ZERO-RATING

HC Deb 30 April 1984 vol 59 cc20-101 3.35 pm

Mr. Jeff Rooker (Birmingham, Perry Barr)

I beg to move, amendment No. 1, in clause 10, page 6, leave out lines 13 and 14.

The Chairman

With this it will be convenient to take the following amendments:

No. 2, in clause 10, page 6, line 14, leave out '1st May 1984' and insert '1st October 1984'.

No. 10, in schedule 6, page 132, line 38, leave out Part I.

Mr. Rooker

I was somewhat astonished to read the Amendment Paper and to see that on this important subject and the one to follow—the two debates connected with the imposition of VAT on food—not one of the Conservative Members who were elected in 1983 had bothered to table an amendment. They must be the most bone idle intake on the Conservative Back Benches for decades. It is either that, or they believe what one new Conservative Member told me last week, that they had been told by the Government Whip not to put down amendments; that it was the Opposition's job to do that. That is the way to keep the Conservative Back Benches quiet.

Mr. Sydney Chapman (Chipping Barnet)

The hon. Gentleman is wrong. I draw his attention to amendments Nos. 6, 8 and 3, for example.

Mr. Rooker

I apologise. It had escaped my attention that a Tory Member of Parliament had signed a Labour amendment. Amendment No. 3 is in the names of my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) and others. I was not looking at Labour amendments for Tory names. Perhaps the Government will be as amenable as their Back Benchers and give way on some of these amendments.

When the Chancellor of the Exchequer presented his Budget to the House he gave two reasons for the imposition of VAT on take-away food. He said that it competes with other forms of catering". One of the questions that I shall be asking is: which other forms of catering? The second reason that he gave was: The extra revenue . . . will enable me . . . to lighten the burden of income tax."—[Official Report, 13 March 1984; Vol. 56, c. 303.]

Those were the two reasons that the Chancellor of the Exchequer gave for the imposition of tax on take-away food. I agree that this is a narrow tax, in that it is only on hot take-away meals, but, nevertheless, those are the only reasons that the Government have so far given: first, that it competes with other forms of catering; and, secondly, that the Chancellor of the Exchequer wants the money to lighten the burden of taxation.

Before we consider the impost on the customers, it is incumbent upon the House to consider the effects on the industry. The Government must have made calculations about the effect of the imposition of VAT on the take-away food industry. I hope that the Government have come to the House to give the facts and figures behind the Chancellor's judgment and the reasons for this clause.

According to the Euromonitor 1982, a copy of which I was handed some time ago, a breakdown of the takeaway food industry in Britain—which presumably is historical, although I understand that these are the most up-to-date figures—shows that there are 9,000 fish and chip outlets, 4,000 Chinese take-away outlets, and 2,000 Indian take-away outlets. Together, those three areas make up no less than 81 per cent. of take-away food outlets in Britain. We are told that fish and chip shops form 49 per cent. of all take-away food outlets, the Chinese sector 21 per cent., and the Indian sector 11 per cent.

The others are also-rans. The hamburger trade is the only area to which Ministers have so far referred. Only the Chief Secretary, on Second Reading, gave anything remotely like a detail when at column 250 he specifically referred to McDonalds and Wimpy. Those are the only two sectors which have been highlighted by a Minister, yet 63 per cent. of their business is sit-down meals, on which VAT is paid. The remarkable thing about that sector, highlighted by the Chief Secretary on Second Reading, is that only 5 per cent. of the take-away business is involved in the fast food hamburger trade—the sort of thing in which McDonalds and Wimpy are engaged. The rest comes from those areas which I have outlined.

Indoor sit-down meals form only 10 per cent. of trade in the fish and chip sector; 90 per cent. is take away. The proportions are similar in the Chinese sector—14 per cent. sit down and 86 per cent. take away. Therefore, fish and chip and Chinese take-away food shops account for 90 per cent. of Britain's take-away trade. We must be clear that that is the sector of the take-away food industry that will be hit. "Hit" is the right word. Both the Chancellor and the Minister of State have at various times since the Budget made it clear that the Treasury has made some calculations about the number of businesses that will close down. On 2 April the Minister of State, Treasury, said that the imposition of VAT on take-away food is estimated to result in a small net reduction in the number of traders registered for VAT.—[Official Report, 2 April 1984; Vol. 57, c. 367.] On 26 March the Chancellor of the Exchequer used precisely the same words at the end of another question. He said that the application of VAT to supplies of hot food and drink is estimated to result in a small net reduction in the number of traders registered for VAT.—[0fficial Report, 26 March 1984; Vol. 57, c. 54.] The Treasury knows that the figure is small, but how many will it be? The number of businesses that will close down or lose so much turnover that they will cease to be registered for VAT must have been calculated. Will the Government claim that they will all become so small that they will dip under the VAT threshold and that none will close down? The Government must have done some work on that, or they would not claim that there will be a small net reduction. [Interruption.] I am interested in the loss of jobs, but I suspect that the hon. Member for Northampton, North (Mr. Marlow) is not. That is why he is sitting on that side of the House. We are talking about the loss of jobs. That is what the debate is about. [Interruption.] If the hon. Gentleman wishes to intervene, I shall gladly give way.

Mr. Tony Marlow (Northampton, North)

I was only asking when the hon. Gentleman will stop saying the same thing over and over again and get on with his speech so that we have something to listen to. He has been dead boring so far.

Mr. Rooker

Yes, the loss of jobs and the closure of businesses, small and large, is boring to Conservative Members. That naturally follows. The industry is chock a block with small traders and self-employed people. It matters not; the same speech will be made and the same arguments advanced when we debate the building industry. That is the nature of the industry which the Governmemt are attacking.

3.45 pm

I grant that labour shedding in the take-away food business is more likely to take place in the large chains, which employ a large number of part-time staff. That cannot be denied, because there is a considerable number of part-time staff in the very large businesses to which the Chief Secretary referred. On the other hand, liquidation risks will be higher in fish and chip and Chinese businesses, which are more vulnerable because the businesses are smaller, because they are run by families and because of their ability to take on board the 15 per cent. extra costs that will be imposed under the clause. In short, it will mean more people on the dole. That is one reason why we oppose the inclusion of this part of the clause.

The Chancellor of the Exchequer said that take-away food competes with other forms of catering. We want to know which forms of catering. It certainly does not compete with restaurants. As I understand it, 80 per cent. of take-away meals are eaten in the home. That is not competition with restaurants, nor can it be competition with any other form of catering. The average spend on a take-away meal is £1.50 per head. With what other form of catering does that compete? Those are the arguments that the Chancellor put forward.

A survey carried out by Audience Selection after the Budget showed that 25 per cent. of the unemployed who were questioned had never had a meal in a restaurant in their lives. By no stretch of the imagination can it be suggested that there is any competition between the vast majority of hot take-away food businesses and restaurants. The Government have to come up with some better reasons for the inclusion of the clause in the Bill than the Chancellor gave in presenting the Budget.

Dr. Alan Glyn (Windsor and Maidenhead)

How many take-away meals are eaten on the premises, against the law?

Mr. Rooker

I assume that if 80 per cent. are taken home, 20 per cent. are eaten off the premises, otherwise the meal would not be called take-away. If they are not take-away meals, the customers pay VAT anyway. The debate is concerned not with meals taken inside the premises, at a table, but with meals taken out of the premises where the meals are provided, to be eaten away from the premises. If I misunderstood the hon. Gentleman's intervention, I shall give way again.

Dr. Glyn

There is nothing to stop the purchaser from buying the take-away food and the restaurateur then allowing him to sit down and eat it in the same restaurant.

Mr. Rooker

As I understand it, if that happens after tomorrow the person will have to pay VAT. I suspect that if it happens today the person will have to pay VAT, because the meal is taken inside the premises and is not taken away. Therefore, 15 per cent. is levied on it. If I am incorrect—I believe I am correct, having read the Customs and Excise notices — perhaps the Chief Secretary or the Minister of State will make it clear that the meal to which the hon. Gentleman is referring has VAT imposed on it already.

I referred to the survey carried out by Audience Selection after the Budget. It is interesting to go over some of the figures which it later published. I shall not read them all out, as that would unnecessarily detain the House. Of the people interviewed, 80 per cent. had bought take-away meals in the past. The age range went through the various groups and, according to the sociological terms, the socioeconomic groups. Of the A, B and C1 groups, 82 per cent. had eaten take-away meals, as had 74 per cent. of the D and E groups, and 84 per cent. of the unemployed.

