INCREASE OF VALUE ADDED TAX

HC Deb 03 July 1979 vol 969 cc1129-333

Mr. Denzil Davies (Llanelli)

I beg to move amendment No. 34, in page 1, leave out subsection (1).

The Chairman

With this we may take the following amendments:

No. 1, in page 1, line 21, leave out "fifteen per cent." and insert "12½ per cent.". No. 10, in page 1, line 21, leave out "15 per cent." and insert "10 per cent.".

No. 11, in page 2, leave out subsection (2).

No. 14, in page 2, leave out subsection (3).

Mr. Davies

We have put down amendment No. 11 because we are seeking information as to what subsection (2) means. Amendment No. 14 deals with subsection (3) and I am intrigued by the reference to the district council of Kingston upon Hull running its own postal service. That may be a manifestation of the rather frenzied thinking of the Secretary of State for Industry or it may be quite a separate matter. Perhaps the Minister will explain what is meant by that subsection and why that reference is there?

Amendment No. 34, the main amendment, seeks to delete subsection (1) of the Bill. That subsection puts up the rate of VAT to a uniform 15 per cent. from the present 8 per cent. and 12½ per cent. We shall seek to press the amendment to a Division because we see no justification, especially at this time, for the substantial increase in prices that it will cause.

Apart from the effect of VAT, the Budget has put prices up by at least 1 per cent. The oil price rises resulting from the OPEC meeting will probably put prices up by at least a further 1 per cent. On top of all that, it is complete madness for the Government to increase prices by 3 per cent. The effect on the economy will be disastrous, and the resulting inflation will reflect on employment. Inflation affects investment in the economy as a whole and in turn results in unemployment. The Government are deliberately putting up prices by 3 per cent., while keeping the monetary targets virtually the same as under the previous Administration. That cannot continue and something has to give. When between 3 and 4 per cent. of the inflation rate of 20 per cent. is directly attributable to the Government, we cannot have monetary targets of 9 per cent., as stated by the Financial Secretary. The crunch will come in terms of high unemployment, high interest rates and high inflation.

As we argued on Second Reading, we believe that the main priority must be to defeat inflation. It was the priority of the Labour Government and should be the priority of this Government. In opposition the Conservative Party expressed fine sentiments and great concern about inflation, but the Government have abrogated their responsibility about prices. Their first priority is tax cuts, and tax cuts in the main for the better off, who will be the only people to benefit from the Bill. That subsection provides the money for considerable income tax benefits for the richer members of our community.

Anyone earning less than £5,000 a year will be worse off as a result of the Bill. I have received some figures from the Inland Revenue in the past few hours, and although most of them are out of date they are an indication. About 20 million of the 25 million wage earners in this country earn less than £5,000 a year. Twenty million people will get hardly any benefit from the Budget and will have to pay most of the VAT to provide the tax cuts for perhaps fewer than 5 million people. The earnings table shows that only about 25,000 people earn more than £20,000 a year, and they will get the greatest benefit from the Finance Bill. The Government strategy appears to be to make the majority pay by higher VAT for income tax cuts for a small number of people. Those tax cuts could have been provided for in no other way. There is no growth in the economy and no additional wealth being created. The Bill will redistribute money from the majority who are less well off to the few who will benefit considerably.

With the Bill and the VAT increase the Government have sown the seeds of another inflationary spiral. Having done that, they are seeking ways to change the base of the retail price index.

Mr. John Garrett (Norwich, South)

Fiddling.

Mr. Davies

I did not use that word, because it is unparliamentary. I would rather put it as changing the base of the RPI by withdrawing certain items. The right hon. Lady the Leader of the Opposition said that she did not say that and has no intention of taking the cost of oil products out of the RPI. I wonder who said it—perhaps it was the Chancellor of the Exchequer. The newspaper briefings are clear that someone from the British delegation suggested, perhaps in the late evening or early morning in Tokyo, that a way of getting round the problem was to take out the price of oil. Perhaps the Chancellor will tell us whether he said it?

Before the Tokyo summit there were press briefings, and a Whitehall source indicated that perhaps increases in indirect taxation should be taken out of the RPI. That is the mark of a Government who are getting worried, having created an inflationary situation, and casting around frantically to pretend that they have not and that inflation is not as bad as it is. Will the Chief Secretary make a clear statement that increases in indirect taxation will not be taken out of the retail price index and that there is no intention of fiddling in any way the retail price index in relation to VAT? We had a clear statement from the right hon. Lady.

The question of RPI and indexation is extremely important. There is the argument that the VAT increase is a one step increase. We have recently read in the newspapers that there is a proposal to index capital gains tax. Again, we wish to know more about this. Do the Government intend that those who make capital gains should have their gains indexed to the cost of living? Apparently those who make income gains are not allowed to have their earnings indexed. I do not believe that the Government will favour the indexing of wages to the RPI, and thus to the increase in indirect taxes.

4.30 p.m.

We wish to delete subsection (1) because the Government's strategy is that the 20 million or so people who earn up to average incomes should pay for the tax benefits for the better off, and pay for them through the VAT increase. If the Government wish to have a uniform rate of VAT—I can see the argument for this on grounds of simplicity, although simplicity is not the only argument—I do not believe that that rate should have gone any higher than 10 per cent. If one looks for simplicity, one cannot go any further than 10 per cent.

I refer here to a point raised by the Minister of State, who picked up a newspaper article in The Guardian by Mr. Peter Jenkins, who suggested that the Labour Government, had they been returned to office, would have had a 12½ per cent. rate of VAT. But Mr. Peter Jenkins has since written to my right hon. Friend the Member for Leeds, East (Mr. Healey) making clear that there were no grounds for the suggestion in the article, and admitting that he was was completely misinformed. We do not believe that it is right to unify harmonised VAT above a rate of 10 per cent., because this is the highest possible rate conducive to keeping down the rate of inflation.

The Minister of State, Treasury (Mr. Peter Rees)

I accept the assurance of the right hon. Gentleman and of Mr. Peter Jenkins. But the right hon. Member has not explained how his right hon. Friend would have achieved a public sector borrowing requirement of £8.5 billion had he been speaking from this side of the Committee.

Mr. Davies

The hon. and learned Gentleman should know the answer to that. We would not have proceeded with the tax cuts, apart from indexing personal allowances. We would not have had higher rate tax cuts or 3p off the standard rate which are only being paid for by 15 per cent. VAT. This is the dilemma in which the Government find themselves. I hope that the hon. and learned Gentleman will not ask any more silly questions.

The Opposition are not the only people arguing against the increase in VAT. The other day I read a splendid document from the CBI. I am sure that Conservative Members approve of documents from the CBI—

Mr. Nick Budgen (Wolverhampton, South-West)

It is sound advice.

Mr. Davies

I am glad that the hon. Member has said that, because I was about to read from this document. The CBI, in its representations before the last Budget, said that rates of VAT should be standardised at 10 per cent., and then the system would be simpler.

It then said: Our judgment is that to go further than this, for example, standardising VAT at 12½ per cent. … would be too sharp a change, causing problems both in terms of the rate of price increases and for the businesses whose trade would be mostly directly affected. That is very good advice. I agree with the hon. Member for Wolverhampton, South-West (Mr. Budgen) and I hope that he will support us in the Lobby on the basis of this excellent advice. The Government should tell us whether they agree with the CBI or whether they think it is wrong. Do they think that 15 per cent. is too sharp a change? We have heard nothing from the CBI since the Budget. There has not been a peep out of it, and clearly its economic judgment has been bought for 30 pieces of silver by the Government's tax cuts.

I am told by the Treasury that the VAT increases—quite apart from the petrol increases—will add about £2.50 to the family budget. But the Government should realise that there is also considerable rounding up occurring. It is not just a question of 15 per cent. VAT. Traders are putting 15 per cent. on top of the existing 8 per cent. In other words, the existing prices, which include 8 per cent. or 12½ per cent. VAT, are being increased by a further 15 per cent. Is that legal, and are there any powers to stop it? That kind of practice will push the cost of living up even more than the 3 per cent. which the Government mentioned in the Budget.

The philosophy behind the VAT increases was described by the Prime Minister as the philosophy of freedom of choice. We all remember the famous broadcast of the right hon. Lady during the election campaign when she held up a pound note—that pound note is disappearing fast with inflation on the way up—and told the citizen that she would give him a choice. She said that if he had his pound note back as a result of income tax cuts he could choose whether to spend it, save it or bury it in the garden.

That argument of freedom of choice shows the complete unreality of this Government's operations. For most people, certainly for those earning up to £100 a week there is very little freedom of choice in their spending. It is only someone who is earning £20,000 a year or more who could possibly put up that kind of argument. Only he has the freedom of choice as to whether he buys goods. For most people the pattern of expenditure is set and in modern society it is very difficult to change.

What choice does the young mother have on whether to buy a push-chair for her baby? Of course she has no choice, and now she must pay the increased VAT. What choice does a disabled person have if he wishes to buy a spare part for his converted motor car? There is no freedom of choice there, except the freedom to choose to stay at home and look at the walls. This shows the complete unreality of the Government's strategy and their lack of understanding of the lives of ordinary people. What freedom of choice do I have if my roof starts leaking? Do I allow the water to come in? Of course there is no freedom of choice—I must pay the 15 per cent. By putting up the rate to 15 per cent. the Government are hitting essential expenditure.

A uniform rate of VAT is too blunt an instrument when it is too high because it has a very hard effect on different industries and organisations. Once one exceeds 10 per cent., one must have a separate system with separate rates. It is not possible to have a 15 per cent. rate and not damage various industries and charities. This is why on the Continent there are, in most countries, different rates of VAT. In our last debate the Chief Secretary tried to anticipate this argument, but his case was not really worthy of him. He tried to average it out. He looked at our zero rating, our exempt goods and services and our 15 per cent. and said that we paid less overall than was paid on the Continent. That is not a sensible argument. The 15 per cent. rate might be borne quite easily by some industries and businesses, but it will hit others hard, especially those under pressure from imports.

Why should charities such as the Save the Children Fund have to pay the same high rate as someone who buys an expensive piece of jewellery or a fur coat? Why should repairs to my house be charged at 15 per cent. when repairs to an expensive sailing boat are also charged at the same rate? There is no logic or justification in that. Once we get above a rate of 10 per cent., we have to make those choices and they have to be made on economic grounds.

There will be debates on later amendments concerning the clothing and footwear industries, which are under considerable pressure from imports from developing countries. Those industries will be put under even greater pressure because the 15 per cent. rate of VAT will make their products more expensive in comparison with imports.

The Government have gone blindly ahead without thinking out the economic consequences of their actions. They have tried to carry out their irresponsible pledge to reduce taxes for the better off by making most people pay the extra VAT.

The Government have made a major error of judgment by putting up VAT to 15 per cent. Apparently they were intoxicated by the election victory and the heady air of the corridors of power. It looks as though the air is not so heavy for the Minister of State.

Mr. Denis Healey (Leeds, East)

He is fast asleep.

Mr. Davies

I do not think that he is quite asleep.

Mr. Healey

Just catatonic.

Mr. Davies

The Government rushed headlong, as new Governments tend to do, into their Budget proposals without understanding the consequences.

Those consequences were summed up in The Guardian this week by the ITEM team, which uses the Treasury model to provide economic forecasts. The team said: At a time when inflation was accelerating; into double figures, the Budget put up prices. At a time when industry was being squeezed by rising costs and weak demand, the squeeze has been made worse by the withdrawal of Government support. With unemployment already over one million, job creation projects are to be axed. That is a summary of the Government's ridiculous attempt to rush into policies without thinking about the real problems of the British economy.

It is not too late for the Government to repent. There can be forgiveness for even the worst sinners—provided that repentance takes place before the Finance Bill becomes law. The Bill does not have to become law until four months after the passing of the Budget resolutions. The Government have up to four months to repent of their folly and they can do that by thinking again about the VAT increase, by deciding that the inflationary pressures are too great and that the problems with OPEC and the oil increases have overtaken events and by thinking again about the problems of the economy and by accepting amendment No. 34 before they create irreparable damage to the British economy which will not be put right for a long time.

4.45 p.m.

Mr. T. H. H. Skeet (Bedford)

I should like to make one or two brief observations on amendment No. 34, though I concede that they may be more relevant to amendment No. 20. They are appropriate at this stage in our debate because of the increase in VAT from 8 per cent. to 15 per cent.

A letter was sent by Customs and Excise to the Harpur Trust school in Bedford outlining the current law. For the demolition and new construction of a building, no VAT is charged because that work is zero rated. However, if a building is burnt down and is reconstructed within the old shell—it may be a listed building—VAT at 15 per cent. will apply.

The significance is that VAT is no longer 8 per cent., but is to be 15 per cent. The rate is to be increased before any of the serious anomalies are removed.

When a building is damaged by fire, but is not razed to the ground, and a new building incorporates the residue of the old by reinstatement, the work is regarded as standard rated work of repair. The new building may differ considerably from the old, but it is still taxable at the standard rate.

If, on the other hand, there is reinstatement with another room attached, the building that has been reinstated will have the full rate of VAT applied to it, but the attached room will be zero rated.

I understand that the problem has been referred to the law in two cases—Thomas Briggs (London) Limited at the London tribunal in 1977 and St. Luke's Church, Greater Crosby, at the Manchester tribunal in 1978, reference 78/59. There is a possibility that the latter case went to appeal. I hope that we can have an indication from the Government about what occurred there.

I should like to make one recommendation. Where a building has been listed and the owner has no right to pull it down and must restore it after damage to its previous condition, it might be reasonable to say, in the case of charities, that if the building is destroyed by fire, perhaps by arson, the rebuilding work should be zero rated. That could be done through a procedure similar to that contained in schedule 1 of the General Rate Act 1967, which provides that no rates shall be payable if an empty property is subject to a building preservation notice as defined in the Act.

The Government should consider that recommendation, because not only are charities and churches involved: any owner-occupier will probably find that it is better to raze his property to the ground, because no VAT will be charged. If he carries out repairs he will have to pay a large sum in VAT. In the case of Bedford school the cost of restorations may be in the vicinity of £2 million. The VAT charged will therefore be £160,000. My remarks are relevant to amendment No. 34, but I hope that they will also be taken into account in relation to amendment No. 20.

Mr. Barry Sheerman (Huddersfield, East)

Rising for the first time in the Chamber, I am conscious that hon. Members have heard many maiden speeches in the past few weeks, and I have no intention of being the straw that breaks the camel's back. Having glanced over a number of eminent first contributions in the House over the past 100 years, I am also aware that a standard has been set which I have little hope of achieving. However, my first few weeks as an hon. Member have convinced me of one thing, if nothing else, and that is that the House tends to be kind in respect of the performance of novices.

It is both my good fortune and a daunting task to follow in the footsteps of the former Member for Huddersfield, East, J. P. W. Mallalieu, whom so many hon. Members will know as a friend and former colleague. Many will know him affectionately as "Bill" or "Curly". That physical attribute seems to be a necessary condition of being the hon. Member for Huddersfield, East.

As a Member "Curly" was assiduous in safeguarding the interests of Huddersfield, and since his adoption by the Labour Party as early as 1936 and his election in 1945 he won the respect and affection of the folk of the town and was close to their hearts. As a Member, sailor, author and journalist and as a Minister, he carried out his duty in serving his constituency, his party and his country well. I was pleased to see recently that his contribution in all these areas of activity has been suitably rewarded.

Having been the recipient of great kindness from my predecessor, I read with a feeling of pride his first speech to the House, delivered in October 1945. Coming to the Chamber fresh from the war, he began by proposing stricter taxes on inheritances and he said: I cannot expect hon. Members opposite to approve of that, for it is curious that they who in their public speeches, demand that people shall stand upon their own feet, that they shall not be spoon-fed, seem to be the very first people who demand that their children shall be silver-spoon fed."—[Official Report, 24 October 1945; Vol. 414, c. 2042.] That is an appropriate sentiment in the context of the present Finance Bill and in the wake of the recent Budget and the VAT increases that are before us today. It is a view that strikes a chord with my constituents in Huddersfield and Kirk-burton.

The town that I am privileged to represent in this House is a classic example of what can be achieved when the natural beauty and resources of this country are married to an intelligent and enlightened attitude and a belief in planning. As we know to our cost, many of the most beautiful parts of Britain were turned by market forces of Victorian capitalism into ugly, insanitary towns notorious for their overcrowding, squalor and disease. However, Huddersfield, in the foothills of the Pennines, was described by—among others—Friedrich Engels in the nineteenth century as the most beautiful of all the factory towns in Yorkshire and Lancashire Unlike those towns, dominated in their infancy by market forces, Huddersfield was an example of what an industrial town could be if a little enlightenment, thought and planning were involved in its creation.

Today, my constituency appears fairly prosperous, with an economy resting on four pillars: textile mills producing fine worsteds; engineering of diverse types; chemicals of increasing sophistication; and, like so many other towns, the ever-expanding service sector. However, Huddersfield, like most of the towns in West Yorkshire, faces serious and fundamental problems. As my hon. Friend the Member for Batley and Morley (Mr. Woolmer) pointed out in the debate on the Gracious Speech, the textile industry has been in long-term decline and is a much smaller employer than in the past. If it had not been for the Labour Government's programme on industrial and regional aid in the shape of the temporary employment subsidies and the like, many more jobs would have vanished and been lost to an industry which makes a vital contribution to the export trade.

Engineering is also in need of reinvestment and diversification if it is to prosper. Although chemicals as an industry is increasingly capital-intensive, it employs expensive capital equipment and many computers but fewer and fewer men. The service industries have provided jobs to replace many lost in the traditional sectors, but this Budget and Finance Bill do little to ensure that this will be an expanding area of employment in the future.

In my constituency we have the problems of the United Kingdom in microcosm—a desperate need for the massive reinvestment which private capital has been notoriously unwilling to undertake. Indeed, the evidence goes to show that textiles and engineering have suffered from the failure of private owners to reinvest in their businesses even when profits were consistently high.

When I hear the economic doctrines expounded by the right hon. Member for Leeds, North-East (Sir K. Joseph), I find it difficult to believe that he can have any real knowledge of the facts of industrial and economic life in his constituency, an area that is not so far from mine. Both of us represent regions that have all the potential for continuing vigorous industrial enterprise—a highly skilled work force, superb industrial relations and excellent communications. Yet private capital is still reluctant to invest in its future and the tax changes which are now before us will do nothing to change that situation.

Frankly, I do not believe that the proposals in the Finance Bill as a whole, in the Budget or in the overall Conservative strategy—if one can dignify it by that name—will produce one pennyworth of new investment in the region that I represent. Indeed, on the contrary, the grey or intermediate areas are to be penalised in the Budget and are to lose most of the pitifully few aids and incentives that exist to attract industry. I have long had doubts about the wisdom of regional industrial policy and development under successive Governments, but at least the Labour Government in latter years have tried to do something about the intermediate areas and the black areas.

In my opinion, it is clear that the present criteria for determining aid to an area—relating to rates of unemployment—are far too unsophisticated and blunt in assessing needs. Because of this, the intermediate regions have long suffered. Surely the crucial task of economic industrial aid is to prevent the disease of industrial decline and decay before that process has gone too far. One hopes that the intention is to cure the disease rather than to treat the symptons. Much of Yorkshire needs help and investment now, not when unemployment statistics equal those on Merseyside and the North-East. Unless Governments recognise this fact and move to prevent it, there will be many more Merseysides in the near future.

The task of anticipating decline and at moving to prevent it early enough is clearly recognised in the new ideas emanating from the EEC. If Conservative Members had seized their opportunity, they might have had the chance of designing a new and more flexible policy for regional development. Yet I fear, that with their well-known political blinkers, they would prefer to leave us, as the world economic crisis deepens, to sink or swim in the market forces. Alas, I fear that many of their constituents and mine will be in grave peril of drowning.

I speak of economic aid to the regions in no sense as one who believes that there is a God-given right for one region to benefit at the expense of another. However, as a member of the third largest party in this House, the Co-operative Party, I have an unshakable faith in the principle of investing wealth created in the community back into that community. So often the wealth created by our people in our towns flows out of them never to return in the form of new jobs and new industries vital for their future.

It is a fact that the wealth of the country is created by the working people of the country, and in my opinion it is their right to ensure that the wealth that they create remains in their community and under their control. However, the Budget, and the Finance Bill if passed, will accelerate the process whereby our people's wealth will be redistributed more unfairly than before. That is what this VAT provision and the shift from direct to indirect taxation mean. That shift means simply that the well off benefit at the expense of the poor and the less well off. Furthermore, it will be very much more easy for the wealth of this country to flow abroad into investment and jobs abroad—for example, office sites in Brussels.

The Secretary of State for Trade could see nothing wrong with that. In the view of that right hon. Gentleman and the Prime Minister, capital will be allowed to flow where it will and to where it can reap the fastest profit regardless of the national interest—or perhaps they believe that the two are always coterminous.

Looking back on Budgets and Finance Bills in previous years, I believe that what marks this one off and why it stands out is the way in which the philosophical element has played such a large part in all our debates. Even when we are discussing, as today, the increase in value added tax from 8 per cent. to 15 per cent. it is the underlying philosophical differences between Government and Opposition to which reference is constantly made.

I conclude by saying that I think I discern on the Conservative Benches two major concerns at the deeper level. One is with freedom or liberty, which is a proper concern for any Member of this House. In the late twentieth century I share with Conservative Members the feeling that liberties of the individual—namely, our basic freedoms—are threatened. Unlike the right hon. Member for Oswestry (Mr. Biffen) I do not see that liberty menaced by the immense power of the centralised Western industrial State.

5 p.m.

The right hon. Member for Oswestry and the right hon. Member for Down, South (Mr. Powell) are forever on their guard against the State. They see it as a threat to liberty. However, in my opinion that liberty is being filched by organisations that were unknown to the political and economic theorists of the eighteenth and nineteenth centuries. Today, liberty in the Western world is under threat not from Governments who accrue too much power but rather from Governments who have not the courage to use that power to protect their citizens from the international corporations whose size, growth and power are a growing menace to liberty.

Secondly, I recognise among Conservative Members a desire to halt the long-term economic decline from which the country has suffered for over 100 years. I believe that it is a genuine desire. However, since 1945 we have been guilty of a tendency to search for and seize upon cure-alls and panaceas that will stop the rot once and for all and put the country right. As a student of ideas. I have detected a series of such fashions, cure-alls and fake remedies for the salvation of our nation since the end of the Second World War. They range from a naïve belief in the efficacy of centralised planning—sometimes Labour Members are guilty of that, too—through an enthusiasm for business efficiency and business schools to the revolutionary changes that we thought could be brought about by an expansion in higher education. In the 1960s there was a general commitment to the wonders that might be wrought by the benefit of large-scale enterprise, whether in public or private industry, local government or the National Health Service. None of these solutions worked and we then threw ourselves into the greatest cure-all or panacea of the century—the European Common Market.

I am afraid that Conservative Members are now totally committed to the latest panacea, the latest fake medicine—the return to the incentives of the market economy and the real competition that we knew in the Victorian period. This represents the worship of inequality, and the move from direct to indirect taxation is at the heart of that move. I am afraid that it has as much relevance to the problems that the country faces at the end of the 1970s as do any of the other panaceas that I have listed.

All the solutions put off the day when we must begin the task of rebuilding the British economic and social structure on a democratic, equal and efficient basis—and the three go together. I hope that I shall be able to contribute a small part to that process.

Mr. Patrick McNair-Wilson (New Forest)

It is my great pleasure to congratulate the hon. Member for Huddersfield, East (Mr. Sheerman) on his excellent maiden speech. In the 14 years that I have spent in this place I have listened to a number of maiden speeches. His independence of approach to the difficult subjects that we are discussing was most refreshing and his beguiling description of his constituency and the tribute that he paid to his distinguished predecessor will be welcomed by his constituents.

When I made my maiden speech in 1964 I was told that it would be like being sick and that I would feel better afterwards. In the case of the hon. Member for Huddersfield, East, his confident delivery and demeanour lead me to believe that he will not need to worry about his future speeches. We all look forward to hearing further contributions from him.

I believe that the debate honours a pledge but misses an opportunity. That pledge was given by the Conservative Party—the switch of taxation from direct to indirect. I have always supported that policy. I further supported the belief that we should move away as quickly as possible from multi-rates of VAT. I believe that they are confusing and that they create serious difficulties for small shopkeepers and others who deal with the paperwork that is involved. Nevertheless, on this occasion we have missed what could have been an opportunity for improvement in a narrow area but one that has become significant in recent weeks. In the debate on the Loyal Address I said that I was concerned that we should avoid taking action that would hit too hard at transportation. The amendment before us does not deal with oil tax. However, in the first part of the Bill, we shall be increasing taxation on certain aspects of transportation. I believe that those aspects require further examination.

There has been a tendency to regard taxation, as it affects transportation and the motorist, as a blunt instrument which can be used to solve the energy problem. One of the faults with that argument is that it is always the travelling public who are hit the hardest. In my rural constituency some form of personal transportation is essential. It is not enough to rely on rural bus or train services, many of which have been axed over the past few years.

I would have hoped that when the Chancellor drew up his VAT proposals he would exempt bicycles. We were informed yesterday that about 70 per cent. of all the new motor cars in the country are owned by individual companies. When a company buys a vehicle for an employee the fuel consumption and the initial purchase price are probably not considered. However, when motor cars are used in cities they tend to be more thirsty than when they are on the open road. Therefore, it is in the city that the bicycle can play an important role in our transport system. I ride a bicycle around London as a member of the House of Commons cycling club. Indeed, if my right hon. and learned Friend the Chancellor exempted bicycles from VAT as a result of my intervention I might even be persuaded to buy a new bicycle.

If there is to be the energy conservation that the Prime Minister and others have pleaded for, small forms of encouragement should be used to change the attitude to energy. For example, hon. Members arrive at the Palace of Westminster in motor cars when they could improve their health, save money and save energy by using two wheels instead of four. I hope that my right hon. and learned Friend will examine that matter. I hope that when he reviews VAT in the future he will look seriously at my suggestion that bicycles should be exempted altogether.

Mr. Alexander W. Lyon (York)

I have no doubt that we shall discuss the general effect of the Budget on the economy when we come to a later clause. Of the switch from direct to indirect taxation, which the hon. Member for New Forest (Mr. McNair-Wilson) welcomed, I say only that it will depress living standards of average workers throughout the country. That is bound to have a repercussive effect on the cost of living and the settlement of wages in the coming year.

I have listened with interest to the arch-apostle of monetarism, the right hon. Member for Down, South (Mr. Powell), explaining how the switch has no effect upon inflation. That increases my scepticism about the monetarist analysis of our present economic difficulties. It will of course have a substantial impact on the retail price index, and through it upon wage claims in both the public and private sectors. In so far as the Government have no tool to deal with claims in the private sector, and may find it increasingly difficult to deal with claims in the public sector, it seems to me that it cannot be argued that the clause is anything other than inflationary.

However, it is not so much that that concerns me. What concerns me is the inequity of the burden put on the part of our population least able to bear it. In that respect, it is not enough for Conservative hon. Members to argue that there are exemptions from the tax. I hope that in the course of the debates on the amendments the Government will recognise that the burden upon low-paid families, particularly those which are working but do not pay tax, will be so heavy in the coming year that a degree of amelioration, particularly at this stage, is not unwelcome.

In particular, I again draw attention to the fact that it is not that more money will be left in the pockets of the average worker, or indeed of the country as a whole. What the Government have done is to withdraw from the pockets of the taxpayers £500 million more tax. The Government argue that that is necessary in order to help them to reduce the public sector borrowing requirement. Nevertheless, the Budget's overall impact is to create a situation in which we are more heavily taxed than before. We go up the league table of those who are heavily taxed, rather than down. In those circumstances, now is the time to look carefully at any anomalies in VAT that have been argued over the years, and to consider sympathetically opportunities to remedy them. We shall be coming to some of those in this debate.

In relation to the amendment, I wish only to refer to one anomaly, which I hope also to raise on Report. I refer to the position of confectionery—sweets and chocolate—and similar foods. Value added tax was not levied on them when it was introduced in 1972. It was first levied on them in 1974–75 and has been levied on them ever since.

If it is to be alleged that the Government are not taxing food, they should make an exception here as well. I do not accept the argument put forward so often by those on the Treasury Bench that they have great concern for the health of our people, that chocolate, other confectionery, crisps and similar foods are in some way damaging to the nation's health, and that therefore they are helping us to have fitter children by taxing those foods. The same could be said of much else that comes in the category of food, and in any event it is hotly disputed by those who can assess the value of those foods.

I accept that I am making a constituency point. I see that my hon. Friend the Member for Fife, Central (Mr. Hamilton) looks askance. I have heard him make constituency points in a heated manner. I had always thought that that was one of the reasons why we were sent here. In York I rejoice in having—I dare say that most others do not—the title of "citizen in Parliament". I regard that as a high prize. My object is to express here the concerns of my constituents.

5.15 p.m.

About 25 per cent. of my working population work in the making of confectionery. If VAT on the items they make is increased, the effect is bound to be to hit sales, and through sales to hit employment. Some of my hon. Friends jeer, but I see no reason why my coming here to express my concern about the employment of my constituents is more to be criticised than another hon. Member's coming from Glasgow, Govan, Liverpool or anywhere else to express concern about the employment of his constituents.

What I have to say makes a substantial point about the effect of the Budget. If indirect taxation is increased and sales decrease as a result, as they are bound to, the effect must be bad for employment. One effect of the Budget is that it will hit employment hard. Assessments made since the Budget indicate a far more depressing picture than that shown in the Red Book. There was a report in The Guardian recently that one institute expected a decline in living standards of 4 per cent. over the next 12 months.

In 1968 the then Chancellor argued for a decline in living standards of 1 per cent. He never got it, because the unions would not let him. We had a decline of about 4 per cent. in the second stage of pay policy, but only through an agreement with the trade unions. The idea that we can bring about a 4 per cent. decline in the standard of living without raising hostility from all the organisations that represent working class interests is poppycock. Therefore, the Government must reconsider their position in relation to employment, particularly with the added difficulties thrown upon us by the new increase in oil prices.

This is not the time at which the Chief Secretary should pursue his monetarist theories, ignoring all the warning signs. There is nothing but theology behind the Bill, nothing but aspirations to a kind of spiritual enlightenment for the whole of the British people as a result of going through the travail of wearing a worse hair shirt than they have worn in the past. It has not worked in the past and it will not work in the future.

All the indicators are that even the Government's friends, even the people in business, even those who have been calling for tax changes of the kind introduced in the Budget, are worried about the future. It is coming to something when Sir John Methven of all people, the Tory spokesman in opposition, has to send round to all his mates telling them that they must take advantage of the tax changes, because this is the last opportunity, and if they do not do it now they may suffer an awful fate. I can only say that I welcome his assurance that the Labour Party will return to office at the next election.

Equally, I share Sir John's concern that the cost of the Budget will be so immense in terms of jobs. Therefore, I hope that the Chief Secretary will look more carefully at the proposals in the amendments to the clause, particularly the amendment before us. This is not the time to put such a heavy burden on the British people.

Mr. William Clark (Croydon, South)

I listened with interest to the hon. Member for York (Mr. Lyon). He has missed the whole point of the tax changes. The strategy is to relieve taxes on incomes, wages and earnings and to swap more to spending taxes. All tax on income is a compulsory tax. There is an element of choice in a spending tax or VAT. Everyone can make various cases. The hon. Gentleman made a case for York and for the confectionery industry. We could all make claims for exceptions. But if the strategy is to swap from a tax on income to a tax on spending, the tax on spending must go across the whole board. I hope that my right hon. Friend the Chief Secretary will not weaken the strategy by accepting this amendment.

We have tried in the past a policy of high taxation. A rate of 83 per cent. and, in some cases, 98 per cent. has not worked. We now have a new and different approach to taxation. I would have thought that the strategy should remain to see what happens. I do not accept that there will necessarily be a decrease in demand for confectionery. The demand is elastic. I should not have thought there would be a decrease in the confectionery and crisps trade.

In urging my right hon. Friend to resist the amendment, I leave him with one thought. All of us want to help new businesses and new inventions. The one moiling of our tax structure is its treatment of new businesses and new inventions. To give free depreciation and capital allowances is acceptable provided that the new business generates profits straightaway. To give free depreciation is a promise for the future, if that business gets off the ground and profits are generated.

I should like my right hon. Friend to consider, not for this Budget but for the next, whether VAT could be used in a more flexible way to help new inventions. One way to generate a number of new businesses and new inventions would be to declare a VAT tax holiday. The system would become more flexible. It would provide a greater benefit for people with new inventions to get the business off the ground.

A tax holiday would have to be for a limited period. I am not suggesting one, two or three years. Each would have to be decided on the merits of the case. Many countries use indirect taxation in this way. I would like my hon. Friend to keep this suggestion at the back of his mind and consider whether VAT can be made more flexible. He will be pleased to know that I am not suggesting an alteration to the present Finance Bill, but this is an area of taxation where VAT, in future Bills, could be made more flexible to create more new businesses and more employment.

Mr. Richard Wainwright (Colne Valley)

I endorse the congratulations already accorded the hon. Member for Huddersfield, East (Mr. Sheerman) on his maiden speech. His constituency immediately adjoins Colne Valley. In those parts, the tradition of political argument is robust, sophisticated and honest. It will be a strenuous occupation for those of us who have to take on the hon. Member for Huddersfield, East.

I am speaking solely to amendment No. 1 in the name of Liberal Members. It is scarcely necessary to point out that the amendment has no connection with that moved from the Labour Front Bench. It is a matter for congratulation of the Government that we have at least got back to one, and only one, positive rate of VAT. The argument of the Opposition Front Bench that many things can be labelled luxuries while others are necessities is wildly out of date with the modern variety of lifestyles and the condition of society. I am particularly optimistic that the Government will have no truck with the astonishing arguments adduced by the hon. Member for York (Mr. Lyon). It was no wonder that he had a smile on his face. He argued that in some way according to a wholly false doctrine of nutrition, people should be encouraged fiscally to munch boiled sugar rather than to get out and use sports equipment. The hon. Gentleman was dealing with the dangerous end of a stick of dynamite.

The day will come when this most useful, but abused, word "food", which is employed by the industry to secure zero rating for a vast number of rather disgusting and unhealthy commodities, will be carefully scrutinised by this House. The fact that bread, milk and Yorkshire pudding should be free from VAT for all time does not mean that a lot of confectionery that masquerades as food should also be free.

Mr. Denzil Davies

The hon. Gentleman said that bread and milk should be free of VAT and yet argued that it was wrong to divide categories of goods into essentials and luxuries. How does he therefore justify his argument that bread and milk should be zero rated?

Mr. Wainwright

I say that only because, unfortunately, there are some conventions, deeply rooted in the British mind, which it is not possible to roll back. The cry of cheap food which derives from the epic period of the Corn Laws is a matter I am not prepared to take on.

The objection encapsulated in this amendment relates to the sharpness of the rise in the rate of VAT. In the opinion of Liberal Members, it is out of all reason. Before one can take VAT to these heights, which are not necessarily objectionable in themselves, if reached in the proper way, it is necessary to adopt certain precautions. It is necessary to attend properly to social security benefits through some kind of negative income tax or tax credit scheme. It is particularly inappropriate that this savage increase in VAT should be contained in a Budget that makes no provision for increase in child benefits and does nothing to fulfil the specific promise in the Conservative Party election manifesto to introduce a tax credit scheme. There is no safety net to protect the lower paid and those in receipt of State benefits from the effects of this sudden increase.

Secondly, there is, as yet, no minimum earnings legislation, which means that the lower paid are not protected. Nor is there an incomes policy to ensure a reasonable distribution of national earnings. Without those protective measures, it seems to Liberal Members very unfair to have put up the rate as sharply as has happened in the Budget. As the CBI has pointed out, it is also very dislocating for many of the industries involved. There have been many serious debates in this Chamber about the appalling effect on some of our industries caused by rapid changes in indirect taxation in the past. To court further disasters by virtually doubling the general rate of VAT will have a very unfortunate effect on some consumer industries.

For that reason, and not for any reason connected with the Opposition amendment which appears first on the Notice Paper, we believe that an increase to 12½ per cent. was far enough for the Government to have gone this year.

5.30 p.m.

Mr. Tam Dalyell (West Lothian)

My hon. Friend the Member for Huddersfield, East (Mr. Sheerman) made an outstanding maiden speech. He made a kindly reference to his predecessor, the friend of many, "Curly" Mallalieu. He was an extraordinarily gifted sportswriter for the Spectator. He persuaded a whole generation that it was Huddersfield Town's destiny, not Liverpool's or Manchester United's, to be the football team of the 1950s, 1960s and 1970s. He was a brilliant writer. He was a great friend to many of us, and we appreciated the tribute paid to him by my hon. Friend.

I wish to ask a series of questions of the Chief Secretary. The first arises out of the speech made by the hon. Member for New Forest (Mr. McNair-Wilson). He referred to the difficulties experienced by garages. What do the Government think it is their duty to say to people such as Dr. Pearce of Esso and to the leaders of Shell and BP about the petrol supply to small garages in rural areas? I represent a fairly wide rural area. Almost all the small garages complain bitterly that they are not receiving anything like the allocation they need and to which they feel that they are entitled.

Whatever the merits or demerits of the policy adopted by oil companies it does not save fuel. In a country area it is ridiculous to have people swanning and cruising round for miles trying to find oil and petrol at the bigger pumps because the small garages are deprived. The Government have some locus in this matter. My first question is: do the Government accept responsibility? Are they talking to the oil companies for the reasons expressed by myself and the hon. Member for New Forest?

We were not jeering my hon. Friend the Member for York (Mr. Lyon) when he spoke of sweeties; we were interested in the price of Smarties. My right hon. Friend the Member for Llanelli (Mr. Davies) said that not only was VAT being increased but there was a great deal of topping up in the price of confectionery. Not only is VAT given as a reason for increased prices but it is being used as an excuse to increase prices of confectionery.

As the Government are dismantling the Price Commission and a number of other institutions do they intend to develop an antenna which they expect to do good? Do the Government feel that they have any responsibility for ensuring that traders do not suddenly, at whim, dollop on a price increase and use VAT as an excuse rather than a reason? Such practices are fuelling inflation in a dangerous and often rather wicked way.

My third question involves the unselected amendment no 6. I have discussed the matter with my hon. Friend the Member for Edinburgh, Central (Mr. Cook), who tabled another amendment. The hon. Member for New Forest mentioned bicycles. My question is more general. Do the Government have any view in relation to strategy about helping through the tax system those parts of the economy that can be expected to be energy saving? My amendment involves recycling. Some thought went into this. There is a strong argument that I shall deploy at length if necessary after the Chief Secretary has spoken.

Is the Treasury thinking about giving financial incentives to those who are prepared to produce recycled goods which save scarce materials or energy? What is the Government's general philosophy towards recycling and energy saving?

By what rationale should the price of bicycles be increased when surely it is to the advantage of society that as many people as possible should use bicycles? This is not a matter for ribaldry or laughter. We would not expect our constituents to cycle 20 miles on a necessary journey, but relatively more fuel is used by the short, often less than necessary journey in town. Such a journey can be made on a bicycle. The stops, the starts, the lights and traffic jams and all the other difficulties of urban motoring do not apply in the country areas.

One might argue that provision would have to be made for bicycle lanes. That might be expensive, as some new towns have discovered. Is it really sensible to increase through VAT the price of bicycles?

One must bear in mind that not only a financial question is involved. It is a bit of a symbolic question—it is a bit of a totem pole question. In a crisis it is not too naïve to think that many people would try to do something about it. It may not make all that much difference to the fuel situation, but it could make a difference to society's approach to energy saving. Surely it is up to Governments to set an example through the tax system, even if it is, in the view of those at Great George Street, a propagandist point rather than a suggestion that would save many millions of pounds.

I do not believe in long speeches in Committee on the Finance Bill. I believe in speaking again if I do not receive a satisfactory answer. I hope that the Chief Secretary will answer my questions.

Mr. Percy Grieve (Solihull)

I did not intend to speak, but I was tempted to interrupt the hon. Member for West Lothian (Mr. Dalyell). I hope that my speech will be almost as brief as any intervention that I might have made in the hon. Member's speech.

We have heard a number of pleas for special exemptions or reductions in the rate of VAT. I have no doubt that such demands for special cases and reductions can be made with good conscience by an enormous number of people.

The hon. Member for West Lothian referred to bicycles, as did my hen Friend the Member for New Forest (Mr. McNair-Wilson). The hon. Member for York (Mr. Lyon) talked about confectionery. Perhaps I should not say that he spoke with his tongue in his cheek, because he has a strong constituency interest. He made a plea for a reduction of VAT on confectionery. Many people have made strong cases for a reduction in VAT as it affects the theatre and the arts generally.

If these special cases were to be hearkened to, and we had a whole spectrum of varying rates of VAT, we would greatly increase the complexity of the tax and be acting clean contrary to the policy behind the increase in indirect taxation and the reductions in direct taxation. The purpose of the reductions in direct taxation and the increases in indirect taxation is to free the individual and give him a far greater choice of what he spends his money on.

If my right hon. Friend listens to special pleading, the whole policy will be undermined. The great merit of the Budget has been to increase the freedom of the individual. That cannot be done without increasing taxes on expenditure, if these cases, good as some of them may be and bad as some undoubtedly are, were to be listened to by my right hon. Friend, it would cut at the root of the policy.

Mr. Jim Marshall (Leicester, South)

The hon. and learned Gentleman has made the point that the Budget increases personal freedom. I put to him a case from my own constituency which concerns a man who operates personal weighing machines. I understand that that man has written to the Chancellor of the Exchequer about how he operates these machines with a 2p coin. Inevitably he is not able to collect the VAT, which is, therefore, charged on his gross takings as distinct from the confectionery trade. As a consequence, over the past few years, he has seen his profit margins decline and has had to reduce the number of his staff. In view of the increase in VAT from 10 per cent. to 15 per cent.—which further diminishes his gross takings—that firm is likely to close and four or five people will lose their jobs. Can the hon. and learned Gentleman explain to me how the loss of those four or five jobs increases the personal freedom of the people who have lost them?

Mr. Grieve

The hon. Gentleman has put a very special case. It is quite obvious that where people are using slot machines in trade difficulties are presented. Changes in tax law are not made without difficulty. The hon. Gentleman's observations will no doubt be listened to by my right hon. Friend, who perhaps will be able to suggest ways in which the machine operator referred to may be able to solve his problems. Hard cases make bad law, and I cannot think of a better example of the merit of that axiom than the case just quoted by the hon. Gentleman. We all receive in our postbags every day pleas for special cases. If we listened to them, we would have a whole range of value added taxes, costing an enormous amount of money to administer, cutting at the whole root of this Budget.

Mr. Alexander W. Lyon

Does not the hon. and learned Gentleman recognise that the difference between himself and most of his constituents is that there is a much greater percentage of his total pay over which he has the freedom to decide how it will be spent? The great majority of his constituents, and certainly the majority of mine, do not have that choice. The bulk of their income is already allotted to essential items. They have no alternative. They do not have freedom, simply because of indirect taxation.

Mr. Grieve

I do not accept for one moment the distinction that the hon. Gentleman seeks to draw between his constituents and mine. I find that my constituents are pleased to have the greater choice which the Budget gives them. There is a great deal of grousing in the community because VAT is being increased when people have not yet had the full benefit of direct tax reductions. When they have felt the full benefit, they will welcome the changes which the Government have made.

5.45 p.m.

Mr. William Hamilton (Fife, Central)

I have in front of me the Treasury "Economic Progress Report Supplement" for June 1979 on the Budget. It is true, as hon. Members on the Tory Benches have been saying, that the report sets out four objectives: first, the strengthening of incentives. That means, I presume, for people at the top and bottom of the wage scale. Secondly, a greater freedom of choice in spending one's income rather than giving it to the Inland Revenue—one goes into the shops and is robbed there rather than by the Treasury or the Inland Revenue. Thirdly, a reduction of the Government's borrowing requirements, which, bluntly, means public expenditure cuts. Fourthly, bringing inflation under control by suitable fiscal and monetary disciplines.

Let us look at those objectives and see how they measure up to the real world as we know it. When the Budget was being introduced I was at Bridlington attending the conference of the Confederation of Health Service Employees, which is my sponsoring union. There I listened to ambulance men, to mental health and other nurses and to ancillary workers of all kinds in the Health Service. Their reaction was immediate and bitterly hostile to the whole concept behind the Budget. They sat at once, and passed a resolution condemning the inequity of the Budget, in that it seemed to give them, who perform vital services, absolutely nothing, or only a few pence a week. At the top end of the wage scale they quickly worked out that the man on £25,000 a year was getting at least £60 a week back in tax concessions. That man was getting back in concessions the living wage of £60 a week for which they went on strike last winter. They wanted a living wage of £60 a week and were roundly condemned by the then Tory Opposition for being so greedy as to ask for that sum. The present Conservative Government, in May, gave £60 a week back in tax concessions to those at the top.

I do not know whether hon. Gentlemen on the Tory Benches move in the same circles as I do. They probably do not, but if they had talked to housewives and ordinary working people they would have found that those people object very much to the gross inequity of the Budget proposals. I think that there is a case for examining the proportion of tax collected by direct and indirect methods. There is a case to be argued that if one can give the taxpayer a greater margin of choice in how he pays his whack, one ought to examine it. I say no more than that, so long as we make sure that the direct tax system is fair and progressive right along the line, and that we ensure, at the other end, that we are taxing indirectly only inessentials. That immediately raises the question of what is essential and what is not.

