C)	Gould, Bryan
Buchan, Norman	Dean, Joseph (Leeds West)	Gourlay, Harry
Buchanan, Richard	Dempsey, James	Graham, Ted
Butler, Mrs Joyce (Wood Green)	Doig, Peter	Grant, John (Islington C)
Callaghan, Rt Hon J. (Cardiff SE)	Dormand, J. D.	Grocott, Bruce
Callaghan, Jim (Middleton & P)	Duffy, A. E. P.	Hamilton, James (Bothwell)
Campbell, Ian	Dunnett, Jack	Hardy, Peter
Cant, R. B.	Eadie, Alex	Harper, Joseph
Carmichael, Neil	Edge, Geoff	Harrison, Walter (Wakefield)
Cartwright, John	Edwards, Robert (Wolv SE)	Hart, Rt Hon Judith
Castle, Rt Hon Barbara	English, Michael	Hatton, Frank
Clemitson, Ivor	Evans, Fred (Caerphilly)	Healey, Rt Hon Denis
Cocks, Michael (Bristol S)	Evans, Ioan (Aberdare)	Heffer, Eric S.

Hooley, Frank	Millan, Bruce	Spriggs, Leslie
Huckfield, Les	Miller, Dr M. S. (E Kilbride)	Stallard, A. W.
Hughes, Rt Hon C. (Anglesey)	Molloy, William	Stoddart, David
Hughes, Robert (Aberdeen N)	Moonman, Eric	Stott, Roger
Hughes. Roy (Newport)	Murray, Rt Hon Ronald King	Summerskill, Hon Dr Shirley
Hunter, Adam	Newens, Stanley	Taylor, Mrs Ann (Bolton W)
Irvine, Rt Hon Sir A. (Edge Hill)	Noble, Mike	Thomas, Ron (Bristol NW)
Irving, Rt Hon S. (Dartford)	Oakes, Gordon	Thorne, Stan (Preston South)
Jackson, Colin (Brighouse)	Ogden, Eric	Tierney, Sydney
Jackson, Miss Margaret (Lincoln)	O'Halloran, Michael	Tinn, James
Jay, Rt Hon Douglas	Orbach, Maurice	Torney, Tom
Jeger, Mrs Lena	Padley, Walter	Tuck, Raphael
Jenkins, Hugh (Putney)	Palmer, Arthur	Urwin, T. W.
Jenkins, Rt Hon Roy (Stechford)	Park, George	Varley, Rt Hon Eric G.
Johnson, James (Hull West)	Pavitt, Laurie	Wainwright, Edwin (Dearne V)
Jones, Barry (East Flint)	Peart, Rt Hon Fred	Walker, Harold (Doncaster)
Jones, Dan (Burnley)	Pendry, Tom	Walker, Terry (Kingswood)
Judd, Frank	Phipps, Dr Colin	Ward, Michael
Kaufman, Gerald	Price, William (Rugby)	Watkinson, John
Kelley, Richard	Radice, Giles	Weetch, Ken
Lambie, David	Richardson, Miss Jo	Weitzman, David
Lamborn, Harry	Roberts, Albert (Normanton)	Wellbeloved, James
Lamond, James	Roberts, Gwilym (Cannock)	White, Frank R. (Bury)
Leadbitter, Ted	Robertson, John (Paisley)	White, James (Pollok)
Lewis, Ron (Carlisle)	Robinson, Geoffrey	Whitehead, Phillip
Litterick, Tom	Roderick, Caerwyn	Whitlock, William
Lomas, Kenneth	Rodgers, George (Chorley)	Willey, Rt Hon Frederick
Loyden, Eddie	Rodgers, William (Stockton)	Williams, Alan Lee (Hornch'ch)
Lyons, Edward (Bradford W)	Rooker, J. W.	Williams, Rt Hon Shirley (Hertford)
Mahon, Dr J. Dickson	Roper, John	Williams, Sir Thomas
McCartney. Hugh	Rose, Paul B.	Wilson, Alexander (Hamilton)
Macfarquhar, Roderick	Ross, Rt Hon W. (Kilmarnock)	Wilson, William (Coventry SE)
Mackenzie, Gregor	Selby, Harry	Wise, Mrs Audrey
McMillan, Tom (Glasgow C)	Shaw, Arnold (Ilford South)	Woodall, Alec
McNamara, Kevin	Sheldon, Robert (Ashton-u-Lyne)	Woof, Robert
Madden, Max	Silkin, Rt Hon John (Deptford)	Wrigglesworth, Ian
Magee, Bryan	Silkin, Rt. Hon S. C. (Dulwich)	Young, David (Bolton E)
Marks, Kenneth	Sillars, James
Marquand, David	Skinner, Dennis	TELLERS FOR THE NOES:
Marshall, Dr Edmund (Goole)	Small, William	Mr. Peter Snape and
Marshall, Jim (Leicester S)	Smith, John (N Lanarkshire)	Mr. Alf Bates.
Maynard Miss Joan	Spearing, Nigel

Question accordingly negatived.

Question proposed, That the clause stand part of the Bill.

Mr. David Mitchell

I think that it would be quite wrong for us to move on from this clause without giving the Minister an opportunity to answer a number of observations made in the debate on the amendment. These were perhaps more by nature of "clause stand part" comments. I am, therefore, seeking the opportunity to hear the Minister's response to my questions about up-dating the £5,000 starting point for VAT. It is a matter of very considerable substance and great importance to a large number of traders, and one which the Minister wholly ignored in his reply to the debate on the amendment. He ignored many points made in the debate. I can only assume that he was sheltering behind the narrowness of the precise terms of the amendment.