The important question was asked about who would stop buying or who would buy less if the 15 per cent. rate was increased. In terms of the areas of the country where a business loss can be measured, it was shown that in the midlands there would be a business loss of 20 to 25 per cent. and in the north a loss of 15 to 21 per cent.; and that 27 per cent. of the retired people and 17 per cent. of the unemployed would stop buying. That will mean a considerable loss of business for many small traders.

We can judge what might happen after tomorrow by what has happened since the Budget. It has been forecast that there will be a loss in sales of between 14 and 20 per cent. as a result of putting VAT on such meals. The forecast is so accurate only because many people assumed that VAT had been imposed as soon as the Chancellor of the Exchequer had sat down. Thus, it has been possible to measure a drop of up to 20 per cent. in the take-away trade, because, wrongly, customers thought that there had been a 15 per cent. hike in prices. That drop in sales, which will not all be made good, will undoubtedly lead to a loss in the amount of VAT that the Government will receive. I understand that the Government estimate that imposing VAT on such food will bring in about £200 million per year. However, according to the industry, if it has already lost so much of its turnover, the Government's estimate of £200 million may be reduced by anywhere between £30 million and £60 million. By any standards, that represents a considerable loss.

There is no argument between the industry and the Government about the value of the take-away food industry. I understand that it is fixed at about £1.3 billion, spread among several thousand very small traders. The Government intend to employ 12 extra VAT inspectors to police evasion and to ensure that the many thousands of outlets—many of which do not pay VAT at present—are caught in the VAT net. It is clear that 12 VAT inspectors will not be up to the job. However, perhaps the Government forecast a somewhat larger number of closures than we have been led to believe. Indeed, that is why it is important that, in reply to the debate, the Minister should give the House and the industry, as well as the customers, some idea of the number of closures that the Government forecast. That is crucial, because the Government must have grounds for having decided on 12 extra VAT inspectors.

The Government have not said much about fairness and equality of treatment as between Britain and, for example, the EEC. People in the member states of the EEC pay, on average, 7 per cent. on take-away foods. Why should people pay 15 per cent. in the United Kingdom when, for take-away meals, other countries sometimes have special rates that are lower than those for meals eaten on the premises? Why should we pay twice the average amount of VAT paid on take-away meals in the EEC? There can be no argument about differentials, because in the Netherlands there is a differential rate for snacks as opposed to whole take-away meals. There is an incentive for customers to buy whole meals to take away instead of snacks, because there is a differential of 5 to 19 per cent. in the VAT charged. Of course, the Government got their figures on the EEC in a complete mess. The worrying factor was that they got the figures that they gave to the House in a mess in February, presumably at a time when Treasury Ministers and their advisers were calculating how much extra the Government would obtain by taxing food in this way. When the Minister answered the hon. Member for Devon, North (Mr. Speller) on 7 February, he gave figures for nine EEC member states. The United Kingdom was one of them—which he had to get right—and Denmark was another, which he got right, but the figures for the other seven were all wrong. He got the VAT rates for take-away food wrong in seven out of the nine EEC countries. I did not sniff that out. The industry pointed it out to me, and, I suspect, also to Conservative Members.

On Second Reading, I raised that matter, but unfortunately the Government ran away from the debate and the Minister did not have a chance to reply. However, last Thursday the Minister answered another question and said:

I regret that much of the information is at variance with that given to my hon. Friend the Member for Devon, North (Mr. Speller) on 7 February . . . and I apologise for having inadvertently misled the House.—[Official Report, 26 April 1984; Vol. 58, c. 610.] Of course, we accept that apology, but how can a senior Treasury Minister, a month before the launch of a Budget get the figures for seven out of nine EEC countries wrong? Hours must have been spent in discussion and calculating the effect on the take-away food industry in the United Kingdom.

Mr. Mark Fisher (Stoke-on-Trent, Central)

Is not my hon. Friend drawn inevitably to the conclusion that the whole basis of the Government's case is false because their figures were incorrect? Surely they should withdraw the proposal.

Mr. Rooker

Perhaps the Government miscalculated what they would collect in VAT from the industry. Their comparisons with how VAT operates in other countries were wrong.

We offer the Government two ways out. First, they could withdraw the proposal to impose the tax. It would be the easiest thing in the world for them to do that today, because the tax does not take effect until tomorrow. The Government could say, "We have made a mistake. We do not really need the money. We realise the damaging effect that the tax will have on the industry. It will close X thousand outlets and increase the dole queue by X thousands of people. We have decided that it is not a good idea, so we shall pack it in." If the Government were to say that, we could now start the next debate about VAT on building alterations.

The alternative to that approach is contained in amendment No. 2. The Government could delay the imposition of the tax until 1 October. There is nothing special about the date; it could be 1 December. The idea is to delay the imposition of the tax until the autumn when the price of potatoes in particular is at its lowest. Potatoes are only one ingredient of take-away meals, but the fish and chip take-away sector, with 9,000 outlets, operates 49 per cent. of all take-away businesses. The price of potatoes is important. The industry would more easily be able to take on board the extra impost if it were to start when a main ingedient was at its lowest price. The alternative is reasonable.

The proposal is not a wrecking amendment. It would give the industry time to reorganise itself. It would make a little difference to the Government's income, but the Government will anyway lose some of the extra income which they thought they would gain, simply because of loss of business. Such an announcement today would restore the level of business to somewhere near what it was before the Chancellor delivered his so-called popular Budget a month ago.

The Chancellor said that the imposition of VAT on take-away food would lighten the income tax burden. The Chancellor is a member of a Government who have increased the income tax burden over the last five years, however they try to juggle the figures. For him to say that he wants to tax take-away meals purchased by people who do not pay income tax to pay for income tax cuts is reason enough for any sensible Opposition to oppose the Government.

The Government argue that they want to lessen the tax burden of, for example, Ministers earning £800 a week by taxing take-away food bought by non-tax paying pensioners, students and the unemployed. That is what the proposal means in black and white. People who are so poor that they are below the tax threshold will have to pay an extra tax so that the burden of those who pay income tax can be made lighter. With the present state of the British economy, it is downright immoral to shift the tax burden from the rich to the poor. For that reason, I ask any sensible hon. Member who is interested in the industry, the customers and the people about whom I have spoken, to join us in the Lobby later.

4 pm

Mr. Michael Fallon (Darlington)

I rise for two reasons: first, to demonstrate that the 1983 intake is not quite as idle as the hon. Member for Birmingham Perry Barr (Mr. Rooker) might have suggested; and, secondly, to mention a point which he did not raise — the application of clause 10 to wholesale and retail bakeries. The well-run family firm of Murrays of Darlington is an example. If such a firm is not to go to the expense of installing separate tills for standard-rated and zero-rated products it has been advised by the local tax office that it must estimate the proportion of gross takings that relate to standard-rated supplies—hot pies, soup and so on. It must submit such an estimate to the local VAT office.

It will not have escaped the notice of my right hon. and learned Friend the Chief Secretary that such a proportion could vary considerably during the year. It might vary according to the season, month by month, or the standard of baking on a particular morning. When considering the application of the clause to bakeries, while accepting the need for VAT to be applied, the important point for many bakeries will be the proportion of gross sales that fall within the scope of the new regulation.

I wonder whether my right hon. and learned Friend would agree that, excluding the exemptions that have been announced, if hot food sales in a bakery fall below a certain proportion of overall gross sales, there might well be a case for deeming such premises to be outside the scope of the clause.

Mr. D. N. Campbell-Savours (Workington)

On a point arising—

Mr. Fallon

I have finished speaking.

Mr. Campbell-Savours

rose—

The Chairman

Order. The hon. Member has concluded his speech.

Mr. Max Madden (Bradford, West)

In the Budget statement, in what he described as a broadly neutral Budget, one of the Chancellor's less profound comments was that there must inevitably be gainers and losers. Since then, more people have come to see themselves as losers as a result of the Budget than as gainers. Those in the poorest section of the community realise that they are considerable losers, not just as a result of this Budget, but as a result of all those that have come from the Government since 1979.