The paper from the Treasury makes the point that this will enlarge the scope for further cuts in income tax later on. Therefore, an additional purpose of the VAT increase was to put taxes on the ordinary people who were not paying high rates of income tax in order to give tax benefits to those at the other end of the income scale. The document goes on to say that the increase in VAT" has the immediate effect of raising the retail price index by 3½ per cent. but VAT does not apply to necessities such as food, heating, lighting, house prices, rents and public transport, all of which are zero rated."

That is what the document states, but it fails to state that virtually all those commodities are being increased in price by other factors.

Of course food is zero rated, but the Minister of Agriculture, Fisheries and Food made an agreement in Luxembourg that put up precisely the food prices that the Government argue are not affected by VAT. They are not affected by the increased VAT, but they are affected by the Minister's sell-out in Luxembourg. Conservative Members may quote the butter subsidy at me, but that is a lot of nonsense. I hope that housewives will note that the 6p will not come off butter, that there will be no 6p a pound reduction. After allowing for the two devaluations of the green currency and the rest of the package that the Minister brought back, the overall effect on the retail price index will be an increase, in spite of the alleged 6p reduction for butter. The Consumers Association will carefully watch the price of butter, but I assure hon. Members that it will not drop by 6p a pound next week or the week after.

I normally read The Daily Telegraph—

Mr. Skeet

Hear, hear.

Mr. Hamilton

I like to see what the Tory Party leadership and readership are thinking. It is a well-known Tory rag. On 29 June it showed that the increased VAT had sent up the number of price increases recorded by The Grocer to more than 1,000 that week. More than half the 1,037 price increases were VAT impositions on confectionery, ice cream, chocolate biscuits, crisps, nuts, some milk products, pet foods and toilet and household items. Other price rises included honey, spices, sauces, meat extracts, breakfast cereals and cake mixes.

I then turned to The Daily Telegraph of 18 June and discovered a record fit for the Guinness Book of Records. I have never known one issue of The Daily Telegraph to contain five letters bitterly complaining about the wickedness and inequity of the VAT imposition. One was from a fellow who was self-employed. One said that VAT applied to the costs of funerals and that the Government not only refused to increase the death grant but were pushing up the cost of a funeral. One was from a schizophrenic patient talking about prescription charges, which are going up in addition to the VAT. One was from a woman working in an animal sanctuary. They all complained about the VAT increase.

However, only the day before those letters appeared that Tory Party hack and apologist Patrick Hutber, writing about the VAT increases in the Sunday Telegraph of 17 June, said It is of course absolute nonsense to say this increases the inflation rate". I wonder what he was talking about. The man must have taken leave of his senses. However, one would expect that from that gentleman. He went on to say something a little nearer the truth when, quoting from The Economist, he said that a full year of the new VAI rate will give him"— that is, the Chancellor— plenty back for further tax cuts next year. So the Government are taking the cash out of the pockets of ordinary working people to redistribute next year to the people at the top.

Worse than that, all kinds of traders are taking advantage of the Government's policy of abolishing the Price Commission and all forms of price control by putting up their prices far more than the VAT increase. Leaving Edinburgh airport at the weekend I came up against one of the biggest swindles in Britain—National Car Parks, which takes money out of people's pockets at the airports. Its charges were 10p for under an hour. Last Sunday the sum had increased to 13p, a rise of 30 per cent. For one to two hours the charge had been 22p. Now it is 27p, an increase of 20 per cent. or more. That is barefaced robbery, and it is happeninig all the time. The Secretary of State for Energy sits on his fat backside—well, on his backside—in the Department doing nothing and saying "That is my policy". The oil companies can do exactly as they like. They put up the oil prices, and VAT is 15 per cent. of what they charge. There is therefore a double fiddle going on with the energy and petrol charges. All working-class folk have to pay them. There is no element of choice there, because old folk must have heat.

This is all done in the name of competition. Competition, we are told, will solve all these problems. If the Government think that the imposition of VAT and of all the other price rises, including prescription charges, will help to modify the claims of the trade unions this winter, they had better think again. There will be an extremely violent reaction in the course of this winter to the impositions that are being made upon ordinary working people.

A recent independent estimate shows that in a few weeks the Government have taken £850 million out of the pockets of British housewives as a result of the agricultural deals in the Common Market. That is equal to £15 a head for every man, woman and child in the country. If the Government think that the people will sit back and accept that just to show that they are being patriotic and to get the country out of its difficulties, they had better think again. No working-class man, woman or child in this country will put up with that kind of imposition.

6 p.m.

Mr. R. B. Cant (Stoke-on-Trent, Central)

I had rather hoped that my hon. Friend the Member for Fife, Central (Mr. Hamilton) would get to the fourth point that he threatened to raise, namely the public sector borrowing requirement. However, I am not prepared at this stage to sit down so that he can resume his speech.

We have had an interesting discussion so far, although it has been enormously varied. I am only sorry that my hon. Friend the Member for Huddersfield, Fast (Mr. Sheerman) is not here, because I should have liked him to hear me add my congratulations to him on what I thought was an extraordinarily good maiden speech. He not only dealt with the particular problems of Huddersfield and the character of Mr. Mallalieu, but said much on regional policy with which I agree and to which I hope the Government will pay attention.

I want to depart from some of the details that have been mentioned concerning value added tax, although I am carefully considering the proposition that I should buy a bicycle, or perhaps join the club. We ought, I believe, to consider precisely why the Budget took this form, with increases in taxes of various kinds and the reduction of others. We ought to consider why the Budget has taken this form rather than having a rather different pattern.

In putting forward my own belief about it, I am not claiming to be saying anything original. There has been reference to this in the press on several occasions. I believe that the balance of the argument between value added tax and income tax reflects the views of the Prime Minister. The Chancellor of the Exchequer is really too gracious a gentleman to have wished to introduce a Budget of this sort, which has really appalled sections of the community which, one would have thought, would welcome it with open arms because of their political convictions.

I should like to say in parenthesis, as we are in Committee and can linger for quite a long time on our deliberations, that I was shocked to read in the Sunday Telegraph—the brother of the rag to which my hon. Friend the Member for Fife, Central referred—that the right hon. Lady is known in Whitehall as Attila the Hen. If civil servants are not making such statements, I hope that their unions will put out a disclaimer.

I think that the right hon. Lady was determined that there should be substantial reductions in income tax, come what may, and that the Chancellor of the Exchequer, having looked at the books—as he kept on telling us—had found that compensating action of some other kind would have to be taken. If it had been left to the Chancellor he would not, I think have raised value added tax to 15 per cent. I believe that he was told that the standard rate of income tax must be reduced from 33p to 30p, and he may have felt that his options had become somewhat circumscribed.

I should like to discuss the public sector borrowing requirement at some length, because it is of some importance. As I said earlier, I am sorry that my hon. Friend did not dilate on this theme. But of course, he can speak again. I still cannot become quite acclimatised to the fact that this is a Committee sitting in the Chamber of the House. If we accept that the classical doctrine of today is that the public sector borrowing requirement must be of a magnitude that will enable the Chancellor of the Echequer to impose some control on money supply, we have to take this seriously. Money supply, monetarism, is the fashion, and I am glad that it is. My hon. Friend will no doubt be shocked to hear me say that I made a speech in this House in, I think, 1968–69, and that the late Iain Macleod interrupted his dinner to come and hear me make it. It got me into much trouble because my local press reported that Iain Macleod had paid a great tribute to me because he thought that I was a very sensible man. Indeed, from that moment onwards he called me the hon. Member for Chicago.

Everyone—apart from a few eccentrics on the Labour Benches—is a monetarist now. My own feeling about monetarism is not one of passionate dedication, but I believe that money matters. In this context, I think that M3 and even M5 have some significance and that attention must be paid to them. If the Chancellor of the Exchequer felt that he had to hold the public sector borrowing requirement to, say, £8¼ billion, because this was the acceptable figure—not, of course, to Members of this House but to the young lads who write the brokers' pamphlets and circulars, and things of that sort—no doubt this presented something of a constraint to him.

I think that the Chancellor of the Exchequer cheated, because what he said, in effect, was "Let us have the sale of the century, let us sell off a billion pounds' worth of assets". It has not been done yet, but I have no doubt that the Chancellor is a man of conviction and determination and that he will do it—if the City agrees. There is a long queue of people wanting to place rights issues, and it may be that they cannot fit BP in at an appropriate moment. Having said "We will sell these assets", the Chancellor was able to exercise an extra degree of control by, in effect, cheating over the money supply.

I believe that every serious commentator on the Budget would say that what the Chancellor has really done is to give us a public sector borrowing requirement of £9¼ billion, which is in excess of what my right hon. Friend the Member for Leeds, East (Mr. Healey) had promised to do. That is the rub. If the right hon. Lady had given notice that the top rates of tax had to come down and that the standard rate had to be reduced by 3p, how was the Chancellor—even taking into account the fact that he intended to flog these valuable assets—to get the public borrowing requirement down to £8¼ billion?

One can lean on Government Departments, but I do not know whether this will be a serious business in terms of cash limits. One can lean on local authorities. I am a member of a local authority and I know what is taking place at present. Only time will tell how far one can take that course. We were in a situation in which the Chancellor simply had to get money from elsewhere. This terrible increase in VAT, up to 15 per cent., is the price that Britain is paying for the determination to get a PSBR of this size.

I shall not go into the implications for monetary policy or money supply, although it has been suggested that these are slightly horrific. If one reduces the money supply target to 11 per cent. and if one has inflation rates that are greatly in excess of those that one anticipated, real money supply figures become ridiculous. Therefore, this is somethting to which I hope the Chief Secretary, who is interested in these matters, will apply himself. Otherwise, the estimated negative growth in the economy of minus 1 per cent. may well become, as one forecast says, minus 4 per cent.

As one or two of my hon. Friends have said, we are now being ruled by a group of politicians who are consumed with a brand of ideology. [An Hon. Member: "Greed."] I would not say that. I would rather say "This brand of ideology". I do not use words such as "greed".

Mr. Robert Kilroy-Silk (Ormskirk)

Take "avarice".

Mr. Cant

Avarice, yes, but this is not precisely the point I am trying to make. I am merely saying that, whatever their inner motivation, Conservative Members are dedicated to certain principles, whether one describes those principles as market principles or in any other way, and that we are going ahead, come what may, in a way which worries me. I am not worried so much by the Chancellor. He is a reasonable man, but I think that he is under great pressure.

The Secretary of State for Industry, the right hon. Member for Leeds, North-East (Sir K. Joseph), really frightens me. I saw him on television looking at a shipyard, wearing his tin helmet. The yard manager was discussing the yard's future in very practical terms. He asked the Secretary of State what his policy was likely to be. The Secretary of State's eyes fell to the floor and he began grinding out these simple principles and platitudes just as though he were at a seminar at All Souls College once again. That might be all right, but it will not get the country far.

The implication in practical terms is quite serious. Not only do we have what has happened regarding the reduction of income tax and its implications for VAT, but the Chancellor had to take a step further and raise the rate of interest. He said "Having had to reduce these direct taxes on income by this amount, having clawed back a certain amount through VAT, I still have problems with the financing of the deficit." We remember the gasp that greeted that announcement and when he said that he proposed to increase the minimum lending rate to 14 per cent.

6.15 p.m.

My hon. Friend the Member for Fife Central said that he read The Daily Telegraph because it gave him an insight into Tory thinking. The Daily Telegraph is getting a lot of free publicity this afternoon. For the first time in my reading of it, I found that The Daily Telegraph even came out against the Government last Friday or Saturday, saying that increasing the MLR was the Tories' first big mistake. [An HON. MEMBER: "Poetic licence."] Perhaps it was trying to be loyal. You are putting me off.

This is the second consequence of the determination to reduce the Government's income by reducing direct taxes: first, VAT increasing costs; secondly, the MLR. It was a totally unnecessary gesture. But no doubt there are reasons for it. One does not want to upset civil servants, but I think that what happened was that they felt that they had so little control over the gilt-edged market and over these vast pension funds and insurance companies, and so litle control over what happens in the foreign exchange market, that they had better play safe. Lo and behold—

The Temporary Chairman (Sir Stephen McAdden)

Order. The hon. Gentleman has already accused me of putting him off. I have done nothing of the kind. It is his colleagues who have done that. The hon. Gentleman is going rather wide. He is almost making a Second Reading speech I hope that he will confine his remarks to the amendment.

Mr. Cant

I certainly accept that criticism, Sir Stephen. However, although the consequences of the shape that the Budget has taken have been quite broad, I shall concentrate on VAT.

I have always felt—this is just a piece of straightforward common sense—that if one is fighting a battle against inflation what one should not do is to add to inflation. How does one put out a fire? If one wishes to do so, does one do it by sprinkling paraffin on it? As my hon. Friends have said, how can one hope to persuade people to reduce their wage claims if one increases VAT in this draconian way? In our present circumstances, I suspect that the Government will begin to wonder whether they have taken the right step. As time goes on, without doubt—partly because of the increase in prices—wage earners will say "If this is what is happening, we want increased wages".

There is another aspect to this problem. When one redistributes taxes in this way, what one is doing is taking money out of the handbag and putting it into the wallet. I have the highest regard for my sex, in the sense that I think that all husbands are dedicated to the welfare of their wives and families and that all single men like to look after their mothers. If they see the cost of living rising, in all probability they will make some sort of adjustment, but it might be an almost irresistible temptation on the part of a number of wage or salary earners to say "I have the money and I am not prepared to finance the increase in my wife's and family's cost of living". From the point of view of simple psychology, I think that the increase in VAT is a disastrous move.

If on the other hand, one were to be persuaded that all the good things that the Chancellor said about reducing income tax—the new motivation to business men, incentives and so on—were to take place and Britain really got moving again, one could say "This increase in VAT was justified. It has been worth while". However, I think that one of the biggest pieces of mythology that I have encountered for a long time is the idea that, having stunned people with increases in VAT, one will suddenly motivate them by reducing their income tax and that somehow the really fundamental problems that face this country, such as the restructuring of British industry, will be solved.

This is a wide-ranging subject, and it is one to which we might wish to return. However, in conclusion, having listened to Budget speeches in this House for 14 years, I say that this one will prove—in particular through this one item, the increase in the rate of value added tax—to be one of the most disastrous. I hope that it will not be so, because this country could do with a period of stability and good industrial relations. As a consequence of the decision that has been taken by the Government, unless they respond to some of the amendments that have been put down we shall get a great deal of economic instability and social aggro, which we could well do without.

Mr. Robin F. Cook (Edinburgh, Central)

As my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Cant) said, we shall have a lengthy and wide-ranging debate on this amendment, which gives us a valuable opportunity to probe some of the central assumptions of the Budget of which this clause is an integral part. I am sure that my hon. Friend will understand that I mean it in all friendship when I say that for some of us it is, perhaps, easier to support this amendment and oppose the clause because we regard the tax to which it relates as being, in itself, fundamentally daft. That, of course, is exactly why we end up with so many anomalies and special cases such as those produced in the course of this debate.

This is a tax which does not start from the question "Which goods would it be sensible for us to tax?" This tax starts from the presumption that all goods will be subject to tax and only then asks the question "For which goods can we make such a compelling case that we can exempt them from tax?" That is why, time and again, subjected to this tax there are goods which, had we sat down and thought about it with a blank sheet of paper, we would never have dreamed of making subject to tax in the first place.

The hon. and learned Member for Solihull (Mr. Grieve) referred to letters raising, special cases which hon. Members receive every week. I had one two weeks ago from a small company in my constituency which manufactures organ pipes for churches. It is a small craft industry which sells to a single market. That market has a particularly low income and is therefore unable to afford high prices.

In that letter, the company made a general case against any VAT being applied to its industry and, in particular, indicated the disastrous impact of a 15 per cent. rate of VAT on its product. I took that matter up with the Treasury and I say to the Chief Secretary, whom I see on the Front Bench, that I was gratified for the speed with which I received a reply. The terms of that reply are worth sharing with the Committee. They do not explain why it is sane, sensible and rational that organ pipes should be subject to VAT and make a contribution to the economy through taxation. The reply states: There would also be real difficulty in granting special relief in one area such as pipe organs without giving rise to increased pressure from other groups who might claim to be equally deserving. In other words, pipe organs cannot be exempted because, if they were, there is such a wide range of other goods that are equally deserving, where it is equally daft to subject them to tax, where there would be an equal effect on a craft industry and where there would be an equal benefit to a rather poor market which cannot readily pay this tax into our national coffers. That is the reason why the Government cannot do it.

I was surprised when the hon. and learned Member for Solihull, for whom I have great respect, chose to place such great weight on the argument that if tax is transferred from income tax to indirect taxation, the range of choice is increased. That is absolute nonsense. The ordinary wage earner, who is also the ordinary consumer, can no more avoid this tax by choice than he can avoid paying income tax by so arranging his salary that it stays below a particular threshold level. That choice exists, but it is not one that any income earner would choose to exercise. Equally, no consumer—who is also the same income earner—will be able to avoid this tax by the way in which he spends his money.

Let us consider the products which are not zero rated. Let us consider those products which have this tax imposed upon them. They include a wide range of goods which I believe every member of this Committee will concede are necessities. They include clothing—not children's clothing, but all other types of clothing. They include house repairs, and I am bound to say, as an hon. Member who has spoken on many occasions about housing policy, that I cannot think of a more idiotic decision than choosing to tax repairs on housing when we are all very conscious of the need to maintain the present housing stock. Furniture and cookers will also be taxed.

Returning to the point made by the hon. and learned Member for Solihull about special cases, I received one such letter only this week. It referred to one particular product which is subject to this tax and which is an undeniable necessity. The matter raised with me by my constituent referred to sanitary towels, on which she will have to pay 15 per cent. tax as a result of the Budget. I do not think that any right hon. or hon. Member, even allowing for the biased sex distribution in the Committee, would be prepared to stand up and say that that product was not a necessity, or to take the point made by the hon. and learned Member for Solihull about special cases and suggest that my constituent, in any meaningful way, has a choice in the way that she distributes her income in order to avoid that tax.

The case for some of the special exemptions proposed in the amendments is made in the background notes to the Bill provided by the Treasury. I must confess that I could not understand the meaning of subsection (2). I think that any hon. Member not on the Front Bench who refers to subsection (2) will find that its meaning is not apparent to the uninstructed reader.

In the background notes, I find an explanation of subsection (2) that provides for the continued exemption from VAT of the insurance of pleasure craft. It also ensures that those fur garments for young children which previously were higher rated become standard rated. Such is my antipathy to this general tax that I do not begrudge the insurance industry its freedom from it. Nor would I begrudge the manufacturers of fur garments for children their exemption from this tax. But if we are to exempt that category of goods, the case for exemption of some of the greater necessities referred to in the amendments is overwhelming and compelling.

On a number of occasions the Government have said that although they will double the rate at which this tax is applied, and although it will result in doubling the proportion which most consumers pay in taxation through VAT, it will not have an inflationary effect, because there will be more pounds left in the pockets of those who go out to the shops to buy goods. I find that a very doubtful concept. I do not believe that there are many significant groups of wage earners who will fail to look at the impact of the RPI because they are told that they must look at their net take-home pay.

6.30 p.m.

If the Chief Secretary consulted his colleague the Leader of the House about what happened to him when he went before the 1922 Committee, I suspect he would discover that the arguments about the pay of hon. Members related not to their take-home pay but to the extent that it had fallen behind movements in the RPI. If hon. Members are to behave on that basis, it is not at all surprising that people outside will behave on a similar basis.

The fact is that this Budget will not put more pounds in the pocket of the average wage earner. It is quite apparent that if one deducts the uprating in the tax threshold from the increases that have been provided in this Budget, most wage earners will pay more in tax, through increased VAT, than they will gain from the reduction in direct taxation.

I should like to take up the point made by my hon. Friend the Member for Fife, Central (Mr. Hamilton), who said that it was at least arguable that direct taxation had become too heavy a burden and that there might be a case for switching some of that burden on to indirect taxation. I counsel my hon. Friend to be very careful about what exactly has been happening over the past two decades. There has not been a switch in the tax burden from indirect to direct taxation.

Indeed, if my hon. Friend consults the figures in the Library, he will find that 49 per cent. of the tax take comes from indirect taxation, which is exactly where it stood in 1959–20 years ago. There has been no shift in the burden from indirect to direct taxation. What has happened—and this is a factor which is frequently ignored when we consider taxation matters—is that there has been a shift in the burden of direct taxation among those who are paying direct taxation. It is a shift that has occurred for two reasons. First, corporation tax has been virtually abolished by the number of exemptions that we have passed in previous Finance Bills. Secondly, within the income tax sector the growth in allowances, particularly for mortgage payments and insurance premiums, has been so great that it now accounts for one-third of the total take in income tax.

Those two factors—the collapse of corporation tax and the growth in tax allowances—have resulted in so many ordinary income tax payers, who do not have any shares in companies subject to corporation tax or mortgage repayments or substantial insurance premiums, now finding that they have to pay increased income tax. Therefore, it would have been quite simple to meet the central objective that we were told was the aim of this Budget by tackling the problem of tax allowances, mortgage payments and insurance premiums and by tackling the exemption from corporation tax, which now spreads right through British business and industry.

Had the Government chosen to do that, they could have produced a Finance Bill in which there was indeed substantial relief from taxation for the ordinary wage earner, which was not recouped by even greater increases on indirect taxes, which will be regressive. We would then have had a Finance Bill that we could all have supported, and which we could have passed without the need for debates as long as this one will clearly be.

Mr. Kilroy-Silk

I first congratulate my hon. Friend the Member for Huddersfield, East (Mr. Sheerman) on his maiden speech. It is a long time since we were both students together at the London School of Economics. His eloquence—I think that I can say this quite freely in his absence—seems to have increased in the intervening period.

Like my hon. Friend the Member for West Lothian (Mr. Dalyell), I was particularly pleased with the gracious words that my hon. Friend had to say about his predecessor, "Curly" Mallalieu. Although I have not been in the House for as long as my hon. Friend the Member for West Lothian, I came to know and had a great deal of affection and respect for "Curly" as he was known. I therefore pay tribute to my hon. Friend the Member for Huddersfield, East for the gracious way in which he alluded to his predecessor.

Before turning to the specific matters relating to this series of amendments I should like to follow one of the points made by my hon. Friend the Member for Edinburgh, Central (Mr. Cook). He referred to the anomalies that occur in a tax such as VAT, and he referred specifically to the kinds of things that ought to be exempted from the tax but which are included in its wide net. He mentioned the fact that women's sanitary towels now attract a VAT rate of 15 per cent. I should like to endorse and support the points that he made. I hope that the Chief Secretary will refer to this, because I do not think that anyone can argue that sanitary towels are in any sense a luxury, or are not a burden, especially on large, working-class families, in the context of the age at which girls now mature. This is an important point to which the Chief Secretary ought to pay attention. To be fair, the Chief Secretary of the previous Government ought to have paid attention to it, but repeatedly he refused to do so in spite of numerous requests and delegations over the past five years. This is an important matter, and in justice the Government ought to do something about it.

Mr. Christopher Price (Lewisham, West)

Is my hon. Friend aware that the feeling on this matter is very widespread indeed? I was visited by a delegation last Saturday, and one mother put to me the problem of a single-parent family on social security, with three teenage girls between 12 and 15. She outlined the quite appalling financial burden that she had to bear as a single-parent mother because of this violent and vicious increase.

Mr. Kilroy-Silk

I entirely accept what my hon. Friend says. As he knows, I have had exactly the same representations. I happen to represent a constituency which has many large families. The same kind of problems and difficulties are encountered there. A tax on that kind of commodity is totally indefensible and cannot be justified.

However, I turn to what the hon. and learned Member for Solihull (Mr. Grieve) said. He seemed to be defending the underlying strategy behind the Budget and, indeed, the increase in VAT with which we are confronted today.

Mr. Grieve

rose—

Mr. Kilroy-Silk

I have not yet started on the hon. and learned Gentleman, and he refused to give way to me. He said that the switch from direct to indirect taxes would set people free and widen their freedom of choice. He is right. It does extend the freedom of the individual and widen the freedom of choice, but only for the rich, the wealthy and the already privileged and powerful. The hon. and learned Gentleman must surely know—the Chancellor has said it time and time again—that the whole burden of VAT and the Budget measures will have the effect of imposing a greater proportionate burden on the low-paid, the unemployed, the sick and pensioners in order to give massive tax handouts to the already rich and wealthy.

Mr. Grieve

I was not defending, but extolling, the policy of the Budget. Secondly, the number of people who will benefit from cuts in direct taxation is, as the hon. Gentleman surely knows, vast indeed, and it is nonsense to say that it is only the rich who will benefit.

Mr. Kilroy-Silk

It is the rich who benefit most. How can the hon. and learned Gentleman extol or defend a situation in which, as a result of the Budget, the chairman of one company will receive a tax handout of over £1,000 a week, and where the chairman of ICI will receive a tax handout of £400 a week, but where the vast majority of my constituents will get no tax relief because they are unemployed, pensioners, sick, disabled or low-paid? How can anyone on the Tory Benches defend a situation in which we are taking money from the most deprived, vulnerable and disadvantaged members of our community in order to give extra money to those who are powerful, rich and privileged?

The Temporary Chairman

I hope that the hon. Member will not insist on trying to persuade hon. Members on the Government Benches to make speeches on income tax reductions. The House is supposed to be discussing this particular form of tax.

Mr. Kilroy-Silk

We are in Committee, and we are talking about increases in value added tax. As part of the Budget strategy those increases are linked to income tax. With the deepest respect, Sir Stephen, one cannot talk of one without talking of the other. I should like to get hon. Members on the Government Benches to speak. I want to hear a definitive defence of the Budget. We have not had that from the Chancellor, the Chief Secretary or the Prime Minister. We have not heard it, because it is not there. The Budget cannot be defended.

These rash promises were made by the Tory Party during the election, but there is no way in which they can be defended. No one can defend the Chancellor's saying three times during his Budget Statement that direct taxation was being reduced so that people would have more money in their pockets to pay for the increases in value added tax. That is a laughable justification. The Chancellor repeated it three times in case we missed it the first time.

The vast majority of my constituents do not benefit from that promise of more money to pay for the increased value added tax. They are paying for the increased value added tax, and will continue to do so day in and day out, week in and week out, until the life of this Government comes to an end. Not one of those people will receive the income tax benefits that the rich friends of the Tory Party are receiving. It is incomprehensible and inconceivable that hon. Gentlemen opposite can extol—to use the word of the hon. and learned Member for Solihull—still less defend such a situation, and they have not put forward any defence.

The Government say that it does not matter, because the increase in VAT will not hurt the low-paid, pensioners, the disabled or unemployed, because they are not ordinary people. They say that those people do not buy all the things on which the increased value added tax will be imposed. They say that it does not affect food, clothing and transport. The whole argument is superficial. Should those people not buy electrical goods? Do they not have televisions? Are they not allowed radios, washing machines, refrigerators or irons? Conservative Members may say that they should not have these things or not have them repaired, but they do have them and they are not regarded as luxuries. They are necessary and essential. Those articles and others mentioned by my hon. Friend the Member for Edinburgh, Central form part of the cost of living of ordinary people who will not receive any benefit from the tax handouts.

The repercussions of the Budget go further than that. The Government are not only discriminating callously and brutally against those who cannot defend themselves or make convenient arrangements with accountants or financial advisers to escape the worst impost of the Budget. They are also increasing unemployment. They are raising the retail price index by 3 per cent. and pushing it up to an unexpected 17½ per cent. by the end of the year. In the context of nearly 1½ million unemployed the Government, through increased VAT, will raise that figure by hundreds of thousands. The Chief Secretary sits there calmly and complacently with the threat of over 2 million unemployed hanging over him.

That is the real tragedy of the Budget. We are already in a deflationary situation. It is intolerable and indefensible that so many people have to waste their lives, lose their self-respect and the opportunities that should be open to them because the economy cannot find a use for their abilities. The action of the Government in deliberately, wholeheartedly and callously adding to that burden cannot be defended.

6.45 p.m.

Areas such as my constituency will suffer considerably. The rate of unemployment on Merseyside is well above the national average, with about 120,000 people unemployed. There will be many more when we face the full effects of world recession. exacerbated by the rise in oil prices. In that context the Government should take all possible action to bring down the level of unemployment. They should certainly not increase it. Instead of trying to reduce unemployment, or at least maintain it at its present level, the Government's actions, taken deliberately and in full knowledge of their consequences, will have a calamitous effect on employment throughout the economy, and disproportionately so in the depressed areas of Merseyside and the North-West. In those areas the rate of unemployment over the next few months, and especially during the winter, is likely to be severe, yet the Government offer nothing but platitudes, notions of having to take strong medicine and the necessity for strong measures to deal with the problem.

The Government talk in a nebulous way about the need for an incentive economy and greater opportunities. For whom are the incentives? For whom are the opportunities? They are only for that privileged, select band that the Tory Party has always represented, favoured and been quick to repay with largess after winning an election. [Interruption.] The hon. Member for Yarmouth (Mr. Fell) frequently mutters inaudibly, indistinctly and ineffectively from a seated position. He knows full well that this Government have favoured, as have previous Tory Governments, the wealthy at the expense of the deprived and vulnerable. We are in the relaxed atmosphere of Committee and have the entire night before us. If the hon. Gentleman wishes to defend the position and prove me wrong, I shall give way. He knows full well that it is the low-paid, the unemployed, the sick and the pensioners who will bear the burden of the Government's economic strategy.

Those people are being forced to comply with higher rates, prices and value added tax in order to give a £400 a week handout to the chairman of ICI. Will that chairman work one jot harder as a result? Will the chairmen of other companies put in longer hours and will we have increased productivity? Of course not. The Chief Secretary and the Chancellor know that. It is a con trick to disguise their political dogma and class prejudice.

I knew that that statement would bring chortles from Tory Members. They are fond of throwing that allegation at us, and they enjoy referring to the Labour Party as a class party, but theirs is the party engaged in class warfare. Within two or three weeks of the election they laid the groundwork and set up the battle standards. They say that they do not want confrontation with the trade unions or ordinary working-class people, and I do not doubt their sincerity. The Prime Minister is already retreating from her previously entrenched position on trade union reform. The surest way to get into confrontation with ordinary working men and women, however, is to impose increased rates of value added tax.

I do not want a winter of discontent. I do not want my constituents to be involved in strikes and industrial action. I do not want to see the effect that that will have on them and their families. I do not want this situation for the country, and I am sure that no one else in this House wants it, yet that is what the Government have almost made a certainty by increasing VAT in this way. Every man who has the privilege of a job—and there are not many in my constituency who have that privilege—will say, in response to this, that if the Government deliberately jack up prices and raise the rate of inflation to 17 per cent. or more, he will ensure that he gets a comparable amount in his wage negotiations this year. That is a sensible and reasonable proposition. If workers did not do that they would not be looking after their own interests or those of their families.

The Government are doing what they said they would not do. They are guaranteeing a great deal of industrial strife in the coming winter and the months beyond. They are guaranteeing rip-roaring inflation as a result of the wage increases that will be conceded and the unemployment that will follow. I believe that we shall have a rate of inflation well in excess of the 20 per cent. that the Government expect. There can be no more disastrous commentary on the effects of the return of a Conservative Government and the Budget that they have presented to us.

Mr. Andrew F. Bennett (Stockport, North)

I do not want to follow the line of my hon. Friend the Member for Ormskirk (Mr. Kilroy-Silk). I shall concentrate on a much narrower point. I was disappointed that the amendment on bicycles standing in my name and that of my hon. Friend the Member for Edinburgh, Central (Mr. Cook) was not selected.

The central strategy of the Budget is designed to try to change human behaviour in this country, but it tries to change it in relation to a problem that does not exist. The Budget would have been much better had the Government turned their attention to the energy crisis and tried to change human behaviour in relation to the consumption of energy rather than concentrating on a change from direct to indirect taxation.

We use energy very wastefully in this country. Faced with all the pressures from international oil prices, the Government's response is merely to increase the price of petrol and ration it through hitting the pocket. In doing this, they are deliberately making sure that increased petrol and fuel prices will hit those people who are least able to protect themselves. It is the pensioner who uses his car occasionally and who has little alternative transport who will find that the increased petrol prices make his life that much more difficult.

Again, pensioners, if they use paraffin or oil, will find that their winter fuel costs will go up enormously and will find it difficult or complicated to change over to gas. There is a strong argument for the Government taking positive measures to encourage people to economise on the amount of fuel they consume and to encourage them to make economies in those areas that would cause them least difficulty and trouble.

Far too many fit, healthy people take their cars out to slip round to the shops less than a mile away. They would be far better off using a bicycle. It would be better for their health and there would be a considerable saving in fuel. This would be very worth while. Therefore, the Government should consider a positive policy to encourage people to substitute use of the bicycle for the car wherever possible. Yet on the whole they seem completely indifferent to encouraging cycling.

The Government should exempt the bicycle from the VAT increase or, even better, exempt it from VAT altogether. That measure would draw attention to the bicycle. It would be seen as a sensible alternative, good for health and economical in saving energy. I appeal to the Government to look at this carefully. Could they not introduce a reduced rate of VAT for bicycles, or exempt them altogether? Then they could continue with a positive campaign, encouraging people to use bicycles rather than cars, especially for short journeys. They could also encourage local authorities to make cycleways and take other steps to make the cycle much safer, particularly in urban areas.

The more people who substitute bicycles for cars, the more room there will be on the road. This will cut down the number of traffic jams and the amount of time that is wasted by people sitting in their cars hardly moving but still consuming valuable petrol. Therefore, I urge the Government to look sympathetically at the case for the bicycle and to reduce the VAT on it.

Mr. Alfred Dubs (Battersea, South)

I agree fully with the point raised by my hon. Friend the Member for Stockport, North (Mr. Bennett) although I do not wish to pursue his argument. I agree also with my hon. Friend the Member for Ormskirk (Mr. Kilroy-Silk) about the increased burden of VAT hitting the less-well-off members of society. Tonight, however, I wish to talk about other implications of the increase in VAT.

I am conscious that the world economy has taken a distinct turn for the worse, even since the time when the Budget was planned. I wonder whether some aspects of the Budget proposals would have seen the light of day had they been planned with present difficulties in mind. I know that Conservative Members are extremely nervous about the high-risk strategy in the Budget, of which the VAT measures form an important part.

In an answer from the Chancellor of the Exchequer recently, I was given figures for the all-items retail price index and the changes that have taken place in it over the past 15 years, compared with those for the RPI for spirits, wines, tobacco and oil. The various indices changed little between 1965 and 1970 but thereafter they diverged markedly. The all-items RPI increased the most between 1970 and May 1979 compared with that for the other categories I have mentioned. Spirits, wines and tobacco have lagged behind significantly. The VAT measures will not in any way affect this. There is a certain element of injustice in increasing VAT on basic necessities which less-well-off people must buy, and allowing other more discretionary items, such as wine and tobacco, to trail far behind.

I turn to an even more significant aspect of the proposed changes. We are aware that the poorer members of the community will have to bear a disproportionate share of the burden of the VAT increase. But this burden will be felt elsewhere—a fact that has not been mentioned widely. There will be an extra burden borne by the National Health Service, particularly the area health authorities and the local authorities. They will face a major burden because of the policy of cash limits, which will mean that there will have to be cuts in health spending of local authorities, brought about by the VAT increases. Will the Government explain how this reduction in NHS expenditure tallies with their promise to make no cuts in that service?

7 p.m.

I recently spoke to representatives of the Merton, Sutton and Wandsworth health authority and they were most concerned about the burden of VAT on their budget. In this year alone that authority, because of the increase in VAT, will have to pay an extra £750,000, and in a full year the sum would be £1 million. That is a hefty burden for the NHS to bear. It is a direct cut in the NHS. If the Government wish to continue with this increase in VAT, they should take steps to compensate the NHS for the extra burden.

It is surely unjust that many of these hard-pressed services will have to make further cuts to meet this extra burden. The point will apply equally to local authorities throughout the country. They have already been hit by cash limits and the plan to reduce the rate support grant settlement will now have to face these extra burdens. The effect of the increase in VAT will inflict damage throughout the country, and I hope that the Government will think again.

Mr. Buchan

The first and most obvious point to make in this discussion is that we are discussing a class Budget in structure, in its fiscal proposals and in its political intentions. The nature of this class Budget has quickly been realised by people throughout the country. No Government in recent years have shown a quicker decline in popularity than have the present Government. Hitherto Governments have been returned, they have enjoyed a honeymoon period and their popularity has increased. It is normally only after a period has elapsed that a decline in governmental popularity has been illustrated. However, the popularity of the present Government has had an immediate and sharp reverse.

This is a class Budget in another respect. The Tories, as they always do, underestimated the intelligence of the ordinary people. That is the final indictment of the Budget. A double analysis needs to be made of any Budget. The first thing that must be asked is whether the Budget is fair and, secondly, whether it will secure economic benefits for the country as a whole. On both grounds this Budget must be condemned.

The matter of fairness is of particular relevance on the subject of VAT. My hon. Friend the Member for Ormskirk (Mr. Kilroy-Silk) was rebuked for relating the increase in VAT to the cuts in direct taxation. He correctly said that the one was the corollary of the other. The unfairness develops when one examines that corollary. A direct tax, by definition, whatever other faults or merits it may have, is a fair tax. An indirect tax, by definition, is an unfair tax. An indirect tax takes a heavier proportion of the income of the poorest. This is a simple proposition. If one slaps a pound of indirect tax on to the purchase of a pair of shoes, it does not cost Sir Charles Forte or Mr. Thatcher very much as a proportion of income. However, it costs an old-age pensioner a considerable amount. Therefore, almost by definition there can be no defence from the other side of the argument on the basis of fairness.

We must then examine the effect on the economy. That effect has been based on the concept of incentive. It is said that if direct taxation is cut an incentive will be given. That is palpable nonsense. It was defended by the Prime Minister on the ground that the people voted for that concept. However, they did nothing of the kind. People voted to get some money for themselves, not so that they would then have to work harder to obtain that money. In fact, such an incentive does not work. What does it profit a man if he works harder for his 40 hours a week but at the end of the day has to pay more for his goods? Such an incentive cannot act as a carrot, though possibly it can be defended because it acts as a stick. In other words, putting up the price of goods compels people to work harder. That is not an incentive but a punishment.

That is another reason why this is a class Budget. In its economic effect it will be seen only as a punishment rather than an inducement. The value added tax is unfair. Furthermore, it will fail to secure the economic effect of releasing more resources for production because its basic economic effect is directly inflationary.

One can make an easy equation by balancing the figures. I shall not use the figures, because they have been employed often enough in the past few weeks. I tried to analyse the position during the election, and I concluded that people who earned over £8,000 a year would benefit from a direct tax cut and the increase in VAT. I was completely wrong. The figure is much closer to £10,000. A married man would need to earn over £10,000 a year before, in terms of fairness, he profited from direct tax cuts.

Mr. Grieve

Does the hon. Gentleman think that the 1,300,000 people who were taken out of this direct tax altogether have not benefited from the Budget?

Mr. Buchan

That is exactly what I am saying, because they have had to pay a great deal more on everything else. I am saying that far from their having been taken out of one form of taxation, they have been plunged into another. If the hon. and learned Gentleman does not know that, he does not know what the argument is about. That was the most stupid intervention I have heard for a very long time.

Mr. Cook

Surely my hon. Friend will agree that one of the effects of the Budget is not that 1,300,000 people have been taken out of tax but that as a result of increases in VAT a substantially greater number of those who are on pensions will fall into a form of tax as a result of this clause.

Mr. Buchan

My hon. Friend is right, and that deals with the hon. and learned Gentleman's point. That is yet another aspect of this class Budget.

The reason one picks a figure of about £10,000 relates partly to the VAT increase and partly to the concomitants of the Government's economic policy. The increase in MLR was not an accident. Its effect on house prices and mortgages immediately clobbers those who live in suburbia—the very people whom the Conservatives claim voted for them in the election. What a compensation for those voters. It is no wonder that the Government's popularity has decreased so rapidly. It was a dishonest and bogus prospectus, and the Government have been found out. Therefore, along with the increases in VAT and the minimum lending rate, to make quite sure, on one of the few commodities that is left out of taxation, food, the Tories have surrendered a 5 per cent. devaluation in food to the Common Market. That represents an increase in tax because it is related to Common Market taxation.

Indirect taxes are unfair, almost by definition, and the Budget has exemplified that. The increase from 8 per cent. to 15 per cent. on a range of necessary commodities is a gross imposition. We all remember the Prime Minister and other Conservative Members saying throughout the election that they had no intention of doubling VAT. That commitment has been honoured. Doubling would have meant 16 per cent. and they have pushed it up to 15 per cent. It was a dishonest and bogus statement.

The second main argument in favour of the Budget is the question of freedom of choice. This Government are ideological and I welcome that. There has been a poverty of political argument and discussion and over too many years economism has taken over the role of politics in our discussions. The Government represent a restoration of ideology from the Right. The challenge will be taken up from where it properly springs—the working class movement. It is nonsense to suggest that the cuts in direct taxation enhance freedom of choice. If I pay no or little tax but immediately lose money from my pocket because of necessary goods being taxed at a higher rate, that reduces my freedom in other directions.

It is nonsense to suggest that the cuts in direct tax put 80p in the pocket of a man who earns £5,000 per year and that it represents a vast enhancement of his freedom. That is refuted because that 80p worth of freedom is immediately subtratced when he pays for his necessities—health, repairs, equipment and so on—on which VAT is applicable. Some local health boards believe that the increases will cost them—1 million extra per year. If the cost of necessities such as health, education, clothing and shoes is to be increased, the amount of money released by the cuts in direct taxation with which that freedom is exercised is compressed. Therefore, there is less freedom as a result of the balance of unfairness.

It is nonsense to say that freedom in the twentieth century consists of freedom of the individual conscience only. Even if that argument were true in figures, it is wrong in theory. Freedom exists in having a proper health service, in proper education and in having a job. But there will be a clobbering on the price of necessities and the concomitant will be 2 million unemployed by the end of the year. There is no freedom for a man to choose if he is unemployed. What freedom exists for him to exercise choice? There is no choice. Let us have an end to the nonsensical statement that the Tory Government have brought back freedom. On the contrary, the freedom of choice has been diminished. That is the final reason why I believe that we are concerned with a class Budget.

I should like to give one example of unfairness in the higher paid sector. I note that my hon. Friend the Member for Edmonton (Mr. Graham) wishes me to speed up. One should always pay attention to one's Whips. Even Whips may be a freedom-enhancing body from time to time. I do not know why judges require a tax cut to give them an added incentive. Is it suggested that justice will be better meted out if the judges are given an incentive and have more money in their pockets? Is it suggested that more criminals will be paraded through the Old Bailey and that there will be a higher rate of productivity? That is nonsense. I do not know what sort of incentives judges require—surely not higher sentencing. However, their salaries were increased from £20,000 to £25,000 and, as a result of the changes in income tax, they will be able to keep £4,300 of that £5,000. That is considerably more than most people in my constituency earn.

I believe that the Chancellor of the Exchequer argued that the number of exemptions that existed in value added tax meant that the 15 per cent. tax was not regressive. He said that many of the commodities which came into the budget of old-age pensioners and lower paid workers were exempted. I have never seen a clearer definition of a Budget that is based upon a two nations concept than that statement. What a contemptuous treatment of the lifestyles of an old-age pensioner! The Government are 100 years behind the times. Disraeli pointed out the dangers of the two nation concept. It is a ghetto Budget and a two-nations Budget, and it must be rejected.

7.15 p.m.

The Tory Party has changed. At one time it was the party of paternalism. The landowner would send down a bowl of soup for the crofter.

Mr. Michael Welsh (Don Valley)

Today he would charge him 15 per cent.

Mr. Buchan

He would remove the lentils and the barley from the broth, too.

The sense of home-based patriotism and the connection with the force of wealth production has gone. When I first came to this place there were a number of Tory industrialists and producers. Those hon. Members have now largely disappeared. The Tory Party is now connected with money—cash, finance and the exchange of paper. There are tax accountants and lawyers who have associated with the assistance of developers.

Much as I might reject the paternalism of the previous Tory attitude, at least the industrialists and landowners had some relationship with those who worked for them. Now there is a disrelation, and the Tories are concerned with money and profits only. That is what the new Tory Party represents. There has been a change in the main incentive and drive of British capitalism, and the Tory Party accurately reflects that change. Therefore, it is content to accept that position, looking forward with complacency to the prospective increase in unemployment this year and a drop in production of 1 per cent. It is a complacency that we can do without.

If the wealth of the land and industry are not to be increased, the Tories will create wealth in another way—by the exchange of paper and cutting income tax at the higher level. The Budget epitomises the nature of the present Tory Party.

Another example of the Tory Party being divorced from its past history is that the 15 per cent. increase on VAT will be applied to the arts. At least the Tory landowners and industrialists were philanthropists. If it were not for them, there would be no theatres in half our cities and no public libraries. It would be odd to imagine the present Tory Party proclaiming the idea of installing books in city buildings that could be read free of charge. Thank goodness for the Victorian philanthropists.

Mr. Kilroy-Silk

My hon. Friend should not be surprised by the philistine nature of the present Government.

Surely it was demonstrated when the now Prime Minister, then Secretary of State for Education and Science, imposed charges for admission to museums and art galleries.

Mr. Buchan

Indeed, and I think that it was I who fought on the Opposition Front Bench against the imposition of those charges. The Government have done a similar thing in the Budget.

There are exemptions to VAT—for example, the insurance of power boats. All my constituents own power boats! But there is no exemption for the live theatre, which is the glory of England. I say "England" deliberately. The glory of Scotland is its song and music.