Mr. Robert Sheldon

Before the hon. Gentleman goes too far along that road, I must point out that it was an amendment to change the higher rate that we were debating, and nothing else. A number of hon. Members went much wider, as I did, too, with respect to the Chair; but that was what the debate was about.

Mr. Mitchell

I am aware of that, and that is why I am giving the Minister this opportunity to do what I am sure he would wish to do—to answer questions and comments that he did not answer.

A further matter is that of bad debts. There is widespread feeling that it is very unfair that VAT should be payable on bad debts. It is quite true, as the Committee will know, that in 1972, when the VAT legislation was introduced, we were not in a period when bad debts were a significant matter, but they are significant today. It is difficult enough for a trader in depressed trading conditions to find a customer, to match his requirements to the product, to pack, to deliver, to comply with the web of regulations that he has to meet, and to apply the multi-rate VAT. But sometimes, afterwards comes the shock, when suddenly he finds his customer does not pay. He calls on his customer or takes out a default summons, and eventually finds that his customer has disappeared or has gone bankrupt, or for some other reason is not able to pay. Then, adding injury to insult, if one can use the phrase that way round, he finds himself having to pay VAT on that bad debt.

It seems to me that there is a very simple and very straightforward way in which the Government can help the Committee and the traders concerned. I refer to the point on which the Financial Secretary touched in the earlier debate when he said that there were a number of simplified schemes for retailers. One of these schemes allows the retailer to be liable for VAT on the money he banks and not on the sales he makes. The effect of that is that he does not pay VAT on a bad debt.

Therefore, I should like to have the views of the Financial Secretary and his advice on whether he considers it would be feasible in the Finance Act of 1972, Section 30(3), to insert after the word "retailers", which is the restriction in that part of the section, the words or any other trader or taxable person". This would allow that same benefit which applies to the retailer to be spread to other traders. I should be very grateful if the Financial Secretary would advise the Committee about that.

Mr. Robert Sheldon

I should like to reply to the hon. Member for Basingstoke (Mr. Mitchell). He mentioned the exemption level for VAT, which is at present £5,000. There have been, as the hon. Gentleman quite rightly says, a number of attempts to raise this level in previous years. There is no particular amendment which we are discussing here, but I do not think that need inhibit me from replying on the general principle involved.

The general principle adduced by those who wish to see the level raised is that this is an advantage to the small trader, who is freed from the responsibility of having to carry out the procedures in connection with the tax, and that I understand. What is frequently lost sight of is the advantage to the retailer of being registered for value added tax even though his turnover may be below the regulated level, because he is able to claim deduction of input tax. This is very important in certain trades whose business is directed not to the consuming public at large but rather to other firms, and traders registered for the tax are able to make claims against the invoices sent to them by other registered traders but not by other people.

As the extension of VAT continues, I think that this will be a feature that will be more appreciated. The tax has now been in operation for three years and during that time there have been people who have become aware of certain of the provisions and have been able to live with them in a way that was more difficult initially. Given time, one can learn to understand any system, even if it is not wholly good, and it may be that if there were an increase in the exemption limit, those people who would be able to deregister might not wish to do so.

Another point to which I draw the attention of the Committee is the problem of those people who would be going in and out of registration whenever we changed the limit. If we were to index it—and there have been arguments of this kind—there could be a number of such traders who would find themselves going in and out of registration in a way that would be wholly unacceptable to them or to the operation of VAT itself. In these circumstances, it may be that some Governments—not the present one—might wish to make deregistration compulsory just because of the difficulties of operating with these effects. I mention this only to show the problems.

There is the further consideration that by comparison with the rest of Europe our exemption level is astonishingly high. There are registration levels as low as £500, and ours is certainly far and away the highest at £5,000, without increasing it further. Those are the matters I should draw to the attention of this Committee.

The hon. Member for Basingstoke mentioned the problem of bad debts. This problem was inherent in the original 1972 legislation, as he may recall, and it has always been a difficult problem. There are a number of analogous difficulties both with customs and excise duties and in other areas. I am sorry that I do not have Section 30(3) in my mind, although I know the general provision which the hon. Gentleman mentioned. However, there are grave difficulties involving, for example, amounts of customs or excise duties which may be very large, and where such goods may be the subject of bad debts and the customs or excise element is at stake. So there are the repercussive effects, which I am sure the hon. Gentleman will understand, as well as the general problem to which he referred.

There are certain areas at which I am looking closely at the present time to see whether it might he possible to get some change in the arrangements. I am sorry that my investigations are still going on, but I am aware of the general concern and I am doing what I can to move in this direction.

Mr. David Mitchell

I am grateful to the Financial Secretary. Is he able to undertake to look at the precise point I have made? Having accepted the principle that the retailers can escape from paying VAT on bad debts, would he consider extending that to other traders?

Mr. Sheldon

The hon. Gentleman will understand that I am more than happy to look at any points which he or any other member of this Committee puts to me, and I willingly undertake to look at the particular point to which the hon. Gentleman referred.

Mr. Wiggin

Would the hon. Gentleman go through the speeches made by my hon. Friends and myself and deal with some of these points in correspondence, because a lot of detailed issues were raised?

Mr. Sheldon

I shall be more than delighted to do that. I understood that it was not the wish of most hon. Members who took part in this debate to have a particularly lengthy debate. It went very much wider than the amendment itself, and I did not object to that. I tried to answer on issues going well beyond the amendments, but if this were carried too far, the debate could become wholly unrelated to the amendments and perhaps wider and more detailed than many honourable Members without a particular interest which they put in the form of a speech would wish. However, I shall be pleased to take up any points put to me, including those made in the debate and even those that might occur to hon. Gentlemen opposite after they have left this Committee stage.

Question put and agreed to.

Clause 14 ordered to stand part of the Bill.