This measure will adversely hit a large section of the poor in our community. The introduction of this measure took only eight lines in the Budget statement of 13 March. I do not believe that the Chancellor recognised the storm of controversy that the proposal would spark off. Today's debate will illustrate how unnecessary the measure is. It is a direct attack upon the poorest section of our community. It is hitting the small businesses which this Administration have said year in and year out they wish to buttress in every conceivable way.

I hope that after the debate the Government will recognise that they are wrong to pursue the proposal and will quietly withdraw it. If they do that, it will be welcomed not just by those involved in providing hot take-away food, but by those who depend upon it for their only hot meals. Many people depend upon hot take-away food to provide their only hot meal of the week.

I do not believe that the Chancellor knew what he was doing when he proposed this measure. I do not believe that he frequents fish and chip shops. I suspect that his idea of a fish and chip shop is something like Pruniers. I do not believe that the Prime Minister frequents fish and chip shops. She took the media circus to Harry Ramsden's before the general election. She plainly saw the publicity advantage in doing that, but she upset most of the other customers, who could not get a meal.

The Government do not understand the importance of fish and chips to many poor people. Government Members do not use fish and chip shops themselves. I suspect that the Prime Minister detests fish and chip shops and does not use them, any more than she uses the National Health Service or the railways.

The day after the Chancellor made his proposal he was written to by Mr. Harry Sagar, the general secretary of the Bradford and District Fish Friers Association. I believe that the letter neatly spells out the true implications of the proposal and puts it into a context which the Government clearly do not understand but which Mr. Sagar and his colleagues do. The letter to the Chancellor states:

Our members are appalled at the imposition of 15 per cent. VAT on fish and chips.

Throughout the present season potatoes have been costing two-and-a-half times the price of last season. With the mid-January estimate of stocks being 838,000 tonnes down on the corresponding period of last year the price is rapidly rising and, in all probability, will continue to do so to the end of the present season. Also fish has reached prices unheard of before, and dripping has also increased in price. Those are our three main commodities. But, in addition, the frier has suffered increases in rates, water rates, gas, electricity, wages, paper and flour. The 4½p increase in the price of petrol will also have the effect of increasing prices still further, as all goods have to be transported.

And now comes this VAT imposition which undoubtedly will have a devastating effect on trade. Many shops will close, and others will be compelled to dispense with staff, both full-time and part-time.

We operate in an area which must have one of the highest pecentages of unemployed in the country. We also have our proportion of pensioners for whom fish and chips are the one hot meal they get in a week. The people who will be hit hardest are the poorest section of the community who will have to meet the increases but whose incomes are too low to benefit from the alterations in the level at which tax is taken, as they do not pay tax.

The Sea Fish Industry Authority has indulged in an expensive advertising campaign to promote the sale of fish, but this latest move will completely neutralise their efforts.

The self-employed invest their capital in their businesses (and sometimes borrow money at high interest rates to do so), pay, in addition to NHI and standard rate of tax, 6.3 per cent. Class 4 NHI, sacrifice their right to unemployment benefit, work long and unsocial hours and most Bank Holidays, and have their wives working with them. They are also the best bet for the Health Service as they are hardly ever off work. These are the people who expected this Government to support them. Yet they face the prospect of a threat to their livelihoods and the devaluation of their properties.

We seriously urge you to have a re-think on this imposition of 15 per cent. VAT. That is a representative view expressed by the general secretary of my local fish friers association. It is a view which has been expressed to me by many others in the trade. I have received petitions containing thousands of signatures from people who have been protesting over the past few weeks at the imposition of VAT on fish and chips.

I again urge the Government to listen. They talk constantly about the need to listen to what people say. People in areas such as mine, which suffer from high levels of unemployment and acute poverty, say that this is an unfair, unjust and unnecessary imposition. I believe that it has been suggested by people who are ignorant and uncaring about the social consequences of many of the measures which they have introduced not just in this Budget, but in previous ones.

If, as they say, the Conservatives are anxious to help small businesses, they should listen to the representations that are being made on this issue. Above all, they should listen to the protests that are being made by the poor people of the nation, who will suffer acute hardship if the Government go ahead with these proposals, which will fall particularly heavily on the unemployed and on pensioners.

Sir Peter Blaker (Blackpool, South)

In my constituency there must be as many hot take-away food shops per square mile as there are in any other part of the country. I warn my right hon. and learned Friend the Chief Secretary that the proprietors of these shops—I refer mainly to fish and chip shops—are genuinely concerned about the imposition of this tax.

The hon. Member for Birmingham, Perry Barr (Mr. Rooker) made a valid point when he said that 90 per cent. of the products sold by fish and chip shops are taken away as opposed to being consumed on the premises. In other words, 90 per cent. of their business will be subject to this new imposition, and that is a greater percentage than applies to hamburger shops and other types of hot take-away food establishments.

I have four questions for my right hon. and learned Friend. Reference has been made to the report by Thornton Baker and Co., copies of which have been sent to hon. Members. The survey which that company conducted shows that there might be

a possible national reduction in the level of hot take-away sales of between 14 and 20 per cent. These figures reflect the actual experience of the trade in the two weeks immediately following the Chancellor's announcement when, as has been said, many people assumed that the tax had already been imposed. If true, they are serious figures. The report continues:

It is not possible, however, to draw any conclusions regarding the long-term effect. The report concedes that the survey was conducted quickly — because that was the request made of Thornton Baker—and that therefore it is not a scientific or fundamental survey. Nevertheless, it provides cause for concern. Does my right hon. and learned Friend have any comment to make on the figures which Thornton Baker produced? Have the Government any estimate of the loss of business which is likely to result?

Secondly, do the Government have any estimate of the likely loss of jobs? Constituents have told me that they expect the loss of business to lead them each to lay off one or two staff. We are speaking of small enterprises. If we assume that there are between 19,000 and 20,000 hot take-away food shops in the country as a whole, it will be serious if each lays off, say, one employee.

Thirdly, have the Government made an estimate of the likely loss of income tax, and possibly corporation tax, resulting from such a loss of business as Thornton Baker expects, and has an estimate been made of the additional unemployment pay to those who lose their jobs?

My fourth question relates to a point made by my hon. Friend the Member for Darlington (Mr. Fallon), in relation to apportionment. Many take-away food shops sell both hot and cold food—for example, pies. Will it be possible for them to reach agreement with Customs and Excise about the proportions which they traditionally sell of the two, the hot and cold foods, for the purpose of arriving at the amount of VAT that they must pay? As I read the relevant notice issued by Customs and Excise, that will be the case, but it seems that some of my constituents have been given the opposite impression.

Perhaps my right hon. and learned Friend will clarify the position. I hope that he can reassure the House on some of these issues, although we shall have an opportunity to return to the matter on Report should that prove necessary, by which time the tax, if it is imposed, will have been in operation for some weeks.

4.15 pm

Mr. Cyril Smith (Rochdale)

Having just spent a weekend in Blackpool, I appreciate the concern of the hon. Member for Blackpool, South (Sir P. Blaker), who should remember—I say this with respect to him because his experience is greater than mine—that it is always more difficult to get a tax removed than it is to prevent its being imposed. I strongly advise him, therefore, if he is against this tax, to vote with us against it, rather than hope to get it removed on Report.

The whole of clause 10 should be sunk without trace. It follows that I support the various amendments which would achieve that objective, especially those which refer to VAT on hot take-away foods. The provisions of the clause which refer both to hot food and to property have much in common: the criticisms that can be made of one can, in many ways, be made of the other. For example, both are a tax on the customer. The hon. Member for Birmingham, Perry Barr (Mr. Rooker) said that £200 million was the estimated revenue from tax on hot take-away food. Let it be clear that the customers will pay that money.

Both taxes will lead to utter confusion in implemention, and I shall say more about that in relation to hot take-away food. Both taxes will hit the economically poorer members of society harder than any others. Both are liable to destroy, rather than create, jobs. Further, both are more likely to hit the north than the south, again demonstrating the Conservatives' ability, if not desire, to divide the country into two nations.

The VAT on hot take-away food is utter nonsense. Let us consider its collection. Let us imagine a bloke standing in a fish and chip shop, thermometer in his hand, trying to convince a customer that the temperature of one pie is such that he must charge VAT on it, whereas, because the thermometer proves that the temperature of another pie in relation to the ambient air temperature is lower, he need not charge VAT.