The Government do not care whether the theatre lives or dies. I appeal to their sense of greed, which they define as incentive, and remind them that the theatre brings money into Britain, because it attracts tourists. If I can appeal on no other basis to the philistines on the Conservative Benches, I appeal to them to exempt the live theatre from VAT, or, if not, to put the rate back to 8 per cent. instead of 15 per cent. for theatre tickets. They should at least try to salvage something from their philistine, stupid, reactionary and class Budget.

Mr. K. J. Woolmer (Batley and Morley)

One of the assumptions behind the cut in the standard rate of income tax seems to have been that it would provide a greater incentive to work. As I understood the argument, at least before the election, it was that a reduction in income tax would be made in such a way as to increase incentives.

As a number of my hon. Friends have said, we cannot look at the VAT proposals without examining what is intended on the income tax side. Before the election the emphasis on incentives was the promise of a cut in the rate of income tax. It made a great deal of sense to people, as I found in my constituency, to be told by the Conservatives that if the standard rate were cut that would give people more money in their pockets as a reward for working and would thus increase their incentive to work. What was not said so loudly before the election was that the reward for working the extra hour would depend not only on a cut in income tax but on what happened to VAT, that it would depend not only on the amount that one would keep after paying income tax but on what one could buy with the money left in one's pocket.

It is clear that the pre-election promises to increase incentives to work by cutting income tax have not materialised, because for the person paying the standard rate of income tax the reward for doing an extra hour's work is virtually nil. Anyone who does even a "back of the envelope" calculation sees that the real value of an extra hour's work to a person paying the standard rate remains virtually unchanged.

As I went round the factories in my constituency during the election campaign I found that many skilled workers, encouraged by the now Prime Minister, were grumbling about the disincentive to work overtime. They said that it was not worth doing because they paid so much tax on the extra earnings. The truth is that the real amount that they can buy is completely unchanged as a result of the Budget.

Since the election I have heard no mention of the impact on the incentive to skilled workers to work overtime. The reason is that there is no impact in the Budget. I raise the matter now because the clause virtually doubles VAT. It gives the complete lie to the proposal to increase incentives. Because of the VAT increase, the person paying the standard rate of income tax has no more incentive to do an extra hour's work than he had before the Buudget. If there is any incentive effect, which is a matter of dispute, the reward for working an extra hour goes to those earning more than £10,000 a year. I imagine that no skilled worker in the whole of my constituency will earn anywhere near £10,000 a year, even with overtime. Therefore, certainly for my constituency, and I imagine for constituencies throughout the country, this was not an incentive Budget. That is an important message to put across.

Mr. Cant

Would my hon. Friend be surprised to hear that at the other end of the spectrum a brilliant business man in my constituency receives an extra £28,000 a year as a consequence of the Budget, but has stated that it offers him no incentve to work harder, and he does not see the point?

Mr. Woolmer

My hon. Friend does not surprise me. The reality is that overtime is often worked by people whose hourly rate is so low they must work it if they are to take a reasonable wage home. That is often why the housewife goes out to work, certainly in my constituency. For those who have low earnings and are on the lower band of taxation, the Budget provides, on the very argument of the Government, a disincentive to work.

It is common knowledge that the person with a high income is already working as hard as he wants to. The extra money that he receives will go on more frills and the extra benefits of life. I wish such people good luck, but more of my constituents in the textile areas will find that, far from having the incentive of being better rewarded, they have a return to the old Tory incentive of having to work harder because they have been made worse off. They must work harder to afford furniture, clothes and other items. Therefore, it is not an incentive Budget, unless we believe in making people work harder by making them worse off.

The only basis on which we can assume that an increase in VAT from 8 per cent. to 15 per cent. can give an incentive to work harder is to assume that working people are impressed by 3p off the standard rate of income tax and that a working man will tell his wife how much more money he has in his pocket to spend, while being totally unaware of the effect of the increased VAT on his real living standards. We therefore have to assume a remarkable kind of person. It may surprise Conservative hon. Members to learn that people are not fools who are impressed by 3p off the standard rate and having more money in their pocket, while being totally unaware that prices have gone up. To believe that they are is nonsense.

In fact, over the past two or three weeks people have been outraged by what is happening to prices. The impact of the VAT increase has shocked the average working man and woman. By its timing, any incentive effect for which there might have been hope will be swamped by the expectation of inflation and high wage increases in the autumn. I do not relish the prospect of further industrial problems and further wage and price spirals.

I suppose that many hon. Members would regard me as a person of the moderate middle. I see a serious prospect of this increase in VAT and the deliberate pushing up of the inflation rate being remembered and becoming an integral part of the wage round this autumn. We should be fooling ourselves if we imagined that the wage earner on the shop floor and those at shop steward level will allow negotiations to proceed on the wild hope that this is a once-and-for-all increase, not to be made up through wage rises. That is pie in the sky. That may be regretted, but it is the truth of the matter.

Not only has this not been an incentive Budget, but the proposal that we are discussing has set in train a series of events on the shop floor that will cause serious problems this autumn. The benefits of 3p off the standard rate of income tax will be long forgotten, even by those who receive it, in the travail that we face. I do not relish making such a statement. It is a statement of industrial and trade union facts of life.

7.30 p.m.

I want to turn to the question of freedom of choice. I have argued that the Budget does not have an effect on incentive. I have waited to be told, but have not heard yet, although I may have missed it, how the Budget will make people better rewarded for overtime. That argument was heard among the skilled workers of Yorkshire and the Midlands, but it is now forgotten.

One area in which the Budget will take away choice is public services. A corollary to the proposals before the House is that public services will be cut back. In many areas the choice of nursery education, books in schools and libraries will be taken away. It cannot be argued that the proposal to put money in people's pockets through income tax cuts and by an increase in VAT provides a wider choice if some of those things for which people want to express a choice are not available and have been taken away as a consequence of the Budget strategy. The choice of clean and well-maintained streets is rapidly disappearing. The choice of having one's dustbin collected weekly or every 10 days will not be a choice for which the public can opt. I regret that that should be happening.

There is also the choice exercised by local and health authorities. Choice is exercised not simply by individuals but by important bodies acting on our behalf. Whereas individuals may have some income tax cuts to pay for the VAT, as the Chancellor so charmingly put it, local and health authorities will have less to spend at a time when they are called upon to pay more in VAT. Is not the irony that local authorities and health authorities will not even have more in their pockets to pay for VAT? They will have less. Those authorities and important bodies that help grace our lives will have less choice and less money.

What is the choice for the unemployed and those who pay no tax? It cannot seriously be argued that no extra money in the pocket and raising VAT is increasing the choice of those people. For the unemployed, those paying no income tax, and for local and health authorities, there will be no serious question of improved choice. Is not the irony that the big increases in VAT will be applied to the products on which people would like to exercise a choice if they had more money in their pockets? People who want to spend money on furniture and such-like products will find them pushed up in price. This is why there is already a backlash in the country. One has only to remember the rush to the shops when VAT was going up. When people have more money in their pockets, they know what they would like to buy. In the months ahead, as people get more money in their pockets, they will find that the products that they want to buy, with the choice given to them, have gone up the most. The real value of those increases will have been demolished.

I would like to return to the serious effect of higher VAT on prices. If we could all agree in the House that there is no incentive effect and no widening of choice in the Budget or even if we beg to disagree, I would suggest that, in the light of the worsening world oil situation and the worsening inflationary spiral, it is madness to double VAT at this time. Even if there had been a good preelection argument about incentives and freedom of choice, which I dispute, the Government must, surely, stand back and say that now is not the time to risk a 4 per cent. or 5 per cent. increase in inflation when people's living standards are already being depressed by the oil and world trade crisis.

If for no other reason, I hope that the Committee will accept the amendment to show people that we want to moderate the inflationary problem and make sure that we keep industrial and wage harmony in getting through an exceptionally difficult two or three years in terms of standard of living and inflation.

The Chief Secretary to the Treasury (Mr. John Biffen)

I should like to indicate that I shall seek to move amendment No. 47 when it is called and to say how pleasant it is to have a Finance Bill considered in Committee of the whole House when practically every amendment becomes a Second Reading debate. We have had a great tour d'horizon this afternoon.

I should like to make one or two comments on amendments Nos. 11 and 14 before reverting to the debate that has taken place from the Back Benches, and then turn to the substantive amendment No. 34 for what will pass as a peroration I deal first with amendment No. 11, which probes the mysteries of clause 1(2). The right hon. Member for Llanelli (Mr. Davies) confirmed that this was a probing amendment, and the hon. Member for Edinburgh, Central (Mr. Cook) expressed an interest in it. The amendment is designed to deal with insurance for certain types of boats and other craft and with children's clothing which is made of fur. But for this wise provision they would be zero rated.

As a consequence of the provision, there will be an exemption on the insurance of certain types of boats and other craft which will continue as before. Children's clothing which is made of fur, which otherwise would have been zero rated, is to be charged at the standard rate.

I must confess that if that was hatched at the Tokyo summit, the original Japanese would be clearer.

Another matter which caused anxiety was the problem at the Hull telephone office. That is dealt with in amendment No. 47. It is needed to meet the special problems of the Kingston upon Hull telephone service, the tariff structure and billing of which differ from those of the Post Office. Because of the constraints involved in Budget secrecy it was not practicable to consult Hull in detail about the provisions of clause 1(3).

It was understood that the provision would cover Hull's position. However, after careful study it was found that although the provision would cover adequately the majority of subscribers, some serious problems would remain if an amendment were not made. The Government amendment covers that.

About 16 Back Benchers took part in the debate. The Committee was in traditional form. It is appropriate to express my warm personal congratulations to the hon. Member for Huddersfield, East (Mr. Sheerman) on his remarkable maiden speech. It was received kindly on account of his references to "Curly" Mallalieu. I speak not only for myself but for a wider audience which may tactfully wish to remain quiet. The hon. Member's speech was splendid. It was lucid and sharply argued, downright controversial and exactly the type of speech that one would like to hear repeated word for word so that it could be subject to immediate cross-examination and scrutiny. The speech had all the signs of being up to the best House of Commons tradition. The hon. Member is in his place, and I repeat my warm personal congratulations.

My hon. Friend the Member for Bedford (Mr. Skeet) was worried about the problem of repairs. I suspect that he has a constituency matter in mind. We shall take note of his argument, but it falls within the ambit of amendment No. 20.

My hon. Friend the Member for New Forest (Mr. McNair-Wilson) was lucky to catch the Chairman's eye and so beat the hon. Member for Stockport, North (Mr. Bennett) to his subject—the desirability of exempting or zero rating bicycles. That topic will be discussed in later debates.

7.45 p.m.

I cannot hold out any hope to my hon. Friend the Member for New Forest or other hon. Members that special arrangements will be made either for zero rating or for reducing the rate of VAT on bicycles. That would infringe the basic principle under which this tax has been prosecuted under successive Governments.

The debate demonstrates another traditional aspect. Opposition Back Benchers make powerful arguments about why a central principle should be breached, the Opposition Front Benchers keep their heads down, and the Government of the day stoically reject the humanitarian arguments. I promise the hon. Member for Birmingham, Perry Barr (Mr. Rooker) that he will become a gamekeeper in less time than he thinks.

The hon. Member for York (Mr. Lyon) asked for a special concession for confectionery. I have to give him the same answer. Of course I am sensitive to the transitional problems experienced by several industries. There is certainly a marked elasticity of demand in the confectionery industry. All that I can offer is sympathy. I know that Treasury sympathy is a weak brew.

Mr. Alexander W. Lyon

The Chief Secretary does not have to give the same answer. When his Government introduced VAT they did not put VAT on the foods to which I referred. The Labour Government did that. He could argue that now a Conservative Government are back in office they can return to their original opinion.

Mr. Biffen

When I am trying to establish a degree of bipartisanship, under the benign eye of the hon. Member for Colne Valley (Mr. Wainwright), who always regretted that we did not have a more stable tax structure, I am in danger of inviting the wrath of two Yorkshire-men rather than one. I shall stick closely to my brief.

My hon. Friend the Member for Croydon, South (Mr. Clark) suggested that VAT could be used as a regulator tax to assist small businesses. I am sure that the Government will wish to consider the whole question of small businesses in the light of the Wilson report findings and to fashion a tax policy accordingly. Nothing that I can say this evening can anticipate what that tax policy will be.

VAT is the least suitable instrument for a regulatory device designed to produce certain desirable patterns of economic behaviour. I am glad to have the assent of the hon. Member for Batley and Morley (Mr. Woolmer), because I am sure that I shall need friends when adopting this line of argument.

The hon. Member for Colne Valley said that a 15 per cent. rate for VAT was not necessarily objectionable in itself. I was pleased to accept that. His only anxiety was that the Treasury had not adopted a holus-bolus, Liberal Party policy to sustain it. Perhaps that is where we shall end, but I have doubts.

The hon. Member made many interesting suggestions, but I am sure that he will agree that they should not make our task much easier. He will recognise that there is a genuine disagreement, but we believe that there is an overwhelming advantage in having a single positive rate of VAT and that the indirect rate of taxation must provide an increasing share of our total revenue.

I come to a more difficult hurdle to surmount, although I do not wish to underrate the hazards of the Liberal Party. I turn to the stony glare of the hon. Member for West Lothian (Mr. Dalyell), who asked me three questions. Two of them do not fall within the ambit of the Treasury. If any directives have to be issued to the oil companies about their methods of distribution, they will be issued under the Energy Act and be the responsibility of the Department of Energy. I shall ensure that the hon. Member's speech is drawn to the attention of my right hon. Friend the Secretary of State for Energy.

Provided that the retail trade is operating within the law there is no responsibility on the part of the Treasury for prices charged by a retail confectioner. The hon. Gentleman may wish to refer his comments to the Department of Trade as the matter is not within the bailiwick of the Treasury. The hon. Gentleman is right in believing that the use of the VAT system is a legitimate Treasury consideration when it has as its objective the promotion of either energy saving or recycling.

There are problems of definition of what constitutes recycling. I return to the point I adopted earlier in respect of my hon. Friend the Member for Croydon, South, when I said that I did not believe that VAT was the appropriate tax to deal with the sort of problems that the hon. Gentleman had in mind.

No doubt over the next few months there will be growing anxiety that all sectors of Government should address themselves to the central problem of energy conservation. Energy conservation is the most tangible short cut when trying to bring about a better balance in energy supply and demand. The Treasury, along with other Government Departments, will be deciding what action it thinks is appropriate. Value added tax is not likely to be used as a means of promoting that end.

Mr. Dalyell

I accept the Chief Secretary's reply to my first question and thank him for bringing the matter to the attention of the Department of Energy.

On the second point, he will recollect that my right hon. Friend the Member for Llanelli (Mr. Davies) and other speakers have brought to his attention the brutal fact that VAT increases are being used nationwide as an excuse for topping up prices. Surely that is a matter central to economic management and must be the concern of the Treasury.

On the third point, it is neither the time nor the occasion to argue about bicycles. Indeed, £5 or £10 on the price of a bicycle is not the basic fact that concerns us. What concerns many of us is that in the new situation—and we would have had the same attitude had the Labour Party been in government—a totem pole has to be established to show that there is a link between the fiscal system in general and energy saving. That is why we are so uptight about bicycles.

Mr. Biffen

I thank the hon. Gentleman. What better occasion could there be to display the totem pole than the Committee stage of the Finance Bill? It is a perfectly legitimate exchange, and the point has been made. No doubt it is a point to which the hon. Gentleman will return again and again, using all the facilities that Parliament provides. He is a proven campaigner. I have noted his point and have given him the defensive reply. I look forward to joining battle with him on future occasions.

My hon. and learned Friend the Member for Solihull (Mr. Grieve) intervened to suport the Budget, and that was most welcome. The hon. Member for Fife, Central (Mr. Hamilton), notwithstanding the benefit of The Daily Telegraph, concluded that it was a class Budget, and that it was regresive in its tax policy. That view was shared by the hon. Members for Ormskirk (Mr. Kilroy-Silk) and Renfrewshire, West (Mr. Buchan). No doubt we would be able to exchange league tables over the alleged progressiveness or regressiveness of the Budget until we had bored each other and left the British public bemused.

I do not believe that the clause embodying the VAT increase is regressive. The points made about the impact of the exemptions on the effect of VAT and the impact of the Budget on the poorer sections of the community are valid.

I was fascinated by a question put to the right hon. Member for Leeds, East (Mr. Healey) in the last Parliament by Mr. George Rodgers, who was then the hon. Member for Chorley.

Mr. J. W. Rooker (Birmingham, Perry Barr)

He was a good bloke.

Mr. Biffen

Mr. Rodgers put the sort of question that the hon. Member for Birmingham, Perry Barr would expect of him. The then Chancellor of the Exchequer replied: My hon. Friend will know that VAT, for instance, covers only 45 per cent. of all goods consumed by the average person and that the goods that are zero rated appear more frequently in the spending patterns in the poorer sections of the community".—[Official Report, 24 February 1979; Vol. 926, c. 1621.] Whatever arguments we may have about how regressive the Budget is, they are not most appropriately raised on the amendment before us.

The hon. Member for Stoke-on-Trent, Central (Mr. Cant) said that monetarism was the fashion and he was glad that it was. He said that many members of the Labour Party were, more or less, acquiescent monetarists. I was not certain about the truth of that remark and I certainly disagreed with the hon. Gentleman's assertion that the late Iain Macleod was an acquiescent monetarist.

I should like to discuss the hon. Gentleman's serious point that the present monetary targets depend upon a high level of revenue and that if any of the amendments are carried so that the Government are deprived of revenue the monetary strategy will be severely imperilled.

The hon. Member for Edinburgh, Central objected that VAT was a broadly based tax. That is true, and its breadth has been defended tenaciously by successive Governments. That has meant that articles of personal hygiene have not been zero rated despite many demands in the past.

The hon. Member for Battersea, South (Mr. Dubs) offered as an alternative to at least part of the VAT revenue an increase in the duties on alcohol and tobacco. That was a fair option to present, and I am sure that the Committee will not wish to close that option, but I must point out to the hon. Gentleman, in the context of our debate, that expenditure on those products is borne much more heavily by poorer sections of the community than is VAT. The hon. Gentleman looks a little uneasy. I should be prepared to debate the matter in detail, though I cannot do so today. Revenue raised from those products bears more regressively than does money raised from VAT, as currently constructed.

The hon. Member for Batley and Morley suggested that skilled workers would be little better off as a result of the Budget. My right hon. and learned Friend the Chancellor of the Exchequer has given the House his calculations, and I have no doubt that they will be debated again on later clauses. It must be a matter of judgment, but the Government's belief is that the skilled worker will certainly be better off, to a degree, as a result of the measures in the Budget.

Mr. Dubs

Will the Chief Secretary comment on the extra burden that area health authorities will have to bear as a result of the increase in VAT?

Mr. Biffen

That is a legitimate point. The costs of health authorities are bound to rise, to some degree, as a result of the increase in VAT. I cannot give a more specific answer, but if the hon. Gentleman tables a question I shall do my best to ensure that it is answered.

We are debating principally amendments Nos. 34, 1 and 10. The carrying of amendment No. 34 would deprive the Government of more than £4,000 million of revenue in a full year. Amendment No. 1 in the names of Liberal Members would if carried, deprive the Government of about £1,500 million in a full year, and amendment No. 10 would deprive the Government of around £3,000 million in a full year.

8 p.m.

The Government cannot accept any of these amendments. They would blow open completely the whole of the Budget strategy. The public sector borrowing requirement of £8,000 million needs every penny of revenue indicated in the Budget. The alternative would be a major alteration in the tax reforms suggested by my right hon. and learned Friend. That would take us back to the rather uninspired fiscal and monetary stance of the previous Government. It would, to all intents and purposes, completely undermine the policy of the Government and undo everything that the Chancellor sought to present on Budget day. I believe that that is exactly what is intended by the Opposition. I am not sure that after a thorough debate a great deal of knowledge would be added to our respective positions if I elaborated the position of the Treasury Bench in this respect. I believe that my right hon. and learned Friend is set on an adventurous course and that this is not the moment to turn back.

Mr. Denzil Davies

We have had a full debate, and I shall not detain the Committee for long, having already had one bite at this cherry. I add my congratulations to those offered to my hon. Friend the Member for Huddersfield, East (Mr. Sheerman) on what everyone has agreed was a marvellous and excellent maiden speech. I am sure that he will make substantial contributions to debates in future. As the Chief Secretary said, hon. Members will have opportunities in future to cross-examine him, but on the evidence of his speech today he is well able to look after himself.

The Chief Secretary said that amendment No. 34 would blow open the Budget strategy. He recognises that that is the whole object of the amendments. I am not surprised, therefore, that he has not been persuaded by our advocacy and oratory to accept them.

I am grateful to the Chief Secretary for explaining clause 2, though I am still not clear—I do not criticise him or ask for an answer—whether children's clothes made from fur, which used to be zero rated, are now rated at 15 per cent. We do not need to join issue on that, however. I am also grateful to see that the Revenue has finally got the clause about the Kingston upon Hull telephone service correct. I hope that this does not make the Bill a hybrid Bill. I would hate to be here dealing with the Bill until September or October. I have no doubt that that point has been checked by Treasury lawyers.

The debate has boiled down to the point we made that the Bill enables the Government, in the main, to provide tax cuts for those who are better off. The low paid, those who do not pay tax, and those earning average incomes will be paying the bulk of the increased VAT. At the end of the day the money goes not to them but to those who are much better off and who at the moment are enjoying a fairly high standard of living. That is the Budget strategy and it seems to be the philosophy of the Tory Party these days. Clearly we shall not convince them otherwise.

It is all very well for the Chief Secretary to say that 45 per cent. of expenditure falls within the zero rated area, but most of the remaining expenditure falls on items subject to the 15 per cent. VAT. Most of that is essential expenditure—we are not talking about luxuries. Very little of this expenditure is not essential. The debate has shown how many organisations, charities, theatres and such items as sanitary products and many essential goods and services are hit hard by VAT at 15 per cent.

That is why the Opposition argue that a 15 per cent. rate is too blunt an instrument. In my opinion, we can go no higher than 10 per cent. without being forced to decide whether we should have a multiplicity of rates. That must be done. It is done on the Continent, and I see no reason why we should not do it in this country.

The Conservative Party, in the general election campaign, said that it would not double VAT. I suppose an increase from 8 per cent. to 15 per cent. is not doubling VAT, but it is getting pretty close to it. That was one of the dishonest statements made during the Conservative Party's election campaign.

We say that there is no economic case for the increases in VAT. They are inflationary. In my opening speech I quoted the CBI. Now I do better and quote a paper which perhaps appeals even more to the Chief Secretary. It is called "The Free Nation". The Chief Secretary shakes his head, but this is the fortnightly paper of the National Association for Freedom. It even has a photograph of the Chief Secretary on the front page. He clearly does not like that, but I should have thought that this kind of document, representing freedom,

would appeal to the right hon. Gentleman. I quote: But the near doubling of value-added tax was a blunder conceptually as well as politically, for the majority of the population will spend most, or all, of their earnings. Taxes on spending are just as onerous as taxes on income. The experience of 1972–73"— I hate to raise it again in this Committee— ought to have warned the Chancellor not not expect reductions in income tax to cause corresponding reductions in wage claims. Even savers are not immune from taxes on spending since these taxes increase the price level and thus reduce the value of savings. I have quoted from the CBI and from the National Association for Freedom. That is a fairly wide spectrum, from Right to Left, of those who criticise this Budget and maintain that the VAT increase was a gamble. The Chief Secretary called it an inspiration. I prefer to use the word madness. It was a mad gamble with the British economy, and no doubt it will fail like all previous mad gambles by Tory Chancellors. Not only is there no economic case for these increases; there is no case in social justice for them. Perhaps that is an even greater condemnation of the Government, because the poor, the disabled, and those least well off will bear most of the burden. The better off will get the benefit.

For those reasons, I ask my right hon. and hon. Friends to support the amendment.

Question put, That the amendment be made:—

The Committee divided: Ayes 232, Noes 301.

Division No. 36]	AYES	[8.7 p.m.
Abse, Leo	Campbell-Savours, Dale	Davies, Ifor (Gower)
Adams, Allen	Canavan, Dennis	Davis, Clinton (Hackney Central)
Allaun, Frank	Carmichael, Neil	Davis, Terry (B'rm'ham, Stechford)
Anderson, Donald	Cartwright, John	Deakins, Eric
Archer, Rt Hon Peter	Clark, Dr David (South Shields)	Deer, Joseph (Leeds West)
Armstrong, Ernest	Cocks, Rt Hon Michael (Bristol S)	Dempsey, James
Ashton, Joe	Cohen, Stanley	Dewar, Donald
Atkinson, Norman (H'gay, Tott'ham)	Coleman, Donald	Dixon, Donald
Bagier, Gordon A. T.	Concannon, Rt Hon J. D.	Dobson, Frank
Barnett, Guy (Greenwich)	Conlan, Bernard	Dormand, J. D.
Barnett, Rt Hon Joel (Heywood)	Cook, Robin F.	Douglas, Dick
Bennett, Andrew (Stockport N)	Cowans, Harry	Douglas-Mann, Bruce
Bidwell, Sydney	Cox, Tom (Wandsworth, Tooting)	Dubs, Alfred
Booth, Rt Hon Albert	Craigen, J. M. (Glasgow, Maryhill)	Duffy, A. E. P.
Boothroyd, Miss Betty	Crowther, J. S.	Dunlop, John
Bradley, Tom	Cryer, Bob	Dunnett, Jack
Bray, Dr Jeremy	Cunliffe, Lawrence	Dunwoody, Mrs Gwyneth
Brown, Hugh D. (Provan)	Cunningham, George (Islington S)	Eastham, Ken
Brown, Robert C. (Newcastle W)	Cunningham, Dr John (Whitehaven)	Edwards, Robert (Wolv SE)
Brown, Ron (Edinburgh, Leith)	Dalyell, Tam	Ellis, Raymond (NE Derbyshire)
Buchan, Norman	Davidson, Arthur	Ellis, Tom (Wrexham)
Callaghan, Jim (Middleton & P)	Davies, Rt Hon Denzil (Llanelli)	Evans, Ioan (Aberdare)
Campbell, Ian	Davies, E. Hudson (Caerphilly)	Evans, John (Newton)
Ewing, Harry	McCartney, Hugh	Rowlands, Ted
Field, Frank	McDonald, Dr Oonagh	Ryman, John
Fitch, Alan	McElhone, Frank	Sandelson, Neville
Flannery, Martin	McKay, Allen (Penistone)	Sever, John
Fletcher, Ted (Darlington)	McKelvey, William	Sheerman, Barry
Ford, Ben	MacKenzie, Rt Hon Gregor	Sheldon, Rt Hon Robert (A'ton-U-L)
Forrester, John	Maclennan, Robert	Shore, Rt Hon Peter (Step and Pop)
Foster, Derek	McMehon, Andrew	Slikin, Rt Hon John (Deptford)
Foulkes, George	McMillan, Tom (Glasgow, Central)	Silkin, Rt Hon S. C. (Dulwich)
Fraser, John (Lambeth, Norwood)	McNally, Thomas	Silverman, Julius
Freeson, Rt Hon Reginald	McWilliam, John	Skinner, Dennis
Garrett, John (Norwich S)	Magee, Bryan	Smith, Rt Hon J. (North Lanarkshire)
George, Bruce	Marks, Kenneth	Snape, Peter
Gilbert, Rt Hon Dr John	Marshall, David (Gl'sgow, Shettles'n)	Soley, Clive
Ginsburg, David	Marshall, Dr Edmund (Goole)	Spearing, Nigel
Golding, John	Marshall, Jim (Leicester South)	Spriggs, Leslie
Gourlay, Harry	Martin, Michael (Gl'gow, Springb'rn)	Stewart, Rt Hon Donald (W Isles)
Hamilton, W. W. (Central Fife)	Mason, Rt Hon Roy	Stoddart, David
Hardy, Peter	Maxton, John	Stott, Roger
Harrison, Rt Hon Walter	Maynard, Miss Joan	Strang, Gavin
Hart, Rt Hon Judith	Meacher, Michael	Straw, Jack
Haynes, David	Mellish, Rt Hon Robert	Summerskill, Hon Dr Shirley
Healey, Rt Hon Denis	Mikardo, Ian	Taylor, Mrs Ann (Bolton West)
Heffer, Eric S.	Millan, Rt Hon Bruce	Thomas, Jeffrey (Abertillery)
Hogg, Norman (E Dunbartonshire)	Miller, Dr M. S. (East Kilbride)	Thomas, Mike (Newcastle East)
Home Robertson, John	Mitchell, Austin (Grimsby)	Thomas, Dr Roger (Carmarthen)
Homewood, William	Mitchell, R. C. (Soton, Itchen)	Thorne, Stan (Preston South)
Hooley, Frank	Molyneaux, James	Tilley, John
Horam, John	Morris, Rt Hon Alfred (Wythenshawe)	Torney, Tom
Howell, Rt Hon Denis (B'ham, Sm H)	Morris, Rt Hon Charles (Openshaw)	Urwin, Rt Hon Tom
Hughes, Mark (Durham)	Morton, George	Walker, Harold (Doncaster)
Hughes, Robert (Aberdeen North)	Moyle, Rt Hon Roland	Watkins, David
Hughes, Roy (Newport)	Newens, Stanley	Weetch, Ken
Janner, Hon Greville	Oakes, Gordon	Wellbeloved, James
Jay, Rt Hon Douglas	O'Halloran, Michael	Welsh, Michael
John, Brynmor	O'Neill, Martin	White, Frank R. (Bury & Radcliffe)
Johnson, James (Hull West)	Orme, Rt Hon Stanley	White, James (Glasgow, Pollok)
Johnson, Walter (Derby South)	Owen, Rt Hon Dr David	Whitehead, Phillip
Jones, Alec (Rhondda)	Palmer, Arthur	Whitlock, William
Jones, Barry (East Flint)	Park, George	Wigley, Dafydd
Jones, Dan (Burnley)	Parker, John	Willey, Rt Hon Frederick
Kaufman, Rt Hon Gerald	Pendry, Tom	Williams, Rt Hon Alan (Swansea W)
Kerr, Russell	Powell, Rt Hon J. Enoch (S Down)	Williams, Sir Thomas (Warrington)
Kilfedder, James A.	Powell, Raymond (Ogmore)	Wilson, Gordon (Dundee East)
Kilroy-Silk, Robert	Prescott, John	Wilson, Rt Hon Sir Harold (Huyton)
Kinnock, Neil	Race, Reg	Wilson, William (Coventry SE)
Lamborn, Harry	Radice, Giles	Winnick, David
Lamond, James	Richardson, Miss Jo	Woolmer, Kenneth
Leadbitter, Ted	Roberts, Ernest (Hackney North)	Wrigglesworth, Ian
Leighton, Ronald	Roberts, Gwilym (Cannock)	Wright, Miss Sheila
Lestor, Miss Joan (Eton & Slough)	Robertson, George	Young, David (Bolton East)
Lewis, Ron (Carlisle)	Rodgers, Rt Hon William
Lofthouse, Geoffrey	Rooker, J. W.	TELLERS FOR THE AYES:
Lyon, Alexander (York)	Roper, John	Mr. James Hamilton and
Lyons, Edward (Bradford West)	Ross, Ernest (Dundee West)	Mr. Ted Graham.
Mabon, Rt Hon Dr J. Dickson	Ross, Wm. (Londonderry)
NOES
Adley, Robert	Body, Richard	Chapman, Sydney
Aitken, Jonathan	Bonsor, Sir Nicholas	Churchill, W. S.
Alexander, Richard	Boscawen, Hon Robert	Clark, Hon Alan (Plymouth, Sutton)
Alison, Michael	Bottomley, Peter (Woolwich West)	Clark, William (Croydon South)
Ancram, Michael	Bowden, Andrew	Clarke, Kenneth (Rushcliffe)
Arnold, Tom	Bright, Graham	Clegg, Walter
Aspinwall, Jack	Brinton, Timothy	Cockeram, Eric
Atkins, Robert (Preston North)	Brittan, Leon	Colvin, Michael
Atkinson, David (B'mouth, East)	Brocklebank-Fowler, Christopher	Cope, John
Baker, Kenneth (St. Marylebone)	Brooke, Hon Peter	Cormack, Patrick
Baker, Nicholas (North Dorset)	Brotherton, Michael	Corrie, John
Banks, Robert	Brown, Michael (Brigg & Sc'thorpe)	Costain, A. P.
Beaumont-Dark, Anthony	Browne, John (Winchester)	Cranborne, Viscount
Beith, A. J.	Bruce-Gardyne, John	Critchley, Julian
Bell, Ronald	Buchanan-Smith, Hon Alick	Crouch, David
Bendall, Vivian	Buck, Antony	Dean, Paul (North Somerset)
Bennett, Sir Frederic (Torbay)	Budges, Nick	Dickens, Geoffrey
Benyon, Thomas (Abingdon)	Bulmer, Esmond	Dodsworth, Geoffrey
Benyon, W. (Buckingham)	Burden, F. A.	Dorrell, Stephen
Berry, Hon Anthony	Butcher, John	Dover, Denshore
Best, Keith	Butler, Hon Adam	Dunn, Robert (Dartford)
Bevan, David Gilroy	Cadbury, Jocelyn	Durant, Tony
Biffen, Rt Hon John	Carlisle, John (Luton West)	Dykes, Hugh
Biggs-Davison, John	Carlisle, Kenneth (Lincoln)	Eden, Rt Hon Sir John
Blackburn, John	Carlisle, Rt Hon Mark (Runcorn)	Edwards, Rt Hon N. (Pembroke)
Blaker, Peter	Chalker, Mrs. Lynda	Egger, Timothy

Emery, Peter	Lee, John	Ridsdale, Julian
Eyre, Reginald	Le Merchant, Spencer	Rifkind, Malcolm
Fairbairn, Nicholas	Lennox-Boyd, Hon Mark	Roberts, Michael (Cardiff NW)
Faith, Mrs Sheila	Lester, Jim (Beeston)	Roberts, Wyn (Conway)
Farr, John	Lewis, Kenneth (Rutland)	Ross, Stephen (Isle of Wight)
Fell, Anthony	Lloyd, Ian (Havant & Waterloo)	Rossi, Hugh
Fenner, Mrs Peggy	Lloyd, Peter (Fareham)	Rost, Peter
Finsberg, Geoffrey	Loveridge, John	Royle, Sir Anthony
Fisher, Sir Nigel	Luce, Richard	Sainsbury, Hon Timothy
Fletcher, Alexander (Edinburgh N)	Lyell, Nicholas	Scott, Nicholas
Fletcher-Cooke, Charles	McCrindle, Robert	Shaw, Michael (Scarborough)
Fookes, Miss Janet	Macfarlane, Neil	Shelton, William (Streatham)
Forman, Nigel	MacGregor, John	Shepherd, Colin (Hereford)
Fowler, Rt Hon Norman	Mackay, John (Argyll)	Shepherd, Richard (Aldridge-Br'hills)
Fox, Marcus	Macmillan, Rt Hon M. (Farnham)	Shersby, Michael
Fraser, Peter (South Angus)	McNair-Wilson, Michael (Newbury)	Silvester, Fred
Fry, Peter	McNair-Wilson, Patrick (New Forest)	Sims, Roger
Galbraith, Hon T. G. D.	McQuarrie, Albert	Skeet, T. H. H.
Gardiner, George (Reigate)	Madel, David	Speller, Tony
Gardner, Edward (South Fylde)	Major, John	Spicer, Jim (West Dorset)
Garel-Jones, Tristan	Marlow, Anthony	Spicer, Michael (S Worcestershire)
Glyn, Dr Alan	Marshall, Michael (Arundel)	Sproat, Ian
Goodhart, Philip	Marten, Neil (Banbury)	Squire, Robin
Goodlad, Alastair	Mates, Michael	Stainton, Keith
Gorst, John	Mather, Carol	Stanbrook, Ivor
Gower, Sir Raymond	Maude, Rt Hon Angus	Stanley, John
Grant, Anthony (Harrow C)	Mawby, Ray	Steel, Rt Hon David
Gray, Hamish	Mawhinney, Dr Brian	Steen, Anthony
Grieve, Percy	Maxwell-Hyslop, Robin	Stevens, Martin
Griffiths, Eldon (Bury St Edmunds)	Mayhew, Patrick	Stewart, Ian (Hitchin)
Griffiths, Peter (Portsmouth N)	Mellor, David	Stewart, John (East Renfrewshire)
Grist, Ian	Meyer, Sir Anthony	Stokes, John
Grylls, Michael	Miller, Hal (Bromsgrove & Redditch)	Stradling Thomas, J.
Gummer, John Selwyn	Mills, Iain (Meriden)	Tapsell, Peter
Hamilton, Hon Archie (Eps'm&Ew'll)	Mills, Peter (West Devon)	Taylor, Robert (Croydon KW)
Hamilton, Michael (Salisbury)	Miscampbell, Norman	Tebbit, Norman
Hampson, Dr Keith	Mitchell, David (Basingstoke)	Temple-Morris, Peter
Hannam, John	Monro, Hector	Thomas, Rt Hon Peter (Hendon S)
Haselhurst, Alan	Montgomery, Fergus	Thompson, Donald
Havers, Rt Hon Sir Michael	Morgan, Geraint	Thorne, Neil (Ilford South)
Hawkins, Paul	Morris, Michael (Northampton, Sth)	Thornton, George
Hawksley, Warren	Morrison, Hon Charles (Devizes)	Townend, John (Bridlington)
Hayhoe, Barney	Morrison, Hon Peter (City of Chester)	Townsend, Cyril D. (Bexleyheath)
Heddle, John	Mudd, David	Trippier, David
Henderson, Barry	Murphy, Christopher	Trotter, Neville
Hicks, Robert	Myles, David	van Straubenzee, W. R.
Higgins, Terence L.	Neale, Gerard	Vaughan, Dr Gerard
Hill, James	Normanton, Tom	Viggers, Peter
Hogg, Hon Douglas (Grantham)	Nott, Rt Hon John	Waddington, David
Holland, Philip (Carlton)	Oppenheim, Rt Hon Mrs Sally	Wainwright, Richard (Cohie Valley)
Hooson, Tom	Osborn, John	Wakeham, John
Hordern, Peter	Page, John (Harrow, West)	Waldegrave, Hon William
		Walker, Rt Hon Peter (Worcester)
Howe, Rt Hon Sir Geoffrey	Page, Rt Hon R Graham (Crosby)	Walker-Smith, Rt Hon Sir Derek
Howell, Ralph (North Norfolk)	Parkinson, Cecil	Wall, Patrick
Howells, Geraint	Parris, Matthew	Waller, Gary
Hunt, David (Wirral)	Patten, Christopher (Bath)	Walters, Dennis
Irving, Charles (Cheltenham)	Patten, John (Oxford)	Ward, John
Jenkin, Rt Hon Patrick	Pattie, Geoffrey	Watson, John
Jessel, Toby	Pawsey, James	Wells, John (Maidstone)
Johnson Smith, Geoffrey	Penhaligon, David	Wells, P. Bowen (Hert'rd&Stev'nage)
Johnston, Russell (Inverness)	Percival, Sir Ian	Wheeler, John
Jopling, Rt Hon Michael	Pink, R. Bonner	Whitelaw, Rt Hon William
Joseph, Rt Hon Sir Keith	Pollock, Alexander	Whitney, Raymond
Kaberry, Sir Donald	Porter, George	Wickenden, Keith
Kellett-Bowman, Mrs Elaine	Price, David (Eastleigh)	Wiggin, Jerry
Kershaw, Anthony	Prior, Rt Hon James	Wilkinson, John
Kimball, Marcus	Proctor, K. Harvey	Williams, Delwyn (Montgomery)
King, Rt Hon Tom	Raison, Timothy	Winterton, Nicholas
Kitson, Sir Timothy	Rathbone, Tim	Wolfson, Mark
Knox, David	Rees, Peter (Dover and Deal)	Young, Sir George (Acton)
Lamont, Norman	Rees-Davies, W. R.	Younger, Rt Hon George
Lang, Ian	Renton, Tim
Langford-Holt, Sir John	Rhodes James, Robert	TELLERS FOR THE NOES:
Latham, Michael	Rhys Williams, Sir Brandon	Lord James Douglas-Hamilton and
Lawrence Ivan	Ridley, Hon Nicholas	Mr. Tony Newton.
Lawson, Nigel

Question accordingly negatived.

Amendment proposed: No. 1, in page 1, line 21, leave out 'fifteen per cent' and insert 'twelve-and-a-half per cent'.—[Mr. Richard Wainwright.]

Question put, that the amendment be made:—

The Committee divided: Ayes 17, Noes 276.

Division No.37]	AYES	8.21 p.m.
Canavan, Dennis	Lamond, James	Steel, Rt Hon David
Clark, David (South Shields)	Mitchell, Austin (Grimsby)	Wainwright, Richard (Colne Valley)
Evans, Ioan (Aberdare)	Penhaligon, David	Wigley, Dafydd
Fitch, Alan	Powell, Raymond (Ogmore)
Hamilton, W. W. (Central Fife)	Roberts, Gwilym (Cannock)	TELLERS FOR THE AYES:
Howells, Geraint	Ross, Stephen (Isle of Wight)	Mr. A. J. Beith and
Kilfedder, James A.	Skinner Dennis	Mr. Russell Johnson.
NOES
Adley, Robert	Dunn, Robert (Dartford)	Kitson, Sir Timothy
Aitken, Jonathan	Durant, Tony	Knox, David
Alexander, Richard	Dykes, Hugh	Lamont, Norman
Alison, Michael	Eden, Rt Hon Sir John	Lang, fan
Ancram, Michael	Edwards, Rt Hon N. (Pembroke)	Langford-Holt, Sir John
Arnold, Tom	Eggar, Timothy	Latham, Michael
Aspinwall, Jack	Emery, Peter	Lawrence Ivan
Atkins, Robert (Preston North)	Eyre, Reginald	Lawson, Nigel
Atkinson, David (B'mouth, East)	Fairbairn, Nicholas	Lee, John
Baker, Kenneth (St. Marylebone)	Faith, Mrs Sheila	Le Marchant, Spencer
Baker, Nicholas (North Dorset)	Farr, John	Lennox-Boyd, Hon Mark
Banks, Robert	Fell, Anthony	Lester, Jim (Beeston)
Beaumont-Dark, Anthony	Fenner, Mrs Peggy	Lewis, Kenneth (Rutland)
Bell, Ronald	Finsberg, Geoffrey	Lloyd, Ian (Havant & Waterloo)
Bendell, Vivian	Fisher, Sir Nigel	Lloyd, Peter (Fareham)
Bennett, Sir Frederic (Torbay)	Fletcher, Alexander (Edinburgh N)	Loveridge, John
Benyon, Thomas (Abingdon)	Fletcher-Cooke, Charles	Luce, Richard
Benyon, W. (Buckingham)	Fookes, Miss Janet	Lyell, Nicholas
Berry, Hon Anthony	Forman, Nigel	McCrindle, Robert
Best, Keith	Fowler, Rt Hon Norman	Macfarlane, Neil
Bevan, David Gilroy	Fraser, Peter (South Angus)	MacGregor, John
Biffen, Rt Hon John	Fry, Peter	Mackay, John (Argyll)
Blackburn, John	Galbraith, Hon T. G. D.	Macmillan, Rt Hon M. (Farnham)
Blaker, Peter	Gardiner, George (Reigate)	McNair-Wilson, Michael (Newbury)
Bonsor, Sir Nicholas	Gardner, Edward (South Fylde)	McQuarrie, Albert
Boscawen, Hon Robert	Garel-Jones, Tristan	Madel, David
Bottomley, Peter (Woolwich West)	Glyn, Dr Alan	Major, John
Bowden, Andrew	Goodhart, Philip	Marlow, Anthony
Bright, Graham	Gorst, John	Marshall, Michael (Arundel)
Brinton, Timothy	Gower, Sir Raymond	Marten, Neil (Banbury)
Brittan, Leon	Grant, Anthony (Harrow C)	Mates, Michael
Brooke, Hon Peter	Gray, Hamish	Mather, Carol
Brotherton, Michael	Grieve, Percy	Maude, Rt Hon Angus
Brown, Michael (Brigg & Sc'thorpe)	Griffiths, Eldon (Bury St Edmunds)	Mawby, Ray
Browne, John (Winchester)	Griffiths, Peter (Portsmouth N)	Mawhinney, Dr Brian
Bruce-Gardyne, John	Grist, Ian	Maxwell-Hyslop, Robin
Buchanan-Smith, Hon Alick	Grylls, Michael	Mayhew, Patrick
Buck, Antony	Gummer, John Selwyn	Mellor, David
Budgen, Nick	Hamilton, Hon Archie (Eps'm & Ew'll)	Meyer, Sir Anthony
Bulmer, Esmond	Hamilton, Michael (Salisbury)	Miller, Hal (Bromsgrove & Redditch)
Burden, F. A.	Hannam, John	Mills, Iain (Meriden)
Butcher, John	Haselhurst, Alan	Mills, Peter (West Devon)
Butler, Hon Adam	Havers, Rt Hon Sir Michael	Miscampbell, Norman
Cadbury, Jocelyn	Hawkins, Paul	Mitchell, David (Basingstoke)
Carlisle, John (Luton West)	Hawksley, Warren	Monro, Hector
Carlisle, Kenneth (Lincoln)	Heddle, John	Montgomery, Fergus
Carlisle, Rt Hon Mark (Runcorn)	Henderson, Barry	Morgan, Geraint
Chalker, Mrs. Lynda	Hicks, Robert	Morris, Michael (Northampton, Sth)
Chapman, Sydney	Higgins, Terence L.	Morrison, Hon Charles (Devizes)
Churchill, W. S.	Hill, James	Morrison, Hon Peter (City of Chester)
Clark, Hon Alan (Plymouth, Sutton)
Clark, William (Croydon South)	Hogg, Hon Douglas (Grantham)	Mudd, David
Clarke, Kenneth (Rushcliffe)	Holland, Philip (Carlton)	Murphy, Christopher
Clegg, Walter	Hooson, Tom	Myles, David
Cockeram, Eric	Hordern, Peter	Neale, Gerard
Colvin, Michael	Howe, Rt Hon Sir Geoffrey	Normanton, Tom
Cope, John	Howell, Ralph (North Norfolk)	Nott, Rt Hon John
Cormack, Patrick	Hunt, David (Wirral)	Oppenheim, Rt Hon Mrs Sally
Corrie, John	Irving, Charles (Cheltenham)	Osborn, John
Costain, A. P.	Jenkin, Rt Hon Patrick	Page, John (Harrow, West)
Cranborne, Viscount	Jessel, Toby	Page, Rt Hon R Graham (Crosby)
Critchley, Julian	Jopling, Rt Hon Michael	Parkinson, Cecil
Dean Paul (North Somerset)	Joseph, Rt Hon Sir Keith	Parris, Matthew
Dickens, Geoffrey	Kaberry, Sir Donald	Patten, Christopher (Bath)
Dodsworth, Geoffrey	Kellett-Bowman, Mrs Elaine	Pattie, Geoffrey
Dorrell, Stephen	Kershaw, Anthony	Pawsey, James
Dover, Denshore	Kimball, Marcus	Pink, R. Bonner
Pollock, Alexander	Spicer, Michael (S Worcestershire)	Waddington, David
Porter, George	Sproat, Ian	Wakeham, John
Price, David (Eastleigh)	Squire, Robin	Waidegrave, Hon William
Proctor, K. Harvey	Stainton, Keith	Walker, Rt Hon Peter (Worcester)
Raison, Timothy	Stanbrook, Ivor	Walker-Smith, Rt Hon Sir Derek
Rathbone, Tim	Stanley, John	Wall, Patrick
Rees, Peter (Dover and Deal)	Steen, Anthony	Waller, Gary
Rees-Davies, W. R.	Stevens, Martin	Walters, Dennis
Renton, Tim	Stewart, Ian (Hitchin)	Ward, John
Rhodes James, Robert	Stewart, John (East Renfrewshire)	Watson, John
Rhys Williams, Sir Brandon	Stokes John	Wells, John (Maidstone)
Ridsdale, Julian	Stradling Thomas, J.	Wells, P. Bowen (Hert'rd&Stev'nage)
Rifkind, Malcolm	Tapseil, Peter	Wheeler, John
Roberts, Michael (Cardiff NW)	Taylor, Robert (Croydon NW)	Whitehead, Phillip
Roberts, Wyn (Conway)	Tebbit, Norman	Whitney, Raymond
Rossi, Hugh	Temple-Morris, Peter	Wickenden, Keith
Rost, Peter	Thomas, Rt Hon Peter (Hendon S)	Wiggin, Jerry
Sainsbury, Hon Timothy	Thompson, Donald	Wilkinson, John
Shaw, Michael (Scarborough)	Thorne, Neil (Ilford South)	Williams, Delwyn (Montgomery)
Shelton, William (Streatham)	Thornton, George	Winterton, Nicholas
Shepherd, Colin (Hereford)	Townend, John (Bridlington)	Wolfson, Mark
Shepherd, Richard (Aldridge-Br'hills)	Townsend, Cyril D. (Bexleyheath)	Young, Sir George (Acton)
Sheraby, Michael	Trippier, David	Younger, Rt Hon George
Silvester, Fred	Trotter, Neville
Sims, Roger	van Straubenzee, W. R.	TELLERS FOR THE NOES:
Skeet, T. H. H.	Vaughan, Dr Gerard	Lord James Douglas-Hamilton and
Speller, Tony	Viggers, Peter	Mr. Tony Newton.

Question accordingly negatived.

Amendment made: No. 47, in page 2, line 9, leave out from 'which' to end of line 11 and insert—

1. '(a) the Post Office issue a tax invoice which includes a rental charge for a rental quarter beginning before 1st November 1979; or
2. (b) the Council issue a tax invoice which includes a rental charge for a rental period beginning before that date or charges for calls made in a period ending before 1st September 1979.'.—[Mr. John Stradling Thomas.]

8.30 p.m.

Mr. Rooker

I beg to move amendment No. 3 in page 2, line 13, at end insert— '(3A) As from the passing of this Act subsection 1(B) does not affect the rate of tax on any supply to a registered charity of equipment for use by the National Health Service'.

The Temporary Chairman (Mr. Michael English)

With this we may take the following amendments:

No. 2, in page 1, line 21, at end insert: 'provided that this shall not apply to repairs to wheelchairs or any other equipment designed to assist the mobility of the disabled.' No. 4, in page 2, line 13 at end insert— '(3A) Subsection 1(B) above does not affect the rate of tax on any goods or services supplied to or by registered charities'. No. 13, in page 2, line 13, at end insert— '(3A) As from the passing of this Act subsection 1(B) does not affect the rate of tax on any goods or services supplied to or by the Youth Hostel Association.'. No. 17, in page 2, line 27, at end add— '(6) As from the passing of this Act subsection (1) above shall not apply to any supply of goods or services made to any person in receipt of mobility allowance.'. No. 19, in page 2, line 27, at end add— '(6) As from the passing of this Act subsection (1) above shall not apply to any supply of goods or services made to or by a registered charity.'. No. 40, in page 2, line 27, at end add '(6) As from the passing of this Act subsection (1) above shall not apply to any supply made to or by any youth club whether such club is included in the registration of a local authority or not.'.

Mr. Rooker

We now come to what the Chief Secretary called in the previous debate the "special pleading" provision on value added tax, when we shall debate a string of special pleas for exemption from the massive increase in VAT imposed in the Budget. Contrary to what the Chief Secretary said, some of the special pleading will come from the official Opposition and not merely from Opposition Back Benchers.

Later in the debate my right hon. Friend the Member for Manchester, Wythenshawe (Mr. Morris) will seek to catch your eye, Mr. English, in respect of amendment No. 17, which deals with people who are in receipt of mobility allowance.

I hope that we shall now have a proper debate, because during the last two or three hours we have not had a real debate. Members of the Tory Party were conspicuous by their absence in defending the increase in VAT from 8 to 15 per cent. Clearly they are under instructions not to come to the Chamber and make speeches. I know that we—and the public outside—would like to hear how Conservative Members of Parliament can possibly support the imposition of this increase in VAT. More particularly, if they could not find time to do it in the previous debate, we should like to hear them arguing the case against some of the amendments proposed by Opposition Members.

In places such as Italy, which is a good example, when extra facilities are needed for the community, such as an extra classroom or an extra wing for a hospital, it is not unknown for industrial workers to take industrial action to seek those benefits. It is quite a well-known form of action in countries such as Italy.

In this country we tend to set up a committee, and the committees to which I wish to refer specifically when speaking to amendment No. 3 are the leagues of friends of hospitals. In the United Kingdom there are about 2 million members of hospital leagues of friends, and I am told by the National Association of Leagues of Hospital Friends that approximately 90,000 of them are active members. There are 1,117 separate leagues of friends in hospitals covering 75 per cent. of all the beds in the National Health Service.

The remarkable thing is that the contributions made by the leagues of friends to the various hospitals by way of gifts of equipment and facilities for patients and staff amount to no less than £ million. Our amendment seeks to relieve from the VAT imposed by the Budget the gifts and purchases made by the leagues of friends with the money that they collect. There is no procedural way for us to cancel our VAT, as no doubt the Minister of State will tell us.

We want to relieve the leagues of friends from paying what is, in effect—let us not beat about the bush—a doubling of VAT. That is what it really amounts to. I know that the Minister will, quite rightly, refer to The Value Added Tax (Donated Medical Equipment) Order 1974, but that order does not relieve from VAT all gifts provided by leagues of friends or by anyone else who gets money together to donate gifts to hospitals. There are certain areas in which Customs and Excise are vigorous in not allowing VAT exemption under that order. For example, I draw the attention of the committee to the fact that Customs and Excise count as ineligible items such as hoists, wheelchairs, patient trolleys and stretchers. Any of those items of equipment that are presented to a hospital by a group of people—be it leagues of friends or any registered charity—carry the full rate of VAT. I am told that orthopaedic beds are not exempted from VAT either when they are donated by leagues of friends.

It would be very interesting and useful if the Minister of State could tell the Committee whether there is any possibility of the Government seeing their way to accepting amendment No. 3 and bringing forward an amendment order to extend the scope of the existing VAT order dealing with donated medical equipment. The Government must realise the massive burden that this increase in the rate of VAT will put on these charitable bodies.

I should like to give two examples, both in the city that I have the honour to represent in this House. I know that many right hon. and hon. Members on both sides of the Committee will give further examples. In 1978 the league of friends of Birmingham accident hospital purchased gifts to the value of ₣40,000. Those gifts attracted VAT, although extra gifts did not. Out of that money, which was raised by jumble sales or public subscription, ₣3,200 went straight back to the Treasury. If the amendment is not carried tonight, £6,000 out of a total of £40,000 will be lost to the Treasury and will not go where those who donated it intended.

Another example concerns Highcroft hospital in Birmingham. In 1977–78 the league of friends had taxed expenditure of £1,753, on which it had to pay VAT of £162. We believe that that is a large slice of voluntary effort, which should go not to the Treasury but to those for whom it was intended.

The Government will know that three years ago a report entitled "Charity Law and Voluntary Organisations" was published. It was produced by what was known as the Goodman committee. Even I was astonished to find that there was another walk of life in which Lord Goodman has a finger in the pie. However, this was an independent committee set up by the National Council for Social Services. The Government will know that one of the recommendations in that report was that: all charities should be enabled to reclaim VAT in excess of £25 a year on their expenses", and that for the purpose of output tax, no activity in furtherance of a charity's primary purpose should be considered as a business for VAT". I made representations to the previous Government about that recommendation. The point is that when I and my hon. Friends made those representations, VAT was 8 per cent. We are now talking about a doubling of the tax burden. That is the point that we are arguing. It is not possible for Labour Members to move an amendment to go back to square one, but what we are legitimately, rationally, morally and logically bound to do is to oppose the doubling of VAT on these charities. We do so without any apology whatever to Conservative Members. We make no apology at all for bringing forward these amendments.

We do not accept or advocate, as we believe some Tory Members would, that public expenditure in the NHS should be cut and should be made up by voluntary organisations. That is not our aim. We are not ashamed to advocate a publicly funded NHS, out of high taxation if need be. That has been the rationale behind the existence of the Labour Party over many years.

That is not to say that there is no scope for people collectively to form a charity around a hospital which may be local to a community and where loved ones may be looked after, because those people know that by their efforts extra comfort and equipment can be provided for such a hospital. What they do not want is for their effort to be nullified by the Government imposing a 15 per cent. rate of VAT.

We want to encourage the work of leagues of hospital friends. In fact, it rings a little hollow for Conservative Members to try to argue against us tonight, because throughout the general election campaign and the Budget debate they claimed that Health Service expenditure had been protected. We know that that is not true.

In the previous debate one of my hon. Friends raised the general issue of VAT on the NHS in so far as it related to equipment purchased by area and regional health authorities. That point was not answered by the Chief Secretary. The fact remains that if the cash limits are maintained, expenditure on the Health Service will be cut because of the imposition of VAT. It will be cut further by imposing a doubling of VAT on NHS charities. Given that the rate of inflation will be 17.5 per cent. by November, it is axiomatic that such charities will have great difficulty in raising further funds to take account of inflation next year. Even if they can maintain the status quo, the increased VAT will mean that they will lose an extra 7 per cent. of what they raise.

Those charities cannot make good the cuts imposed by the Government or make up for the extra tax that they will have to find. It is not fair to kick these voluntary bodies in the teeth. In opposition the Tories went on about encouraging voluntary effort. Every time that Labour Members pressed the previous Government for increased public expenditure, and every time that a problem arose the Tories mentioned voluntary effort, but within weeks of coming to power they are kicking in the teeth 2 million voluntary workers in the National Association of Leagues of Hospital Friends by the imposition of increased VAT. The Minister of State has much to answer for during the debate.

8.45 p.m.

The National Association of Leagues of Hospital Friends has told the Chancellor of the Exchequer that it is horrified by the increase. Its main objection is to VAT on donated items, and it asks for further consideration of the recommendation in the Goodman report. What is the Government's response to that? The Minister of State cannot say that they have not had time to consider the matter. They have doubled VAT without considering the consequences for charities working in the National Health Service.

I have referred to the VAT exemption order. There must be a widening of the scope and interpretation of that order so that it is not operated rigidly by Customs and Excise. I am not talking of exemption for manufacturers who donate expensive capital equipment to health authorities in the hope that when it wears out the authority will order new equipment. Great disquiet has recently been expressed about donations and fund-raising efforts for body-scanners for the NHS. Just before the election it was claimed that local appeals for body-scanners for hospitals were stimulated by manufacturers who hoped for a new order when the equipment needed replacing. We are opposed to large capital donations by businesses unless the capital expenditure is planned with the revenue expenditure. Such large donations will only prompt revenue expenditure in the NHS.

We are not looking for a loophole for big business to circumvent the general imposition of VAT. We are concerned with registered charities working within the NHS, but there may be wider implications. At present, in Birmingham, a public subscription is being organised by the local evening paper for the general hospital similar to that for the accident hospital. That money will be channelled through the league of friends at the hospital so that it can claim any possible VAT exemption. It will not, however, be able to claim exemption on a sufficient number of items, and it will have to pay 15 per cent. on others. That is not good enough. The Government should have taken into account such matters in framing the Budget, and we must have some answer tonight.

Mr. Cranley Onslow (Woking)

The hon. Member for Birmingham, Perry Barr (Mr. Rooker) told us that this provision was an opportunity for special pleas. It is none the worse for that. I admit freely that I am making a special plea on behalf of one of my constituents. Since constituents often express themselves a great deal better than their Members of Parliament, perhaps I should read the letter which I received from an elderly lady in my constituency. She said: When an Act was passed allowing electrically driven wheelchairs on public roads and paths my doctor made application to the Department of Social Welfare at Kingston for me to have one. This they confirmed, but would not let me have the type I could use here on the grounds that I was too old, so I withdrew some of my savings and bought a suitable one for myself. I was exempted from VAT on the price on a medical certificate. When I needed repairs and replacements I found to my amazement that I had to pay VAT on them. I wrote to Mr. J. Ashley, and the Minister for the Disabled, but got no satisfaction. It seems all wrong that I, and many others like me, should be penalised because of our age. We get no mobility allowance either, because we are old. What are we supposed to do? Sit about like cabbages for the rest of our lives? That is quite an effective special plea. It pinpoints the situation with which the previous Government were unable to deal. I share my constituent's hope that this Government will deal with it more effectively. If people are to be penalised because they are too old to receive mobility allowance, the other amendments that we shall hear about later in the debate will not help them at all. I do not find it congenial to have to argue that the rate of VAT on repairs and replacements to this wheelchair should remain at 8 per cent. I want to see it removed altogether.

I turn to the plea made by the hon. Member for Perry Barr. I am sorry that he did not find time in his opening speech to refer to the other amendment—No. 19—which is in this group. This amendment, in the name of the official Opposition, calls for the exemption from the increase in VAT of any supply of goods and services made to or by a registered charity. As a governor of two independent schools, both registered charities, I hope that Labour Members will not take offence when I say that it is good to see their new-found enthusiasm for the cause of independent education.

Mr. Rooker

I did not say that.

Mr. Onslow

Perhaps I am putting words into the hon. Gentleman's mouth. Perhaps he chose not to use such words. But it will be interesting to know whether independent schools which are charities are excluded from the Opposition amendment.

I have considerable sympathy with the aims of the hon. Member for Perry Barr in this respect. He wants to ensure that money which individuals wish to give for charitable purposes actually reaches the individual charity and does not stick in the Chancellor's palm on the way. Anybody who contributes to a charity does not want to be in the position inadvertently of having to pay tax. I am not certain that this is the right way or the appropriate occasion to amend the law as it applies to charitable donations in the most effective manner.

I suggest that there is a better course which the Government could explore. They could stimulate charitable donations by extending tax exemption to them up to a certain limit of allowance. In saying that, I declare another interest in that my wife is a trustee of a well-known national charity.

It may seem strange to argue that certain expenditure should be exempted from taxation, but under tax covenants this effectively is so provided that an individual is prepared to bind himself, notionally or actually, to make payments over a period of seven years. I see no reason why that period should not be reduced to one year. Why should not the taxpayer be given an allowance, whatever it may be, which he can use to satisfy his natural and commendable desire to give to good causes of all kinds—for example, to charities dealing with overseas aid?

We should not allow ourselves to be persuaded by the hon. Gentleman's powerful oratory that hospital leagues of friends are the only cause to which people may want to contribute, although I know that a great many people are willing to give money to support their local hospitals. We should seek to harness that attitude. However, I believe that the method which the hon. Gentleman chooses on this occasion is not necessarily the best or the most effective means of achieving that end.

I do not believe the hon. Gentleman shares my aspiration as much as I should like. He admitted—and it was honest of him to do so—that his party was the party of high taxation. He will not be wholly surprised that I find that a repugnant philosophy.

Mr. Rooker

The Tory Government are proposing 15 per cent. VAT.

Mr. Onslow

Does the hon. Gentleman take the view that, when comparing like with like, he sees the Labour Party as being so much more generous in the matter of taking people's money away from them by one means or another and spending it on causes which he and his colleagues regard as being good for them?

Mr. Stanley Orme (Salford, West)

The hon. Gentleman should say that to his own Front Bench.

Mr. Onslow

Uncomfortable though the occupants of the Opposition Front Bench may find my remarks, I wish to address my comments to them.

The attitude of the Socialists, of whom the hon. Member for Perry Barr is such a splendid example, has a practical effect. He and his party say to the taxpayer "We shall take away from your earnings all the money that we think is needed to provide a standard of service which we think is adequate for you. You must not quarrel about that. It is a judgment we make because we are in power." They then say "All the money which you have left"—if they have any left—"you can do what you like with. We are not too bothered about that. It is pocket money." But who gets pocket money? Children get pocket money. The trouble with the Socialists, and the reason why they lost the last election, is that they insist on treating grown people as though they were children.

9 p.m.

Mr. Welsh

I speak in support of amendment No. 4. I wish to ask the Minister to exempt charities from the VAT increase. I do not know whether the Chancellor of the Exchequer is aware how charities will suffer as a result of his proposals. A 1 per cent. reduction in direct taxation loses £1 million for charities in this country. I received that information from the Charities Trust Aid Foundation in a recent letter that it wrote to me. Charities are even worse off after the increase in VAT.

I am not a full supporter of charities because I believe that they are based upon fear. People go to charity organisations throughout the world because they are afraid of dying and starvation and the charities help them. The charities provide a bed at night. Statesmen throughout the world should put something in place of fear, and it should have been done many years ago. However, because that has not been done, we should accept that the charities exist and that they do a good job. I do not believe that that job should be hindered.

The first charity organisation was started in this country. There were religious charities and others which carried out good works before charities such as Oxfam came into being. Sterling work has been done, and it should not be hindered by any Chancellor of the Exchequer.

The amendment proposes that the increase in VAT should not apply to charities. That can be done. In most European countries there are differentials, and I see no reason why there should not be a differential in VAT so that charities would pay only 8 per cent. I am aware that in Committee we cannot ask for the zero rate for charities because I am reliably informed that we cannot legislate in retrospect. However, we could stop that extra burden.

The increase in VAT will mean an extra payment of £1 million from charities, yet they will have the same turnover. By the stroke of a pen they lose £1 million. That information came from the Treasury, and no doubt it is to be believed. Charities deal with many zero-rated commodities. However, there are as many commodities that are not zero rated. Christmas cards may not be zero rated, charity shops are not forced to be zero rated and poppy wreaths—to my amazement—are also not zero rated. If a charity puts a greeting in a newspaper containing the words "John's Butchers, High Street" that advertisement will not he zero rated and VAT will apply—even though the charity organisation may be seeking to raise money for the needy.

I see no reason why money should be taken from the poor. Taking money from the charities is taking money from the poor—sometimes the really poor in the rest of the world who are dying of starvation. That is a crime of the first order. No matter which way the sums are weighed up, the fact cannot be escaped that for the same turnover as last year charities will lose £1 million to the Chancellor of the Exchequer.

I remind the Minister that in 1863 when Gladstone introduced his charities Bill it was dropped. I became acquainted with that fact many years ago when I had the pleasure of studying at the small Oxford college of Ruskin. I thought that it deserved to be dropped. During the debates on the same Budget, Bagehot sent a letter to Gladstone saying that indirect taxation very much cramped trade.

If the Chancellor of the Exchequer was aware of the results for charities of his increase in VAT, we can only assume that his actions were mean, short and brutish. I believe that he was not aware of the spin-off effect on them.

We seem to have two sets of principles, two different methods of taxation. First there is national taxation, which the Bill is about. We accept the need for it in order to provide certain services. Secondly, there are the local rates. Here charities receive a mandatory 50 per cent. reduction, which was ordered by the House. I believe that we were right to order someone else to give a reduction to charities, but we are wrong not to be doing the same.

It is said, at least in my neck of the woods, that it is a wise man who can change his mind, and that only a fool cannot. I ask the Minister to change his mind and accept the amendment.

Mr. Martin Stevens (Fulham)

I am very pleased that the hon. Member for Don Valley (Mr. Welsh) spoke with such warmth about the charitable desire to give, which is human and correct, because it has sometimes seemed to me over the years that the Labour Party is fundamentally opposed to that aspect of human freedom which shows itself in charitable giving.

I must declare an interest, as chairman of the national appeals committee of the Cancer Research Campaign, one of the top four or five charities in the country. I do not wish in any way to upstage the hon. Member for Birmingham, Perry Barr (Mr. Rooker) when I say that this year we shall spend on cancer research more than double the total funds made by hospital leagues of friends, to which he referred. Like the hon. Gentleman, I take part in the work of the leagues of friends and recognise their tremendous value.

While the previous Government were in office, the Cancer Research Campaign's income from donations, legacies and investments more than doubled, but its spending power remained static. It is a harsh fact of life that with the reduction in the level of income tax made in the Budget the incomes of all charities, large and small, are likely to suffer, because those who signed deeds of convenant will not remit through tax rebates the same amount as they have in the past.

The concept that the amendments collectively put to the Committee is that charities should stand in a special relationship to VAT, both in what they buy and in what they sell. The hon. Member for Perry Barr spoke persuasively on the basis of the report of the Goodman committee. We must recognise that its report is now somewhat out of date.

In the last couple of years, the face and practice of major charities in this country have substantially changed. Many are now extremely active in the commercial field, from Christmas cards—a traditional field of charitable fund raising—to all manner of buying and selling. My Cancer Research Campaign is involved in selling second hand motor cars, in selling wine and hampers—

Mr. John Home Robertson (Berwick and East Lothian)

And cigarettes?

Mr. Stevens

Not cigarettes. I am sure the hon. Gentleman will be glad to hear that it is not long since we discontinued the practice of smoking at our meetings. It would be unrealistic, even if the Committee so wished, to treat charities in a special way in regard to VAT. They are involved, and will be involved increasingly, in the normal day-to-day commercial life of the country on a surprisingly large and growing scale. I believe, however, that the Committee may properly on a future occasion consider the whole question of the financial status of charities.

My campaign spends more on cancer research than any other body, including the Medical Research Council, and I have no doubt we shall continue to do so. The right way to aid the growth of charities and, at the top end, to play a vigorous national role is surely to encourage and reward the giver. Some steps have been taken in that direction in the past. But more could be done on the lines of the tax pattern in the United States. That would be a topic for a future debate.

The distinction between the commercial activities of charities and the commercial activities of non-charities in regard to VAT seems both an impracticable exercise for the Treasury to contemplate, which I regret, and a growing discrimination that would be highly unfair to the commercial sector of society as a whole. If charities that are trading were given the advantage proposed by the hon. Member for Perry Barr this would build in an increasing unfairness to the commercial sector as a whole.

I hope that the amendment will not be approved by the Committee.

Mr. Alfred Morris (Manchester, Wythenshawe)

My purpose in intervening is to commend to the Committee on behalf of the Opposition amendment No. 17. This is a highly important amendment on which, with your consent, Mr. English, if the Government cannot concede, the Opposition will seek a separate Division.

After the Budget and in direct consequence of its provisions, a very sad thing happened. I refer to the decision to cease trading by Motability—the organisation that exists to improve the mobility of disabled people by leasing cars not only to disabled drivers but also to disabled people who are so severely disabled that they have to be driven.

That was grave news for many disabled people. To some other people, not least those who did well out of the Budget, the effect of major increases in VAT and in the minimum lending rate may not seem serious. However, the effect of the increases on Motability faced many disabled people with personal catastrophe.

Not only did disabled people feel strongly, but I am sure that we shall hear about their anxieties from right hon. and hon. Members on both sides of the House.

9.15 p.m.

Jeffrey Sterling, the vice-chairman of Motability, said to those who take a special interest in the problems of disabled people that Motability's decision to cease trading for the present is causing severe disappointment, distress and anger to hundreds of our customers. It was a body-blow for an organisation which gave special help to large numbers of disabled people.

George Wilson, the director of the Royal Association for Disability and Rehabilitation, sent a letter to the Prime Minister on 20 June. It said: I feel that I must write to express the Royal Association's concern and dismay that the recent changes in VAT and the increase in Minimum Lending Rate have compelled Motability to suspend operations.…I can but refer to the promises made when you were in opposition that full support be given to improving the mobility of severely handicapped people. … We would be failing in our responsibilities if we did not draw to your attention the present concern of many disabled people and the nagging fear of what the future may hold. For this group it has every sign of being a budget of ' to him who hath it shall be given and to him who hath not it shall be moved further away.' That was an important statement.

After the Budget there was sustained pressure from both sides of the House to mitigate the effects of the increase in VAT for Motability. It was decided to make a concession. We welcomed the decision to refund VAT to Motability in respect of its purchases of cars for disabled people. The Minister of State seems to take satisfaction from that decision. It was welcomed on both sides of the House, but it was not all that Motability asked. VAT will still be applied to the leasing of a car to a disabled person.

The decision to refund VAT on the purchase of cars by Motability is a step forward, but I emphasise that the claim was for VAT to be removed from all the operations of Motability. VAT was being paid twice by Motability. First, on the purchase of its vehicles, and secondly on the leasing of them.

None of us should underestimate the gravity for disabled people of the decision taken by Motability to cease trading after the Budget. Recently I asked the Chancellor of the Exchequer how much he would receive back in taxation of various kinds from the recipients of the mobility allowance who leased cars from Motability. I asked first about car tax, secondly about VAT on the purchase of a car by the lessor, thirdly about value added tax on the leasing rental, and fourthly about the excise duty and the value added tax on petrol, assuming a usage of 150 gallons a year. Lastly, I asked about income tax on the mobility allowance.

Even allowing for the effect of the Government's decision to refund VAT paid by Motability on the purchase of its cars, the reply I received shows that many clients of Motability will still pay back to the Treasury £358 of their mobility allowance of £520 a year. I hope that that convinces anyone who is in doubt that any further help that can be given to Motability, and to the disabled people that it exists to help, will not be excessive.

The reply to my parliamentary question came yesterday from the Minister of State, Treasury. It was a reply that flouted, in the most flagrant way, a clear and important decision of this House. My question was tabled, for ordinary written answer, on 14 June. Thus it took the Minister of State nearly three weeks to reply. The Select Committee on Parliamentary Questions said, in paragraph 28 of its report of 17 July 1972: Your Committee consider that Ministers should endeavour to answer ordinary written Questions within a working week of their being tabled, and in any case provide a holding answer within that period. On 18 December 1972, on a motion of the present Secretary of State for Employment, then the Leader of the House, it was resolved: That this House doth agree with the Select Committee on Parliamentary Questions … in the recommendation contained in paragraph … 28 of their Report. The Minister of State gave me neither a holding answer nor an answer of any kind for nearly three weeks. In so doing, he flouted not only a recommendation of a Select Committee but also a clear resolution of the House which was, as I have said, tabled by his own right hon. Friend the Secretary of State for Employment.

My hon. Friends have referred to this inexcusable delay as outrageous. I am sure that I speak on behalf of right hon. and hon. Members on both sides of the Committee when I say that this is a House of Commons matter and that the behaviour of Treasury Ministers was just not good enough. It is a very serious matter.

Mr. A. P. Costain (Folkestone and Hythe)

Can the right hon. Gentleman put his hand on his heart and say that when he was a Minister he always replied within the time specified? I have not got the facts before me, but I well remember an occasion when he took longer than that.

Mr. Morris

If the hon. Member can quote an example of any of my right hon. or hon. Friends taking three weeks without giving a holding reply, we shall be glad to make the kind of apology for which we are asking in this debate. The hon. Member has a great deal of experience of the House and he knows that I am speaking of an important House of Commons matter. He knows that I am not speaking in any party sense when I say that Treasury Ministers should not treat right hon. or hon. Members in this way.

This is a very serious matter which amounts almost to a contempt of procedures that were considered carefully by the Select Committee and subsequently approved by the House. I trust that not only will the Minister of State apologise to the House but that all other Ministers will be told by the Prime Minister to take note of what has happened in this case. I hope that the Prime Minister will also make sure that a resolution of this House is never flouted so outrageously again.

Will the Minister of State say whether the concession made to Motability to refund all VAT on the purchase of a car by Motability will apply to cars bought by that organisation for its proposed hire-purchase scheme? The reply to that will be of great importance both to Motability and to large numbers of disabled people.

Some right hon. and hon. Members will think that the effect of VAT on disabled people will be confined solely to their mobility. Mavis Hyman undertook a study of the cost of disabled living, and I have used this for the purpose of calculating the amount of VAT paid by disabled people in meeting the extra costs of disabled living. I shall quote only two examples from my findings.

The first concerns a 63-year old man, a double amputee, living with his wife in their owner-occupied home. I find that their total VAT bill simply on the additional costs imposed by disability will now be £170 a year. The second case is of a 42-year old woman teacher suffering from myasthenia gravis who lives with her mother and a friend. The disabled woman and her friend own the house jointly. In that case the VAT bill simply on the additional costs imposed by disability will now be £250 a year. Therefore disabled people can very well do without the extra costs that have been imposed by the increases in value added tax in the Budget.

There has been reference to what was done by the then Opposition when we were the Government, but I take some pride in the achievements of my Government in improving the mobility of severely disabled people. In 1973–74, expenditure on outdoor mobility for disabled people was £11.2 million. By the current year, the estimated expenditure will be £90 million. That figure is based on policy decisions announced before the previous Government left office.

By 1980–81, again on the basis of policy decisions taken before the last Labour Government left office, expenditure on mobility for the disabled will be £98 million. I do not say that that is enough. Many hon. Members on both sides of the House would have liked faster progress in this respect.

There has not normally in our debates been a great deal of party animus. I hope that hon. and right hon. Members on the Conservative Benches will consider our amendment sympathetically. If carried, it will give great happiness to many disabled people. Some hon. Members may think that it is very wide ranging in effect. The effects of the swingeing increase in VAT are also extremely wide ranging on disabled people. Therefore, I commend the amendment to the Committee as an attempt to improve the lives of disabled people.

9.30 p.m.

Dr. Oonagh McDonald (Thurrock)

I wish to speak to amendment No. 40, standing in my name. The amendment has only very recently become necessary in view of a change by Customs and Excise in the interpretation of the rules concerning VAT. It appears that Customs and Excise has since April approached a number of local authorities—and no doubt expects to approach all of them—with a view to suggesting that some of the activities of youth clubs and youth and adult centres should be included in the councils' registration for VAT. This has already happened in Essex and affects youth clubs and youth centres in my constituency.

The problem is twofold. First, youth clubs were formerly exempt from VAT and were not counted as part of the councils' registration for those purposes, because all their activities counted as educational activities and as such were not subject to VAT. But youth clubs engage in sports, in the provision of sports facilities, in providing discos or dances, in organising jumble sales to fund some of their activities, and in providing coffee bars and canteens. The Customs and Excise has suddenly cast its beady eyes upon these activities and decided to regard them as subject to VAT. The result is to increase the cost of membership of a youth club for young people, at a time when many young people will be facing increasing unemployment and will find it difficult to meet the cost involved in belonging to a youth club, and also precisely at a time when they need to be engaging in activities of this sort.

From what Conservative Members have said, particularly when in opposition, I should have thought that this was precisely the kind of constructive activity that they would wish to support for young people. Yet these measures—and in particular the increased cost of VAT following the Budget proposals—will make it very much more difficult for young people to join youth clubs and to participate fully in all the activities offered there. Not only has VAT been imposed on them, but now the tax has been virtually doubled by the Government, whose other actions will increase unemployment among young people and curtail their funds available for activities of this kind.

A second effect has been to increase the administrative burden on wardens and their clerical assistants and staff at youth clubs. The Government believe that one of the reasons for which they were elected to office was that they attacked bureaucracy. If the Government fail to accept my amendment they will be imposing bureaucracy quite unnecessarily on groups of people who are not really equipped to deal with VAT, and who will be distracted from the work for which they were appointed.

Youth clubs are finding that they suddenly have to deal with all the paper work involved in VAT, and this at a time when their clerical staff have already been cut back to a minimum. They are not trained or equipped to deal with VAT. The amounts of goods and the sums of money involved are often quite trifling. Wardens of youth clubs are also finding that they have to do this work, and are having to give up the work for which they have been appointed and for which they are paid, namely, caring for the young people who attend their youth clubs and youth centres.

I ask the Government to reconsider the new interpretation of the rules which Customs and Excise has made, and to ensure that the wardens of youth clubs will have all their time free to carry out their task of looking after the young people. In an area such as Thurrock these activities are desperately needed. I ask the Government to look sympathetically at my amendment so that the cost of joining a youth club and engaging fully in its activities will be reduced for young people this year and in coming years.

Mr. Geoffrey Dodsworth (Hertfordshire, South-West)

The tenor of this debate makes clear the wide range of human emotions and concern about the effects of tax changes of any nature. The right hon. Member for Manchester, Wythenshawe (Mr. Morris) made a very moving and personal appeal, drawing on his past experience, which clearly showed his deep concern. He is respected on all sides of the House for his constructive contributions on matters of that nature.

In this group of amendments, one finds amendments referring to the disabled, the National Health Service, charities, youth hostels, mobility allowance, and youth clubs. All these make it clear that we have a difficulty in deciding on exemptions. It reminds me of a very early debate in which I took part. I think I was aged 8 years. The question was put: where should the line be drawn? That is exactly what this debate is about. It is about where the line should be drawn, if it is drawn at all.

On each side of a decided line, there will always be an area of friction, discontent and anomaly. This debate underlines these difficulties only too clearly. But that does not mean that we should have laws which are in doubt, especially tax laws.

I think I am right in saying that if our present VAT were to be applied over the whole range of consumer expenditure, we should have an average rate of tax of 8 per cent. instead of 15 per cent. That illustrates, perhaps, the effect of ranges of exemptions. There must be an obligation on the Treasury to say that there has to be a certain yield from a particular tax. In the past I have sought to prove cases for areas of exemption. However, if one seeks to extend areas of exemption, it follows necessarily that the yield of the particular tax is likely to change and that that tax revenue will have to come from elsewhere. Alternatively, if one increases the areas of exemption, or if it is suggested that there should be more than one rate, one has to collect some of the tax in a different way from other people.

We have debated the economic choices which are being made between direct taxes and indirect taxes. If one increases the range of exemptions from VAT, one is merely saying that the tax burden will be transferred into another area.

I understand fully the desire to see justice between particular sectors of interest and activity. Indeed, the past record of the Treasury is clear. It goes rather like the old jingle—this year, next year, some time, never. It is pretty well always never, because there is the need to maintain a clear demarcation line on how taxes should be drawn. What becomes apparent is the need for a clearly defined set of rules on how this matter should be reviewed. That is a matter to which we should address ourselves in the future.

In debates of this nature we are accustomed to the detailed discussion of particular matters. That is proper, and it will no doubt continue. However, it may be helpful to review the rules on how decisions on these matters are arrived at. There should be a review of VAT categories. We have to consider our relationship with the rest of Europe. It is clear that there are matters which must be taken into account in enlarging the areas of exemptions from VAT.

Mr. Rooker

We are actually in the middle of reviewing the imposition of VAT and deciding where the line should be drawn. If the hon. Member for Hertfordshire, South-West (Mr. Dodsworth) supports the Opposition tonight, next week he can join us and get the money by stopping the massive tax handouts to the well-off that have been granted by his Government.

Mr. Dodsworth

I am obliged to the hon. Member for Birmingham, Perry Barr (Mr. Rooker). I listened to his special pleading earlier in the debate, and I congratulate him on the case that he put forward on behalf of the interest he represented. I am seeking to point out that I think that this must be done on a wider and more rational set of views rather than by individuals jostling for position between one set of pleading and another.

I recognise the difficulty that that may present to Ministers, but I am suggesting that it may be better done on a more long-term basis with a proper review procedure. I am quite sure that we must look to the future operation of VAT. I personally applaud the actions of the Government in recognising the need to encourage wealth creation, and I believe that this is part of that process.

This debate is designed to draw attention to the needs of special interests, and I welcome that. But I recognise—as I think all right hon. and hon. Members should—that it is not desirable to implement special exemptions without paying proper regard to the knock-on consequences of such a decision.

Mr. Andrew F. Bennett

I support most of the points made by my hon. Friends, particularly those in relation to charities and the disabled.

I want to draw attention to amendment No. 13, which is concerned with the Youth Hostels Association. The YHA has made representations to Ministers over a long time to the effect that the imposition of VAT has been unfair and rather harsh on it. The association has on many occasions sought concessions which would make the operation of its hostels easier.

The imposition of purchase tax caused no problems to the YHA, but once VAT was introduced it presented problems, similar to those probably presented to the small business man. Each hostel must be run by a warden who has the responsibility of administering the hostel and keeping its accounts. That task was made considerably more difficult with the imposition of VAT, yet the total turnover of many youth hostels is very small. Therefore, VAT produced many administrative burdens for the YHA and caused it a great deal of concern.

One complication which arises is the provision of overnight accommodation and meals. If meals are consumed in the hostel, they are subject to VAT and the cost of those meals had to be increased recently to take into account the higher rate of VAT. If the meal is taken out as a packed lunch, it is not subject to VAT. When the bread is taken into the hostel and the making up of the meals is begun, there are complications in working out which part of the food is to be consumed on the premises and which is to be taken out. These problems have always existed because of the type of tax that was imposed, but they have been made worse by the VAT increase to 15 per cent.

Just under 50 per cent. of the membership of the YHA is made up of people under 21. If we were to look at the number of nights people stay in youth hostels, we would probably find that the younger membership stays more nights than the older membership.

It may be true that five or six years ago, when VAT was introduced, one could argue that the youth of this country who had left school and started work were amongst the most affluent citizens, but that is no longer true. The number of young people who are unemployed and can be said to have too much leisure but not enough money has increased, and it seems to me that this enhances the case for youth hostels catering for these young people receiving some concession.

It is worth remembering that the YHA grew rapidly during the 1930s, when there was a period of considerable youth unemployment and many problems. The popularity of the use of the countryside has grown steadily ever since, but in recent years the YHA has not been able to benefit quite so much, and many young people now prefer to rough it in the countryside rather than to take advantage of the YHA.

9.45 p.m.

Part of the reason is the increasing expense and charges incurred by the YHA. Therefore, this extra increase in charges due to VAT is one which the YHA should not have to bear. Of course, the YHA encourages an attractive use of leisure, through people walking, cycling and so on. Many of these people have limited means. If they have to pay extra charges as a result of increased VAT, I doubt whether many of them will stop fewer nights. It is much more likely that they will skimp on other things.

I think particularly of mountain walking. The Committee ought to be concerned about mountain safety, because there is a lot of evidence that young people still go out ill equipped partly because they cannot afford the increasingly high cost of equipment. If their accommodation were a little cheaper, they might have a little more money to spend on being well equipped, which might well reduce the number of mountain accidents, which can prove to be extremely expensive in terms of the resources that the State has to provide in getting people off mountains by the use of Army or RAF helicopters. Purely from the point of view of mountain safety, there ought to be some consideration given to making sure that we do not put undue financial pressure on the YHA.

My main point is that the YHA, as a charity, does a great deal of work for young people. It encourages them to have a care and respect for the countryside as well as a care and respect for a useful means of leisure. Instead of penalising the YHA by increasing VAT, I believe that we ought to be looking at ways in which it can be exempted from it.

Mr. Robert C. Brown (Newcastle upon Tyne, West)

I rise to support amendment no. 17. I want to quote a letter from a disabled constituent of mine, because I think that he makes his case far more eloquently than I could. Lest anyone should accuse me of quoting selectively, let me assure the Committee that Mr. Ferguson, whose letter I quote, is one of my most persistent correspondents. I can assure the Committee that he gave me more than my fair share of stick when I sat on the Treasury Bench. He writes to say: I will await, with interest, the reply from the Secretary of State for Energy but frankly I am not expecting much understanding from that quarter. Mr. Howell's big idea to solve the shortage seems to be rationing by price—not a good idea for the disabled who must use their own transport to get to work, etc. I am quite sure that all my right hon. and hon. Friends will agree that it is not a good idea for anyone, certainly not those at the lower end of the incomes scale, to be rationed by price. My constituent goes on to say: I would like to say a few words about the Budget however, and say that it was a disastrous affair for the disabled motorist. The further increase in the price of petrol, and the increase in the VAT rate to 15 per cent., were body blows indeed. I know we were promised £2 increase in the Mobility Allowance in the autumn. After taxation this may be worth about £1.30 to £1.40—but as petrol has risen now about 35p a gallon this year"— incidentally, this letter is now nearly three weeks old, so the 35p a gallon increase is well out of date— we are having to pay somewhere about £2.50 a week extra in petrol costs alone". I am sure that the Committee will agree that it is absolutely disastrous that the disabled should have such swingeing increases in their necessary travel costs imposed upon them. My constituent goes on: It seems to me that the rise of £2 a week may be based in some way on the increased cost of living, as are the other pension increases, but surely a mobility allowance should be based on the cost of mobility, which must have risen more than the ordinary price index in the last few years". Here again, I am sure that no one will disagree, because it is a valid point. He adds: I was hoping to change my car some time soon but the increase in VAT has put this idea further away. Surely it should be possible to give a concession on car purchase for the disabled in say the special car tax, which appears to be a tax on a tax. The original justification for this tax was that when VAT was made at 8 per cent., and the previous purchase tax on cars had been approximately 15 per cent., the difference of 7 per cent. was then made up by the special car tax so that the price of cars would not go down. Now that the Government in their wisdom have made the VAT rate 15 per cent., surely the special car tax should be scrapped, especially so for the disabled. A reliable car is a necessity for them, but what with ordinary price increases of 5 per cent. every three months or so and now this monstrous tax increase, it is a terrific job to save enough to buy a new car. To sum up, therefore, I think that mobility allowance should either be untaxed or based on the cost of mobility, and at least some thought should be given to a concession on the large amount of tax to be paid in the purchase of a car—approximately £600 tax on a £3,000 average car. My constituent's point is fair. The concession on the purchase of a car through Motability applies only to those under that scheme. People such as my constituent who have always bought a car direct will get no concession. If those in the Treasury team have hearts, they must think again about that.

The Minister of State may not be impressed by my appeal on behalf of the disabled. As a fair minded person, I must say that amendment No. 17 is wide in scope and I should be surprised if the Government accepted it. Nevertheless, I hope that before Report the Treasury will have considered the suggestion of my constituent and will bring forward proposals to ease the lot of Mr. Ferguson and thousands of other disabled people who are worried sick by the additional burdens placed on them by this iniquitous Finance Bill. I appeal to the Treasury earnestly to consider the problem so that on Report we can consider proposals to alleviate it.

On amendment No. 3, which was moved so eloquently by my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker), at least a registered charity has the advantage of getting the full benefit plus the tax that would have been paid on that sum in a donation by covenant. I am concerned about the many people in my constituency who raise funds for special pieces of equipment for hospitals in Newcastle. No one is more generous than the members of working men's clubs. If there is an appeal for a body scanner or breast scanner at the local hospital, these clubs raise many thousands of pounds. It is iniquitous that the voluntary efforts of such individuals are being penalised in that they have to find £7 more on every £100 to buy specialised equipment. It is sad that this Government should discourage that kind of effort.

Mr. Iain Mills (Meriden)

I came into the Chamber tonight because I considered that the amendments deserved some support. I still consider that the basic philosophy behind them deserves some support. However, what offends me is that so many Labour Members have whipped themselves into a state of false frenzy and indignation. They are trying to suggest that this Budget invented VAT. I remind them of the views of the disabled in my constituency about the right hon. Gentleman who actually stopped the manufacture of the trike. I also remind them that the last Government taxed mobility allowances and charged VAT on all the things that they are now complaining about.