A dear old lady goes into a fish and chip shop and says, "I want a pie, please." The proprietor replies, "It will cost you 15 per cent. more for this pie than for that one." "Why," she asks, "when they are similar pies?" "This one," replies the proprietor, "has a temperature higher than the ambient air temperature." The old lady asks, "Would you please explain what you mean by the ambient air temperature?" The proprietor then produces his little thermometer and, having tested the temperature of the air, places it against the pie to prove that he is right to charge VAT.

The whole thing is ridiculous. Indeed, because one is at the back of a queue one could pay less than if one were at the front, because by the time one comes to be served the food has become cold. The man behind the counter might invite the customer to move from the front of the queue to the back, as he will then have a chance of buying his pie at a cheaper price. This will be a ridiculous tax.

The collection of the tax will be undertaken by VAT inspectors. The hon. Member for Darlington (Mr. Fallon) talked about bakeries, and his object was to destroy the criticism of the hon. Member for Birmingham, Perry Bar of the 1983 Conservative intake. The hon. Member for Darlington merely substantiated the criticism. He should have tabled an amendment to remove the provisions that we are discussing.

How is the tax inspector to be satisfied that a percentage of food was sold at above the ambient temperature and that another percentage was sold below it? It is on the resolution of that issue that the imposition of VAT will be decided. It is nonsense to try to impose VAT on take-away food, and the determination of which food is liable and which is not will similarly be nonsense. The greater difficulty will lie in convincing the customer that some types of food are liable to VAT and others are not. It will be equally difficult for the person who is selling take-away food to convince the tax inspector that certain foods are liable and that others are not.

As so often happens, the tax commissioners will assess this VAT liability at a high level. They will continue to do so until the person upon whom it is levied begins to squeal. Tax commissioners will not admit publicly that they adopt that principle, but many will accept in private that they do. When the taxpayer squeals, the commissioner will reduce the sum that is claimed. If he squeals a second time, the sum will be reduced still further.

This approach is often taken when making assessments for farmers. The commissioners will continue to increase the tax demands until the farmer squeals. If the owner of the fish and chip shop squeals, the VAT inspector will probably say, "I accept what you say. Yes, you are right." None the less, the first assessment will be high and he will hope that there will be no squealing.

Mr. Christopher Hawkins (High' Peak)

I do not wish to interrupt the hon. Gentleman's serious arguments, but I wish to put the record straight about the new Conservative intake not tabling amendments to the Finance Bill.

Mr. Rooker

It has not tabled amendments on the VAT liability that is to be extended to take-away food.

Mr. Hawkins

I have tabled three amendments, and all three are to be discussed later this afternoon.

Mr. Smith

I compliment the hon. Gentleman on tabling his amendments. I am sure that he finds great satisfaction in having done so.

My mind boggles when I consider the collection of the tax. I am worried about the tax and its likely effect on the sale of take-away food. I believe that the Chancellor of the Exchequer had no idea what he was about when he decided to levy a tax upon it. It has been said that the Prime Minister probably does not know what a fish and chip shop looks like. I guess that the Chancellor probably does not know either. I bet that the right hon. Gentleman does not understand the use of a fish and chip shop, even if he knows what one looks like.

We have a Chancellor who is too clever by half and who has no respect for the other half of the community. He does not know how it lives and he does not know what economic deprivation is all about. Does he know that many thousands of pensioners in the north of England like a fried fish occasionally? It is a luxury that many of them like once a week. Very often they will ask someone to buy the fried fish for them. When someone is living on his own—many pensioners are in this position—he will find it cheaper to buy a fried fish than to buy a fresh fish and try to cook it himself. That is currently the position, but 15 per cent. VAT is to be levied on fish and chips that are taken away from the shop.

I bet that the Chancellor of the Exchequer does not know the taste of chips with soup on them. I can assure him that it is a nourishing and pleasant dish. I know that I am boring the Chief Secretary to the Treasury. I appreciate that my arguments have nothing to do with his standard of living. He has never been used to chips with soup and he probably does not know what I am talking about. I assure him that I know what I am talking about. I have eaten dozens of chips-with-soup meals, and it is a delightful meal. It is a nourishing, cheap and good way of feeding a family. Given the right hon. and learned Gentleman's background, he probably does not understand that. He can look as bored as he likes, and he can blow through his lips as much as he likes, but he will get what I have to say. I believe that I am speaking for a section of the community that he knows nowt about, and it seems that he never will.

I suspect that people in the north of England eat good old fish and chips much more often than those in the south, and I suspect also that my constituents know far more about fish and chips than the Chancellor does. I concede that if we were talking about caviare, wine and pheasant he would know much more about them than do my constituents.

Fish and chips represent part of the staple diet of those in the north of England, and the people in the north will be attacked by the imposition of VAT on fish and chips. The imposition of this tax on take-away food shops will mean that pensioners, large families, students and people living alone will be subject to extra tax. In many instances it will be regarded as a savage increase in tax. An extra 15 per cent. on present prices will be a sizeable slice of the income of many who are the customers of take-away fish and chip shops. The same argument applies to fried chicken and kebabs, for example, but the greatest effect of the proposed tax will fall on fish and chips.

As I have said, I think that take-away fish and chip shops are used more in the north than in the south. The hon. Member for Perry Bar said that 49 per cent. of the outlets that will be affected are fish and chip shops, and my figure is 46 per cent. He said that 37 per cent. of the outlets that will be affected are ethnic shops. I look forward to the day when VAT inspectors discuss ambient and non-ambient food temperatures with the owners of ethnic shops.

Many thousands of take-away outlets are small businesses. I emphasise "small", because I thought that the Government were concerned about small businesses. They keep on telling us that they are. I remember the Secretary of State for Education and Science tripping off to Bournemouth, or somewhere on the south coast, before the general election to address a conference of small business men. He told them that a Conservative Government would be their saviour. The Government are supposed to pride themselves on helping small businesses. I remind the Minister that 19,300 outlets will be involved with this proposed tax and that the vast majority of them are small businesses.

How many of these small businesses will go out of business as a consequence of the imposition of 15 per cent. VAT on hot take-away foods? The right hon. Member for Blackpool, South referred to a survey, to which I have also referred. I understand that most of the businesses concerned enjoy profits that range between 15 and 20 per cent. It is estimated that between 6 and 11 per cent. of the profits will disappear as a consequence of the tax. If a business at the bottom end of the profit margin suffers at the top end of the imposition of VAT, the result will be closure.

Jobs go if businesses close. The Chief Secretary to the Treasury should not underestimate the importance of fish and chips to small companies which do not have their own canteens. Many workers in those small businesses eat foods from fish and chip shops for their lunches. Lunches are ordered at 11 o'clock or 12 o'clock and the meals are brought in at 12.15 pm for the 10 or 15 workers in the factory. The tax might force many of those small businesses to close and limit the service to employees. The Government should not underestimate the effect of the tax on small businesses. The Government are supposed to be the saviours of and God's gift to those businesses.

It is unlikely that the Government will yield on the clause. We shall, therefore, however uselessly, go into the Lobby and vote for the amendment. We hope that the Government will get the message. Many hon. Members—they are not confined to one party—are opposed to the tax on hot take-away foods. I hope that if the Government do not get the message from all hon. Members who oppose the clause, they will at least do so from the people adversely affected by the tax. I repeat: pensioners, students, the unemployed, large families and the economically poorer members of our society will feel the imposition of the tax. That is why I shall have no hesitation in voting against the Government's measure and supporting the amendment.

4.30 pm

Mr. Jim Lester (Broxtowe)

I declare an interest as the honorary adviser to the National Association of Master Bakers, Confectioners and Caterers. I shall therefore make a point similar to that made by my hon. Friend the Member for Darlington (Mr. Fallon).

As a one-nation Tory, I believe that it is stretching the imagination to suggest that this tax is a deliberate act to harm the north or middle of the country. A survey of convenience food shops, including fish and chip shops, would show that the three categories—fish and chip, Chinese and Kentucky fried chicken shops—are spread throughout the country, so it is unfair to suggest that this tax is a further attack on the north.

One ought to spring to the defence of my right hon. Friend the Chancellor of the Exchequer. [HON. MEMBERS: "Why?"] I have not always been a great defender of the Chancellor, but on this point I support him. My right hon. Friend is a well-known consumer of fish and chips in his constituency. He goes into fish and chip shops as regularly as most hon. Members. Because of the nature of our work and difficulties in obtaining meals, hon. Members find fish and chip shops very convenient. I believe that many hon. Members on both sides of the House are thankful for those shops.

I cannot say the same about the Prime Minister, because I do not know the position of fish and chip shops in Finchley. Frequently, after 9 pm the Prime Minister can be seen in the Strangers Cafeteria eating fish and chips with the drivers, when Opposition Members have gone somewhere else for a good dinner. It is unfair to criticise this clause by talking about caviar and other items. We all know that that is nonsense.

We would listen more seriously to Opposition Members if we knew their objection in 1964 when they broadened the tax base of VAT to soft drinks, crisps—

Mr. Stuart Bell (Middlesbrough)

Will the hon. Gentleman give way?

Mr. Lester

Just let me finish the sentence. Labour broadened the base of the tax in 1974, which fell on the same type of people.

Mr. John Maxton (Glasgow, Cathcart)

The hon. Gentleman said 1964.

Mr. Lester

I apologise. I meant 1974. I hope that helps the hon. Gentleman.

The Labour party recognised the need to broaden the tax. The Opposition's arguments, including those about pensioners, apply equally to families, including children. I suspect that the broadening of the tax had a greater effect in terms of monetary value on families than the tax on fish and chips and other take-aways will have. By and large, convenience foods provide the most expensive way of eating. I accept the points made by the hon. Member for Rochdale (Mr. Smith) about single pensioners. It is true that fish and chips provide an important meal. I hope that its cost is covered in the RPI and when pensions are raised. Some hon. Members may question the political judgment adopted towards the basic industry of fish and chips.

Misunderstandings occur in considering where the tax will fall and how it will be collected. The National Association of Master Bakers, Confectioners and Caterers does not object so much to the tax put on catering foods. Customs and Excise has explained how catering foods can be separated from hot bread and hot sausage rolls. Many of us savour the glorious smell in a baker's shop and then buy a product. How can we be clear about the tax? Instructions have been given by Customs and Excise, but the position is still ambiguous. Mixed shops, and even those without a fixed catering side, have difficulties. People may eat sausage rolls just because they like the smell. A passing VAT man may cause difficulties.

I ask my right hon. Friend to examine the basis on which the Government will collect the tax. My right hon. Friend should consider the difficulties and anomalies that will be created. Inspectors will be needed. Those factors should be taken into account when considering extending the tax. I hope that my right hon. Friend will seriously consider those points. Many of us wish to ensure that we tax spending, not incomes. This is an important change. Imposing a tax and merely looking for candidates for that tax is perhaps not the best method of achieving our aims.

Mr. William O'Brien (Normanton)

The tax has been included in the Finance (No. 2) Bill because it will allow competition with other catering outlets. As the hon. Member for Birmingham, Perry Barr (Mr. Rooker) said, the legislation seeks to increase the amount of money available to lighten other tax burdens. earlier this year, further impositions were made in the form of increased electricity charges. The Opposition pointed out that such charges would affect most those on fixed incomes, including pensioners.

If this part of the Bill is not withdrawn, further impositions will be made on millions of people who rely on hot food outlets for meals. Many people in my constituency will be affected. In many instances, fish and chips provide the main meal for many families. I and my hon. Friends plead with the Government to have second thoughts about this part of the Bill.

I refer to fish and chip shops where there are no facilities for sit-down meals. There are a number of such outlets in my constituency. The meal is always taken away. There is no possibility of eating it on the premises. Like other hon. Members, I believe that the Chancellor is unaware of the function performed by fish and chip shops in areas such as mine. I therefore join the appeal that he should reconsider the position of outlets with no sit-down meal facilities, the majority of which are run by self-employed persons or by small business people employing perhaps two or three part-time workers. I believe that the Bill will adversely affect the number of people employed in those small businesses.

I, too, have received letters expressing great concern about the proposed imposition of 15 per cent. VAT on take-away fish and chips. Again, this is a tax on people with low incomes, hitting the many unemployed and elderly people in my area as well as young people and schoolchildren who rely on fish and chips as a basic, substantial meal. This comes on top of the increase in tax on beer and other commodities enjoyed by people in areas such as mine.

A constituent in the fish and chip business wrote to me as follows:

I would like you to object on our behalf to Mr. Lawson putting V.A.T. on fish and chips. As a good constituency representative, that is exactly what I am now doing. I also sent a copy of the letter to the Chancellor with a supporting letter from me asking him to consider withdrawing this part of the Bill. The writer of the letter is self-employed, and he took over a small business only 10 months ago. The tax is a body blow—a sucker punch—just as the business was getting off the ground. He goes on to say that there are special offers for the many children who buy fish and chips at the shop. So far, prices have been held at 30p, but the VAT alone, without any other increases in costs, will mean a price rise to 35p. This will severely affect people on unemployment benefit or other low incomes who rely on fish and chips for their midday or evening meal. That meal will now be subject to 15 per cent. tax. The writer adds that prices have been kept down

because there are a lot of old people who rely on fish and chips plus a lot of poorer families who rely on them as a cheap main meal. This is going to hit the old and poorly paid not to mention us a so-called 'small business man'. I am writing to Mrs. Thatcher and Mr. Lawson. 4.45 pm

I am sure that many hon. Members have received similar representations. When I forwarded the letter to the Chancellor, I asked him to reconsider his proposal because of the serious effects on the old, the unemployed and other low-income groups. Only yesterday I received representations from a constituent in the village of Gawthorpe who has been in the fish and chip business for more than 50 years. He provides a take-away facility for the community. There are no facilities for sit-down meals and his customers have expressed great concern about the proposal to impose VAT on take-away meals. My constituent points out that he has always worked in working-class areas, meeting the needs of the poorly paid, the pensioners, the young unemployed, and so on. He believes that both his business and his customers will be seriously affected.

I have received representations from all quarters asking me to object to the proposal. Therefore, like other hon. Members who have spoken today, I appeal to the Minister to reconsider this part of the Bill. If it cannot be withdrawn, I hope that the amendments will be favourably considered. I am sure that the groundswell of opposition is evident in Conservative areas and is not confined to Labour constituencies. I hope that the Government will be persuaded by this groundswell of opinion and objection to have second thoughts on the matter.

The Government appear to have a policy of hitting those who can least afford to pay. By this measure, they are taxing those whose income does not reach the level at which tax has to be paid. A substantial number of people in my constituency are in receipt of rebates for rent and rates. Through this measure, the Government are taking from them a certain amount of their earned income. As a constituency Member, I appeal to the Minister to have second thoughts and to consider the appeals that have been made. I ask that this measure should be withdrawn, or that Conservative Members should consider supporting the amendment.

Sir Walter Clegg (Wyre)

I have listened with interest to the hon. Member for Normanton (Mr. O'Brien). As a northerner myself, I appreciate the importance of fish and chip shops and other food take-aways in the north of England. But we delude ourselves if, like the hon. Member for Rochdale (Mr. Smith) we think of this measure as being aimed specifically at the north of England. Fish and chips are sold in all parts of the country, and certainly in most of the major holiday resorts.

The constituency of my right hon. Friend the Member for Blackpool, South (Sir P. Blaker) adjoins mine and we are both concerned about the impact on the holiday trade. I am also concerned as the representative of Fleetwood, a fishing port that has taken some tremendous blows in the past. Any further blows to the fish trade would be very bad for us indeed.

Representations made to me make it clear that orders from the fish friers to the suppliers on the dock have decreased since the Budget was announced. No doubt people assumed that the tax was to be levied at once and did not realise that it was not to come into effect until tomorrow.

I have also read the Thornton Baker report, which shows the impact of the measure. With all increases in indirect taxation, there is an immediate reaction and then a recovery. That happens in the case of cigarettes and beer.

The Government should carefully consider what happens between now and the Report stage. They will then see what happens once the tax starts to be paid, and that will be a better guide than what has happened up to now.

I associate myself closely with the request by my right hon. Friend the Member for Blackpool, South, and I hope that my right hon. and learned Friend will reply to it during the debate.

Mr. Campbell-Savours

I should like to reinforce the comments of the hon. Member for Rochdale (Mr. Smith) about what happens at midday in factories in his part of the world. In my former incarnation I was a small Lancashire entrepreneur. I remember that it was the custom for someone in my factory to be appointed to buy the fish and chips at lunchtime. There will be anger throughout that part of the country, and throughout the whole northern region, when the impact of the new tax is felt.