I shall be very brief because the real problem before us tonight is not the amendments or the request that VAT should be continued at 8 per cent. but that on all these meritorious items there should be zero rating. If we look on these amendments as a real way of correcting wrongs, we should consider the discrimination that is created by VAT. What about the many women who write to me about the iniquitous VAT on women's sanitary products? What about the many housewives and hundreds of thousands of working people who do not believe that VAT should be put on washing powder and other similar items? Can we really take out, for political reasons, a few apparently heart-rending items and put them forward as genuine amendments?

If these amendments were to zero rate these items and to review a lot of the problems caused to the disabled and the working people of this country, they would have my support. As it is, they are highly unsatisfactory.

Surely what charities need is not the move suggested here, but zero rating and a tax allocation system such as has been tried in the United States. Also there should be reduced restrictions and covenants. Are we not just fiddling and playing when the real measures that are needed are far more fundamental? We need fundamental changes to both the economic operation of charities and the tax implications upon them. We need fundamental changes to the costs of mobility. The removal of the trikes, for example, meant a great deal to many seriously disabled people and young people particularly, for whom Motability is not really viable.

If these amendments were to zero rate for the disabled or for charities, I would support them. I suggest that they do not go far enough, and that they have been put down for the wrong reasons.

The Second Deputy Chairman (Mr. Richard Crawshaw)

Before I call the next speaker, I wish to tell the Committee that the Government do not wish to move at 10 o'clock the motion standing on the Order Paper. Therefore, there is no need for me at 10 o'clock to interrupt the proceedings of the Committee by moving it from the Chair. We shall continue straight through.

10 pm

Mr. Dalyell

If the hon. Member for Meriden (Mr. Mills) had been present for any of the last four Finance Bills and had heard some of the speeches made by his Conservative colleagues, he might well have taken a different view. However, he was not here in earlier years and he may be forgiven.

I wish to ask a factual question of the Minister of State. What advice has been given on the sheer mechanics of introducing a differential rate of VAT? In these discussions we often forget the sheer difficulty, first, of collection and, secondly, of definition.

My hon. Friend the Member for Stockport, North (Mr. Bennett) asked whether a packed lunch was subject to tax. Surely when we get down to discussing whether packed lunches attract tax we are returning to the kind of anomalies which were thrown up by the late Sir Gerald Nabarro in his battles against purchase tax. There are great problems of definition. Although Sir Gerald was my political opponent, I was an admirer of his ribaldry and persistence in seeking to remedy a wholly unsatisfactory position. Perhaps on VAT we are returning to the same kind of anomalies as attached to purchase tax. One remembers the occasions on television some years ago when the late Alistair Sim dealt with definitions of an archaic nature.

The truth is that the system is riddled with anomalies which take up a great deal of time and which are a gift to the lawyers. The VAT tax set-up is continuing to drive people around the proverbial twist. Many accountants are at the end of their tether. One wonders whether there is a better way of allowing money to be allocated for charitable purposes. If people are aware that money given to charity will be taxed, the charities themselves may suffer fundamentally in the amounts that they raise.

This brings me to an interrelated matter which relates to the definition of a charity. Is the Treasury setting up any kind of inquiry into the definition of what is and what is not a charity? I make it a rule never to say anything in this Chamber that I am not prepared to say outside. Although there are some reasons for privilege, one is careful not to abuse it. I do not propose to name any particular organisation which is defined as a charity, but there are certain organisations which attract the benefit of a charity about which hon. Members in all parts of the Committee must have some qualms. I see that the Under-Secretary of State for Health and Social Security is nodding in agreement.

It brings the whole system into disrepute if we allow charitable benefits to accrue to certain organisations, whose names I am not prepared to give, because if one goes outside the House one finds oneself involved in the courts in endless arguments. Unless one has the whole Civil Service machinery at one's disposal, it is difficult to know the exact facts. The subject has to be examined.

It would be unrealistic to ask the Minister for an off-the-cuff reply and I shall not do so. However, is the Minister prepared to make a statement on Report promising an inquiry inside the Treasury or a public inquiry? I am loath to ask for a public inquiry, but as a basis for factual information it would assist. It may be that nothing can be done before next year's Finance Bill, but I shall look forward to the Minister's comments and I hope that they will be in the spirit in which I have put the questions.

Mr. Eric S. Heffer (Liverpool, Walton)

I shall not detain the Committee for long, but I should like to address some remarks to the hon. Member for Wallasey (Mrs. Chalker). I have listened to the many pleas made by the hon. Lady on behalf of those for whom she and I are concerned, the disabled and others. She has made brilliant and eloquent speeches on the subject and I have always regarded her as one of the more enlightened members of the Conservative Party. There are not many, but there are one or two, and the hon. Lady is among that number. However, I assume that she will vote with her Government for the increase of VAT from 8 per cent. to 15 per cent. and I assume that she will not agree to the various amendments that have been put forward.

I wish sometimes that Conservative Members would have the same sort of courage, honesty and determination as we so-called Labour rebels have on specific issues about which we feel deeply and strongly. My hon. Friends and I are often prepared to take a stand when we do not agree with our Front Bench. I should like to see the day when Conservative Members make such a stand on issues of this sort. Unfortunately, they seem never to do so. Therefore, the hon. Member for Wallasey will vote tonight with her Government and not support the sort of ideas that she has put forward so eloquently in the past.

We are discussing a basic change in the direction of taxation. Most Labour Members are not in favour of high indirect taxation. It is a pernicious taxation which affects the lower paid, the working people and the poor much more than it affects those who are well-heeled and rich. We believe in direct taxation. Those who can afford to pay should pay. My hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) was cheered when he intervened to say that that is what it is all about—that is what we are discussing. I see no reason why Conservative Members should not support some of the amendments that have been put forward.

All over the country working people in factories collect money to help raise cash to purchase items such as kidney machines to help hospitals and the sick.

Mr. Anthony Fell (Yarmouth)

Not only working people.

Mr. Heffer

Yes, working people. Those people whom Conservative Members are so keen to attack when they strike collect thousands of pounds for hospitals and the sick. Therefore, if Conservative Members want to ensure that workers in factories continue to help in that way they should support the amendments. I fear that they will not.

I have one slight reservation about amendment No. 4, which is similar to amendment No. 19. My hon. Friend the Member for West Lothian (Mr. Dalyell) talked about some charitable organisations that should not be so regarded. I am not sure what he was talking about, because he was not prepared to name them. I shall name some organisations that should not be charitable organisations—the public schools. I have never been in favour of exemptions for them. I have never considered them to be charitable organisations. I hope that if my hon. Friends vote for amendment No. 4 they will do so with that reservation.

I hope that Conservative hon. Members will be more than sympathetic to the amendments. We shall finish this sitting a little earlier than expected if the Government accept the amendments and we do not need to vote on them.

Mr. Dennis Canavan (West Stirlingshire)

I should like to speak briefly to amendment No. 17, which was supported by my right hon. Friend the Member for Manchester, Wythenshawe (Mr. Morris). I begin by declaring an interest, in that I am the parliamentary spokesman for the Scottish committee on mobility for the disabled. It is not a post for which I am paid, but it is one that I am very honoured to hold.

I know from my frequent meetings and correspondence with disabled people in Scotland and elsewhere that there was a general welcome for the Motability scheme, introduced by the Labour Government in conjunction with the mobility allowance, which they also introduced. Now the savage increase to 15 per cent. in VAT will mean that Motability may cease trading unless something is done by the Treasury, or by the possibly more enlightened Ministers in the Department of Health and Social Security, even at this late stage.

When the Budget announcement of an increase in VAT to 15 per cent. was made there were gasps of astonishment, not only on the Opposition Benches but throughout the country. Even though people had realised that an increase in VAT was almost inevitable, to judge from some of the Conservatives' preelection announcements, nobody even in his worst nightmares thought that it would be as much as 15 per cent.

We rightly described the increase as a savage attack on the living standards of many people. We said that those who would offer most were those most in need. Here we have the proof, because we see the increase being levied on the disabled. The Tory Party has reached its nadir when it is taxing the disabled in order to pay for massive income tax handouts to its rich friends. That is its philosophy—taking most from those most in need in order to give it to those who are least in need. It is the very opposite of the kind of fair society that we on the Labour Benches have been trying to build.

Mr. Barry Henderson (Fife, East)

I note that the hon. Gentleman is particularly addressing himself to amendment No. 17, but he is talking about discrimination, and I hope that he has drawn to the attention of his right hon. and hon. Friends who tabled other amendments that we are debating at the same time that they are discriminatory in favour of English charities and would not apply to charities in Scotland.

10.15 p.m.

Mr. Canavan

That is a fair point, although it was not a point that I particularly intended to address myself to. It does not matter to me whether disabled people are in Scotland, England or anywhere else. As a legislature, this place should be doing its best to look after all the disabled and see that, despite the economic difficulties, the most resources go to those most in need. Here we have a typical example of the Government's taking most from those most in need in order to give income tax handouts to their rich friends.

This is combined with other inflationary aspects of the Budget. There were reports in the House yesterday that petrol in some areas was already £1.40 a gallon. Those disabled people, particularly in rural areas, who are fortunate enough to have a motor car, must pay such prices to these pirates. The Tory Government are not only refusing to intervene to bring prices down; they are actually intervening to increase prices. Levying this extra VAT on top of the petrol duty in the Budget will be very inflationary and will have a detrimental effect on the interests of the disabled.

Combined with the public expenditure cuts that will affect services to the disabled, this sort of measure will be very regressive. I am surprised that the right hon. Member for Daventry (Mr. Prentice) is absent. Where is he? He is the great man of principle who was elected on a manifesto in 1974 which he abandoned to cross the Floor of the House of Commons in order to get himself appointed to the Government. He gets himself appointed as the Minister responsible for the disabled. When we are discussing the first attack by his Government on the disabled he is conspicuous by his absence. It will no doubt be left to his hon. Friend, his former opponent, the hon. Member for Wallasey (Mrs. Chalker) to put up a defence for him explaining his absence and his radical change of policy.

Like my hon. Friend the Member for Liverpool, Walton (Mr. Heffer) I recall the hon. Member for Wallasey, during his lifetime of the last Parliament almost with tears in her eyes, defending the needs and interests of the disabled. She pleaded for amendments similar in some respects to the amendments before us tonight. Let her prove that those tears were not crocodile tears by joining us in the Lobby tonight and voting with people who are genuinely interested in the needs of the disabled and others most in need.

I accept that the Minister, in his reply, may say that the wording of amendment No. 17 is imperfect. As worded, it would mean that any goods or services provided to anyone receiving mobility allowance would be exempt from VAT. That was not perhaps in the mind of the sponsors of the amendment. But the spirit of the amendment is good and sincere. I hope that the Minister will say that, although the Governmnt may not be able to accept the wording of the amendment, they will propose an appropriate amendment on Report.

Mr. Peter Rees

I rise with a certain diffidence. I feel as if I am intercepting the blandishments offered to my hon. Friend the Member for Wallasey (Mrs. Chalker) by the hon. Members for Liverpool, Walton (Mr. Heffer) and for West Stirlingshire (Mr. Canavan). I hope, however, that I can do my poor best to answer points made in the debate. We are debating an important series of amendments, moved with considerable eloquence and great warmth. They raise important issues.

If at the conclusion of the debate I invite hon. Members to reject the amendment perhaps, as one hon. Member said, I am a fool and not a wise man and cannot change my mind in spite of powerful arguments. However, it is not because I have a hard heart. It is because certain general principles are at stake. There is always a piquancy in such debates, particularly after a change of Government. The arguments that I shall advance would with equal if not greater facility have been expressed by the Labour Party spokesman had the situation been reversed.

I shall begin by canvassing the general considerations. We appreciate that the amendments are designed to ease the position of many worthy causes. There is no monopoly of compassion on the Opposition side of the Committee in such a debate.

We must take into account some general considerations when discussing a broadly based tax such as VAT. I am certain that those considerations led the previous Administration to resist similar suggestions put to them in the past five years.

Perhaps because of the delicacy of the Opposition's situation so soon after a general election the hon. Member for Birmingham, Perry Barr (Mr. Rooker) was invited by his right hon. Friends to open the debate. I congratulate him on his first appearance at the Dispatch Box.

Mr. Rooker

It is my third.

Mr. Rees

I apologise. I had not appreciated that the hon. Gentleman had appeared at the Dispatch Box before. I think that this is his first appearance at that Box in a fiscal debate. I have often listened to him and admired his eloquence. There were flashes of the hon. Gentleman's old fire, particularly when he referred to tax handouts to the rich. I have no doubt that when he is let off the leash in debates on more general matters we shall again see the old fire which characterised his contributions to our debates.

If we accept the amendments, we shall seriously erode the tax base of VAT. It would then have a narrower base and there would be several consequences. I appreciate that the Opposition are not enamoured of the cuts in direct taxation and that there is a fundamental divide between us, but in order to balance the books we are compelled to raise the rates of VAT on a narrower base.

With his customary clarity, the hon. Member for West Lothian (Mr. Dalyell) said that the problems of definition which the late Sir Gerald Nabarro exposed with devastating wit and candour would arise. I have no doubt that they would be exposed with equal precision, wit and force by the hon. Member for West Lothian. That would be an additional difficulty in the way of any Administration, whether Labour or Conservative, accepting such amendments.

Mr. Dalyell

Many of us are curious to know what has happened to Lord Goodman's report on the definition of charities and the report of the Expenditure Committee, based on the Sub-Committee under the chairmanship of the hon. Member for Plymouth, Drake (Miss Fookes), on which my hon. Friend the Member for Fife, Central (Mr. Hamilton) played an active part and which dealt with the same subject. They seem to have disappeared.

Mr. Rees

That question should have been addressed to the hon. Member's right hon. Friends. I have equipped myself and read the Goodman report. I am grateful for the concern of the hon. Member for West Stirlingshire as to my self-defence. I hope that I am able to undertake that even against his punishing personal attacks. I always quail when I see the hon. Gentleman in his seat because I know that I shall have a rough ride. However, I wonder whether the hon. Gentleman's right hon. Friends have read the Goodman report. It was published in 1976. We might have asked the previous Administration what they did about that report. We shall give most careful consideration to the report, which raises a host of issues, not only on fiscal matters.

The hon. Member for West Lothian asked what were my views about the definition of charities. I am not certain that it is for me, with my present responsibilities, to give him a view because the issue is somewhat wider than that. But, drawing on my previous experience as a member of the Bar, may I remind him that this problem was first tackled by a statute of Queen Elizabeth I. There have been subsequent cases as late as 1893—for example, Pemsle's case—endeavouring to elucidate this difficult point. The problems of definition in this difficult context have eluded many Administrations and I am not overoptimistic that they will not elude this one.

But we shall look at the Goodman report in its various facets. I see the right hon. Member for Manchester, Wythenshawe (Mr. Morris) moving uneasily in his seat. Perhaps he feels that he might have played a more positive role in the matter. We shall look at the report, but it covers a wider range of responsibilities than those for which I answer tonight. Therefore, I wonder whether we should isolate and debate one aspect of it, namely, the imposition of VAT on charities and bring it to a conclusion tonight. Perhaps this Committee, and indeed the whole House, might be better advised to debate it in a broader context. The right hon. Member for Salford, West (Mr. Orme) obviously has a different view.

I come back to the third general consideration that leads me to invite the Committee, with a certain regret, to reject these amendments. I know the constraints on the Opposition. A Ways and Means resolution perhaps does not permit them to put down amendments seeking to zero-rate these particular activities, I appreciate that. But the arguments they have advanced all concern zero rating or exemption. That is the substance of them and I think I would be entitled to ask, sotto voce perhaps, what the previous Administration did about it during the past five years. However, I do not pursue that theme.

If we were to accept these amendments, the objective of a unified rate of VAT would elude us. The hon. Member for West Lothian asked me what advice we had received about the practicability or otherwise of having various rates. I will not give him the details, but the tenor of that advice was that it would complicate the administration of VAT enormously, not only for Customs and Excise but also for registered traders. All the representations, as my hon. Friends, if not right hon. and hon. Gentlemen opposite, will recall, have been from small businesses asking that we simplify the administration of VAT by establishing a unified rate. That too is a general consideration which leads me to invite the Committee to reject these amendments. Indeed, dare I remind the hon. Member for Perry Barr that on 21 February 1978, when he was in one of his more reflective moods, he admitted there was a case for a single rate.

Mr. Rooker

I said a rate of 10 per cent.

Mr. Rees

We can argue about the rate, but the general considerations and the administrative point which no doubt led the hon. Gentleman to come to that tentative conclusion—I do not say that it was a hard and fast conclusion—I suspect led the hon. Member for West Lothian to the same conclusion. They have also led us, with a certain regret and reluctance, to invite the Committee to reject these amendments.

The hon. Member for Perry Barr, in his extremely eloquent intervention when moving amendment No. 3, raised the question of leagues of friends. His hon. Friend the Member for Walton broadened the question, saying that many members of the working class contributed to all kinds of funds to provide equipment for hospitals. I hope that we shall not encounter a class issue in this debate. There cannot be one right hon. or hon. Gentleman who does not have a league of friends in his or her constituency. We all do our best to support them in our constituencies and in our ministerial roles.

The hon. Member for Perry Barr has perhaps got the problem a little out of perspective. As he will recall, reliefs were to be found in item 3 of group 16 in schedule 4 of the Finance Act 1972, as subsequently amended, of which leagues of friends or comparable organisations can take advantage. They can, by careful arrangement with the National Health Service, buy zero-rated goods and donate them to the Health Service or to private hospitals. The hon. Gentleman raised the specific case of orthopaedic beds. The best advice I have received is that orthopaedic beds are and always have been zero rated. We must therefore keep this problem in perspective.

Mr. Rooker

What about wheelchairs?

Mr. Rees

Even probably wheelchairs, too.

Mr. Rooker

They are on the list.

10.30 p.m.

Mr. Rees

Yes.

The hon. Member also raised some rather emotive points about what the Department of Health and Social Security had done for voluntary organisations. The Department has this year promised to increase the grants to voluntary organisations, and, as the hon. Gentleman may recall, the budget for voluntary organisations was underspent in the last year by £800,000 in this respect. We are therefore not being ungenerous in that direction either.

My hon. Friend the Member for Woking (Mr. Onslow) read a very important and poignant letter from one of his constituents. We have taken full account of that. He will recall that the mobility allowance has been raised by 20 per cent. to £12, and he will recall, too, what we proposed for the Motability scheme. However, since that issue was touched upon with a wealth of eloquence and example by the right hon. Member for Wythenshawe, I shall come to it in due order.

My hon. Friend raised the interesting point that we should stimulate charitable donations by tax allowances. I hope that he will allow us to consider that suggestion when we consider the Goodman report and that whole area generally. Obviously it does not arise on the question of VAT, but we have certainly taken the point on board.

Mr. Onslow

I am most grateful to my hon. and learned Friend and I am encouraged to hear what he says. May I remind him that my constituent in question does not get a mobility allowance and therefore is in a small but important category and is correspondingly more deserving of consideration? If some way can be found of exempting from VAT repairs to wheelchairs, whether or not they are used by people who get mobility allowances, I do not suppose that the skies will fall.

Mr. Rees

I am sure that, like me, my hon. Friend the Member for Wallasey will take full note of what my hon. Friend has said.

The hon. Member for Don Valley (Mr. Welsh) appeared to be a little ambivalent in his approach to charities. I was not certain whether his heart was entirely with them. He made the interesting point about the reduction in income tax not favouring charities. That is a matter that we can consider on another occasion—perhaps in our debates on this Bill. I remind him that it was the late Hugh Dalton who first restricted the relief for charitable convenants to income tax at the standard rate. The hon. Member also raised the question of charity shops. I think that this arises on his amendment No. 4 by which he wants to provide relief for any goods or services supplied to or by registered charities. I think that he will accept that charity shops, operating in a purely commercial field, however the net profits will ultimately be applied, are competing with perfectly straightforward commercial organisations. It is worth considering, therefore, whether they should be put in a favoured position in that regard.

I come now to the right hon. Member for Wythenshawe. I am profoundly sorry that he did not receive as promptly as he would have wished an answer to his question. I have had the position checked. His question was not marked as a priority question, although whether or not it was marked "priority" it deserved the most urgent consideration.

Mr. Alfred Morris

My point was not that the reply was not given as promptly as I should have liked. The hon. and learned Gentleman was in breach of the finding of a Select Committee, a finding that was endorsed by a resolution moved by his right hon. Friend who is now the Secretary of State for Employment. He flouted, by delaying the reply for nearly three weeks, that finding and that resolution.

Mr. Rees

I cannot do more than repeat my profound apology. The reason for it was that I had sent back the draft answer—and the right hon. Gentleman, having been in government, will appreciate this—to have all the figures checked again, because I knew the fastidious regard of the right hon. Gentleman for these matters and I wanted to be absolutely certain that the figures were correct. If the right hon. Gentleman is still not satisfied with the position, no doubt, Mr. Crawshaw, you will accept a motion to impeach me from the right hon. Gentleman in due course.

I come to the right hon. Gentleman's interest in Motability, which is also shared by various of my hon. Friends and Opposition Members, including the hon. Member for West Stirlingshire. I am not certain, though, whether the hon. Member for West Stirlingshire has kept himself quite abreast with the tide of events. I know that he has other matters to occupy him. However, the right hon. Gentleman has been following matters, although it was not entirely apparent until we came to the very end of his intervention that he had appreciated what had happened on this front.

Motability was, like any other leasing organisation, due to a blocking order that was introduced only recently, in 1977, by the right hon. Gentleman's own Administration—although I appreciate that it has an earlier history than that—not able to set the input tax, the VAT charged on the vehicles which it acquired, against the VAT on the leasing. That is a situation that obtained under the right hon. Gentleman's Administration. I concede at once that the rate of VAT then was only 8 per cent.

We are acutely aware of, and very sensitive to, the points which Mr. Geoffrey Sterling made. What I hope that the right hon. Gentleman will accept is that we on the Government Benches are as entirely concerned as, if not a little more than, he is and was for Motability. After all, Motability was floated by private enterprise, and what it had to offer was very gratefully accepted—I entirely concede this—by the right hon. Gentleman and his Friends. We were deeply concerned. Also, I remind the Committee that two of the patrons of Motability are my right hon. Friends the Prime Minister and the Secretary of State for Social Services. Therefore, there is no want of concern on the Government Benches.

Because we appreciated the difficulties in which Motability might be put, we have undertaken—this was made clear by my right hon. Friend the Secretary of State for Social Services—to lay an order very shortly to lift the blocking order as it applies to Motability and similar organisations so that they will be able to set the 15 per cent. VAT charged on the purchase of the cars against the leasing. We understand that that will meet this point fairly and squarely. I shall not claim that it will necessarily improve Motability's position, although some might even say that it would. But there is no question, therefore, of the Budget and this Bill prejudicing Motability.

I hope that this will reassure the right hon. Gentleman. He seemed to leave the Committee in a little uncertainty, until almost the very end of his speech, as to whether anything had been done. As I have said, the point was made very properly a week or so ago, and we shall be laying the order very shortly.

Mr. Alfred Morris

I said that the concession that has been made was welcomed but that it does not meet the whole of the claim from Motability. I hope that the hon. and learned Gentleman will not try to underestimate the gravity of the decision by Motability to cease trading because of the increase in VAT and in the minimum lending rate. That was a very grave decision for many disabled people, and the hon. and learned Gentleman must not try to make light of it.

Mr. Rees

Certainly I do not make light of it. I hope that nothing I have said has indicated that I treat this subject with levity. I treat it completely seriously. That is why I have said that we have undertaken that an order will be laid as shortly as possible.

The right hon. Gentleman raised a specific point about whether the unblocking order would apply to hire purchase transactions. On the best advice I have received, I understand that the original blocking order never did apply to hire purchase, so there should be no worry on that score. I hope that that reassures the right hon. Gentleman.

The hon. Member for Thurrock (Dr. McDonald) spoke to an amendment which has special regard to youth clubs. I appreciate that she has very much in mind the various youth clubs which have been found to be under, as it were, the aegis of the Essex county council. She has corresponded with me on this subject. I appreciate that this has created certain difficulties, because had they been treated individually they could have de-registered. I am sure that the hon. Lady will wish to take this matter up with the Essex county council to see whether a more convenient form of organisation can be found. If they can be, as it were, disaggregated they will probably be eligible for deregistration.

Dr. McDonald

This certainly has applied to youth clubs in the Essex county council area but it applies in other areas also. I understand that Customs and Excise is seeking to interpret the rule in this way so that youth clubs become subject to VAT. This is quite widespread, and I think that the matter should be very carefully considered and that Customs and Excise should withdraw this requirement.

Mr. Rees

The hon. Lady will, of course, realise that Customs and Excise is bound by the law of the land. If it should unfortunately emerge that any group of youth clubs has to be considered as one group which takes its turnover above the £10,000 a year mark, I appreciate that difficulties will follow. But that point would not be entirely resolved by the hon. Lady's amendment.

Dare I also remind the hon. Lady that there is a specific exemption for the output of youth clubs, if not for their input? I am sure that the hon. Lady will accept—as I am sure will the whole Committee—that the vast majority of youth clubs are treated individually, are usualy far below the £10,000 a year turnover mark and possibly are not as widely prejudiced as she might suspect.

I turn briefly to the individual amendments, although I have perhaps touched on them in passing. I hope that I have dealt with amendment No. 3 that was moved so eloquently by the hon. Member for Perry Barr and with the amendment of my hon. Friend the Member for Woking. The hon. Member for Don Valley moved a general amendment—amendment No. 4—to take registered charities totally outside VAT. I do not wish to come between him and his hon. Friend the Member for Walton, but it would have the effect of totally exempting public schools, which may be a matter for domestic debate on the Opposition Benches. I am sure that on reflection the hon. Member for Don Valley will realise that his amendment goes a little wide though there are a number of specific exemptions for charities which I hope do much to ease the position which he outlined with such force.

The hon. Member for Stockport, North (Mr. Bennett) spoke to amendment No. 13 which covers goods and services supplied to or by youth hostels. He will appreciate that, although youth hostels deal with a rather specialised section of the community and do very good work which we entirely appreciate, they are, in a sense, providing accommodation and are in competition with boarding houses and hotels. [HON. MEMBERS: "Oh".] Hon. Members are apt to use emotive language and perhaps I used language that offended the hon. Member for Stockport, North. I shall try to rephrase it, but it is difficult always to satisfy his fastidious sensibility. It may be that success will elude me tonight.

If there are administrative burdens on youth hostels, they should have been as apparent when the rate of VAT was 8 per cent. as they are when we propose to raise it to 15 per cent. I make the same point to the hon. Member for Stockport, North as I made to his hon. Friend the Member for Thurrock: if the turnover of youth hostels is less than £10,000 a year—and for most of them it probably will be—they should be outside the VAT net anyhow.

The right hon. Member for Wythenshawe dealt mainly with Motability, and I hope that I have reassured him on that point. But amendment No. 17, which he was ostensibly moving, was designed to take out of the charge to VAT any supply of goods or services made to any person in receipt of mobility allowance. The right hon. Gentleman will probably realise—as did his hon. Friend the Member for Newcastle upon Tyne, West (Mr. Brown), who perceptively remarked on it—that that probably goes a little wide, and I hope that the Committee will allow me to suggest that the amendment should be rejected on that ground. It would cover a whole range of things such as suits, theatre tickets and catering.

Mr. Robert C. Brown

It is true that I suggested that it was on the cards that the Minister would invite the Committee to reject amendment No. 17, but I also suggested that he might have a little heart and discuss with the rest of the Treasury team between now and Report what he could do to improve the lot of the disabled.

Mr. Rees

I take careful note of what the hon. Gentleman says. Constant discussions obviously go on with my hon. Friends in another Department. [Interruption.] I do not think that the hon. Member for West Stirlingshire did himself justice when he made a particularly unpleasant personal attack on a right hon. Gentleman who was not here to defend himself. Perhaps he ought to have given notice to the right hon. Gentleman. I do not want to introduce a note of controversy into the debate, which until now has been good humoured. However, I take note of what the hon. Gentleman said.

10.45 p.m.

Mr. Dalyell

Some of us were surprised to hear the Minister say that apparently Treasury Ministers are not responsible for the definition of a charity. Who is responsible? Is it a Home Office responsibility? This is a matter of some importance.

Mr. Rees

The hon. Gentleman is quite right. It is a matter of considerable importance. I merely said that it was not the exclusive responsibility of the Treasury. Of course, it has considerable fiscal and rating implications. It even has implications with regard to the law on perpetuity. It covers a wide range of Departments. I was merely saying that the task of defining a charity had eluded many previous Administrations. I am sure that in the course of such a short debate the hon. Gentleman did not expect me to proffer a cast iron definition. However, I take his point. I do not shelve any personal responsibility. I merely say that it covers a wider range of responsibilities than mine.

I took note of what the hon. Gentleman said about various individual charities. It is primarily the responsibility of the Charity Commissioners, at least south of the border, to consider whether a charity that has previously been registered conforms with the definition and is being properly administered.

It would not be right to detain the Committee further, both on the general grounds that I advanced and on the specific grounds that I advanced when dealing with the individual amendments. It is, therefore, through no want of heart that I invite the Committee to reject these amendments if they are pressed to a Division.

Mr. Denzil Davies

Perhaps I can briefly go back over some of the amendments. They are designed to show that there has been a substantial increase in the burden of indirect taxation on many bodies which I am sure the Committee would agree are worthy. They are often under considerable pressure for money and often find it difficult to make ends meet. As a result of the Budget and the Finance Bill, their taxation has been increased at a stroke from 8 per cent. to 15 per cent. These amendments are designed to reduce that burden back to 8 per cent.

As I have said, there is no justification whatever why there should be just one uniform rate once the rate of VAT becomes 15 per cent. Once we have one uniform rate at 15 per cent., we have the problem of bodies such as charities, the leagues of hospital friends and the Youth Hostels Association being put under considerable pressure as a result of this increase in taxation. That is what the amendments are about. They seek a reduction in tax back to the position at which these bodies were taxed before the Chancellor introduced his Budget.

Perhaps I can go through that list again in order to make quite clear what the Government are doing. My hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) moved—[Interruption.] The hon. Member for Staffordshire, South-West (Mr. Cormack) finds this very amusing. We shall soon be debating one of his amendments relating to repairs to historic buildings. That is something which is close to the hon. Gentleman's heart. The league of hospital friends has problems too, as do the YHA and many worthy charities. In fact, they are the same problems about which the hon. Gentleman will be arguing in relation to historic houses.

Instead of rushing into the decision to double VAT, the Government should have considered these problems. It was only after the effect on the disabled was pointed out and the Motability scheme was suspended that the Government became aware of the problem. The Government rushed into that proposal to raise revenue to provide income tax relief for the better off. It is such bodies as the National Association of Leagues of Hospital Friends and the Youth Hostels Association and the disabled who are paying part of that tax. That is why we tabled the amendments. Treasury Ministers should attempt to meet us in some respects and keep the rate of VAT at its previous level.

The Minister of State, reading from his brief, said it was a broadly based tax. Of course it is. But once we get beyond the level of 10 per cent. other factors must be considered. There is the effect on the economy as a whole and the effect on charities. The blunt instrument of an overall rate of 15 per cent. VAT is no good, and that is why we moved the amendment.

These worthy organisations have to cope with a doubling of VAT. When the Tories were in opposition they championed

voluntary organisations and charities, but, apart from a few speeches from them to the effect that they preferred zero rating and because there is no zero rating they can not support the amendments, there has not been a murmur about charities. That is the sort of hypocritical argument we have come to expect from the Tories in financial debates. When we introduced the 25 per cent. rate of VAT there was still an 8 per cent. lower rate. Once it goes beyond 10 per cent., there must be more than one rate. An exemption for small businesses and new inventors has been suggested so why not exempt the National Association of Leagues of Hospital Friends?

We shall vote on amendment No. 3 and we wish to have a separate vote on amendment No. 17, which involves the disabled. I ask my hon. Friends to vote for amendment No. 3 and against the iniquitous burden that the Government are placing on charities and voluntary organisations.

Question put, That the amendment be made:—

The Committee divided: Ayes 239, Noes 299.

Division No.38]	AYES	[10.35 p.m.
Abse, Leo	Cunliffe, Lawrence	Fraser, John (Lambeth, Norwood)
Adams, Allen	Cunningham, George (Islington S)	Freeson, Rt Hon Reginald
Allaun, Frank	Cunningham, Dr John (Whitehaven)	Garrett, John (Norwich S)
Anderson, Donald	Dalyell, Tam	George, Bruce
Archer, Rt Hon Peter	Davidson, Arthur	Gilbert, Rt Hon Dr John
Armstrong, Ernest	Davies, Rt Hon Denzil (Llanelli)	Ginsburg, David
Ashton, Joe	Davies, E. Hudson (Caerphilly)	Golding, John
Atkinson, Norman (H'gay, Tott'ham)	Davies, Ifor (Gower)	Gourlay, Harry
Bagier, Gordon A. T.	Davis, Clinton (Hackney Central)	Graham, Ted
Barnett, Guy (Greenwich)	Davis, Terry (B'rm'ham, Stechford)	Hamilton, James (Bothwell)
Barnett, Rt Hon Joel (Heywood)	Deakins, Eric	Hamilton, W. W. (Central Fife)
Bennett, Andrew (Stockport N)	Dean, Joseph (Leeds West)	Hardy, Peter
Bidwell, Sydney	Dempsey, James	Harrison, Rt Hon Welter
Booth, Rt Hon Albert	Dewar, Donald	Hart, Rt Hon Judith
Boothroyd, Miss Betty	Dixon, Donald	Hattersley, Rt Hon Roy
Bradley, Tom	Dobson, Frank	Haynes, David
Bray, Dr Jeremy	Dormand, J. D.	Heffer, Eric S.
Brown, Hugh D. (Provan)	Douglas, Dick	Hogg, Norman (E Dunbartonshire)
Brown, Robert C. (Newcastle W)	Douglas-Mann, Bruce	Home Robertson, John
Brown, Ronald W. (Hackney S)	Dubs, Alfred	Homewood, William
Brown, Ron (Edinburgh, Leith)	Duffy, A. E. P.	Hooley, Frank
Buchan, Norman	Dunlop, John	Horam, John
Callaghan, Jim (Middleton & P)	Dunnett, Jack	Howell, Rt Hon Denis (B'ham, Sm H)
Campbell, Ian	Dunwoody, Mrs Gwyneth	Huckfield, Les
Campbell-Savours, Dale	Eastham, Ken	Hughes, Mark (Durham)
Canavan, Dennis	Ellis, Raymond (NE Derbyshire)	Hughes, Robert (Aberdeen North)
Carmichael, Neil	Ellis, Tom (Wrexham)	Hughes, Roy (Newport)
Cartwright, John	Evans, Ioan (Aberdare)	Janner, Hon Greville
Clark, Dr David (South Shields)	Evans, John (Newton)	Jay, Rt Hon Douglas
Cocks, Rt Hon Michael (Bristol S)	Ewing, Harry	John, Brynmor
Cohen, Stanley	Field, Frank	Johnson, James (Hull West)
Coleman, Donald	Fitch, Alan	Johnson, Walter (Derby South)
Concannon, Rt Hon J. D.	Flannery, Martin	Jones, Alec (Rhondda)
Conlan, Bernard	Fletcher, Ted (Darlington)	Jones, Barry (East Flint)
Cook, Robin F.	Foot, Rt Hon Michael	Jones, Dan (Burnley)
Cowans, Harry	Ford, Ben	Kaufman, Rt Hon Gerald
Craigen, J. M. (Glasgow, Maryhill)	Forrester, John	Kerr, Russell
Crowther, J. S.	Foster, Derek	Kilroy-Silk, Robert
Cryer, Bob	Foulkes, George	Kinnock, Neil
Lambie, David	Oakes, Gordon	Spearing, Nigel
Lamborn, Harry	Ogden, Eric	Spriggs, Leslie
Lamond, James	O'Halloran, Michael	Stallard, A. W.
Leadbitter, Ted	O'Neill, Martin	Stewart, Rt Hon Donald (W Isles)
Leighton, Ronald	Orme, Rt Hon Stanley	Stoddart, David
Lestor, Miss Joan (Eton & Slough)	Owen, Rt Hon Dr David	Stott, Roger
Lewis, Ron (Carlisle)	Palmer, Arthur	Strang, Gavin
Lofthouse, Geoffrey	Park, George	Straw, Jack
Lyon, Alexander (York)	Parker, John	Summerskill, Hon Dr Shirley
Lyons, Edward (Bradford West)	Pendry, Tom	Taylor, Mrs Ann (Bolton West)
McCartney, Hugh	Powell, Rt Hon J. Enoch (S Down)	Thomas, Jeffrey (Abertillery)
McDonald, Dr Oonagh	Powell, Raymond (Ogmore)	Thomas, Mike (Newcastle East)
McElhone, Frank	Prescott, John	Thomas, Dr Roger (Carmarthen)
McKay, Allen (Penistone)	Price, Christopher (Lewisham West)	Thorne, Stan (Preston South)
McKelvey, William	Race, Reg	Tilley, John
MacKenzie, Rt Hon Gregor	Radice, Giles	Torney, Tom
Maclennan, Robert	Richardson, Miss Jo	Urwin, Rt Hon Tom
McMahon, Andrew	Roberts, Allan (Bootle)	Walker, Harold (Doncaster)
McMillan, Tom (Glasgow, Central)	Roberts, Ernest (Hackney North)	Watkins, David
McNally, Thomas	Roberts, Gwilym (Cannock)	Weetch, Ken
McWilliam, John	Robertson, George	Wellbeloved, James
Magee, Bryan	Robinson, Geoffrey (Coventry NW)	Welsh, Michael
Marks, Kenneth	Rodgers, Rt Hon William	White, Frank R. (Bury & Radcliffe)
Marshall, David (Gl'sgow, Shettles'n)	Rooker, J. W.	White, James (Glasgow, Pollok)
Marshall, Dr Edmund (Goole)	Roper, John	Whitehead, Phillip
Marshall, Jim (Leicester South)	Ross, Ernest (Dundee West)	Whitlock, William
Martin, Michael (Gl'gow, Springb'rn)	Ross, Wm. (Londonderry)	Wigley, Dafydd
Mason, Rt Hon Roy	Rowlands, Ted	Willey, Rt Hon Frederick
Maxton, John	Ryman, John	Williams, Rt Hon Alan (Swansea W)
Maynard, Miss Joan	Sandelson, Neville	Williams, Sir Thomas (Warrington)
Meacher, Michael	Sever, John	Wilson, Gordon (Dundee East)
Mellish, Rt Hon Robert	Sheerman, Barry	Wilson, Rt Hon Sir Harold (Huyton)
Mikardo, Ian	Sheldon, Rt Hon Robert (A'ton-u-L)	Wilson, William (Coventry SE)
Milan, Rt Hon Bruce	Shore, Rt Hon Peter (Step and Pop)	Winnick, David
Miller, Dr M. S. (East Kilbride)	Short, Mrs Renée	Woolmer, Kenneth
Mitchell, Austin (Grimsby)	Silkin, Rt Hon John (Deptford)	Wrigglesworth, Ian
Mitchell, R. C. (Soton, Itchen)	Silkin, Rt Hon S. C. (Dulwich)	Wright, Miss Sheila
Molyneaux, James	Silverman, Julius	Young, David (Bolton East)
Morris, Rt Hon Alfred (Wythenshawe)	Skinner, Dennis
Morris, Rt Hon Charles (Openshaw)	Smith, Rt Hon J. (North Lanarkshire)	TELLERS FOR THE NOES:
Moyle, Rt Hon Roland	Snape, Peter	Mr. Thomas Cox an
Newens, Stanley	Soley, Clive	Mr. George Morton
NOES
Adley, Robert	Buck, Antony	Fairbairn, Nicholas
Aitken, Jonathan	Budgen, Nick	Faith, Mrs Sheila
Alexander, Richard	Bulmer, Esmond	Farr, John
Alison, Michael	Burden, F. A.	Fell, Anthony
Ancram, Michael	Butcher, John	Fenner, Mrs Peggy
Arnold, Tom	Butler, Hon Adam	Finsberg, Geoffrey
Aspinwall, Jack	Cadbury, Jocelyn	Fisher, Sir Nigel
Atkins, Robert (Preston North)	Carlisle, John (Luton West)	Fletcher, Alexander (Edinburgh N)
Atkinson, David (B'mouth, East)	Carlisle, Kenneth (Lincoln)	Fletcher-Cooke, Charles
Baker, Kenneth (St. Marylebone)	Carlisle, Rt Hon Mark (Runcorn)	Fookes, Miss Janet
Baker, Nicholas (North Dorset)	Chalker, Mrs. Lynda	Forman, Nigel
Banks, Robert	Chapman, Sydney	Fowler, Rt Hon Norman
Beaumont-Dark, Anthony	Churchill, W. S.	Fox, Marcus
Beith, A. J.	Clark, Hon Alan (Plymouth, Sutton)	Fraser, Peter (South Angus)
Bell, Ronald	Clark, William (Croydon South)	Fry, Peter
Bendall, Vivian	Clarke, Kenneth (Rushcliffe)	Galbraith, Hon T. G. D.
Benyon, Thomas (Abingdon)	Clegg, Walter	Gardiner, George (Reigate)
Benyon, W. (Buckingham)	Cockeram, Eric	Gardner, Edward (South Fylde)
Berry, Hon Anthony	Colvin, Michael	Garel-Jones, Tristan
Best, Keith	Cope, John	Glyn, Dr Alan
Bevan, David Gilroy	Cormack, Patrick	Goodhart, Philip
Biffen, Rt Hon John	Costain, A. P.	Goodlad, Alastair
Biggs-Davison, John	Cranborne, Viscount	Gorst, John
Blackburn, John	Critchley, Julian	Gow, Ian
Blaker, Peter	Crouch, David	Gower, Sir Raymond
Body, Richard	Dean, Paul (North Somerset)	Grant, Anthony (Harrow C)
Bonsor, Sir Nicholas	Dickens, Geoffrey	Gray, Hamish
Boscawen, Hon Robert	Dodsworth, Geoffrey	Grieve, Percy
Bottomley, Peter (Woolwich West)	Dorrell, Stephen	Griffiths, Eldon (Bury St Edmunds)
Bowden, Andrew	Douglas-Hamilton, Lord James	Griffiths, Peter (Portsmouth N)
Boyson, Dr Rhodes	Dover, Denshore	Grist, Ian
Bright, Graham	du Cann, Rt Hon Edward	Grylls, Michael
Brinton, Timothy	Dunn, Robert (Dartford)	Gummer, John Selwyn
Brittan, Leon	Durant, Tony	Hamilton, Hon Archie (Eps'm&Ew'll)
Brocklebank-Fowler, Christopher	Dykes, Hugh	Hamilton, Michael (Salisbury)
Brotherton, Michael	Eden, Rt Hon Sir John	Hampson, Dr Keith
Brown, Michael (Brigg & Sc'thorpe)	Edwards, Rt Hon N. (Pembroke)	Hannam, John
Browne, John (Winchester)	Eggar, Timothy	Haselhurst, Alan
Bruce-Gardyne, John	Emery, Peter	Havers, Rt Hon Sir Michael
Buchanan-Smith, Hon Alick	Eyre, Reginald	Hawkins, Paul

Hawksley, Warren	Mawhinney, Dr Brian	Shepherd, Colin (Hereford)
Hayhoe, Barney	Maxwell-Hyslop, Robin	Shepherd, Richard (Aldridge-Br'hills)
Heddle, John	Mayhew, Patrick	Shersby, Michael
Henderson, Barry	Mellor, David	Silvester, Fred
Hicks, Robert	Meyer, Sir Anthony	Sims, Roger
Higgins, Terence L.	Miller, Hal (Bromsgrove & Redditch)	Skeet, T. H. H.
Hill, James	Mills, Iain (Meriden)	Speller, Tony
Hogg, Hon Douglas (Grantham)	Mills, Peter (West Devon)	Spicer, Jim (West Dorset)
Holland, Philip (Carlton)	Miscampbell, Norman	Spicer, Michael (S Worcestershire)
Hooson, Tom	Mitchell, David (Basingstoke)	Sproat, Ian
Hordern, Peter	Monro, Hector	Squire, Robin
Howe, Rt Hon Sir Geoffrey	Montgomery, Fergus	Stainton, Keith
Howell, Rt Hon David (Guildford)	Morgan, Geraint	Stanbrook, Ivor
Howell, Ralph (North Norfolk)	Morris, Michael (Northampton, Sth)	Stanley, John
Howells, Geraint	Morrison, Hon Charles (Devizes)	Steel, Rt Hon David
Hunt, David (Wirral)	Morrison, Hon Peter (City of Chester)	Steen, Anthony
Jenkin, Rt Hon Patrick	Mudd, David	Stevens, Martin
Jessel, Toby	Murphy, Christopher	Stewart, Ian (Hitchin)
Johnson Smith, Geoffrey	Myles, David	Stewart, John (East Renfrewshire)
Johnston, Russell (Inverness)	Neale, Gerard	Stokes, John
Jopling, Rt Hon Michael	Newton, Tony	Stradling Thomas, J.
Joseph, Rt Hon Sir Keith	Normanton, Tom	Taylor, Robert (Croydon NW)
Kaberry, Sir Donald	Nott, Rt Hon John	Tebbit, Norman
Kellett-Bowman, Mrs Elaine	Oppenheim, Rt Hon Mrs Sally	Temple-Morris, Peter
Kershaw, Anthony	Osborn, John	Thomas, Rt Hon Peter (Hendon S)
Kimball, Marcus	Page, John (Harrow, West)	Thompson, Donald
King, Rt Hon Tom	Page, Rt Hon R Graham (Crosby)	Thorne, Neil (Ilford South)
Kitson, Sir Timothy	Parkinson, Cecil	Thornton, George
Knox, David	Parris, Matthew	Townend, John (Bridlington)
Lamont, Norman	Patten, Christopher (Bath)	Townsend, Cyril D. (Bexleyheath)
Lang, Ian	Patten, John (Oxford)	Trippier, David
Langford-Holt, Sir John	Pattie, Geoffrey	Trotter, Neville
Latham, Michael	Pawsey, James	van Straubenzee, W. R.
Lawrence Ivan	Penhaligon, David	Vaughan, Dr Gerard
Lawson, Nigel	Percival, Sir Ian	Viggers, Peter
Lee, John	Pink, R. Bonner	Wainwright, Richard (Colne Valley)
Le Merchant, Spencer	Pollock, Alexander	Wakeham, John
Lennox-Boyd, Hon Mark	Porter, George	Waldegrave, Hon William
Lewis, Kenneth (Rutland)	Price, David (Eastleigh)	Walker, Rt Hon Peter (Worcester)
Lloyd, Ian (Havant & Waterloo)	Prior, Rt Hon James	Wall, Patrick
Lloyd, Peter (Fareham)	Proctor, K. Harvey	Waller, Gary
Loveridge, John	Raison, Timothy	Walters, Dennis
Luce, Richard	Rathbone, Tim	Ward, John
Lyell, Nicholas	Rees, Peter (Dover and Deal)	Watson, John
McCrindle, Robert	Rees-Davies, W. R.	Wells, John (Maidstone)
Macfarlane, Neil	Renton, Tim	Wells, P. Bowen (Hert'rd&Stev nage)
Mackay, John (Argyll)	Rhodes James, Robert	Wheeler, John
Macmillan, Rt Hon M. (Farnham)	Rhys Williams, Sir Brandon	Whitelaw, Rt Hon William
McNair-Wilson, Michael (Newbury)	Ridsdale, Julian	Whitney, Raymond
McNair-Wilson, Patrick (New Forest)	Rifkind, Malcolm	Wickenden, Keith
McQuarrie, Albert	Roberts, Michael (Cardiff NW)	Wiggin, Jerry
Madel, David	Roberts, Wyn (Conway)	Wilkinson, John
Major, John	Ross, Stephen (Isle of Wight)	Williams, Delwyn (Montgomery)
Marland, Paul	Rossi, Hugh	Winterton, Nicholas
Marlow, Antony	Rost, Peter	Wolfson, Mark
Marshall, Michael (Arundel)	Royle, Sir Anthony	Young, Sir George (Acton)
Marten, Neil (Banbury)	Sainsbury, Hon Timothy	Younger, Rt Hon George
Mates, Michael	St. John-Stevas, Rt Hon Norman
Mather, Carol	Scott, Nicholas	TELLERS FOR THE NOES:
Maude, Rt Hon Angus	Shaw, Michael (Scarborough)	Mr. David Waddington and
Mawby, Ray	Shelton, William (Streatham)	Mr. John McGregor.