In the speech of the hon. Member for Darlington (Mr. Fallon) there was a conspicuous lack of any reference to the item under discussion. The hon. Gentleman sought to speak on behalf of the people of Darlington, and yet he made no reference to fish and chips, although many people in his northern constituency must be very angry.

While canvassing before the by-election in Darlington last year, I went out with a number of my hon. Friends to buy some fish and chips. During conversation, the proprietress, without malice, expressed a different political view from our own. I said, "They will be taxing fish and chips next, you know." She laughed—but, 12 months later, it has been done. I hope that the proprietress of that shop will read my remarks in the Official Report. I hope that she will also take her concern to the hon. Member for Darlington. He might well wish to refer to the matter at a future stage.

I am in a curious position today in that I find myself in support of the fast food industry lobby. Three years ago, I was a member of the Committee on the Local Government (Miscellaneous Provisions) Bill. In Committee it became clear to me that one member of the Committee—he is no longer a Member of the House—was being paid by the fast food lobby to represent its interests. I warned him that if he sought to vote, I would expose on the Floor of the House his pecuniary interest in the matter that we were debating. Unfortunately, he did not vote.

Then I strenuously opposed the lobby. Now, I support it. I hope that members of that lobby are listening. I hope that they will realise that it does not pay to pay hon. Members to represent their interest. A lobby needs someone who can argue the case objectively, uncompromised by pecuniary gain. That is my position today.

My main objection is to the regional emphasis of the measure. I see the hon. Member for Peterborough (Dr. Mawhinney) wincing, but there is indeed a regional emphasis. The research done by Thornton Baker reveals that more fish and chips are eaten in the north of England than in other parts of the country. There is therefore a regional bias in the effect of the measure. In the same way, if a tax was imposed nationally on service charges, it would fall most heavily on Londoners because more people in London pay service charges on flats. There is a regional emphasis in that sense, and the Government have not taken it into account.

Like other right hon. and hon. Members, I have received a letter from the Preston and District Fish Friers Association, an organisation based in the north and north-west. The association describes its concern about this imposition. While we are considering the regional emphasis, it may be worth noting what the association says:

We are sure that you are aware of the fact that the fish and chip shop owners are still suffering from the shock of the Chancellor's proposal to impose V.A.T. on our product. Thousands of small business owners, who put their trust in you at the last election,"— I presume that the association is referring to Conservative Members as well—

are now pleading for your support. We beg you to oppose this shameful tax on food that will tear the heart out of yet another traditional northern industry, the fundamental role of which is interwoven into the very fabric of northern life. I could not put it better. The letter shows the strength of feeling in the north and north-west. The right hon. Member for Blackpool, South (Sir P. Blaker) and the hon. and learned Member for Blackpool, North (Mr. Miscampbell) must share that view.

My second objection is that this is a direct attack on service trade, yet the Government have repeatedly told the country that they give it optimum support. This is another measure which shows how people have been misled. The Preston and District Fish Friers Association has strong words about that too. It says:

If this tax is applied to take-away foods it will mean the ruin of many fish chip shops, the type of businesses the Conservative Government claim to care about. That is good simple talk which expresses precisely the views of people throughout the northern region.

5 pm

My third objection derives from my belief that the Government are here doing only part of the way. I believe that next year they will introduce VAT on all foods. At col. 1096 on 5 April 1984, in reply to a question by my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) asking the Chancellor whether he would give a clear undertaking that he had no intention of imposing VAT on basic foods, a question which one would have thought would have elicited a two-letter response—"No"—the right hon. Gentleman said:

I have no present intention"—[Official Report, 5 April 1984; Vol. 57, c. 1096.

The operative word there is "present". It is clear that the Government's long-term objective, probably in next year's Budget, is to introduce VAT on food to raise additional revenue. The country is entitled to ask where that revenue is going. The clauses concerned with the use of that revenue will be discussed upstairs away from radio, the media and the public. They will be discussed not behind closed doors but in Committee where not too many people from the outside world will be present. In Committee we shall hand out substantial amounts of money in concessions on capital gains tax and capital transfer tax and other tax concessions to the higher paid. That is where the money goes. The rich are not being required to give or not to take. The money is to be taken from the people who buy fish and chips in Workington and other constituencies represented by my right hon. and hon. Friends.

My fourth objection derives from the fact that there has been a complete lack of consultation about the measure. Once again the wise people of Preston, in the shape of the Preston and District Fish Friers Association, put it best. It says:

It is a vicious tax imposed without consultation with our industry, and creates so many anomalies it must be considered to be un-workable and will obviously alienate so many of your supporters. There has been no consultation with the regional chambers of trade, the chamber of trade in Blackpool, the chambers of commerce, the National Federation of Fish Friers, the Take-Away and Fast Food Federation or the low income group lobbies, such as Child Poverty Action Group and the Low Pay Unit, all of which would have had much to say if they had been consulted. The Government have not consulted such bodies which represent people whose diets rely on fish and chips.

We know that whatever we say in the Chamber will have no bearing on what happens. Through the Patronage Secretary, the Minister has arranged for his right hon. and hon. Friends to troop loyally through the Government Lobby. The debate is cosmetic, as it will have no influence on what the Government do. Many people will not know about the sense of anger that I and my hon. Friends have expressed. That anger is demonstrated by the 1 million people who, I understand, have protested through petitions, and there is a prospect of a day of action by some people in the industry. Despite that, the industry has sensibly commissioned the Thornton Baker and Co. report, the findings of which are remarkable. It shows that there was a reduction in sales immediately after the Budget announcement and before the implementation of the 15 per cent. VAT surcharge—that is what it is—on fish and chips. There has been a 10 to 20 per cent. reduction in sales. That is credible, as we all know what happened with insurance policy sales. The prospect of the withdrawal of the facility for tax relief on life assurance policies, which was founded on a leak, had a major effect on the life assurance market. The reduction in trade has led to a loss of jobs.

We also know from the report that there is general agreement that low-income families, students, pensioners, the unemployed and school kids will be the worst affected. The Preston and District Fish Friers Association continues:

H.M. Government has chosen to view the hot take away food sector as a whole, when in reality there is a world of difference between the fish and chip shop and the large chain outlets, in as much as we are a manufacturing food industry, trading at recognised meal times, serving a highly nutritious meal at such a reasonable price, that it constitutes part of the staple diet of countless thousands of low income groups. The association knows where its market lies. Why did the Government not know where their market lay when they introduced this savage surcharge?

The Hot Take Away Action Group has also used strong words—it is strong language from an organisation that cannot be said to be a bastion of support for the Labour party. It says:

It is very likely that all adults in a low income family will go out to work if they are able to. The consequences of this on the family's eating habits is profound and has never been properly researched.

Whereas in the 1950s children would expect a hot lunch at school and a hot supper cooked by their Mother in the evening, many children nowadays are expected to find their own lunch and sometimes also dinner and may be given a small sum e.g. 50p with which to purchase a hot meal. In the absence of cooking experience or access to cooking facilities this will usually come from a take-away. That national organisation knows that young school children in low-income families will be directly affected by the imposition of this stupid surcharge on fish and chips.

Mr. Don Dixon (Jarrow)

I agree with my hon. Friend's point about fish and chips. Is he aware that in my constituency many fish and chip shops sell pies and other food which are heated up and taken away? Under the legislation, if I go into a fish and chip shop and buy a heated pie to take away I shall pay 15 per cent. VAT, but if I buy a pie from a confectioner's shop, I shall not pay 15 per cent. VAT because it was not heated specifically for take-away purposes. That is one of the anomalies of imposing 15 per cent. VAT on take-away food.

Mr. Campbell-Savours

My hon. Friend draws the House's attention to the minefield of confusion that the measure introduces. The Government must dismantle the damage and remove the anomalies and confusion that the Opposition foresee.

According to the study, jobs will inevitably be lost. The Preston and District Fish Friers Association states:

Customer re-action to the budget has resulted in a sustained drop in trade. This, coupled with the recent increases in the prices of potatoes and frying fat, will certainly have an adverse effect on jobs. Most of us employ at least five workers whose jobs are now in jeopardy. The imposition of the tax puts jobs in jeopardy.