Question accordingly negatived.

Sir Timothy Kitson (Richmond, Yorks)

I beg to move amendment No. 5, in clause 1, page 2, line 13, at end insert— '(3A) As from the passing of this Act subsection 1(B) above does not affect the rate of tax on thoroughbred horses and bloodstock'. This amendment stands in my name and in the names of Members on both sides of the Committee.

Since 1973 the racing industry has made a series of submissions to the Treasury about the treatment of VAT on bloodstock in the United Kingdom compared with our major competitors in the rest of Europe. The racing and bloodstock industry in the United Kingdom has traditionally been held in high esteem throughout the world because of the high quality of its bloodstock. Indeed, British racehorses and the thoroughbred breeding industry are recognised for the standards which had been maintained over the years. It is not insignificant that last year our exports of bloodstock amounted to some £24 million.

Since the introduction of VAT the British industry has had to compete at a disadvantage with our major competitors, and this threatens our ability to maintain the standards of racing and breeding in the United Kingdom. The problem occurs because when horses are purchased, imported or transferred into training from the stud farm VAT is levied on the owner. The problem facing English racing has been virtually doubled by the increase in VAT from 8 to 15 per cent.

The bloodstock industry is international and it is sensitive to fiscal arrangements in other countries. Despite our membership of the EEC, the treatment of horses in the United Kingdom is out of line with other European countries. In the United Kingdom 15 per cent. is to be charged on the full value of horses. In France VAT is paid on only the carcase value, which works out at about £50 per horse. If that position is compared with that of a British horse which has cost between £100 and £100,000, when the charge of 15 per cent. is added the British racehorse is at a great disadvantage.

In Ireland horses are exempted from VAT altogether. That treatment applies to imports as well as sales, although in all three countries, France, the United Kingdom and Ireland, exports of blood-stock are zero rated. Because of the increase in VAT, the United Kingdom bloodstock industry now trades at a serious disadvantage. The incentive for United Kingdom or foreign residents to export animals and avoid the burden of the VAT that is detrimental to the racing industry is further increased.

Trainers, their staff and the breeding industry will also suffer. Owners who import high quality horses from overseas to train them in this country and then return them to stud are now encouraged to send their animals either to France or Ireland.

I spoke recently to one of the leading owners in British racing. He has 20 yearlings in Kentucky at his stud and he spends annually between £3 million and £5 million on young stock. Most of his horses would be trained in Newmarket or Lambourn but because of the adverse conditions in British racing all of his horses will be trained in Ireland or France. That is a pattern that will be followed by many owners.

It is even more extraordinary that a British national is treated differently from an overseas owner, who is exempted from VAT for 12 months on any animal that he imports or buys in England. If that horse stays in training in England for another year he has to pay the VAT. One Californian owner imported 12 horses last year, none of which has run because of a virus infection in his stables. It is possible that none of the horses will see an English racecourse this year. That owner has to decide whether to leave them in this country to be trained and consequently pay a bill of about £25,000 or send them to Ireland or France for training. The VAT that he would pay would pay for the training costs for the next two years. Therefore, he has little incentive to leave his horses in this country.

Assurances have been given that the Treasury will try to help in the matter. However, the situation has been aggravated by the increase in VAT from 8 per cent. to 15 per cent. In the debate on the Finance Bill in 1977 the Financial Secretary referred for the first time to the sixth directive on harmonisation of VAT as a possible solution to the problem. But, it has been discovered that Ireland has made special arrangements and that country will be excluded from VAT payments on racehorses until the end of 1982. There is little chance of the French being persuaded to alter their position in view of the advantage that they hold over the British owner, trainer and breeder.

I spoke on Monday to the owner of the English and Irish Derby winner. He stated that it would be impossible to syndicate that horse in this country with VAT—

The First Deputy Chairman (Mr. Bryant Godman Irvine)

Order. There appear to be a number of urgent conversations taking place. It would be of convenience to the Chair and other hon. Members if those conversations took place outside rather than inside the Chamber.

11.15 p.m.

Sir T. Kitson

It was pointed out to me that there was no way in which the horse which won the British Derby and the Irish Derby could be left in this country, because of the VAT charges, when it could go to Ireland, France or the United States and there would be no VAT on its stud servicing or any of its yearlings that would be put into the sale rings in those countries. Therefore, it is likely that one of our leading sires will yet again go overseas. It is probably destined for France or the United States.

We are not asking the Government for any special consideration for racing. We are simply asking that the industry should be put into a fair and competitive position as compared with Ireland and France. Of course, at the end of the day we should like to remove VAT on racehorses altogether, but an amendment on those lines would have been out of order.

Last year at Newmarket more than 150 horses were sold at between £25,000 and £150,000. All of them could be trained for two to three years overseas on the tax that would be paid on them if they remained in this country. If they went to Ireland or France they would have their training fees paid out of the amount that the owner would have had to pay in tax. Therefore, we are clearly simply handing the trade to the French and Irish.

Some Labour hon. Members are slightly scornful about this, but there are many stable lads working in Newmarket, Mal-ton and Lambourn whose jobs are at risk. Any trainer in Ireland or France will say that he is being approached by English operators who say "We shall send our horses to you, and we shall not go on supporting the British racing scene."

We must recognise that racegoers, trainers, owners and breeders all have a major interest. Unless we can encourage the ordinary racegoers to go onto the racecourses to see the spectacle of good horses and good jockeys, they will not go. If they do not and the Horserace Betting Levy Board does not receive the tax, the racing industry is bound to decline.

Racing is a spectator sport. We have a duty to ensure that the best horses remain in this country. Lord Rothschild suggested in the report of the Royal Commission on gambling that VAT should be abolished in this instance. We should eventually accept that recommendation. At least for the time being we should not increase the standard rate of VAT on the British bloodstock industry. If we raise it from 8 per cent. to 15 per cent., much of our best bloodstock will leave the country, and many jobs will be lost.

Mr. Robert Mellish (Bermondsey)

I support the amendment, which has been ably moved by the hon. Member for Richmond, Yorks (Sir T. Kitson). He has great knowledge of the subject, and I pay tribute to him. This is not an argument that has suddenly begun today because a Conservative Government are in power and they have raised VAT to 15 per cent. The argument has been raging for months and indeed years. I ask my hon. Friends to take it seriously.

We are not saying, and the hon. Gentleman did not say, that VAT should be removed, that there should be a special concession for the racing industry whereas we do not give such a concession for social services and the rest. Of course we are not talking such rubbish. We are asking for equality of treatment with our foreign competitors. That introduces—and this should excite all my hon. Friends—the issue of the Common Market. My right hon. Friend the Member for Battersea, North (Mr. Jay) should leap to his feet. Those involved in the breeding of horses find that VAT is imposed.

We made a complaint when the last Government were in power and went to see the Financial Secretary to the Treasury, my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon). We were received with great courtesy. Our case was understood and its importance recognised. It was clear to me and to the hon. Member for Richmond, Yorks that, while the position remained the same in the Common Market, nothing could be done unless there was agreement on harmonisation. I am not arguing a party political case that has occurred only because the Tories are in power. As the hon. Member for Richmond, Yorks, indicated, France and Ireland are virtually exempt from VAT in their bloodstock dealings. Unless the position is changed, the industry in this country has no future. That cannot be right. With the VAT rate up from 8 per cent. to 15 per cent. the position is now much worse.

I am not asking that the Minister should give an immediate indication that he can solve the problem. There are difficulties in dealing with the Common Market. I have had some experience of the difficulties. For months, the leather industry in my constituency has been trying to get some understanding and agreement on leather imports. One is trying to get unanimity within the most frightening bureaucratic machine ever invented by man.

Neither the hon. Member for Richmond, Yorks, nor myself expects any special concession from the Minister for this industry. We ask only that the industry should be given an equal chance with France and Ireland. If that is not done, untold millions of pounds will be lost to this country. My hon. Friends may sneer at talk of racing bloodstock, but in every constituency, thousands of people are interested in the subject. We must not walk away from the issue. If we are to have the sort of industry that some of us want, equality of treatment is necessary.

I do not want the Minister to defend the position. I ask him to give some indication of the chance of reaching some agreement with the other countries involved. If at the end of the day we cannot get agreement with France or Ireland because it suits them to retain the present situation—and my right hon. Friend the Member for Battersea, North will be delighted to hear this—it is about time that Britain stood up for the British and told the French and the Irish what to do and how to do it.

Mr. Paul Hawkins (Norfolk, South-West)

I want briefly to support the right hon. Member for Bermondsey (Mr. Mellish) and my hon. Friend the Member for Richmond, Yorks (Sir T. Kitson), who so ably moved the amendment. The issue concerns not only the bloodstock market at Newmarket and elsewhere, but the ordinary man, woman or child who rides a good pony or a horse in the countryside. They have to pay the increased VAT and are also taxed differently from those in France and Ireland. Thousands of people who earn their living looking after horses and ponies, show them and deal in them will be badly hit by this extra tax.

Mr. Dalyell

Some of us know little about racing. Will the hon. Gentleman enlighten us about what sums of money are involved?

Mr. Hawkins

I am sure that my hon. Friend the Member for Richmond, Yorks can talk in terms of between £20,000 and £100,000. But when discussing children's ponies we are talking of between £300 and £500. Hunting horses probably involve between £1,500 and £2,000.

Mr. Mellish

May I help the hon. Gentleman to help my hon. Friend the Member for West Lothian (Mr. Dalyell)? The agriculture export committee said that a minimum of £24 million was involved. We are, therefore, discussing something that is worth while, in addition to the value of the bloodstock which is in danger of being lost to the country for ever if this problem is not dealt with.

Mr. Hawkins

I thank the right hon. Gentleman. That figure was given by my hon. Friend the Member for Richmond, Yorks, when he moved the amendment. Figures can vary. We are talking about unbroken ponies and trained hunters. It is a big business in which many people are involved. Many people derive enjoyment from it. All hon. Members have constituents who take an interest in it or who own ponies or horses. I have been approached by many constituents about this issue. I support the amendment.

Mr. John Golding (Newcastle-under-Lyme)

I understand the cynicism of my hon. Friends. But I ask them to understand that the proposal would benefit not only the rich and owners of horses. We are talking about an industry. Some of my hon. Friends said "Rubbish" when reference was made to stable boys. But many stable lads are members of the Transport and General Workers' Union, which is worried about security of employment and about the low level of pay in the racing industry.

When I was a member of the Government I became aware of the acute unemployment problem in rural areas. I became aware that the countryside had to provide employment for young people if they were to escape a life on the dole.

I support the amendment because it is designed to help the industry. Owners will not suffer without the amendment. They will not be prepared to pay the £3,000 or £30,000 involved because they will be able to send their horses to Ireland. When the horses are sent to Ireland for training—with non-payment of VAT—some jobs will be transferred to Ireland. That is the reality of the situation. If the industry is to be allowed to run down, and if it is further hurt by this tax, we will suffer a loss of jobs.

In addition, it will be increasingly difficult for those in the racing industry, at the lowest levels, to be paid reasonable wages. I should not have thought that anyone on the Labour Benches would want to make it more difficult for those workers to achieve a right level of remuneration and security from their jobs.

11.30 p.m.

Mr. Eldon Griffiths (Bury St. Edmunds)

My constituency includes Newmarket and, with the possible exception of the constituency of my hon. Friend the Member for Richmond, Yorks (Sir T. Kitson), I suspect that there are more thoroughbred horses in the Bury St. Edmunds constituency than anywhere else in the country. Long may it remain so.

At any time there are several thousand magnificent horses either at stud or in training and, as the hon. Member for Newcastle-under-Lyme (Mr. Golding) has said, it is by any measure a major industry. It provides jobs that are very hard to find in a rural area. It provides exports which amounted to some £25 million last year. That must be seen as the dimension of many a middle-sized firm in our engineering industries.

Racing also provides immense entertainment to tens of millions of people in this country and provides, through the various taxes on betting, a very substantial revenue to the Treasury. I therefore suggest that this is an industry that the Government would wish to treat in a fashion that would secure its future.

In his last speech before the election of 1970 the late Iain Macleod gave an undertaking that if he became Chancellor he would do something to help the racing industry. I had the pleasure of speaking with him during the last debate in which he took part as Opposition spokesman on financial matters.

When the Conservative Government of 1970 were established and Iain Macleod became Chancellor, I for one was confident that he would redeem that promise. Unfortunately, as the House knows, it was not possible for him to continue in his post. I believe that if he had continued he would, in one way or another, have eased the burden on the racing industry.

It is in that spirit that I put this plea to my hon. and learned Friend the Minister of State. I believe that the most important thing that the Chancellor of the Exchequer has done in his Budget is to reduce the upper level of tax on income to the mean average that exists in other Common Market countries. I ask him to do the same for the racing industry in respect of VAT. He well knows that in France the racing industry is greatly advantaged by a rate of VAT which amounts to only £50 per head. He well knows that in Ireland there is no VAT. I ask him to try, on grounds of competition policy if nothing else, to ensure that the British racing industry, the best I believe in the world, is not worse treated than similar industries in other EEC countries.

I understand the difficulties faced by my hon. and learned Friend, but the request from both sides of the Committee is, as the right hon. Member for Bermondsey (Mr. Mellish) said, not for special treatment for one industry. It is simply for the harmonisation of the treatment that is available to an industry that has to compete internationally. It has to compete internationally on the tracks, in the studs, in training and, above all, in the selling of racehorses.

I ask my hon. and learned Friend to accept at least the spirit of the amendment and give us some hope that racing in Britain will be treated fairly.

Mr. Arthur Davidson (Accrington)

I know very few racehorse owners, if any, though I should always be more than happy to meet any of them who desired to talk to me. I intervene, therefore, not because I feel sorry for racehorse owners but because of my concern as a simple punter that British racing should survive and prosper.

The racing industry has added a great deal of lustre to the country's prestige. If any other industry had to compete at such an obvious disadvantage when compared with its two main competitors, this whole Committee would unite behind it.

I agree with my hon. Friend the Member for Newcastle-under-Lyme (Mr. Golding) that the industry provides useful jobs at all levels, though I knew very little about this subject until this week. But I was astonished to learn about the disadvantages that owners in this country suffer compared with their two main competitors in France and Ireland. That cannot be right. My hon. Friend was right when he said that in the long run the owners would not suffer financially because, if it became too great a financial burden for them to import horses and to keep and breed them here, they would have them trained elsewhere. But that would be a mortal blow to racing.

There is no doubt that the VAT increase from 8 per cent. to 15 per cent. will add substantially to the burdens which already are threatening to cripple the racing industry. I hope that the Minister of State will understand the injustice of the system and realise that right hon. and hon. Members are supporting this amendment not with a view to any party advantage but merely because they have an interest in and perhaps affection and respect for the racing industry. It is on that basis that I am happy to support the amendment.

Mr. Edward du Cann (Taunton)

The hon. and learned Member for Accrington (Mr. Davidson), like my hon. Friend the Member for Bury St. Edmunds (Mr. Griffiths), the hon. Member for Newcastle-under-Lyme (Mr. Golding) and the right hon. Member for Bermondsey (Mr. Mellish), did the Committee a great service by pointing out clearly that we were discussing the future, and the immediate future, of a great British industry. It is one in which there is intense popular interest, and it is of the greatest possible benefit to the Exchequer.

My hon. Friend the Member for Richmond, Yorks (Sir T. Kitson) moved the amendment against a background hubbub, and unfortunately right hon. and hon. Members may not have heard all that he said, but he made one comment which shocked me profoundly. He said that representations had been made to the Treasury continuously by right hon. and hon. Members on both sides ever since 1973. In other words, this discussion has continued over many years.

My hon. and learned Friend the Minister of State has great experience of tax matters and good judgment besides, but I must warn him that right hon. and hon. Members will be more than a little worried if he suggests that perhaps this can be looked at again and that the Treasury Bench will do its best. I mean no disrespect to my hon. and learned Friend when I say that. We have a new Government and they will need time to consider a matter as important as this. It is significant to bear in mind that this is a great British industry because the breeding of bloodstock is an international business. As such it is highly competitive and highly price sensitive. If, as so many hon. Members have suggested, something is not done in this matter the whole industry will undoubtedly largely disappear to Ireland, to France or to wherever. That would be bad enough, but I guess that it would be unlikely to return promptly, if ever.

Therefore we are discussing a matter of the greatest significance. As my hon. Friend the Member for Richmond, Yorks, said in moving the amendment, we have heard about harmonisation for a number of years. My impression of harmonisation is that it is a most lengthy and complex process. It seems clear that the Irish have negotiated a special arrangement for themselves and that the French, hardly the most altruistic of business managers, will not harmonise.

Take the case of a particular horse which costs, say, £10,000. In this country the tax would amount to £1,500. In Ireland there would be none. In France there would be tax only on the carcase value—say £50 or so. That is a measure of the disadvantage under which those who keep their horses here are trading. That disadvantage is intolerable and unacceptable. If my hon. and learned Friend says that he will look at harmonisation, I must tell him that this matter is now so serious that it is essential that we have a forthright declaration from the Dispatch Box that we are prepared to act unilaterally in order to put this great British industry in a position to trade on equal terms with its competitors.

Mr. Bernard Conlan (Gateshead, East)

I should not like the Minister to think that, because seven hon. or right hon. Members have spoken for the amendment, the Committee necessarily agrees with it. Personally I do not, and I shall say why.

We have heard tonight a classic example of special pleading. I can understand my right hon. Friend the Member for Bermondsey (Mr. Mellish), my hon. and learned Friend the Member for Accrington (Mr. Davidson) and my hon. Friend the Member for Newcastle-under-Lyme (Mr. Golding) making a case for a reduction in VAT. They disagree with the increase in VAT in the Budget. I admire the audacity of Conservative Members taking that line. They fought the election campaign on the basis of income tax cuts that could have been paid for only by large increases in VAT. They have sown their seed. Now they are reaping the whirlwind.

The Minister will say that in order to pay for the tax concessions the Government have had to increase VAT to the astronomical level of 15 per cent. They will say that they must do this in order to meet the demands of the higher paid in industry and this country generally, and of the brewers, who must be paid. Yet this is the sort of policy that the proposers of the amendment—and I exclude my misguided hon. Friends—[HON. MEMBERS: "Why?".] Because they have been misled. It is as simple as that. My misguided hon. Friends have appended their names to the amendment supporting Conservative Members who got elected on 3 May on the ticket that the Tories were supporting reductions in income tax.

11.45 p.m.

Mr. Mellish

I find my hon. Friend's argument a little odd. If I remember rightly, when he was the secretary of the all-party racing committee, he, too, protested with me, when a Labour Government were in power, at the 8 per cent. VAT. I am not sure what my hon. Friend is trying to argue now. I thought that I had made it clear in my speech that I am not asking for the abolition of VAT. I am asking that our contribution be equal to the French and the Irish contributions in order to allow for what I call equality of treatment, which other hon. Members are also arguing for. Only the other day it seemed that my hon. Friend was agreeing with me and with others that VAT at its present rate was very unfair.

Mr. Conlan

Perhaps my right hon. Friend has not been listening to my argument.

Mr. Mellish

I have been listening.

Mr. Conlan

When my right hon. Friend refers to "the other day", he is not referring to any date following 3 May. A complete transformation has come over all these issues since the Budget.

I cannot countenance or condone special pleading for racehorse owners when ordinary working-class people are expected to pay increased VAT on washing machines, cookers and household goods of all kinds and when motorists are expected to pay increased VAT on petrol. No, I cannot reconcile these things, and neither should my right hon. Friend. I was advocating a reduction in VAT for these reasons before the Budget, but I cannot reconcile an increase of this sort for ordinary people at the same time as accepting special pleading from people who got their seats as a result of pleas for reductions in income tax.

This is a phoney amendment and I very much hope that the Minister will reject it.

Mr. Maurice Macmillan (Farnham)

The hon. Member for Gateshead, East (Mr. Conlan) is under a total misapprehension. He has performed that curious feat which I had hitherto believed was only possible for lawyers: he has misdirected himself.

We are not asking for special treatment for the owners of racehorses, or for the trainers or breeders of racehorses. We are not asking that they should be exempted from the higher rate of VAT on their normal purchases. We are not seeking to take them out of the tax system. What we are saying is that the Government should take measures, rapidly, urgently and effectively, to see that the impact of VAT, at whatever level it may be as compared with its impact in other countries which also operate the VAT system, does not put the British racing and bloodstock industry at a disadvantage. It is as simple as that.

It is nothing to do with the wealth or otherwise of the owners. Indeed, the richer the owner, the easier it is for him to send his horses to be trained elsewhere. It is perhaps true to say that the less well off will suffer, those whose employment will be damaged because more horses are trained, held at stud and raced abroad because of this—

Mr. Eldon Griffiths

Exporting jobs.

Mr. Macmillan

As my hon. Friend says, exporting jobs.

It is worth considering that the valuation put on a racehorse for tax purposes is a speculative valuation. One of the peculiarities of the British tax is that it arises on the transfer of a horse to training. That horse has not raced. It is valued on its breeding and on the expectation the owner has of what it will and can do. Many horses that are well bred and for which people have paid a great deal of money do not live up to those expectations and do not succeed on the racecourse.

In this particular case, therefore, quite apart from the impact of the tax when compared with our European competitors, there is the question of valuation. The French got over this difficulty by valuing all horses at carcase value because that is the only definite value they have.

This problem can be looked at in a different form. As a publisher I buy paper and that paper has a definite value until it is printed when it may be worth a great deal more than it was as plain paper. But it might be worth a great deal less if no one wants to buy the book. Therefore, printing and publishing is, to some extent, a speculative activity and yet until the paper is printed it is not valued as if it were a book. It is not taxed when it is in the warehouse on the basis that it might become a Latin primer or a mathematical textbook, or on the basis of the number of those books that we hope to sell. Yet a horse is valued, for the purposes of VAT, when it comes into training and before it has proved that value by racing.

Although we are not making a special plea on behalf of the bloodstock and racing industry but are seeking equality of treatment for that industry with our competitors overseas, there is a case for looking into the methods of valuation and not relying quite so heavily on the potential of a horse rather than its actual value.

I should like to remind my hon. and learned Friend the Minister of State and, in his absence, the Financial Secretary to the Treasury of a report of which they were part authors and which was presented to the House on 11 November 1975. My hon. Friend the Member for Norfolk, South (Mr. MacGregor) was a co-author of the report. Paragraph 86 of it reads as follows: We wish to draw attention here to the blood-stock industry which is, we believe, unique in that it is the abnormally severe effect on their industry of Value Added Tax that makes them particularly vulnerable to any additional taxation. We suggest that, in considering their position vis-a-vis a wealth tax, further consideration be given to the application of VAT to this industry. We understand that their present problems —this is in 1975— are leading to the loss of a pre-eminent position of British breeders and so damaging export earnings. That was at a time when VAT was lower, when we had not yet made any attempt to harmonise with our competitors overseas.

I beg my hon. and learned Friend to assure the Committee that the Government not only have this problem under urgent consideration but will also take action in one form or another very quickly. As has been already said, once people start keeping and racing their horses abroad, a great deal will be lost not just for a year or two but for good, partly because the rewards overseas to successful owners are so much greater than they are in this country.

There is already a strong temptation, particularly for small owners, to race their horses in France. Now there will be an even stronger temptation to keep and train them there, and only to send them to this country in order to win the bigger prizes. By doing so they will take part in the loss of jobs and the loss of an industry, which is not only of great economic value to the country but which has given enormous pleasure to people from every walk of life in every part of the country, and which is probably one of the most popular sports today, as it has been for centuries.

Mr. Harry Ewing (Stirling, Falkirk and Grangemouth)

I suspect that, after the Minister has had to suffer his own words, he is now looking for some support to sustain him as he prepares to reply to the debate.

I shall maintain the consistency that I maintained when I was a member of the Labour Government. I supported the application of the 8 per cent. VAT to the sale of racehorses when in government, and I shall not go into the Lobby tonight to support the amendment which, as the right hon. Member for Taunton (Mr. du Cann) said, would give this great British industry, as he called it, some special treatment. I shall come later to the point made by my right hon. Friend the Member for Bermondsey (Mr. Mellish) about equality of treatment between France, Ireland and the United Kingdom in relation to this industry.

It is at moments such as this that 'the great British public misunderstands, and rightly so, the House of Commons. We have spent a great deal of time going through parts of the Finance Bill, and applying 15 per cent. VAT to item after item. Now, when it is approaching midnight, all sorts of hon. Members are on their feet making all sorts of passionate pleas for one particular industry, and we are told that preferential treatment is not being sought.

Let there be no doubt that great British industry—I use the words of the right hon. Member for Taunton—after great British industry has been damaged by this Budget. Whether or not the right hon. Gentleman likes it, he is asking for preferential treatment for the bloodstock industry.

It is not in my nature to be patronising, and I have the greatest admiration for my right hon. Friend the Member for Bermondsey. However, my right hon. Friend, supported by Conservative Members, said that he was asking for equality of treatment between France, Ireland and the United Kingdom. I must tell the Committee that our constituents will not understand that. The equality of treatment that they see is the equality of treatment between the washing-up liquid that has to get used every hour of the day and the sale of bloodstock. They will compare the equality of treatment between a cooker and other items in daily use and the sale of bloodstock.

12 midnight

Mr. Eldon Griffiths

If an engineering item exported from the hon. Gentleman's constituency has its VAT rebated because it is an export, why does he object to VAT being rebated on a racehorse that has raced in this country and then been exported? It is another export.

Mr. Ewing

The next amendment to be moved will ask for the £1 million paid for Laurie Cunningham by Real Madrid to be zero rated. Football transfer fees are not zero rated. They are subject to VAT, but if I am wrong in that the Minister will correct me. The logical conclusion of the argument on racehorses would extend to transferring football stars out of the country.

We should deal with human beings and their feelings. The 15 per cent. VAT will damage great British industry after great British industry, and in the process will damage British people.

Mr. Mellish

My hon. Friend is implying that I am not protesting about the effect of the 15 per cent. increase on the essential purchases of poor folk or on the social services. I have been a Member a long time and I have a lot of tolerance, but I resent that implication. Perhaps I did not make myself clear. There must be harmonisation within the Common Market that gives British industry an equal chance. That has nothing to do with the effect of 15 per cent. VAT on anything else. I am asking what the Government can do about the impact in regard to the Common Market. I am not making any party political point, and the matter has been argued month after month. If I had my way, there would be no VAT on anything, but I am a realist.

Mr. Ewing

I apologise if my right hon. Friend feels that I am accusing him of all people of not being concerned about the 15 per cent. VAT on items in daily use. I know that he is as concerned as we all are on the Labour Benches. As politicians we must make the people understand the decisions reached in this Chamber. We should find it impossible to explain why VAT on racehorses should be held at 8 per cent. while applying 15 per cent. to essential items, domestic heating and other aspects of daily life that have been mentioned. Despite what has been said about the thousands of jobs at stake, the people will not understand such a decision. They will not understand why Members should concern themselves with this aspect of the 15 per cent. VAT when there are so many more important matters.

Sir Timothy Kitson

If the hon. Member walked into any club or pub in Newmarket, Malton, Richmond or any other racing centre, or any betting shop in the country, or if he read the front page of The Sporting Life either yesterday or today, he would find that people are not so stupid that they do not recognise that our best bloodstock is liable to leave this country. They also recognise that jobs are at stake. The hon. Member does less than credit to the majority of people if he really thinks that we are arguing for anything more than a comparable situation to that which exists in Ireland and France. Why should any Englishman go to a sale in this country at a 15 per cent. disadvantage to anybody who is prepared to buy and send the animal overseas to be trained? The Englishman is at a disadvantage of 15 per cent. when he starts in the auction. If the hon. Member does not recognise the problems that that causes in the bloodstock industry, he cannot have followed the arguments in the Committee tonight.

Mr. Ewing

I admit freely that I suffer from the distinict disadvantage of never having been to Newmarket, Ascot or Goodwood. I am like the other 99 per cent. of working people in this country. I have to go to work every day, so I suffer from the disadvantage of never frequenting the salubrious places that the hon. Member mentioned. Whether the hon. Gentleman likes it or not, the working people of this country will not understand the kind of thing we are discussing tonight.

My hon. Friend the Member for Newcastle-under-Lyme (Mr. Golding) mentioned that the stable lads are poorly paid, and that they are members of the Transport and General Workers' Union. I hope that it is not part of his argument that if we rebate this part of the VAT the magnanimous racehorse owners will suddenly find it in their hearts to pay their stable lads better wages than they have paid for the last 15 or 20 years. If that were the case, I should be tempted to support the amendment, but I know that that simply will not happen. I am not surprised by the attitude of Conservative Members. In a sense, they have been consistent in appealing for special treatment for this industry. Their only fault is in claiming that what they are demanding is not special treatment. But I take issue with my hon. Friend in saying that the poor pay of stable lads is an argument for this amendment, in the belief that racehorse owners will increase their wages overnight.

Mr. Golding

I do not suggest that. It is not part of my case to suggest that the increase in VAT has not done great harm to many industries. That is why I have voted against 15 per cent. VAT consistently during these debates. At the same time, I believe it is illogical not to vote against this increase knowing that in this case it will be harmful to jobs. On the specific question of pay, I believe that the more horses sent out of this country for training, the worse will be the bargaining position of the workers in the industry. That is inevitable. Whenever there is a reduction in the profitability or the work done in any industry, the bargaining position of workers in that industry is made more difficult.

Like me, my hon. Friend has represented Post Office workers and he knows that what I am saying is true. Of course we are in the dilemma of seeming to give something to the very rich, but we know that jobs and the standards of living of many in the rural areas depend on a thriving and profitable bloodstock industry. It cannot help the workers for us not to support the amendment.

Mr. Ewing

My hon. Friend fell into the same trap at the end of his intervention as he fell into at the end of his speech. He argues that stable lads are poorly paid and that if we do not increase the rate of VAT they will be better off. He claims that having a viable industry will strengthen the bargaining power of stable lads. I take my hon. Friend's word for that because I do not know the industry, but their bargaining power was not all that great when the industry was strong and was competing on equal terms with the French and Irish industries. I am as anxious as any other hon. Member to ensure that stable lads get a decent standard of living, but I do not believe that the amendment will bring about an improvement or strengthen their bargaining power.

On the question of consistency, when I was in government I supported the application of 8 per cent. VAT to the sale of horses and I would be inconsistent if I voted for the amendment. No hon. Member has suggested where the additional revenue that would be required in order to balance the Chancellor's books if the amendment is passed should be found. It is claimed that only a small amount of money is involved, but all these small amounts add up to a large amount. Until we hear from where that additional revenue is to be found, the Committee has no right to approve the amendment, and I shall certainly not vote for it.

Mr. Charles Morrison (Devizes)

My conclusion from the speech of the hon. Member for Stirling, Falkirk and Grangemouth (Mr. Ewing) is that it would be useful to have set up not only an all-party racing committee but a Labour Party racing committee so that the right hon. Member for Bermondsey (Mr. Mellish) and some other Labour Members could instruct their colleagues in the realities of the situation facing the industry.

We are protesting not about the application of the 15 per cent. rate of VAT to the industry but about the inequitable consequences of the method of application of VAT—at 8 per cent., 15 per cent. or any other rate—in comparison with the methods adopted by other countries. The amendment does not specifically seek a reduction in VAT or special treatment. It looks for equality of treatment in respect of VAT on the owners and breeders of horses in the United Kingdom compared with owners and breeders in other countries. We are concerned not only with the future of a great British industry, the interests of the punters, or the entertainment of a huge number of people, but with the quality of the industry and its horses.

12.15 a.m.

Perhaps I should declare an interest because, for the first time in my life, I have become the owner of one-quarter of a racehorse. I shall be able to tell hon. Members at a later date whether it is worth putting their money on it. Perhaps I should add that I managed to purchase the horse at the old VAT rate rather than the new one.

The important point to be borne in mind is that the bloodstock industry is international. Consequently, the owner of bloodstock, whether breeding or racing, has a choice as to where the blood-stock should be established. If there is a free choice—as there is, and as I hope there will continue to be—between keeping a horse in one country and another where there are differential rates of VAT, I believe that over a period an increasing number of owners and breeders will ensure that they keep their horse or horses in the country in which the cheapest rates of tax exist. Certainly the cheapest rates are not to be found in this country at present.

It appears that in the short term there is likely to be some effect, and an increasing effect, because of the inequitable treatment of the quality of racing in the United Kingdom. In the short term there will be some effect on employment in the racing industry, and in the long term there is an increasing likelihood that there will be a loss of the best bloodstock from this country, with the result that the export value of bloodstock sales will steadily decrease.

I am asking the Government to ensure that the position of the owner or breeder in this country is fair and competitive in relation to owners and breeders in other countries, and particularly in other EEC countries. I hope that the Minister will be able to say that we are trying to attain harmonisation, and also that he will say how we hope to ensure harmonisation of treatment of owners in this country in comparison with others. If harmonisation does not take place fairly soon, I believe that the consequences to which so many hon. Members have drawn attention will come to pass.

Mr. Frank Haynes (Ashfield)

I shall be as brief as possible. I have been surprised by some of the remarks that have been made in the debate.

I believe that our priorities are wrong. Earlier on I listened carefully to my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker), who appealed for a reduction in the VAT that has been imposed by the Conservative Government on the people of this nation, especially on those in need. I am referring to those who work for voluntary organisations—for example, the league of friends, which helps those who are really in need. At that time there were fewer than 10 Conservative Members in the Chamber. There are more than 50 now and we are talking about horses. Conservatives have got their priorities wrong.

I agree with a number of contributions that have been made by Labour Members. I shall tell you something else—[HON. MEMBERS: "Who?"] I apologise, Mr. Godman Irvine, for not speaking through the Chair, but I am a new boy. I am learning and I am not afraid to admit my mistakes.

Not long ago I worked in a pit. From time to time, some of the men that came on the afternoon shift, who had been watching Ascot, Goodwood and Epsom on television, talked about the men they had seen dressed in top hats and tails while they were working at the coalface and slogging out their insides. They are the very people who have been hit by the increase in VAT.

We should get down to basics. How hypocritical are Conservative Members! They have put a fair amount of emphasis on the loss of jobs, but they have got it wrong. What they are talking about is the loss of profits. If they spoke to the working-class people in their constituencies they would hear some of the comments that I am making now. Conservative Members should remember whom they represent. From my experience of working in a pit, I could understand it if the concern had been about football, cricket, the cinema or the theatre. But, no, we are talking about horses. The priorities are wrong.

I am opposed totally to the increase to 15 per cent. in VAT. I believe that it should have remained as it was before the general election. We should be fair to those whom we represent. We should not pander to the millionaires. But I am afraid that that is the direction that the debate has taken and will continue to take until the vote.

Many working-class people are suffering because of the increase in VAT and the sooner we are sensible about that the better it will be for all of us. I represent a constituency with people who need much help. That is why I now seize the opportunity to express that view on their behalf. I hope that all hon. Members will vote against the amendment.

Mr. W. R. Rees-Davies (Thanet, West)

I should like to reply briefly to the three Opposition hon. Members who were against the tenor of the debate. I think that they were completely sincere and meant every word. I entirely appreciated what they said, but I believe that they are wrong, for reasons that I shall give.

I have had a life time of experience of the turf. I know many hundreds of people connected with it, including owners and those in the Racecourse Association, which I have had the honour to advise. We see no chance that the rich will keep their horses here if the VAT remains. There will be no VAT receipts, because the rich gentlemen will suffer no disadvantage. I could give the names of half-a-dozen big owners who, if the tax remains, will leave for Ireland or France to have their horses trained there.

It now costs £3,000 a year in this country for training and entry fees for a first-class horse. If an owner's horse is valued at £20,000, he must pay the VAT at 15 per cent. It is plain that he will not do so, that he will not keep the horse training in this country. The horses will go abroad. They are already moving, to Eire and France, and they will remain there. Horses will be bred and trained there. Those big owners who are at present bringing horses into this country and training them here have no intention of continuing to do so. There is no reason why they should.

Our amendment is in no way a rich man's amendment. It will not assist the rich at all, because they will be able, as always, to move their horses out of this country without any difficulty. The only people to suffer will be the trainers, the jockeys and others. Therefore, I say to Labour hon. Members "Please do not think that we are doing this to help the rich." We are not. We are doing it to help the industry, including the trainers. I can give the assurance, based on a lifetime's experience, that there is no question that in the amendment we are doing anything to help some of the rich owners, whom we may know well and respect, and who do a great deal for this country. They will simply go elsewhere if the amendment is not made.

The Treasury will not gain a penny piece, because there is no VAT in Eire. Therefore, someone with a couple of horses can have his training free there as against the VAT he would have to pay here. In France, the owner has to pay only on the carcase values.

As the right hon. Member for Bermondsey (Mr. Mellish) correctly said, we are aiming to have fair treatment. This is not a debate about Omo. It may rightly be felt that 15 per cent. is too much VAT to pay on Omo. But training horses has nothing to do with Omo. They are not washed with Omo. Training horses is a service—the service of our unique trainers. It is the service of great trainers, who are renowned all over the world. It is the British racing industry which is regarded as the greatest in the world.

When debates began in this Chamber about the money that would be produced by betting tax, I said that the figure would be £60 million to £70 million. I was derided and told that the figure would be £30 million. We get £100 million. Will we continue to get those millions of pounds if we deride the racing industry and treat it as the poor man, totally different from the industries in Eire and France? We should pass the amendment and ask Roy Jenkins and the European Commission to harmonise the situation in Europe. It is a damned scandal that it has not already been done.

12.30 a.m.

Mr. Conlan

Are not the words of doom that the hon. and learned Gentleman is expressing exactly the same words of doom as were expressed on innumerable occasions in objecting to the 8 per cent. level? Horses were not taken out of the country, in spite of our prognostications. Why on earth should anyone believe that it will happen now?

Mr. Rees-Davies

That is a fair point to make. The fact is that large numbers of horses were taken out of the country. I could give the figures, but I do not want to name individuals. About half moved their horses to Eire. Many horses are in France. Some people decided to give the 8 per cent. rate a run. With the rate at 15 per cent., none of them will give it a run. There will not be a penny.

It is fair to ask the Treasury what we have to lose. The answer is next to nothing. They will move. For unlike Omo, they can move. One is not testing a commodity that is saleable here. One is testing an international movement of racehorses that can be moved to many other countries, particularly to France and to Eire. We must also face the fact that France pays extremely good prize money. They also pay the breeders.

It is my opinion, which may be wrong, that we do not need to deal with this issue as a matter of law. It is my opinion that the Customs and Excise can follow the directive which the French have chosen to follow. I may be told by the Minister of State, who is a very good tax lawyer, that he is not prepared to accept the same kind of ruling as the French have accepted. The French lawyers have said that they are prepared to treat the whole matter as one where VAT is charged on the carcase of the horse. The French have not yet been challenged on that ruling.

Why do we not accept the precedent that the French have adopted? It can be done at the stroke of a pen by my hon. and learned Friend. He can say that we will adopt for the present the same ruling as the French. If the EEC takes the view that this is wrong, I would agree with hon. Members who oppose this amendment provided that the same VAT rate applies in France, Eire and here.

This is an intolerable imposition which does not affect Omo and other such products. It is intolerable that we have to adopt a standard which the French have managed to get round and out of which the Irish have negotiated themselves.

At least until the EEC decides on the negotiating terms and on whether the tax will be imposed on the carcase or the value of the horse, we should adopt the amendment. What is the value of the Derby winner? Is it £2 million or £3 million? What will be paid for a first-class yearling? And 15 per cent. has to be paid on top of that. As much as £100,000 will be paid. That is big money. Nobody will pay £15,000 VAT on a horse which still has to be trained. It will be sent to be trained elsewhere.

When I walked into the Chamber I said to myself "I bet that somebody says that we have turned down a reduced VAT rate for the disabled, so why in the name of heaven should we do something for the rich bloody horse owners? "But I thought that somebody had to explain why it is right to do that. I hope that I have explained the argument.

Mr. Kilroy-Silk

I do not know whether the hon. and learned Gentleman has explained, but perhaps he can explain why not one of his hon. Friends spoke in the debate on exempting VAT for the disabled and why the Government Benches were empty during that debate when on this subject we have heard a string of speeches and the Government Benches are full.

Mr. Rees-Davies

It is not my responsibility to explain what happened in an earlier debate, but it is my responsibility to explain that this is a different argument. All the other countries are treating the matter differently. We are dealing not with Omo but with an important service and the maintenance of an important industry.

I hope that the Committee will recognise what is at stake and give an opportunity to the Treasury to make an immediate concession. If we wait nine or 12 months, we shall lose this business. It will go abroad and it will be difficult for it to return.

Mr. Nick Budgen (Wolverhampton, South-West)

I declare a romantic interest since I rode and trained racehorses all my adult life until I entered the House of Commons.

I regret that I cannot support the amendment. I know little about the rich people who own expensive flat race horses, but I know something about stable lads and those who are intimately involved in the industry. They are badly paid. The reason for that is that they are not motivated by material gain. They are attracted to the industry for romantic reasons, because they love horses, enjoy the danger of riding horses and the excitement of the turf. We are all anxious to give them equality of competition with the Irish and French.

But that cannot be achieved fairly by the amendment. The Irish have, perhaps by sleight of hand, obtained a legal derogation which allows them to apply a nil level of VAT within the EEC structure. That is only a temporary derogation, and we should strive to ensure that they compete on equal terms with us in future.

The position in France is different. The French apply VAT on carcase value. It is doubtful whether that is legal within the laws of the EEC. If it is legal, let us apply VAT on the same basis. If, however, it is held to be illegal, let us apply the robust Gaullism for which the Chief Secretary is rightly famed. Let us say to the French "Stop the fiddle. We want to compete on equal terms with you and if necessary we will play it as rough and as tough as you". That is the view of the Chief Secretary that ought to come out tonight.

Let us be plain. To give, as would appear, a special concession to the racing industry would not be fair in relation to those who are, for instance, buying washing machines with an increased rate of VAT. To have a reduced rate of 8 per cent. in relation to the racing industry would make nonsense of the whole structure of VAT. It would prevent us from having the uniform level of VAT which everybody in the Committee knows we strive for. It would also, if I may respectfully say to my hon. Friend the Member for Norfolk, South-West (Mr. Hawkins), be unfair to those persons for whom he pleaded, because the exact terms of his amendment do not apply to all horses. They apply only to the thoroughbreds and the bloodstock industry. It would create yet another anomaly.

Let us appeal not to this amendment but to the robust Gaullism which still lingers here on the Tory Benches and which is most of all perhaps represented by my right hon. Friend the Chief Secretary.