Kentucky Fried Chicken Limited has been most forthcoming in the brief and document that it sent to hon. Members, which sets out the problems confronting it. It states that 70 stores with a weekly turnover of less than £3,000 will close, with the loss of 700 jobs, and that 420 jobs will be lost in stores that would be kept open. It forecasts a corresponding reduction in food paper bought from the paper and board industry of about £7.5 million a year. It is unable to quantify the number of jobs that will be lost in that industry.

Taken collectively, that will cost the Exchequer £3.1 million. The Treasury's assessment of the VAT receipt from Kentucky Fried Chicken is £8 million, yet Kentucky Fried Chicken calculate that, after the closure of 70 stores and the loss of 1,120 jobs, it will be only £3.3 million. That is substantially less than the Chancellor of the Exchequer's calculations and the modified calculations, which were published in a national newspaper this morning. The Government have not done their homework properly.

The public should not be duped. The money is being taken to subsidise tax cuts for the better off. However, the Government may not find the cash necessary for those tax reductions. The House must consider the possibility of tax evasion. Traders will find ways of evading the tax—they are already considering them. Many traders who currently produce accurate returns for the Inland Revenue will use this opportunity to muck up the present arrangements, under which the Inland Revenue assesses a chip shop's takings. Chip shop owners told me that they are assessed because the Inland Revenue is unwilling to accept their returns. They will use this opportunity substantially to reduce their declared takings, and the Inland Revenue will find it difficult to prove that those reductions are not taking place. That means that the Inland Revenue's income tax take will fall correspondingly. Have the Government costed that or built an assessment of it into their calculations?

5.15 pm

It has been suggested that traders may set up spurious mobile rounds to split their business between mobile and fixed point sites and thus keep within the £18,700 registration threshold for VAT. That will give them a joint VAT threshold of £37,400, which is £700 a week. The Thornton Baker study shows that 9,000 of those whom they interviewed are low turnover traders, and they may well, by a system of splitting their businesses between mobile rounds and fixed sites, be able to arrange their affairs to avoid VAT payment.

In reply to a parliamentary question, the Government said that only 12 inspectors would be appointed to deal with this additional tax. That is rubbish. Twelve inspectors will be insufficient. The Government have not taken account of the increased civil servants required both in the Customs and Excise department, where they are responsible for VAT collection, and in the Inland Revenue, where they will have to carry out investigations into fraudulent activities, which will inevitably develop among small traders.

In his reply the Minister may say that my comments are an insult to the industry, but its spokesmen have made those points themselves. They are not policing it, but representing it and they know its strengths and its weaknesses.

The clause is silly and wholly unnecessary. On Second Reading I did not unequivocally and unconditionally oppose the Bill, but expressed, honestly, my support for a number of its provisions. However, this clause is wrong. The Minister knows that it is wrong, the country knows that it is wrong and the industry knows that it is wrong. By now hon. Members should know that it is wrong, and should vote against it.

Mr. Den Dover (Chorley)

Today is a sad one for the Conservative party. The measure shows that we are out of touch with small businesses and with the service sector, which is so important. The hon. Member for Rochdale (Mr. Smith) pointed out that we are completely out of touch with the traditional way of life in the north-west, where fish and chip shops and hot take-away food are part and parcel of the existence of many people.

The public see the sense of paying 15 per cent. VAT when food is consumed on the premises and of not paying it when food is taken away. During the next few weeks we should consider the complete jumble of arrangements that will come to exist. People will no longer have the clear choice of consuming on the premises and paying VAT or taking food away and not paying VAT. What will they do if they want hot fish and chips and a cold drink, as people often do? Will there be two tills so that they can pay VAT on some goods and not on others? People do not want complicated lives. Nor do small buinesses—they want quick, in-and-out business. The customer wants to come in—he often has to queue long enough for fish and chips—exercise his choice, and get home with the hot food while it is hot.

I cannot underestimate the damage that this measure will cause to the image of the Conservative party and the Government in areas such as mine, because the recession is still hitting my area. In those areas where people rely on hot take-away food they will wonder about the Government's performance and will look badly on such a measure. The proposal also shows that we have no idea about the fish and chip business, because there has been an enormous reduction in trade: first, because the price of potatoes has increased two or threefold in real terms; secondly, because the price of fat has increased; and, thirdly, because the price of fish has increased during the past few years. Why have the Government suddenly chosen to tax a source of food for pensioners, students and the unemployed?

Today I have no hesitation in voting against the Government. pay tribute to an excellent, uncharacteristically restrained speech by the hon. Member for Birmingham, Perry Barr (Mr. Rooker), and to an excellent speech by the hon. Member for Rochdale, who knows his onions and who knows that people in the north-west will be amazed and dismayed by this measure.

Mr. Bell

I congratulate the hon. Member for Chorley (Mr. Dover) on a courageous and practical speech in outlining the difficulties which the Government will face when they try to introduce the tax. It is an honour to the House to hear speeches such as those we have heard this afternoon. My hon. Friend the Member for Workington (Mr. Campbell-Savours) said that this series of speeches is essentially cosmetic because the Government have made up their mind. However, if the public and our constituents who have written to us could have heard the speeches of my hon. Friends the Members for Birmingham, Perry Barr (Mr. Rooker), for Normanton (Mr. O' Brien) and for Workington, and that of the hon. Member for Rochdale (Mr. Smith), they would believe that we have right on our side and that we might at the end of the day seduce the Government into changing their mind on this clause.

I am reminded of an earlier Chancellor of the Exchequer who was cut down in his prime—Iain Macleod—who in the long years in opposition prepared the Tory strategy from 1970 onwards. The 1970 Conservative manifesto stated that the Conservative party, when in government, would introduce VAT, but it also stated clearly that they would not introduce VAT on food. It was Mr. Macleod who said that the first reactions to a Budget were invariably wrong. I remembered that when the Chancellor of the Exchequer made his Budget speech and there was a great waving of Order Papers from the Back Benches behind him. The City was quick to realise that the Budget was not what it was made out to be, and when the banks and business houses ran the Budget calculations through their computers they discovered than many of them would come within the range of corporation tax, whereas previously they had avoided it.

Although the Stock Exchange continued to be in rapture, there was marked resentment in the take-away food sector. One reason why that sector was less than overjoyed, but the Stock Exchange was overjoyed, is that few take-away businesses—such as members of the National Fish Friers Federation or the Take-Away and Fast Food Federation—are quoted on the Stock Exchange. I doubt whether many of them are quoted on the over-the-counter market as unlisted securities.

The Conservative party's commitment not to impose VAT on food was repeated in the 1979 manifesto. It said that there would be no VAT on food, fuel, housing and transport, but that was quietly dropped in the 1983 manifesto. We are now seeing the reverse of the doctrine of mandate; because it was not mentioned in the 1983 manifesto, it is now in order to widen the VAT base by imposing it on take-away food.

As Conservative Members said, in 1974 my right hon. Friend the Member for Leeds, East (Mr. Healey) introduced VAT on a range of items, including ice cream, confectionery, soft drinks and crisps. The Chancellor referred to that in his Budget speech in March. Indeed, when my right hon. Friend increased VAT on a range of electrical goods he was criticised because it was thought that the increase would attack the employment prospects of those who worked in electrical industries. That criticism was made by the present Prime Minister and others, and we could make a similar criticism of the proposed tax on take-away food. It will attack employment in the take-away food industry, and we wish to bring that fact to the attention of the wider public and to impress it upon the mind of the Chief Secretary to the Treasury.

We heard today that there will be a temporary reduction in consumption, but that it will recover later. However, we have been led to understand that the reduction in sales of hot take-away food will be between 14 and 20 per cent. That will lead to serious losses to family businesses, and the industry might decide to shed labour instead of absorbing the losses, which will add to the dole queues.

If, as has been said, the national insurance surcharge was a tax on jobs, so is VAT. VAT added needlessly, as in the present case to hot take-away food, is a tax on jobs and will affect not only employees in that industry and ancillary industries, but the expansion of this service industry. It may not be a sunrise industry, but it is a service industry, and we have heard much about how the Government wish to help service industries and small businesses.