Mr. John Farr (Harborough)

I support most hon. Members who have spoken in favour of this amendment. Two main points have been made. The first is whether the industry is a major one in Britain. Surely an industry which employs about 100,000 people and whose exports are worth nearly £40 million a year can be valued and welcomed. The second point which has concerned many Members—only two or three hon. Members have objected to this amendment—has been whether there has been unfairness to this industry. Quite plainly there has been great unfairness compared with countries such as Ireland and France.

My right hon. Friend the Member for Farnham (Mr. Macmillan) quoted an article published in 1974 by my hon. Friends on the Treasury Bench. In it they pointed out how unfair the application of VAT was to people engaged in the British racehorse industry. What he does not know but what I can tell him is that since 1974 the situation has declined markedly. My hon. and learned Friend the Minister of State may not be aware of the figures of the latest December bloodstock sales in Newmarket. For the first time ever, of the top 10 money-earning studs at Newmarket, six were registered in Ireland and only four in Britain. That is a radical change in a situation which has steadily deteriorated over the years. Unless the present tax arrangements are changed, and it is made possible for the British racing industry to compete with the French and the Irish, it will get much worse.

My hon. and learned Friend the Member for Thanet, West (Mr. Rees-Davies) said that he did not wish to mention names of people who had left Britain to race abroad. On the other hand, surely it is no use referring to people unless we can give statistics. I can mention one man, Mr. Robert Sangster, who has a racehorse farm in Britain from which he has removed all his stallions. He has removed 13 stallions to Ireland and other stallions to race in the United States of America. He now has no stallions left in Britain. In both France and Ireland, a person engaged in the bloodstock industry has a much easier time in terms of taxation.

I refer briefly to the recent report of the Royal Commission on gambling, which recommended that VAT in Britain should fall into line with that in Ireland. Reporting only last year, the Commission said that the loss of revenue to the Exchequer would be, at 1977 prices, only between £1.5 million and £2 million a year, but that the concession might do something to halt the process by which foreign and British breeders had been moving their stud operations to Ireland and elsewhere.

In 1974, my right hon. and hon. Friends saw the writing on the wall. In 1978, at the latest sales, more than half the top selling studs at Newmarket were based in Ireland. How much more evidence does the Treasury want before it acts?

12.45 a.m.

Mr. Peter Rees

This is a most important amendment, and it has generated a most important debate. My hon. Friend the Member for Richmond, Yorks (Sir T. Kitson) moved it with his customary lucidity and command of the facts, and he was supported vigorously by right hon. and hon. Members on both sides of the Committee, especially by the right hon. Member for Bermondsey (Mr. Mellish).

Since there was a singular unanimity of view, I do not think that I need go through the various speeches in the debate. However, I emphasise from the Dispatch Box on behalf of the Government that we regard racing as a most important British sport. We recognise that it gives amusement to every stratum in our society and that certainly it is not a rich man's sport. It also provides a wide range of employment, as my hon. Friend the Member for Bury St. Edmunds (Mr. Griffiths) pointed out, and that was corroborated by the hon. Member for Newcastle-under-Lyme (Mr. Golding), if it was necessary to corroborate it.

I emphasise again that we recognise the need to keep the best British blood-stock in this country. We recognise that it should be trained, bred and raced here. We recognise that the British thoroughbred is now a national institution, from wherever the original stallions may have come. They may have been an original OPEC export.

Although it is not for me to make the case for the amendment, perhaps the hon. Member for Stirling, Falkirk and Grangemouth (Mr. Ewing) did not address himself to the crucial issue. The question is not whether we should give relief to a particular industry. It is whether a prime British industry is being put at a disadvantage against its foreign competitors. The hon. Gentleman said that he had never been to Ascot, Goodwood or Epsom. However, if he visited the working men's clubs in his constituency, he might discover that their members patronised the courses at Musselburgh and Hamilton. They would understand if they were told that the British racing industry was not being allowed to compete at level weights with its foreign competitors. Given the high degree of mobility that there is in racing, this must cause concern.

The technical reasons why the British racing industry is at a disadvantage have been canvassed so thoroughly and expertly by various of my right hon. and hon. Friends—

Mr. Harry Ewing

The men who go to the working men's clubs in my constituency have been much more concerned in recent weeks about the way in which the shipbuilding industry on the Clyde and in Scotland generally has been put at a disadvantage, with the Government doing nothing to help it.

Mr. Rees

I think that the hon. Member will find, on analysis, that that is not a precisely similar situation in that British Shipbuilders is not disposed to move its operations to the Continent because of the existence of a different tax structure.

Mr. Buchan

It will just close down.

Mr. Rees

That is a different point that I should be happy to debate with the hon. Member on some other occasion. The hour is late, however, and I shall concentrate on the essential issue in this case.

We are debating whether the British racing industry is at a disadvantage and we recognise that it is due to the quirks of the VAT systems operating in two other EEC States. I am, I hope, as convinced an adherent of the Common Market as the right hon. Member for Bermondsey. That sentiment may not be shared throughout the Committee, but it must be an essential principle of the EEC that there should be no distortion in competition for a variety of reasons. There is a distortion, as we recognise, due to the differing interpretations and applications of VAT in three countries—our own, Ireland and France. The question is how to put British racing in the position that it can compete at level weights.

Various ingenious suggestions have been made, particularly by my hon. and learned Friend the Member for Thanet, West (Mr. Rees-Davies), whose knowledge and expertise in this field is recognized by the whole Committee, and by my right hon. Friend the Member for Farnham (Mr. Macmillan). I found his speech compelling. He quoted not precisely the words of my hon. Friend the Financial Secretary and myself but a report that may have been penned by his own agile hand and to which I and my hon. Friend put our names. I would not wish to withdraw at all from that. I always find my own arguments particularly compelling, even when recited back to me after a lapse of years.

If my right hon. Friend will consider section 10 of the Finance Act 1972 he will see the difficulty that we face. It is that VAT is to be charged on the price at which goods and services are to be provided.

My hon. and learned Friend the Member for Thanet, West made an interesting point, but I am not sure whether it takes full account of the sixth directive. Certainly the advice we have received, which I am not disposed to reject, is that we would be in breach if we were to value racehorses on some speculative or carcase basis.

Let me at this point reassure the hon. Member for Stirling, Falkirk and Grangemouth on the question of footballers.

Mr. Dalyell

If we are in breach of the directive, why are not the French?

Mr. Rees

The hon. Member clearly has not followed my argument. I agree that the hour is late and that I may not be as lucid as I should be. We are not in breach of the directive, but we suspect that our French friends are.

Mr. Budgen

Is it not possible for a case to be taken to the European Court testing this issue and, if necessary, forcing the French to comply?

Mr. Rees

I am grateful to my hon. Friend, who made a powerful intervention and spoke with a direct personal knowledge of certain aspects of racing. Naturally I listened to his views with particular respect.

Let me, however, turn for a moment to the football field. I do not know whether that grips my hon. Friend's attention—

Mr. Budgen

What about the European Court?

Mr. Rees

The hon. Member for Stirling, Falkirk and Grangemouth wanted to know about football transfers.

Mr. Budgen

Will my hon. and learned Friend please answer the question? Do the Government intend to take the French to the European Court if they believe that the way in which they tax bloodstock is illegal?

Mr. Rees

My hon. Friend is normally extremely courteous and I can only conclude that it is getting rather late and that perhaps he is—[Interruption.] If my hon. Friends will allow me to make my speech in my own way, I shall deal specifically and precisely with the points that my hon. Friend has put to me. I was in the middle of discussing the intricate and difficult question of football transfers. Before I conclude, I should like to offer the hon. Gentleman, and other hon. Members who may be following this point, an explanation, although I know that the hour is late.

Football transfers are subect to VAT. This will cause the Committee concern. But if a footballer is transferred to an overseas club, the supply is zero rated—presumably because he counts as an export. Conversely, however, if a foreign footballer is transferred to a United Kingdom club, the supply is liable at the standard rate, but the United Kingdom football club will probably be registered for VAT and will be able, therefore, to claim an input tax deduction.

Going on to transfers between VAT registered clubs in the United Kingdom—I must put this absolutely in the round in case any hon. Member is tempted to interrupt me—transfers between VAT registered clubs produce no net revenue because of the input tax mechanism.

Finally, I assure the hon. Gentleman that there is no VAT calculated on the carcase of footballers.

Mr. Peter Hardy (Rother Valley)

We should return to the question of the French arrangement. A couple of years ago, the Labour Government sought to be of assistance to pig farmers by making a special arrangement, to which the French and other Europeans objected, and we were taken to the European Court and the scheme had to cease. Since we eat pigs and the French eat horses, would not the hon. and learned Gentleman suggest that we ought to take action similar to that which was taken against us?

Mr. Rees

I know that the hon. Gentleman was endeavouring to be constructive, but when he started to compare bloodstock with pigs I felt a certain frisson. I knew that my hon. Friends would not perhaps take it kindly if I were to pursue that analogy too closely.

Mr. Denzil Davies

This is an important point. If the French are in breach of their obligations, about which there is considerable suspicion, why cannot we take some action—indeed, take them to the European Court—to protect our own industry?

Mr. Rees

I know that the right hon. Gentleman is intending to be helpful, but he may not have heard that I said to my hon. Friend the Member for Wolverhampton, South-West that I would come to that point in due course. If I am allowed to do so, I shall now come to those points. However, I am a little surprised that the right hon. Gentleman should take these points. After all, this whole delicate issue is generated by the sixth directive. I cannot recall whether it was the right hon. Gentleman or his right hon. Friend the then Financial Secretary who was engaged in the negotiations, but, anyhow, this is now water under the bridge.

Let me tell the Committee, however, that in the month of May, quite soon after the present Government took office and long before this amendment appeared on the Notice Paper and, indeed, before the Finance Bill was even published, I caused inquiries to be made of the EEC Commission in Brussels as to what view it took, because I was profoundly unhappy about the present position. The Commission is looking into the question—whether or not with sufficient urgency I leave the Committee to decide—but I now give the Committee two assurances.

In view of what has been said tonight, to which I have listened with close attention—and I have been impressed by the arguments from both sides of the Committee; there have been very few partisan overtones in this debate—I undertake that we shall write to the President of the Commission to find out what is happening and how promptly we can expect a view from the Commission on this point.

It may well be that the Commission will form the view, as the right hon. Gentleman and my hon. Friend the Member for Wolverhampton, South-West pointed out, that the French are in breach of their obligations. The Irish are a slightly different case because they were astute enough to negotiate a derogation. I leave it to the right hon. Gentleman to explain why we did not do that. At any rate, it will then be up to the Commission, if its advice is in accord with ours, that our French friends are in breach—indeed, it will probably be the Commission's bounden duty—to take this matter to the European Court to obtain a definitive ruling.

Mr. Budgen

Is it necessary to have this preliminary statement from the Commission before taking the French to the European Court? We have been waiting since 1973. If our legal advice is that this is an illegal action by the French, why cannot we go straight to the European Court?

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Mr. Rees

My hon. Friend is a lawyer, as I was until 8 May. On reflection, perhaps he will remember that it is not for us to initiate litigation of this kind. It is for the Commission to do that. That is the reason.

I shall now give my second assurance, which is that if the Commission decides to take no action, or should the European Court rule that our French friends are not in breach of the sixth amendment, certainly this Administration will be ready to review the position to see how the disadvantages under which the British bloodstock industry is labouring can, in the long run, be eliminated.

I hope, therefore, that on the basis of these two assurances my hon. Friend the Member for Richmond, Yorks, will feel able to withdraw his amendment.

Mr. John Gorst (Hendon, North)

Does my hon. and learned Friend agree that the time that all this will take will be sufficient for the bloodstock industry to have bled to death before anything happens?

Mr. Rees

This point has been put very forcefully from these Benches and to me in representations. We are acutely aware of it. It would not be our intention to drag our feet, but obviously these matters must be cleared up first.

Mr. Rees-Davies

Can my hon. and learned Friend give us a timescale? It is a matter of great urgency. If there is not a satisfactory reply from Roy Jenkins and the European Commission in a short time, may we have an assurance that, say by October, when the House resumes, we shall have a definitive statement?

Mr. Rees

I certainly undertake to see that we keep hon. Members closely informed. The difficulty about pinning ourselves to any precise time is that should the European Commission take action before the European Court, as my hon. and learned Friend will understand, it is difficult to forecast on what basis and over what period litigation will proceed.

On the basis of those two assurances, I hope that my hon. Friend the Member for Richmond, Yorks, will be able to withdraw his amendment.

Sir Timothy Kitson

I am grateful to my hon. and learned Friend for his reply and for the assurances that he has given to the Committee, but I must stress, as so many right hon. and hon. Members have said this evening, that time is running out. I hope that some noises will be made in the House, even before we adjourn at the end of July, to indicate that at least the Commission is making some moves.

I very much hope that my hon. and learned Friend will keep the House informed about any progress that is made, because, if nothing can be done by the Commission, I believe that he and the Government will have to act.

Amendment negatived.

Mr. Edward Rowlands (Merthyr Tydfil)

I beg to move amendment No. 15, in page 2, line 27, at end add: 'as from the passing of this Act and not-withstanding the provisions of subsection (1) above value added tax shall be charged at 12½ per cent. on the supply of washing-machines.'.

The Second Deputy Chairman (Mr. Richard Crawshaw)

With this we may discuss amendment No. 21, in page 2, line 27, at end add— '(6) As from the passing of this Act subsection (1) above shall not apply to the supply of laundry services.'.

Mr. Rowlands

I wish to remark on something which the hon. Member for Bury St. Edmunds (Mr. Griffiths) said in the previous debate, when he spoke of a major industry in an area where it is hard to find jobs. In that case the hon. Gentle man was referring to bloodstock and stables. This amendment also relates to a major industry in an area where at present it is hard to find jobs, and I propose to relate my remarks to the proposed level of VAT on washing machines.

It was four or five years ago that we last debated at any great length the subject of VAT on automatic washing machines. Then my right hon. Friend the Member for Leeds, East (Mr. Healey) treated them as items of luxury, and raised the level of VAT in the 1974–75 Budget. However, considerable representations were made by the work force of Merthyr Tydfil employed in the Hoover, Servis and other washing machine factories. They were supported by the management and by hon. Members both within and outside the Government. Within 12 months my right hon. Friend had accepted the basic claim made in those representations that washing machines were never a luxury and should be seen as a basic and fundamental item in any household.

Following those representations, the rate of VAT was reduced to 12½ per cent. within 12 months. It was a demonstration of the willingness of my right hon. Friend to listen to the representations made to him by the work people and management of the areas concerned in the manufacture of washing machines, and reflected a wider consumer demand and need.

I would happily withdraw the amendment and not pursue the argument if we could have an assurance from the Chief Secretary that within the next 12 months—we do not expect him to be able to overturn the decision immediately—the rate of VAT will be reduced. If the Chief Secretary was willing to do that, I would happily sit down and we could then debate some of the other amendments. If the Chief Secretary is unable to do that, I shall briefly reiterate the arguments raised. They are equally as valid now.

A washing machine is not an extreme luxury, like a piece of jewellery. It is an intrinsic part of every household. I regret that it was not rated at 8 per cent. like other basic household requirements, but we accepted the 12½ compromise. There is no case for a washing machine or any other household item to be rated at 15 per cent. To justify the massive basic increase in VAT, the Chancellor has developed the myth that VAT does not have a great effect on the ordinary working household. If members of the Tory Party do not believe that working folk buy shoes, clothing and automatic washing machines, they do not live in the same world as most of us. A washing machine is a basic household requirement to remove the drudgery of the housewife's work.

Equally important is the effect of VAT increases on the washing machine industry and the jobs in those manufacturing areas. That aspect made a deep impression on my right hon. Friend the former Chancellor when we made our representations. It was a major factor in his decision to halve the 25 per cent. rate of VAT to 12½ per cent. That was at a time when the British washing machine industry was being badly squeezed by growing foreign competition and especially by the growth of Italian imports. The position has deteriorated since 1974–75. Almost half our washing machines come from Italy, and that has enormous consequences in certain areas, including my constituency. Merthyr Tydfil already suffers from high unemployment, and the manufacture of washing machines is the major industry of our community. Over 5,400 people used to work in the Hoover factory. There are now only 4,200, and we are still facing enormous problems as a result of intense competition.

There is the same level of VAT on Italian-produced machines, but we must consider how the market operates. It is not a constituency boast to say that Hoover is the leader in the domestic washing machine market and produces the Rolls-Royce of washing machines in the United Kingdom. It is a high-priced, high-quality machine compared with the Italian machine which is £20 to £30 cheaper. An addition of £20 to £30 on a machine costing £150 to £200 makes all the difference to any industry trying to compete in present economic conditions.

The increase from 12½ to 15 per cent. will hurt the higher-priced washing machines much more than those at the bottom end of the market. United Kingdom manufacturers have concentrated on the higher end of the market. Hoover now has plans to drop its standards and produce a more competitive machine, comparable with the Italian imports, because of the impact of these cheap imports. Incidentally, these imports are often sold and promoted through the electricity boards, under brand names which make it difficult to find the country of origin. Also, the electricity boards are processing some machines under their own name in order to reach the British consumer.

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The impact of the proposed alteration in VAT will hit the higher end of the market correspondingly harder. This will exacerbate matters. Because of the price war, margins have been cut to such an extent that there is almost no profitability for distinguished firms such as Hoover, Hotpoint and Servis.

An increase of 2 per cent. or 3 per cent. on an item costing £200 may seem small, but it hits the individual consumer. In fact, in present circumstances these new margins could be the deciding factor to a person about to buy a new washing machine.

Mr. Michael Morris (Northampton, South)

Is the hon. Member saying that a consumer will switch brands simply because of a £2 or £3 price difference?

Mr. Rowlands

It is not a margin of £2 or £3. It is a margin of 2 to 3 per cent. on higher priced machines. Also, the effects of the price war mean that profit margins have been cut, and this could lead to a decline in output. These factors, together with the gloomy forecasts about expenditure on consumer durables, and the lower purchasing power of many people, mean that the outlook is gloomy for those areas which manufacture British domestic washing machines.

This is a straightforward constituency point for me. We have the largest washing machine factory in Europe in Merthyr Tydfil, an area which has already seen one major process of deindustrialisation. We could now be faced by a severe economic and unemployment problem.

The confidence and ability of the domestic washing machine industry has been sapped by the VAT changes and other market conditions. That is why I make my plea to the Government. I do not expect them to change the Bill, but we managed to persuade the previous Chancellor, by reason and argument, of the need in household and personal terms for washing machines and the importance for employment of a major domestic industry, and I hope that the Government will reconsider the matter with a view to reducing the rate of VAT on washing machines in the next financial year.

Miss Jo Richardson (Barking)

I should like to speak to amendment No. 21 which is linked with No. 15, which I wholeheartedly support. We move from washing machines to launderettes, which is not so far, and I shall seek to press amendment No. 21 to a Division.

The VAT on launderettes is 8 per cent. and I should like them to be zero rated because they provide a service which ought not to attract VAT. Hands up those hon. Members who use launderettes every week. I see that seven hon. Members have raised their hands, and I doubt if there are many more who use launderettes regularly.

As my hon. Friend the Member for Merthyr Tydfil (Mr. Rowlands) said, washing machines are not a luxury, but they are, nevertheless, out of the range of about 2½ million families—mainly the needy minority of large families at the lower end of the income scale who cannot afford machines or whose accommodation does not have room for one. I live in a flat and I do not have a washing machine because I have nowhere to put one. My kitchen, for example, is minute.

Large families, students and the elderly need launderettes and they are also used, indirectly, by local authority social service departments because many of our excellent home helps pop down to the launderette with the washing of the elderly people for whom they care. In addition, many old people's homes are not modern enough to have washing machines and therefore launderettes are important to them.

This increase will put about 10p extra on a load of washing. That may not seem a great deal of money to some, but when added to the other VAT increases it might make it impossible for low-paid families to continue to use launderette facilities.

We hear a great deal from the Government about the tax cuts evening out VAT increases. Even if that were true—and it is not true of people at the lower end of the income scale—I must emphasise that the VAT increases already apply in shops and launderettes, and nobody has yet seen a penny of the promised tax cuts because they have not yet come fully into effect.

Recently, during Prime Minister's Question Time, I was able to draw attention to the need for the zero rating of launderettes. The following day the Sun carried a story featuring the launderette nearest to the home of the Prime Minister. The owner told the newspaper that there would be no increase in his charges because he was a one-shop unit and did not fall within the VAT classification. The implication of the story was that launderette users were making a mountain out of a molehill and that most launderettes would not have to increase their prices because of the increase in VAT.

I made some inquiries and was told that the one-shop unit is the exception rather than the rule. The little launderette around the corner is often one of a chain of two or three and in some areas of 20 or 30 launderettes. I was told that in Liverpool one chain of launderettes is 100 strong. Therefore, the majority of launderettes will be subject to VAT.

If we allow this increase in VAT to operate without protest, we shall run the risk that some launderettes will have to close because people will not be able to afford even the extra 10p per washing load and will go back to washing at home. Do we want to force families to go back to the old days of hand washing at home? I remember when I, as one of three children, dreaded Mondays because they were wash days. When we came home from school, the kitchen was full of steam and dripping washing. Poor mum had been at the scrubbing board all day—and that happened every Monday because there were no proper drying facilities and no modern appliances such as we have today.

Let us consider the position of students, many of whom live in single rooms rented perhaps from a family. Students are not the best-off section of the community. Are they to be told that they will have to wash their clothes in their rooms so that their clothes will be festooned around their bed-sits? It is not healthy and it causes condensation. The modern equipment of today and the launderettes have made a vast improvement.

1.30 a.m.

Every local authority used to have municipal wash houses—some still do. But many local authorities have found that launderettes have provided the service and used those wash houses for other purposes. Is it suggested that the local authorities, which would have a duty to provide some form of service, would have to rethink about the wash houses and provide them anew? In these days of public expenditure cuts, I can hardly believe that many local authorities will be able to afford to do so. I should not object if modern-day launderettes were run by local authorities but in the absence of that provision we should ensure that the existing ones provide the best service to the community.

I remind the Committee that during the three-day week in the winter of 1973 and 1974, under the Conservative Government, as we all well know, launderettes were excluded from the obligation to open on three days of the week only. They were regarded in that dismal, dark period as being such an essential service that they were allowed to remain open for the full six-day week. If they were essential at the time of that crisis, why are those who use them now being penalised?

As my right hon. and hon. Friends constantly point out, Conservative Members do not give a jot about the difficulties of the families who use launderettes. They are not interested in making life any easier for those to whom 10p really means 10p. To those families the extra 10p will make a tremendous difference.

At some future stage, as we cannot ask for zero rating in the Finance Bill, I hope that the Government will think about the possibility of zero rating launderettes. In the meantime, if they have any sense of decency and concern for those families to whom I have referred. I beg them to consider seriously reducing the 15 per cent. VAT rate to the former rate of 8 per cent.

Mr. Biffen

After discussing the exhilaration of the turf on the previous amendment, we have moved to a more prosaic subject, but it is one of importance. The hon. Member for Merthyr Tydfil (Mr. Rowlands) reminded the Committee that washing machines are essential to the economy of Merthyr Tydfil. It is immensely debilitating to see the infrastructure of the first industrial revolution decaying only to be replaced by what was hoped and believed to be an industry which would last for the second half of the twentieth century but which is withering before our eyes. That has affected a number of south Wales valleys.

I have every sympathy with the points made by the hon. Member for Merthyr Tydfil. He commented upon the difficulties that were created for the washing machine industry when VAT was rated at 25 per cent. He spotlighted dramatically the problems that are associated with a multi-rate form of VAT. Immense problems flow from the essentially human and political judgments about what constitutes a luxury when that luxury becomes a popular necessity within four or five years. That matter is very much in the Government's mind in seeking to have a single positive rate.

Amendments Nos. 15 and 27 would infringe our dedication to the single positive rate, which is one reason why I must appear less generous than I would wish towards the points argued by the hon. Gentleman. He said that it was essentially a probing amendment, and that he did not expect a volte face by the Treasury Bench. I can assure him that there will be no volte face. We are by nature almost congenitally open-minded, but I cannot anticipate what will be our view this time next year. The judgments reached in framing the Budget and the present form of VAT were not reached lightly, and they are unlikely to be changed easily. I must say that, because I do not wish to mislead the hon. Gentleman in any way.

Mr. Rowlands

I am grateful for the sympathetic way in which the right hon. Gentleman is replying and for his valid point about the problems of a multiple rate of VAT. He will find in France and Germany an enormous complexity of multiple rates. I do not know whether he can give any information on how washing machines are rated in France and Germany. I had to plough through great tomes to find that the Italians had rates of 6 per cent., 9 per cent., 12 per cent., 18 per cent. and 35 per cent. I gather that the standard rate in Italy is 14 per cent., which may well be the rate paid on washing machines by the Italians, who are our chief competitors in this area. Having multiple rates of VAT is quite a European habit. I know that that will not endear it to the right hon. Gentleman.

Mr. Biffen

The hon. Gentleman could not be more correct. The Committee would be well advised to disabuse itself of the habit of always looking across to continental Europe to seek tuition on how it should behave. We should try to fashion our own laws as best we can, in consort with those with whom we are in treaty alliance, rather than slavishly to ape them.

I believe that the Commission has recommended that a single positive rate of VAT would be preferable to the multiplicity of rates which apply in a number of the continental European countries. I understand that among the Community countries VAT is less than 15 per cent. only in Germany, Luxembourg and Italy. Therefore, it is not true that the washing machine industry in the United Kingdom is at a disadvantage in terms of the rate of VAT compared with the span of the European Community countries.

There is another consideration that I put to the Committee, but I do not wish to make it imperative because the House is jealous of its own law-making prerogatives. If we were to accept the amendment, that would certainly call our actions into question under the Community's sixth directive.

I think that the hon. Gentleman's central concern is the impact that the increase will have on the industry. Clearly the industry's main fortunes will be related to the level of consumer demand in the United Kingdom and the competitive challenge that has been mounted from overseas, particularly Italy. The raising of VAT from 12½ per cent. to 15 per cent. will increase prices by about 2 per cent.

I do not decry the importance of that in such a price-sensitive industry as the washing machine industry. But the increase will also be applied to machines in competition with those produced in Merthyr Tydfil. The increased tax will raise the price of the £200 machine by about £5 and the price of the cheaper machine, marketing at, say, £150, by £3.75. I engage in these statistics not to undermine the hon. Gentleman's argument but to point out that the tax adds only modestly to the difficulties of the industry.

I turn to the remarks of the hon. Lady the Member for Barking (Miss Richardson), who spoke to the amendment on launderettes which was essayed by one not called in the name of my hon. Friend the Member for Leek (Mr. Knox). Again, for many of the reasons I have portrayed, I am unable to accept the amendment, although I appreciate that the hon. Lady felt strongly about the issue and will wish to call a Division. One of the central objections is our anxiety to avoid a multiple rate value added tax. She was fair in saying that at heart she would like to exclude services from the operation of the tax. Undoubtedly, if she was successful in getting zero rating for launderettes, there would be a logical case for extending zero rating to a whole range of other services.

Veterans of past Parliaments will recollect the time that was spent in the days of purchase tax trying to find some tax that could apply to services—a search that culminated in the selective employment tax. The Committee should therefore be careful before treading any steps which would have the consequence of taking taxation away from services.

One of the problems that the Committee will find again and again is the narrowing of the tax base. That is true whether we are talking of income tax or indirect taxes. The more one narrows the base by exemption, the greater is the burden thrown on those items that remain taxable. It is in that spirit that I recommend the Committee to reject the amendment.

Mr. Dalyell

I understand perfectly well the argument about purchase tax. I referred earlier to the performance of Sir Gerald Nabarro in bringing out all the anomalies of that tax. But the point raised by my hon. Friend the Member for Barking (Miss Richardson) makes launderettes a special case. Hon. Members representing small towns or urban areas know of the problem of condensation. Twenty or 30 years ago the problem was not so acute. Today, with the modern buildings in our constituencies, it is one of the most difficult problems. Is it not extremely unwise to make people face all the problems of condensation, with the costs involved, when it would be relatively simple to exclude certain services? In the case of launderettes, it is a very simple line to draw.

I am not convinced by the Chief Secretary's argument, and I will go into the Lobby with my hon. Friend the Member for Barking.

Mr. Rowlands

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. John Garrett

I beg to move amendment No. 16, in page 2, line 27, at end add: '(6) As from the passing of this Act subsection (1) above shall not apply to any supply of clothing or footwear.'. The purpose of the amendment is to exclude clothing and footwear from the proposed increase in VAT from 8 per cent. to 15 per cent. The case for the removal of clothing and footwear from the increase is exceptionally strong and is based on three main grounds. First, there is the significance of items of clothing and footwear in the household budget, particularly for low-income households and the consequent hardships for poor families—those who benefit least from the income tax proposals in the Budget.

1.45 am

Secondly, there is the condition of the clothing and footwear industries and the damage that is likely to be caused to domestic producers by the price increases resulting from the VAT increase coupled with our other inflationary factors. Both industries have stabilised after years of decline and need confidence in the home market to support their investment and expansion plans. The Government are still underwriting those plans with grants.

Thirdly, some children require sizes of clothing and footwear which are larger than those sizes covered by VAT regulations? The clothing of many school-children of 12 and over will now be subject to 15 per cent. VAT. This is a long-standing problem, which is made worse by the VAT increase on clothing and footwear. It will impose a new strain upon families. This alone is a good reason for continuing with the 8 per cent. rate on such items.

We are talking about industries which, directly and indirectly, employ about 500,000 people. Their products are essentiol to all families. I hope that this question will engage the attention of Conservative Members as closely as the horse racing industry. I am sure that their constituents will thank them for paying as much attention to this topic as they did to the bloodstock industry.

About 8 per cent. of the average family's household expenditure goes on clothing and footwear. Today, that amounts to over £6 a week. These items represent the third biggest spending element—after housing and food—for a two-parent, two-child family. It is clear that the £60 a week family will receive income tax relief of a little over £2 a week from the Budget.

At least one-third of the increase in disposable income will be swallowed up because of the increase in VAT on clothing and footwear alone. It is estimated by footwear manufacturers that the retail price of shoes will increase, as a result of the runaway rise in world leather prices and the VAT increase, by 20 per cent. this autumn. The price of a medium range pair of shoes for a 15-year old girl, for example, will reach £18 this autumn. That is an intolerable price for an ordinary family to bear.

It is not as if clothing and footwear were discretionary items and there was freedom not to buy them. They are essential. This increase is unjust. It hits the poorest hardest and demonstrates the Goveerment's blind lack of concern for the effects of their doctrinaire attitude on those who are least able to cope with inflation.

The amendment involves the effect of a VAT increase on two important industries which have suffered decline for decades. That decline is so serious in terms of employment that both industries were singled out for help by the previous Government after repeated requests from the industries.

The clothing industry has suffered a steady fall in employment in the last decade from over 360,000 employees to under 320,000 today. Domestic sales amount to £2,000 million a year. Import penetration has risen from 18 per cent. to 23 per cent. in the last five years. The future of the industry and its export success depends upon a secure home market base. The VAT increase and the general increase in inflation, to which the Finance Bill will contribute, will weaken that home market base.

Consumers are likely to turn to cheaper clothing where imports predominate. Import penetration in men's and boys' outerwear is about 50 per cent. That comes almost entirely from developing countries and low-cost sources such as Greece, Portugal and Spain. An overall increase in price caused by VAT and the consequent retail mark-up will cause purchasers to switch to lower priced imported goods at the expense of the already debilitated domestic industry.

The condition of the home industry led the previous Government to produce a scheme of assistance in 1975, extended in December 1976, making up to £15 million of public funds available for re-equipment and management improvements. The Government also negotiated import controls under the multi-fibre arrangement. After 1976 the clothing industry entered a period of stability, according to the clothing little NEDC in its 1979 report, which, I may say, declared its support for the industrial strategy of the previous Government.

The industry needs a period of stability so that it can modernise itself and build a strong home base for an export drive. This enforced price increase will weaken demand. The extra purchasing power of tax reliefs will soon be swallowed up by food and housing cost increases, because the switch in demand to imports will threaten employment in a large industry spread throughout the country.

When we come to consider the effect of the proposed VAT increase on footwear, I have to declare a strong constituency interest. The city that I represent, Norwich, is a main centre of the footwear trade. The footwear industry at the time of the previous Government's footwear study, in 1977, was the fastest declining industry in the country.

Employment in the industry is now down to 74,000, with 4,000 on short-time working. Thirty-six thousand jobs have been lost in the industry since the late 1950s. A further 25,000 workers in supplying industries depend on this industry.

Since 1973 demand has been virtually static and imports have risen from insignificant levels in the 1950s to over 40 per cent. of sales today. The greatest problem facing the industry is the rising, and accelerating, increase in the cost of leather. The leather price index has risen by 35 per cent. in the past year alone, and the VAT increases, superimposed on the inevitably higher prices in the shops, will act as a specific check on sales, according to the British Footwear Manufacturers' Federation. The likely retail price increase by the end of the summer is put at 20 per cent.

In 1976 the Government set up a footwear study group to report on the condition of the industry. That group included members both from the present Government Benches as well as from the Opposition Benches. It also included industrialists and trade unionists from the industry. The report was unanimous in calling for help for the industry, and the Government allocated £4.5 million for a scheme of assistance. There have been 260 applications for assistance under the scheme so far, and the response is the highest of all such schemes in existence. Since 1977 the industry has shown a good recovery, and its decline over two decades appears to have been halted.

Now it is to be hit by this VAT increase, which will stop any growth in domestic sales and lead to a trading down to imports, which will have a far lower unit value than home-produced goods. Those of us who are interested in and concerned about this industry had thought that it had reached a period of stability and modest growth after years of effort. The proposed increase in VAT will cast it into uncertainty again.

Both the clothing and footwear industries need a secure and stable home market to support the design and development costs of new products if they are to compete in markets overseas. This enforced home market price increase will severely damage their competitiveness.

Finally, we have the problem of the VAT level of 15 per cent. on many items of clothing and footwear for children. The VAT regulations which zero rate children's wear have, I understand, not been reviewed for four years. I ask the Government to undertake a review immediately. Boys' and girls' footwear will now jump from zero rating to 15 per cent. at a size five and a half shoe; that is to say at about age 13 or 14. Boys' and girls' outer clothing will go from zero rating to 15 per cent. on an anorak, or blazer, size of 37 or 38 in. chest; that is to say at age 13 or younger.

This is clearly an abrupt increase in the burden on parents who will not be getting any increase in child benefit this autumn when prices are rising fast and when they have to buy winter clothing at the new prices. On the grounds that the proposed VAT levels on clothing and footwear place a heavy burden on the family budget, cause a scandalous increase in the cost of children's clothing and footwear and do great damage to domestic industries to which confidence had begun to return after decades of decline, I believe that the amendment deserves the support of the Committee.

There cannot be another Government in the world who, faced with accelerating inflation, rising unemployment and, for all but the most wealthy, falling living standards, would increase taxation on clothes and shoes, which are essential items in the family budget, so as to drive down the living standards of ordinary people still further. The VAT rate of 15 per cent. on clothing and footwear is wilfully inflationary, damaging to home industry and socially unjust.

Mr. Kilroy-Silk

I know that the Chief Secretary prefers to have a uniform rate of value added tax, and I go along with most of his arguments, because it simplifies the application and collection of the tax.

However, I think that the right hon. Gentleman will accept the case made by my hon. Friend the Member for Norwich, South (Mr. Garrett) that for the low-paid, especially those with large families, the provision of clothing and footwear represents a considerable expense. The burden is particularly heavy on a family with a number of children of school age and beyond school age but of a size for whom only clothing to which VAT is applicable is suitable.

The town of Kirkby, in my constituency, contains a large number of Catholic families and, therefore, a considerable number of large families. Because of a succession of Labour Governments, most of their children are very large for their age and for them the only suitable clothing is well beyond what is defined in the regulations as school clothing.

For those families, the cost of a pair of shoes, unimaginable though it may be to Government supporters, or the cost of a dress for a girl still at school but which is rated for VAT, is large and often prohibitive. Many of my constituents come to my surgeries asking how they can possibly afford the kind of clothing which is not in any way extravagant, glamorous or in ordinary terms expensive but which is nevertheless necessary, when its cost is prohibitive in terms of their family budgets.

To raise the rate of VAT from 8 per cent. to 15 per cent. will have a very damaging impact upon the budgets of those families. Of course, that applies especially to those who will not benefit from the other measures in this Budget. Many of our constituents who are unemployed, sick, low-paid or pensioners, and who therefore will not get any tax relief from the Chancellor of the Exchequer, re obliged to pay the increased cost of goods resulting from the higher rate of VAT.

The most significant proportion of that cost will be borne by the increase in VAT on footwear and clothing. For that reason alone, although I go along quite openly with the Chief Secretary in not wishing to see a multiplicity of VAT rates, I argue that in this area there is a strong case and a powerful justification for zero rating.

That justification was added to very powerfully by my hon. Friend the Member for Norwich, South when he referred to and gave figures of the decline in our footwear and clothing industries. He pointed out that the previous Government, and no doubt in future months the present Government will do likewise, had given a great deal of financial assistance to these two rapidly declining industries. It seems paradoxical that the Government should be giving financial assistance to try to maintain and sustain two precarious industries, only to jeopardise at one blow their future prospects and the employment prospects of all those working in them and in jobs related to them by increasing VAT so dramatically and by such a huge amount.

This will not only make the commodities produced by the domestic footwear and clothing industries more expensive. Much more importantly, it will make them more expensive in relation to imports. The import penetration in the British market in both footwear and clothing is already significantly high. My hon. Friend the Member for Norwich, South gave the figures. Presumably, we should not seriously take any steps which are likely to increase that import penetration. For those two reasons alone, apart from all the others adduced in support of the amendment by my hon. Friend, I ask the Chief Secretary to think very deeply about increasing VAT in these two areas. I ask my hon. Friends to support my hon. Friend in the Lobby if the Chief Secretary is not prepared to give the sort of assurances that we seek.

2 am

Mr. David Stoddart (Swindon)

Anyone reading the proceedings of this Commitee could not help but contrast the concern shown by Conservative Members for the bloodstock industry with their apparent lack of concern for families, particularly families with children, who will be adversely affected by the swingeing increase in VAT. Many Conservative Members do not understand how difficult it is for families, particularly large families, with restricted incomes to manage their budgets.

Many hon. and right hon. Members have children, but are not forced to live on a restricted budget as are many families in this country. This Budget is notable in that it affords the least tax relief to the lowest paid and to those on average earnings. People with children will do worst out of the Budget, yet their expenses will increase proportionately to a greater extent than will those of any other section of the community.

Let me deal with the question of clothing. I shall come to children's clothing in a moment. Clothes are essential, yet they are to be subject to this swingeing 7 per cent. increase in VAT. They are not, as some Conservatives appear to believe, a luxury. They do not regard them as a luxury for themselves, but they see them as such when an ordinary work-ink man wants to dress decently.

We hear the Conservatives talk about long-haired young people walking about in jeans and a sweater, but they are positively encouraging that practice. I like to see people decently dressed in a suit—I have on a decent suit, and it is made in England—or in slacks and a sports jacket, but the Government are driving people into cheaper garments of which so many Conservatives appear to disapprove.

Families with children will be hit by the 7 per cent. increase in VAT, and they are also being hurt because many shopkeepers are taking advantage of the situation to raise prices by even more than the 7 per cent. increase in VAT. I recently did a local broadcast in my constituency. A listener telephoned and said "Mr. Stoddart, I went to the shops on Saturday and saw a pair of shoes which, before the increase in VAT, had been price at £8.95. I was horrified to note that the price had risen not by 7 per cent., which would have put the shoes at £10.60, but to £12.90." The shopkeeper was taking advantage of the Government's swingeing increase in VAT to profiteer out of ordinary working people. Therefore, by their action, the Government have encouraged and stoked up inflation by imposing this awful increase in the price of essential family commodities.

My hon. Friend the Member for Norwich, South (Mr. Garrett) noted that children's clothes up to a certain size were zero rated. They became zero rated after a fight. The previous Tory Chancellor took a lot of convincing that children's clothing should be zero rated, but eventually he relented. At that time there were sufficient people on the Opposition Benches who were concerned about family expenditure and the standard of living of ordinary working people.

I have a son who is 13 years old. It is no good my trying to buy him children's clothes. He is my height and almost my build, and he takes size 9 shoes, but he is only 13. What is more, I have had to buy him adult clothes since he was aged about 11½. That means that I have had to renew his clothes and shoes about every six months. This will continue to happen with this boy, and it will happen with the second child, too. I shall now have to pay not only the adult rate plus 8 per cent. VAT for his clothes, but we shall be loaded with an additional 7 per cent. in VAT. From my example, from which I am now suffering, one can appreciate the effect upon ordinary working people.

Let hon. Members make no mistake about this. Ordinary working people will be hard hit. As my hon. Friend the Member for Norwich, South noted, children's clothing is a big item in the family budget, particularly for large families. To add insult to injury, instead of trying to assist families by increasing child benefit, the Government decided not to increase that at all. It remains at £4. Had they made a gesture in that direction and increased that benefit, it would have assisted families with children to meet the additional cost which has been put on the family budget by the VAT increase.

This is a very bad tax indeed. In the light of everything that has been said tonight I hope that the Government will have second thoughts about this increase in VAT on clothing, which will hit people hard. This is the Government's opportunity to show that they have some heart.

Mr. Ron Leighton (Newham, North-East)

I should be most grateful if the Chief Secretary would clarify one matter. I got the impression from his remarks on the previous amendment that he was doubling the rate of VAT on some of the items about which we have been talking not because he believes in the intrinsic merit of doing so, or because he does not believe that there would be a good case for exempting some of them from this tax, but because there are other complications which make it necessary in order to harmonise and comply with EEC regulations and policy. We all know that it is the long-term aim of the Common Market to harmonise VAT, and I think that the average rate is 18 per cent. at present. I should like the Chief Secretary to clarify that point.

Mr. Dalyell

I am against repetitious speeches. However, I raise the same point as my hon. Friend the Member for Swindon (Mr. Stoddart), which I shall put to the Chief Secretary in question form. As my hon. Friend said, and as everyone knows, it is not only that shopkeepers are raising the price of their goods to meet the increase in VAT. The truth is that many shops are either making hay while the sun shines or—putting it rather better from their point of view—adopting a preemptive strike by increasing prices by 20 per cent. or 25 per cent. over the weekend. That is a fact of life.

Are the Government monitoring the situation? My understanding is that much of the machinery that was set up by my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) has been quickly dismantled. Have the Government any means of knowing precisely what is happening? If not, do they not think that they should conduct some kind of inquiry into these rocketing increases, where VAT changes have been used as an excuse for much more substantial changes?

Mr. Frank Dobson (Holborn and St. Pancras, South)

It may be that my memory is failing me at this hour of the morning, but I seem to remember the Prime Minister talking about the creation of a land of opportunity in which children would grow, and some would grow taller than others. It is clear that the message from the recent VAT increases is that children should not grow taller, because the taller and the faster they grow, under the system that the right hon. Lady has initiated, the more their parents will have to pay to clothe and keep them in footwear.

This and previous Governments have shied away from the problems that parents face when clothing their families and having to pay VAT on clothing for teenagers. The penal rate of VAT which the Government are in the process of introducing has accentuated the problem. It is made worse by the fact that the Government are not proposing to introduce compensating increases in family benefits.

With regard to expenditure on education, it is unlikely that the Government will introduce some form of compulsory—if that is the right word—or mandatory system of grants for children of the age of 16 and over, as has been introduced by the Inner London Education Authority—to its credit. I regret to say that it is to the discredit of the Labour Government that they did not introduce such grants nationally before they went out of office in May of this year.

I hope that the Chief Secretary will do something about the severe problem that will be faced by ordinary families which do not benefit in any significant way from income tax reductions. Such families will be faced with a roaring rate of inflation and a severe imposition in the form of this new rate of VAT. That will strike hard at those families with children who are attempting to do what the Prime Minister proclaims they ought to do—grow tall.

2.15 a.m.

Mr. John Sever (Birmingham, Ladywood)

I am anxious to ask Treasury Ministers what they propose to say to two or three groups of people to whom they made somewhat extravagant election promises a few weeks ago. The first of these groups consists of the families and average income earners to whom the Conservative Party put forward the prospect of being able to have a greater degree of choice than the Labour Government ever allowed. I want to know whether, within that element of choice, we are now giving people the choice of buying essential clothing and footwear.

One of the arguments put forward was that if, in some magical way, we were able to shift the taxation burden on families and alter income and purchase tax levels in the form of VAT, we would be able to bring about a more equitable society. That was the sort of argument being put forward in the election campaign.

We must now be worried whether the choice that is being offered to families and average income earners is really there. We find that these are the very groups of people who are now being asked for more money, in the form of VAT, for what are essential things. Therefore, for so many families the choice must be whether or not they can afford to buy basic essentials.

If measures were being brought forward to make life easier for such families it would be unnecessary to decide whether clothes, footwear and essential commodities should be among those things most easily acquired by families in need. Yet, in the first few days of the new Conservative Government, measures are being introduced that will make those very things more difficult and expensive to acquire. The budget which the average family is trying to control is a very difficult matter, yet such families are getting no assistance whatever from this Administration. That seems to be one election pledge gone out of the window.

Another pledge that was made was the desire to help the small business man. The Conservatives said "This is the man we must look after. It is the fellow in the workshops up and down the country, in places such as central Birmingham, whom we must assist in order to get our manufacturing industry right, to get our production increased, and thereby to improve the wealth of the nation"

The very businesses that were growing until recent times, certainly in constituencies such as mine, were the small, two- or three-man businesses in the clothing industry, especially in the ethnic minority communities. People who were trying to make their way in a new society, with all sorts of difficulties placed upon them, were beginning to find that they could establish themselves in the clothing and allied textile industries. So many small business men were in that category. They were engaged in small businesses, sometimes with very modest capital, and making them work. They were providing relatively cheap, serviceable clothing for people of modest incomes who could not afford very much better.

Even that kind of venture is being jeopardised by the champions of free enterprise. Those who are trying to promote small businesses, provide a service, take on more labour and make sure that the economy is vibrant and expanding will be disappointed. They, too, will be in the category to which the election pledges look thin. What will Treasury Ministers say to these groups, who will be sadly disappointed?

I urge my right hon. and hon. Friends to support the Opposition amendments. They are designed to protect those who will be worse off in our society once the right hon. Gentleman and his colleagues have finished with it.

Mr. Biffen

The debate has ranged widely around the central proposition that the proposed rate of VAT of 15 per cent. should not apply to clothing and footwear and that they should continue to be taxed at their previous rates.

I warmly congratulate the hon. Member for Norwich, South (Mr. Garrett) on his maiden appearance on the Opposition Front Bench. I am sorry that it had to be at an inhospitable hour, but that is the fate of all who perform in this circus. To learn that early on is perhaps valuable experience.

The theme that ran through speeches subsequent to that of the hon. Gentleman was anxiety about the present regulations for the zero rating of children's clothing and footwear. That was referred to by the hon. Members for Ormskirk (Mr. Kilroy-Silk), for Swindon (Mr. Stoddart, and for Holborn and St. Pancras, South (Mr. Dobson). Customs and Excise are currently carrying out a review of how that relief has worked since its introduction in 1973, and they hope to complete it by the end of the year. It will take into account criticism of the way in which the relief operates and the views of the clothing and footwear trades. At the same time, Customs and Excise are considering ways in which the existing guidance on the operation of relief can be improved and the viability of possible alternative methods of providing relief.

The hon. Member for Birmingham, Ladywood (Mr. Sever) asked how we could explain our current performance. We said that we would increase indirect taxes, and we have. We said that we would reduce direct taxes, and we have. He referred to the small business community. I once lived in Birmingham and I know Ladywood fairly well. Broadly speaking, I believe that the package of taxes presented in the Budget will be generally well received by the small business community in Ladywood.

VAT will have a marginal initial impact on the level of sales, not just in the clothing and footwear trades but right across industry. It would be foolish to deny that, but it would be equally absurd to exaggerate it as a major shadow across the commercial prospects for this country. The level of world trade and all that will flow from the considerable oil price increases are more tangible threats to the level of domestic activity than is the rate of VAT.

I turn to the point made by the hon. Member for Newham, North-East (Mr. Leighton). The European Community's sixth directive lays down the ground rules within which we seek to operate, but I said earlier that the House was jealous of its legislative authority. This is worth saying every time, rather than being told at the end of the day that it is an empty formality and that there is not much that we can do. Once this House has become supine enough to accept that, it will cease to be the House of Commons as it is traditionally known.

The hon. Member for West Lothian (Mr. Dalyell), who effectively lived up to his promise to be brief, and who was certainly to the point, was anxious about the alleged trading practices of retailers who use the changes in VAT to test the market and charge considerably more than the alteration justifies. Within the Treasury we have no competence or authority to carry out the kind of checks that he has in mind. I shall refer his comments to the Secretary of State for Trade, but I doubt whether one could carry out an exercise on such a vast scale, checking the total activity of the retail trade. It would be a massive exercise.

Mr. Roger Stott (Westhoughton)

The Minister made the point about not having the mechanism to detect whether my hon. Friend the Member for West Lothian (Mr. Dalyell) has a valid case. The mechanism was there in the form of the Price Commission, but now that the Price Commission is not there the Government are not in a position to deal with the matter as a consequence of their own actions.

Mr. Biffen

At 2.30 a.m. one must move carefully lest contention should flare up in place of a constructive exchange of views. The Price Commission produced reports—some valuable and some not so valuable. Those that were less valuable were so because of the inadequacy of the work that went into them. A check of the kind referred to by the hon. Member for West Lothian—not just the window dressing of half-adozen spot checks—would be a massive undertaking, and I doubt whether the staff or the logistics of the Price Commission would be such that it could carry out such a task.

I turn to the main amendment moved by the hon. Member for Norwich, South. This is a profoundly significant amendment. In the comments that I have made about Back-Bench speeches I have indicated some of the anxieties that the Treasury has. One of our major difficulties is that the amendment would mean a return to multirate VAT. As the hon. Member for Ormskirk pointed out, he, too, would prefer zero rating and a standard positive rate, rather than a proliferation.

Much of the argument, leaving aside the question of children's clothes and footwear, is that clothing is a basic and essential commodity and therefore we should have a social attitude towards it. It would be very difficult to try to disentangle essential spending and discretionary spending on clothing, and the same is true of footwear. My observations lead me to believe that an immense amount of spending, particularly on clothing, is discretionary.

The case that is most convincing to me as Chief Secretary is the cost of the amendment. It would be £500 million, which is a massive sum for so modest an amendment, and on that basis I ask my hon. Friends to ensure that it is rejected.

2.30 a.m.

Mr. Stoddart

I was interested in the Chief Secretary's comments, particularly those about children's clothing. Can he give us a little more information? Is the whole method to be reviewed? Will account be taken of the fact mentioned by a number of hon. Members that many children have to wear adult-sized clothes? Have suggestions been made to Customs and Excise about how to overcome that problem and so help the families concerned?

The right hon. Gentleman reiterated his party's election pledge that it would increase indirect taxes and reduce direct taxes—both of which the Government have done. But did the Conservatives tell the electorate that they would almost double the rate of VAT? Does the right hon. Gentleman think that he would be sitting on the Treasury Bench if his party had told voters that it would increase VAT by 7 per cent? It is not good enough tor him to reiterate a so-called pledge which was dishonest because the cost was not spelt out to the electorate.

The Chief Secretary dismissed out of hand the suggestion that the Price Commission would have been able to examine every price increase imposed by traders, but he and his party overlook the deterrent effect of the Commission. Make no mistake, it was a deterrent for traders to know that customers who believed that prices had been increased unduly had a body to which they could make a complaint which would be investigated. If the voters had understood that the removal of that right of complaint was part of Conservative policy, the Chief Secretary would still be in opposition.

Mr. John Garrett

My hon. Friends the Members for Ormskirk (Mr. Kilroy-Silk), for Swindon (Mr. Stoddart), for Newham, North-East (Mr. Leighton), for Holborn and St. Pancras (Mr. Dobson), for Birmingham, Ladywood (Mr. Sever) in their speeches, and my hon. Friend the Member for West Lothian (Mr. Dalyell) in a perspicacious question, fully made the case for the amendment. But what a silence from the Conservative Benches—even from hon. Members with clothing and footwear constituency interests—on a subject which affects every family's budget. What a change from the packed Conservative Benches when we were discussing horses.

Mr. Kilroy-Silk

Does my hon. Friend agree that there has not been a greater demonstration of a Member of Parliament's neglect of his constituents than that demonstrated by the hon. Member for Northampton, South (Mr. Morris) in this debate?

Mr. Garrett

Conservative Members must live with their consciences and

account to themselves—and, I hope, to their constituents—for refusing to take part in this debate on an item which will affect every family in the country.

I am grateful to the Chief Secretary for his kind words. He has a job which dries up kindliness, so I might as well bask in it while I have the brief opportunity to do so. I am pleased to hear that Customs and Excise will examine the limits on the zero rating of children's clothing and footwear. It is clear what will be the effect on the 12- to 13-year-olds. A sudden jump to 15 per cent. will be an unbearable burden for many families.

The right hon. Gentleman said that these increases would not greatly affect the domestic industry, but I must point out that the proposed VAT increase on footwear casts a shadow over an industry that has suffered a great deal of decline. It will be an added burden on leather prices, which are rising at about 5 per cent. a month.

I was interested to hear the Chief Secretary say that too much money was being spent on discretionary clothing. One might pursue that point further, because it opens an interesting vista. Clearly, the Treasury view is that we should all wear simple and monk-like habits. No doubt many of us would be willing to do so if the right hon. Gentleman would promise to have them zero-rated.

In view of the unsatisfactory reply on this important amendment, I recommend my right hon. and hon. Friends to press this matter to a vote.

Question put, That the amendment be made:—

The Committee divided: Ayes 155, Noes 237.

Division No. 39]	AYES	[2.38 a.m.
Adams, Allen	Carmichael, Neil	Cunningham, Dr John (Whitehaven)
Archer, Rt Hon Peter	Cartwright, John	Dalyell, Tam
Armstrong, Rt Hon Ernest	Clark, Dr David (South Shields)	Davidson, Arthur
Atkinson, Norman (H'gey, Tott'ham)	Cocks, Rt Hon Michael (Bristol S)	Davies, Rt Hon Denzil (Llanelli)
Barnett, Guy (Greenwich)	Coleman, Donald	Davies, E. Hudson (Caerphilly)
Bennett, Andrew (Stockport N)	Concannon, Rt Hon J. D.	Davis, Clinton (Hackney Central)
Bray, Dr Jeremy	Conlan, Bernard	Davis, Terry (B'rm'ham, Stechford)
Brown, Hugh D. (Provan)	Cook, Robin F.	Deakins, Eric
Brown, Ronald W. (Hackney S)	Cowans, Harry	Dean, Joseph (Leeds West)
Brown, Ron (Edinburgh, Leith)	Cox, Tom (Wandsworth, Tooting)	Dempsey, James
Buchan, Norman	Craigen, J. M. (Glasgow, Maryhill)	Dewar, Donald
Callaghan, Jim (Middleton & P)	Crowther, J. S.	Dixon, Donald
Campbell, Ian	Cryer, Bob	Dobson, Frank
Campbell-Savours, Dale	Cunliffe, Lawrence	Dormand, Jack
Canavan, Dennis	Cunningham, George (Islington S)	Dubs, Alfred
Duffy, A. E. P.	McElhone, Frank	Roper, John
Eastham, Ken	McKay, Allen (Penistone)	Ross, Ernest (Dundee West)
Ellis, Raymond (NE Derbyshire)	McKelvey, William	Rowlands, Ted
Ennals, Rt Hon David	Maclennan, Robert	Sever, John
Ewing, Harry	McMahon, Andrew	Sheerman, Barry
Field, Frank	McWilliam, John	Shore, Rt Hon Peter (Step and Pop)
Flannery, Martin	Magee, Bryan	Silkin, Rt Hon John (Deptford)
Fletcher, Ted (Darlington)	Marks, Kenneth	Silkin, Rt Hon S. C. (Dulwich)
Foot, Rt Hon Michael	Marshall, David (GI'sgow, Shettles'n)	Silverman, Julius
Forrester, John	Marshall, Jim (Leicester South)	Skinner, Dennis
Foster, Derek	Martin, Michael (Gl'gow, Springb'rn)	Smith, Rt Hon J. (North Lanarkshire)
Garrett, John (Norwich S)	Maxton, John	Soley, Clive
George, Bruce	Maynard, Miss Joan	Spearing, Nigel
Golding, John	Mikardo, Ian	Stallard, A. W.
Hamilton, James (Bothwell)	Millan, Rt Hon Bruce	Stoddart, David
Hardy, Peter	Miller, Dr M. S. (East Kilbride)	Stott, Roger
Harrison, Rt Hon Walter	Morris, Rt Hon Alfred (Wythenshawe)	Strang, Gavin
Hart, Rt Hon Dame Judith	Morris, Rt Hon Charles (Openshaw)	Straw, Jack
Hattersley, Rt Hon Roy	Morton, George	Summerskill, Hon Dr Shirley
Haynes, Frank	Moyle, Rt Hon Roland	Taylor, Mrs Ann (Bolton West)
Healey, Rt Hon Denis	Newens, Stanley	Thomas, Mike (Newcastle East)
Hogg, Norman (E Dunbartonshire)	O'Neill, Martin	Thomas, Dr Roger (Carmarthen)
Home Robertson, John	Orme, Rt Hon Stanley	Urwin, Rt Hon Tom
Hooley, Frank	Owen, Rt Hon Dr David	Varley, Rt Hon Eric G.
Horam, John	Palmer, Arthur	Welsh, Michael
Howell, Rt Hon Denis (B'ham, Sm'H)	Park, George	White, James (Glasgow, Pollok)
Huckfield, Les	Pendry, Tom	Whitehead, Phillip
Hughes, Robert (Aberdeen North)	Powell, Raymond (Ogmore)	Williams, Rt Hon Alan (Swansea W)
Janner, Hon Greville	Prescott, John	Wilson, Rt Hon Sir Harold (Huyton)
John, Brynmor	Price, Christopher (Lewisham West)	Winnick, David
Jones, Rt Hon Alec (Rhondda)	Race, Reg	Woolmet, Kenneth
Jones, Barry (East Flint)	Radice, Giles	Wrigglesworth, Ian
Kaufman, Rt Hon Gerald	Richardson, Miss Jo	Wright, Sheila
Kilroy-Silk, Robert	Roberts, Allan (Bootle)	Young, David (Bolton East)
Lamborn, Harry	Roberts, Ernest (Hackney North)
Leighton, Ronald	Robertson, George	TELLERS FOR THE AYES
Lofthouse, Geoffrey	Rodgers, Rt Hon William	Mr. Ted Graham and
McCartney, Hugh	Rooker, J. W.	Mr. John Evans.
NOES
Alexander, Richard	Cormack, Patrick	Grist, Ian
Alison, Michael	Costain, A. P.	Grylls, Michael
Arnold, Tom	Cranborne, Viscount	Gummer, John Selwyn
Aspinwall, Jack	Critchey, Julian	Hamilton, Hon Archie (Eps'm&Ew'il)
Atkins, Robert (Preston North)	Crouch, David	Hannam, John
Baker, Nicholas (North Dorset)	Dickens, Geoffrey	Haselhurst, Alan
Bendell, Vivian	Dodsworth, Geoffrey	Havers, Rt Hon Sir Michael
Benyon, Thomas (Abingdon)	Dorrell, Stephen	Hawkins, Paul
Berry, Hon Anthony	Douglas-Hamilton, Lord James	Hawksley, Warren
Best, Keith	Dover, Denshore	Heddle, John
Bevan, David Gilroy	du Cann, Rt Hon Edward	Henderson, Barry
Biffen, Rt Hon John	Dunn, Robert (Dartford)	Heseltine, Rt Hon Michael
Biggs-Davison, John	Durant, Tony	Higgins, Rt Hon Terence L.
Blackburn, John	Eden, RI Hon Sir John	Hogg, Hon Douglas (Grantham)
Blaker, Peter	Edwards, Rt Hon N. (Pembroke)	Hooson, Tom
Body, Richard	Eggar, Timothy	Hordern, Peter
Bonsor, Sir Nicholas	Emery, Peter	Howe, Rt Hon Sir Geoffrey
Boscawen, Hon Robert	Eyre, Reginald	Hunt, David (Wirral)
Bowden, Andrew	Fairbairn, Nicholas	Jenkin, Rt Hon Patrick
Boyson, Dr Rhodes	Faith, Mrs Sheila	Jessel, Toby
Bright, Graham	Farr, John	Johnson Smith, Geoffrey
Brinton, Tim	Fell, Anthony	Jopling, Rt Hon Michael
Britten, Leon	Fenner, Mrs Peggy	Joseph, Rt Hon Sir Keith
Brown, Michael (Brigg & Sc'thorpe)	Finsberg, Geoffrey	Kaberry, Sir Donald
Browne, John (Winchester)	Fisher, Sir Nigel	Kershaw, Anthony
Bruce-Gardyne, John	Fletcher, Alexander (Edinburgh N)	King, Rt Hon Tom
Buck, Antony	Fletcher-Cooke, Charles	Kitson, Sir Timothy
Budgen, Nick	Fookes, Miss Janet	Lamont, Norman
Bulmer, Esmond	Forman, Nigel	Lang, Ian
Butcher, John	Fowler, Rt Hon Norman	Langford-Holt, Sir John
Butler, Hon Adam	Fox, Marcus	Latham, Michael
Cadbury, Jocelyn	Fraser, Peter (South Angus)	Lawrence, Ivan
Carlisle, John (Luton West)	Galbraith, Hon T. G. D.	Lawson, Nigel
Carlisle, Kenneth (Lincoln)	Gardiner, George (Reigate)	Lee, John
Chalker, Mrs. Lynda	Garel-Jones, Tristan	Lennox-Boyd, Hon Mark
Chapman, Sydney	Goodhart, Philip	Lester, Jim (Beeston)
Churchill, W. S.	Goodlad, Alastair	Lloyd, Peter (Fareham)
Clark, Hon Alan (Plymouth, Sutton)	Gorst, John	Loveridge, John
Clark, Dr William (Croydon South)	Gow, Ian	Lyell, Nicholas
Clarke, Kenneth (Rushcliffe)	Gower, Sir Raymond	Macfarlane, Neil
Clegg, Walter	Gray, Hamish	MacGregor, John
Cockeram, Eric	Grieve, Percy	MacKay, John (Argyll)
Colvin, Michael	Griffiths, Eldon (Bury St Edmunds)	Macmillan, Rt Hon M. (Farnham)
Cope, John	Griffiths, Peter (Portsmouth N)	McNair-Wilson, Michael (Newbury)

McNair-Wilson, Patrick (New Forest)	Pattie, Geoffrey	Steen, Anthony
McQuarrie, Albert	Pawsey, James	Stevens, Martin
Madel, David	Percival, Sir Ian	Stewart, Ian (Hitchin)
Major, John	Pollock, Alexander	Stewart, John (East Renfrewshire)
Marland, Paul	Porter, George	Stokes, John
Marlow, Tony	Price, David (Eastleigh)	Stradling Thomas, J.
Marshall, Michael (Arundel)	Prior, Rt Hon James	Taylor, Robert (Croydon NW)
Maude, Rt Hon Angus	Proctor, K. Harvey	Tebbit, Norman
Mawby, Ray	Raison, Timothy	Temple-Morris, Peter
Mawhinney, Dr Brian	Rathbone, Tim	Thompson, Donald
Maxwell-Hyslop, Robin	Rees, Peter (Dover and Deal)	Thornton, Malcolm
Mayhew, Patrick	Rees-Davies, W. R.	Townend, John (Bridlington)
Mellor, David	Renton, Tim	Townsend, Cyril D. (Bexleyheath)
Meyer, Sir Anthony	Rhys Williams, Sir Brandon	Trippler, David
Miller, Hal (Bromsgrove & Redditch)	Ridley, Hon Nicholas	Trotter, Neville
Mills, Iain (Meriden)	Rifkind, Malcolm	Viggers, Peter
Mills, Peter (West Devon)	Roberts, Michael (Cardiff NW)	Waddington, David
Miscampbell, Norman	Roberts, Wyn (Conway)	Wakeham, John
Mitchell, David (Basingstoke)	Rossi, Hugh	Waldegrave, Hon William
Monro, Hector	Rost, Peter	Waller, Gary
Montgomery, Fergus	Sainsbury, Hon Timothy	Ward, John
Morgan, Geraint	St. John-Stevas, Rt Hon Norman	Watson, John
Morris, Michael (Northampton, Sth)	Shaw, Michael (Scarborough)	Wells, John (Maidstone)
Morrison, Hon Charles (Devizes)	Shepherd, Colin (Hereford)	Wells, Bowen (Hert'rd & Stev'nage)
Morrison, Hon Peter (City of Chester)	Shepherd, Richard (Aldridge-Br'hills)	Wheeler, John
Mudd, David	Shersby, Michael	Whitney, Raymond
Murphy, Christopher	Silvester, Fred	Wickenden, Keith
Myles, David	Sims, Roger	Wilkinson, John
Neubert, Michael	Skeet, T. H. H.	Williams, Delwyn (Montgomery)
Newton, Tony	Speller, Tony	Winterton, Nicholas
Normanton, Tom	Spicer, Jim (West Dorset)	Wolfson, Mark
Page, John (Harrow, West)	Spicer, Michael (S Worcestershire)	Young, Sir George (Acton)
Page, Rt Hon R. Graham (Crosby)	Sproat, Iain
Parkinson, Cecil	Squire, Robin	TELLERS FOR THE NOES:
Parris, Matthew	Stanbrook, Ivor	Mr. Spencer Le Merchant and
Patten, Christopher (Bath)	Stanley, John	Mr. Carol Mather.
Patten, John (Oxford)

Question accordingly negatived.

2.45 a.m.

Amendment proposed: No. 17, in page 2, line 27, at end add— '(6) As from the passing of this Act sub-section (1) above shall not apply to any supply of goods or services made to any person in

recipt of mobility allowance.'.—[Mr. Alfed Morris.]

Question put, That the amendement be made:—

The Committee divided: Ayes 156, Noes 236.

Division No. 40]	AYES	[2.48 a.m.
Adams, Allen	Davies, E. Hudson (Caerphilly)	Hogg, Norman (E Dunbartonshire)
Archer, Rt Hon Peter	Davis, Clinton (Hackney Central)	Home Robertson, John
Armstrong, Rt Hon Ernest	Davis, Terry (B'rm'ham, Stechford)	Hooley, Frank
Atkinson, Norman (H'gey, Tott'ham)	Deakins, Eric	Horam, John
Barnett, Guy (Greenwich)	Dempsey, James	Howell, Rt Hon Denis (B'ham, Sm'H)
Bennett, Andrew (Stockport N)	Dewar, Donald	Huckfield, Les
Bray, Dr Jeremy	Dixon, Donald	Hughes, Robert (Aberdeen North)
Brown, Hugh D. (Provan)	Dobson, Frank	Janner, Hon Greville
Brown, Ronald W. (Hackney S)	Dormand, Jack	John, Brynmor
Brown, Ron (Edinburgh, Leith)	Dubs, Alfred	Jones, Rt Hon Alec (Rhondda)
Buchan, Norman	Duffy, A. E. P.	Jones, Barry (East Flint)
Callaghan, Jim (Middleton & P)	Eastham, Ken	Kaufman, Rt Hon Gerald
Campbell, Ian	Ellis, Raymond (NE Derbyshire)	Kilroy-Silk, Robert
Campbell-Savours, Dale	Ennals, Rt Hon David	Lamborn, Harry
Canavan, Dennis	Evans, John (Newton)	Leighton, Ronald
Carmichael, Neil	Ewing, Harry	Lofthouse, Geoffrey
Cartwright, John	Field, Frank	McCartney, Hugh
Clark, Dr David (South Shields)	Flannery, Martin	McDonald, Dr Oonagh
Cocks, Rt Hon Michael (Bristol S)	Fletcher, Ted (Darlington)	McElhone, Frank
Coleman, Donald	Foot, Rt Hon Michael	McKay, Allen (Penistone)
Concannon, Rt Hon J. D.	Forrester, John	McKelvey, William
Conlan, Bernard	Foster, Derek	Maclennan, Robert
Cook, Robin F.	Garrett, John (Norwich S)	McMahon, Andrew
Cowans, Harry	George, Bruce	McWilliam, John
Craigen, J. M. (Glasgow, Maryhill)	Golding, John	Magee, Bryan
Crowther, J. S.	Graham, Ted	Marks, Kenneth
Cryer, Bob	Hamilton, James (Bothwell)	Marshall, David (GI'sgow, Shetties'n)
Cunliffe, Lawrence	Hardy, Peter	Marshall, Jim (Leicester South)
Cunningham, George (Islington S)	Harrison, Rt Hon Walter	Martin, Michael (Gl'gow, Springb'rn)
Cunningham, Dr John (Whitehaven)	Hart, Rt Hon Dame Judith	Maxton, John
Dalyell, Tam	Hattersley, Rt Hon Roy	Maynard, Miss Joan
Davidson, Arthur	Haynes, Frank	Mikardo, Ian
Davies, Rt Hon Denzil (Llanelli)	Healey, Rt Hon Denis	Millan, Rt Hon Bruce
Miller, Dr M. S. (East Kilbride)	Rodgers, Rt Hon William	Summerskill, Hon Dr Shirley
Morris, Rt Hon Alfred (Wythenshawe)	Rooker, J. W.	Taylor, Mrs Ann (Bolton West)
Morris, Rt Hon Charles (Openshaw)	Roper, John	Thomas, Mike (Newcastle East)
Morton, George	Ross, Ernest (Dundee West)	Thomas, Dr Roger (Carmarthen)
Moyle, Rt Hon Roland	Rowlands, Ted	Urwin, Rt Hon Tom
Newens, Stanley	Sever, John	Varley, Rt Hon Eric G.
O'Neill, Martin	Sheerman, Barry	Welsh, Michael
Orme, Rt Hon Stanley	Shore, Rt Hon Peter (Step and Pop)	White, James (Glasgow, Pollok)
Owen, Rt Hon Dr David	Silkin, Rt Hon John (Deptford)	Whitehead, Phillip
Palmer, Arthur	Silkin, Rt Hon S. C. (Dulwich)	Williams, Rt Hon Alan (Swansea W)
Park, George	Silverman, Julius	Wilson, Rt Hon Sir Harold (Huyton)
Pendry, Tom	Skinner, Dennis	Winnick, David
Powell, Raymond (Ogmore)	Smith, Rt Hon J. (North Lanarkshire)	Woolmer, Kenneth
Prescott, John	Soley, Clive	Wrigglesworth, Ian
Price, Christopher (Lewisham West)	Spearing, Nigel	Wright, Sheila
Race, Reg	Stallard, A. W.	Young, David (Bolton East)
Radice, Giles	Stoddart, David
Richardson, Miss Jo	Stott, Roger	TELLERS FOR THE AYES:
Roberts, Allan (Bootle)	Strang, Gavin	Mr. Tom Cox and
Roberts, Ernest (Hackney Ncrth)	Straw, Jack	Mr. Joe Dean.
Robertson, George
NOES
Alexander, Richard	Farr, John	Lloyd, Peter (Fareham)
Alison, Michael	Fell, Anthony	Loveridge, John
Arnold, Tom	Fenner, Mrs Peggy	Lyell, Nicholas
Aspinwall, Jack	Finsberg, Geoffrey	Macfarlane, Neil
Atkins, Robert (Preston North)	Fisher, Sir Nigel	MacGregor, John
Baker, Nicholas (North Dorset)	Fletcher, Alexander (Edinburgh N)	MacKay, John (Argyll)
Bendell, Vivian	Fletcher-Cooke, Charles	Macmillan, Rt Hon M. (Farnham)
Benyon, Thomas (Abingdon)	Fookes, Miss Janet	McNair-Wilson, Michael (Newbury)
Berry, Hon Anthony	Forman, Nigel	McNair-Wilson, Patrick (New Forest)
Best, Keith	Fowler, Rt Hon Norman	McQuarrie, Albert
Bevan, David Gilroy	Fox, Marcus	Madel, David
Biffen, Rt Hon John	Fraser, Peter (South Angus)	Major, John
Biggs-Davison, John	Galbraith, Hon T. G. D.	Marland, Paul
Blackburn, John	Gardiner, George (Reigate)	Marlow, Tony
Blaker, Peter	Garel-Jones, Tristan	Marshall, Michael (Arundel)
Body, Richard	Goodhart, Philip	Mather, Carol
Bonsor, Sir Nicholas	Goodlad, Alastair	Maude, Rt Hon Angus
Bowden, Andrew	Gorst, John	Mawby, Ray
Boyson, Dr Rhodes	Gow, Ian	Mawhinney, Dr Brian
Bright, Graham	Gower, Sir Raymond	Maxwell-Hyslop, Robin
Brinton, Tim	Gray, Hamish	Mayhew, Patrick
Brittan, Leon	Grieve, Percy	Mellor, David
Brown, Michael (Brigg & Sc'thorpe)	Griffiths, Eldon (Bury St Edmunds)	Meyer, Sir Anthony
Browne, John (Winchester)	Griffiths, Peter (Portsmouth N)	Miller, Hal (Bromsgrove & Redditch)
Bruce-Gardyne, John	Grist, Ian	Mills, Iain (Meriden)
Buck, Antony	Grylls, Michael	Mills, Peter (West Devon)
Budgen, Nick	Gummer, John Selwyn	Miscampbell, Norman
Bulmer, Esmond	Hamilton, Hon Archie (Eps'm & Ew'll)	Mitchell, David (Basingstoke)
Butcher, John	Hannam, John	Monro, Hector
Butler, Hon Adam	Haselhurst, Alan	Montgomery, Fergus
Cadbury, Jocelyn	Havers, Rt Hon Sir Michael	Morgan, Geraint
Carlisle, John (Luton West)	Hawkins, Paul	Morris, Michael (Northampton, Sth)
Carlisle, Kenneth (Lincoln)	Hawksley, Warren	Morrison, Hon Charles (Devizes)
Chalker, Mrs. Lynda	Heddle, John	Morrison, Hon Peter (City of Chester)
Chapman, Sydney	Henderson, Barry	Mudd, David
Clark, Hon Alan (Plymouth, Sutton)	Heseltine, Rt Hon Michael	Murphy, Christopher
Clark, Dr William (Croydon South)	Higgins, Rt Hon Terence L.	Myles, David
Clarke, Kenneth (Rushcliffe)	Hogg, Hon Douglas (Grantham)	Neubert, Michael
Clegg, Walter	Hooson, Tom	Newton, Tony
Cockeram, Eric	Hordern, Peter	Normanton, Tom
Colvin, Michael	Howe, Rt Hon Sir Geoffrey	Page, John (Harrow, West)
Cope, John	Hunt, David (Wirral)	Page, Rt Hon R. Graham (Crosby)
Cormack, Patrick	Jenkin, Rt Hon Patrick	Parkinson, Cecil
Costain, A. P.	Jessel, Toby	Parris, Matthew
Cranborne, Viscount	Johnson Smith, Geoffrey	Patten, Christopher (Bath)
Critchey, Julian	Jopling, Rt Hon Michael	Patten, John (Oxford)
Crouch, David	Joseph, Rt Hon Sir Keith	Pattie, Geoffrey
Dickens, Geoffrey	Kaberry, Sir Donald	Pawsey, James
Dodsworth, Geoffrey	Kershaw, Anthony	Percival, Sir Ian
Dorrell, Stephen	King, Rt Hon Tom	Pollock, Alexander
Dover, Denshore	Kitson, Sir Timothy	Porter, George
du Cann, Rt Hon Edward	Lamont, Norman	Price, David (Eastleigh)
Dunn, Robert (Dartford)	Lang, Ian	Prior, Rt Hon James
Durant, Tony	Langford-Holt, Sir John	Proctor, K. Harvey
Eden, Rt Hon Sir John	Latham, Michael	Raison, Timothy
Edwards, Rt Hon N. (Pembroke)	Lawrence, Ivan	Rathbone, Tim
Eggar, Timothy	Lawson, Nigel	Rees, Peter (Dover and Deal)
Emery, Peter	Lee, John	Rees-Davies, W. R.
Eyre, Reginald	Le Merchant, Spencer	Renton, Tim
Fairbairn, Nicholas	Lennox-Boyd, Hon Mark	Rhys Williams, Sir Brandon
Faith, Mrs Sheila	Lester, Jim (Beeston)	Ridley, Hon Nicholas

Rifkind, Malcolm	Stanbrook, Ivor	Wakeham, John
Roberts, Michael (Cardiff NW)	Stanley, John	Waldegrave, Hon William
Roberts, Wyn (Conway)	Steen, Anthony	Waller, Gary
Rossi, Hugh	Stevens, Martin	Ward, John
Rost, Peter	Stewart, Ian (Hitchin)	Watson, John
Sainsbury, Hon Timothy	Stewart, John (East Rentrewshire)	Wells, John (Maidstone)
St. John-Stevas, Rt Hon Norman	Stokes, John	Wells, Bowen (Hert'rd & Stev'nage)
Shaw, Michael (Scarborough)	Stradling Thomas, J.	Wheeler, John
Shepherd, Colin (Hereford)	Taylor, Robert (Croydon N W)	Whitney, Raymond
Shepherd, Richard (Aldridge-Br'hills)	Tebbit, Norman	Wickenden, Keith
Shersby, Michael	Temple-Morris, Peter	Wilkinson, John
Silvester, Fred	Thompson, Donald	Williams, Delwyn (Montgomery)
Sims, Roger	Thornton, Malcolm	Winterton, Nicholas
Skeet, T. H. H.	Townend, John (Bridlington)	Wolfson, Mark
Speller, Tony	Townsend, Cyril D. (Bexleyheath)	Young, Sir George (Acton)
Spicer, Jim (West Dorset)	Trippier, David
Spicer, Michael (S Worcestershire)	Trotter, Neville	TELLERS FOR THE NOES:
Sproat, Iain	Viggers, Peter	Lord James Douglas-Hamilton
Squire, Robin	Waddington, David	Mr. Robert Boscawen.

Question accordingly negatived.

Mr. John Horam (Gateshead, West)

I understood that the Government were to move to report progress. Since that is not so, I beg to move amendment No. 20, in page 2, line 27, at end add— '(6) As from the passing of this Act subsection (1) above shall not apply to any work of repair or maintenance of a building.'.

The Second Deputy Chairman

With this we may discuss the following amendments:

No. 36, in page 1, line 21, at end insert— 'Provided that after the passing of this Act these changes shall not apply to insulating materials and other products which can be shown to conserve energy.'. No. 37, in page 2, line 27, at end add— '(6) As from the passing of this Act subsection (1) above shall not apply to any repairs to buildings listed as of historic and architectural importance.'.

Mr. Horam

The amendment deals with the repair and maintenance of buildings. We are talking about the repair and maintenance of a building, not improvements. As anyone who is familiar with the arcane intricacies of VAT will know, improvement is not the same as repair and maintenance.

3 am

The effect of the increase in VAT from 8 per cent. to 15 per cent. is nearly to double the cost of repairs and maintenance. The first effect of this will be to increase the bills for work undertaken on our homes. We are talking about large bills. Repairing a house is not something which, these days, can be undertaken for less than £100. We are talking about £200 or £300, for repairs and maintenance.

Repair bills have risen astronomically during the past few years. We are talking of regular increases of about 15 per cent. over any year in comparison with the previous year. This is a particularly unfortunate time for the Government to bring in an increase in VAT which will affect this work. It is an increase which comes immediately after the most severe winter that we have had for many years, and one which obviously had its effects. Many people have had to repair gutters, roofs and parts of the structures of buildings. They will pay the higher rate of VAT if they have not been fortunate enough to get repairs done before the increase comes into effect. That means a substantial increase in the cost of living of a householder.

Perhaps the Government intend people to go in for more do-it-yourself. I had the impression that the Government wanted to galvanise the entrepreneur. That is one of the phrases which tripped so lightly off the tongue of the Minister of State. He always relished such phrases, and a number of hon. Gentlemen on the Government Benches used that phrase.

Shall we galvanise the entrepreneur by presuming that he will get up half an hour earlier in the morning to go to work to galvanise his employees into working harder than they already do? If, at the same time, we expect him to pay higher bills for home repairs and also to do more work himself at weekends because he can no longer afford to pay the increase in VAT we shall drive him, under the stress, to an early coronary, not to producing a galvanising effect on his company. All this will prove too much for hon. Gentlemen who, naturally enough, wish to devote the best hours of their day to their businesses. At the weekends they will have to go around with their Black and Decker gadgets because they cannot afford to pay for repairs to their homes.

This curious combination of tax changes will, I suggest—though one understands the rationale behind the theory—work out quite differently in practice. I do not know whether the Minister owns an old house or a new house. I know that the hon. Member for Blaby (Mr. Lawson)—whom I cannot see on the Government Front Bench at the moment, and who may have escaped from this particular travail—lives in an old rectory. Perhaps they drew for it and, unfortunately, the Chief Secretary got the short straw. I cannot imagine an old rectory not needing repairs to guttering and roofs, and all the other items of expenditure that accumulate over the years. This is something which, in practice, will bear heavily on hon. Gentlemen on the Government Benches, and ourselves if we own our own homes.

If it is the Government's intention to encourage do-it-yourself, I must point out to them that for many people the scope for this sort of activity is limited severely. I have in mind the elderly, many of whom will not be able to undertake this sort of repair work themselves. They will have to employ others to do it, and the cost of doing it will increase. Many of my constituents are elderly and are living on pensions. But still they own their homes and hoped to live out their lives with fairly minimal costs of this kind. Following a bad winter they face big bills, and now they face virtually doubled VAT on the sums that they will have to hand over to their local builders to make these repairs.

3.15 am

We should consider the position of elderly people who have to look after their houses. Perhaps it is thought that they should move. It may be that the economics of the situation suggest that they should move into smaller modern properties. Some of them may do that in the course of time if the current tax position continues, but many of them wish to stay where they are, for very good and sentimental reasons, and they should be allowed to stay if that is the case.

This sort of increase in VAT will make life much more difficult for them. It will be more difficult to spend their final years in their homes, simply because the burden of keeping those houses going will become far too great for those with modest means who are of an age which makes it impractical for them to consider doing their own repair work.

This element, plus the mortgage increase which is likely to result from the increased minimum lending rate, sounds not like an encouragement for the property owning democracy but more like the death knell of it. It is a subject which Government supporters will find cropping up increasingly in their postbags and increasingly occupying their attention. Bills for property repairs of this kind will increase, and the blame for the increase will lie on the Government.

The second effect of an increase of this kind will be on older buildings, especially heritage buildings and churches. In this respect the Government's decision is even more absurd and even more damaging. The hon. Member for Staffordshire, South-West (Mr. Cormack) has tabled an amendment which is being taken in this group. He is an acknowledged expert on matters concerning heritage buildings and churches, and I shall listen with interest to what he says. Therefore I shall curtail my own remarks on this subject, though not too much because the Committee should know what is happening to our heritage under the axe of this Government.

I know that many Government supporters are concerned about heritage properties and feel that more should be done for them. I share that view. I am not an active member of the all-party heritage group, but over the course of years on Finance Bills I have put forward one or two amendments which have succeeded in helping the owners of heritage properties. Their cause demands our attention and deserves our support, and I am glad to have played a small part in improving the tax regime facing those who own our stately homes.

I take the view that the heritage business is an important part of our general tourist industry. Earlier, the hon. Member for Richmond, Yorks (Sir T. Kitson) spoke about the bloodstock industry, and I take his point that it is an important national industry. But the heritage industry is also an important national industry which, if properly developed, could be a continuing national asset financially as well as aesthetically. There is an aesthetic reason for maintaining heritage houses, properties and gardens, but there is also a pure economic case in terms of the tourist industry.

The real case for helping the stately home owner is not based on the tourist industry, however. The very large property, such as Blenheim, Chatsworth or Woburn, is a good business which largely supports itself. It attracts the bulk of the tourists. But we are discussing the smaller property which is not on the tourist map but which is visited by local people on a day out. It thus earns a living and provides jobs. Conservative Members have referred to the importance of rural prosperity, and one remembers how strongly they made that point in the debates on rate support grant. They should be as concerned as I am about providing jobs in rural areas. These properties provide small-scale continuing employment. Today, small is beautiful. We are all in favour of it, just as once we favoured largeness. This continuing commitment to a local community, which is implicit in a heritage property employing perhaps six people to keep it going, is vital. There are countless examples of this source of jobs in rural areas.

About 6,000 properties are currently regarded as of special historic interest, less than half of which are open to the public. About 2,500 properties of all classes come into the category of which I am speaking. They will be adversely affected by the Government's proposals.

Mr. Walter Harrison (Wakefield)

Keep talking.

Mr. Horam

I assure my right hon. Friend the Deputy Chief Whip that I can keep talking on this subject for a very long time.

Repair bills on these large properties are extremely high. They also come at awkward intervals. I know Rockingham Castle quite well, and I should think that the owner of that property has pure overheads of £200,000 a year. In any one year probably the biggest single item will be repairs, but every so often extensive structural work is required, perhaps because of the activities of deathwatch beetle or some other apparition. That will mean a much larger bill in that year. So that is a continuing source of extra cost, and it comes in large lumps at any one time. That means that the owner faces bills often of £20,000 or £30,000 for a particular repair.

As we know, the Department of the Environment's Historic Buildings Council has funds for this situation. Very often, the stately home owner can apply for a 50 per cent. grant to meet the repair bill with which he is faced. On the other hand, however, if the Historic Buildings Council's funds are limited, any increase in VAT which is covered by the 50 per cent. grant is, in effect, a reduction in the funds that it has available. That is the situation that will face the Historic Buildings Council when it comes to meeting bills which are enlarged as a result of increased VAT.

Therefore, what we are really talking about is reducing the available funds for the provision of extra facilities for the repair of stately homes. That is a situation that we would all regret, and I am sure that it will lead to further decay in this quite important sector of our economy, and particularly—I stress this point—in local economies around the country.

The second situation which we can look at here—not only the question of the Historic Buildings Council and what it may provide for a landowner or a stately home owner—is the fact that in some instances the landowner or stately home owner may be able to set repairs and maintenance against his costs. But again, all those who over the years have followed the debate about the heritage will know that the situation is even more arcane than usual in this area. The Inland Revenue allows the stately home owner to set his repairs and maintenance against his costs only if he is running his stately home as a business. Then comes the question: what is a business?

A business is an enterprise which has some prospect of making a profit. That is the definition of a business. But many stately home owners are not in the business of making a profit. They are in the business of keeping revenue reasonably high, keeping the place going, and doing a public service by opening it to the public. That is all that they want to do. They want to offset some of their legitimate costs. They are not interested in making a profit. They have no prospect of making a profit. Therefore, they are not a business. Therefore, they cannot set against their total revenue the costs of repairs and maintenance.

It is a bizarre Alice-in-Wonderland situation that we face. The Minister of State knows that as well as I do, from having discussed it over the years. No doubt he has made his criticisms of it in the past. I hope that he will retain those critical faculties which we know him to possess now that he is in his present job. This is an absurd situation. It is something that all Governments, of whatever political complexion, should examine closely, because it does not make sense. We should have a bit of common sense in this area.

Finally, on the question of heritage, what we need—I hope that here I shall carry Conservative Members with me, as well as my hon. Friends—is some sense of strategy. Up to the present, it has been far too much at the whim of the capital transfer tax, VAT and all the other items of taxation which have impinged on the heritage business. We have not thought it through. Therefore, we need to examine the problems in a sensible way and devise a regime for the heritage business which really makes some sort of sense in economic terms and not simply in terms of the fiscal wisdom of the Inland Revenue or whatever a particular Chancellor may devise for some other purpose, which has consequences for the heritage business. We need to plan for the heritage business directly.

Perhaps this is not the most important thing in the world, but it is a vital part of our economy. Both sides of the House have an interest in doing something about it, because in the final analysis it provides local employment as well as being a boost to our tourist industries.

I now turn to the question of churches. We must not forget that as part of our heritage we have not only some splendid country homes but some splendid and ancient churches, of all denominations, in our towns and villages. It is here that we enter a world, if anything, of even greater fantasy than we have observed in the case of stately homes.

Special provision was made by the previous Government in 1977 for additional funds to be made available for preserving the fabric of church buildings. Additional grant-aid was made available by my Government. The total amount of grant-aid available, roughly speaking, is £2 million. That is the total amount from the Government that goes to the repair of church buildings.

We now have £2 million coming direct from the Government as a grant, and the Churches pay £1.7 million in VAT. What the State gives with one hand it takes away with the other. Apart from that, the £1.7 million, which almost balances the £2 million, was the amount of VAT that was due at the old rate of 8 per cent. Presumably with VAT at 15 per cent. the amount will be nearer £3 million, so we are giving the Churches £2 million to spend on their buildings, which is a small enough sum, and taking back £3 million in VAT. Those right hon. and hon. Members on the Government Benches who vote against the amendment must agree that that is what they are voting for. That is an absurd situation, which cannot be defended by any rhyme or reason, whether it is simple taxation or general economics. I. should like to see a clearer indication from the Government of what their strategy will be. Do they intend this absurd situation to continue as a result of the changes in VAT, or do they not?

I should like the Minister to deal with this point. It seems to me nonsensical that all those who spend their time organising bazaars, whist drives, coffee mornings, sales of work and concerts—no doubt many hon. Members in the House have attended some of them—are simply paying the Inland Revenue the VAT. They are raising practically no thing towards helping their churches.

I must make the point—no doubt others speaking to their own amendments will wish to make it also—that there is not only a problem for the private householder whose bills will be increased by the near doubling of VAT, but there is this special problem for stately homes and churches. Both these problems would be changed if the Committee were to accept the amendment, which would reduce the 15 per cent. rate to the existing 8 per cent. rate. That would be a small help, but I go beyond that and say that we need a more sensible strategy for this whole business of heritage, churches, and so on, if we are ever to tackle the problem in an economic way and ask for the sort of contribution to our economy which I am sure it is capable of making.

That is sufficient on that subject. I could extend these remarks to cover other items under the heading of repairs and maintenance. It is possible that we shall need to return to this debate tomorrow. [Hon. Members: "Today."] Today, indeed. For the moment, having introduced this topic, having given the Minister, or whoever is to reply to the debate, a reasonable opportunity to comment on some of my points, and having recognised that the mood of the Committee is that I should curtail my speech—though I reserve the right to return to the matter if I feel that the case has not been answered or that some points have not been covered in the debate—I leave the matter there.

To report Progress and ask leave to sit again.—[ Mr. Biffen.]

Committee report Progress; to sit again this day.