The hon. Member for Rochdale made great play of the fact that the Government have not helped the small business man since 1979. When I was the candidate for Hexham in the 1979 election, I tried to tell small business men in the area what Labour had done for them between 1974 and 1979, and how a Conservative Government would affect their businesses. Their problems have continued, and last year bankruptcies of small businesses were greater than they have ever been. The attack on small businesses is continuing little by little, and the imposition of VAT is another attack on the viability and profits of the small business man and his clientele.

The Chancellor of the Exchequer said that the revenue from VAT on hot take-away food and drinks was likely to be £125 million in 1984–85, and £200 million in a full year. However, the industry takes a less sanguine view. It believes that the revenue raised in a full year is likely to be £172 million, or even as little as £160 million, and we heard today of the practical complications for the VAT man, who must decide whether the food sold in a fish and chip shop or an Indian or Chinese take-away can be described as hot or cold in accordance with the ambience definition. The clause is likely to lead to traders switching to selling cold food, and there is likely to be pre-registering by splitting fish and chip shops into two businesses and thereby trading below the £18,700 VAT threshold.

Scorn has also been poured on the theory that only 12 additional staff will be required to oversee all the possible ramifications and to rule accordingly. Given that we are a nation of 60 million people, given the number of hot take-away outlets throughout the country, and in view of the ramifications that will arise as a result of this provision, who in his right mind can believe that only 12 additional staff will be required? That is illogical, both politically and mathematically.

5.30 pm

The Chancellor said that this would be a radical, tax-reforming Budget. He declared that his proposals were guided by two basic principles. The first was the need to make changes that would improve our economic performance over the longer term. The taxing of take-away food from the local fish and chip shop or the local Chinese or Indian restaurant will hardly achieve that.

The second purpose of the Budget arose from the Chancellor's desire to make life simpler for the taxpayer. It will be simple indeed with regard to take-away food, because the low-paid, students and those on the dole in receipt of supplementary benefit will be forced to pay more. As the hon. Member for Rochdale said, this is a tax on the consumer. It is non-recoverable. It will hit the pockets of the lowest paid, who will be unable to offset it. It will therefore be a tax on living standards.

The Chancellor also referred to competition, and my hon. Friend the Member for Perry Barr asked the right hon. Gentleman to state exactly what competition he was referring to. In his Budget statement the Chancellor said:

Take-away food clearly competes with other forms of catering, and I therefore intend to bring into tax hot take-away food and drinks".—[Official Report, 13 March 1984; Vol 56, c. 303.] If, however, the Chancellor is worried about competition, why does he not bring into the same tax net pies that are sold in a bakery? As my hon. Friend the Member for Jarrow (Mr. Dixon) said, a person can buy a hot pie at a take-away and pay 15 per cent. VAT, but if he buys a similar pie in a bakery down the road, he will not pay VAT.

Mr. Maxton

In the main my hon. Friend is correct, but if the baker sells that pie from a hot cabinet it will be subject to 15 per cent. VAT.

Mr. Bell

I am grateful to my hon. Friend for that intervention. In response to a written question the Chancellor has said that the pie from the bakery will not be subject to VAT because it will not be eaten warm when taken home. The fact still remains that, in proposing to tax take-away food through VAT, the key phrases used by the Chancellor were "competition with other outlets" and "forms of catering". My hon. Friend the Member for Perry Barr and the Committee will await a reply from the Chief Secretary on this point.

As the hon. Member for Rochdale also said, once a tax is introduced it is difficult to remove it. Over the years, under both Labour and Conservative Governments, we have seen a widening of the VAT base to encompass more and more items. My hon. Friend the Member for Workington reminded us that the Chancellor has said that at the present time he does not intend to tax food generally. We cannot foresee the contents of next year's Budget, although we can predict an extension of indirect taxation as part of the Government's strategy. It is clear to me that under this Government VAT will become a universal tax on everything that we buy. By making it a tax on consumption, the Government will then be able to reduce direct taxation later on.

The Chief Secretary has said that this Budget contains a modest shift in balance from income tax to VAT and that VAT is neither a tax on the poor nor a tax on necessities. We believe that under this Government it will become both.

The Chancellor has said that there will be no let-up in the Government's determination to defeat inflation. They are fighting inflation by attacking the living standards of those who rely on fast foods and on a hot take-away meal as part of their staple diet. Those people will understand that the defeat of inflation will be paid for from their pockets. We have already heard of those who rely on such foods—students, school children, old-age pensioners, those on low incomes and the unemployed. The extra will come out of their pockets, and this provision will be a tax on them.

Much has been said of the errors that were made in the presentation of the various rates of VAT throughout the European Community. We have heard about the confusion that arose as a result of a tax on hot take-away food and a tax on food eaten on the premises. In Europe, there is a multi-rated VAT system under which it is possible to vary VAT on certain items. That has happened in other European countries. VAT has been reduced on hot take-away foods, and a different VAT rate applies to food eaten on the premises. For doctrinal reasons, however, this Government are opposed to anything other than a standard rate of VAT. If there were a graduated rate, the burden would be lighter on the hot take-away outlets that will be forced to charge VAT in 24 hours' time.

That is the subject of another of our amendments. If these provisions cannot be removed from the Bill, we should like to see them introduced gradually. The Government propose to introduce the tax in one fell swoop, and the full burden will fall on the consumer from 1 May 1984.

We also criticise the Government for introducing taxation without consultation. We accept their apology for the fact that the figures published in Hansard of the varying VAT rates in other countries are wrong. That begs the question, "How many other facts on which the Government have built their case for VAT on hot take-away food are also wrong?" This is an ill-conceived tax. It will not be properly understood by the public, let alone by the trade. It is a consequence of the lack of consultation prior to the introduction of the proposal.

I shall now refer to a letter from a company which has a franchise from Kentucky Fried Chicken (GB). This company has several sale outlets, and it has written to me saying how extremely concerned it is about the effect that VAT will have on the hot take-away food industry in general and on its business in particular.

The company was set up some 12 years ago, in true entrepreneurial style, by two members of the family. Since then, the letter says:

Our staff have worked hard, long and loyally over the years, and we are proud to say that many of them have worked for us for as long as ten years. They, like us, feel strongly that our livelihoods are suddenly threatened by an ill-conceived tax. The letter goes on to describe the company: As a Company we employ between 150 and 170 personnel. If the tax hurts us as seriously as we expect there will be redundancies in our shops. Furthermore, the future of our meat factory, where we employ 40 personnel, could be in jeopardy. The business of our factory is mainly in cutting chicken for our Kentucky Fried Chicken shops and supplying the fast food industry in general. If sales within the industry are affected, it will mean without question the loss of jobs in our factory.

It goes on to make another point, which I draw to the attention of the Financial Secretary. It says:

We were planning a small expansion programme which would have created an additional fifty jobs. This will now have to be set aside until we can see the genuine effect of VAT should it be imposed.

From our debates we can draw the conclusion that VAT is likely seriously to impair growth in the take-away food industry, which is a service industry. It will damage the employment prospects for young people. I understand that 50 per cent. of all Kentucky Fried Chicken employees are under 25. This organisation was planning to introduce more than 300 new shops which would have created more than 10,000 new jobs. Instead, as many as 70 of the Kentucky shops will be faced with closure, with more than 1,000 job losses. All this will have a knock-on effect on suppliers and ancillary services. Therefore, what the Government are doing will affect small businesses, and we can see the effect that it will have on this part of the service industry.

All this is taking place because the Government place the emphasis on raising money to offset income tax cuts. They cannot finance the income tax cuts with an expanding economy and a strong productive base, because they have built into their equation 3.5 million unemployed. To finance that they must widen the VAT base to take in this new tax on hot take-away food. The Government are making a serious error of judgment in bringing in this tax at this time and in this way. I hope that the Government, through the Chief Secretary, will take note of the opposition from both the Labour Benches and the Benches behind the Treasury Bench, and accept our amendment.

Mr. Gerald Howarth (Cannock and Burntwood)

While I did not agree with the conclusions reached by the hon. Member for Middlesbrough (Mr. Bell), I found his interest in maximising profits a welcome sign from the Opposition Benches. We look forward, during the passage of the Bill, to hearing more from them on the need to maximise profits, because that is what leads to greater employment.

As the hon. Member for Rochdale (Mr. Smith) said, there is genuine concern about the tax because many take-away food shops are run as small businesses and are part of the small business community. All of us, whatever part of the country we represent, have fish and chip shops and other hot take-away food shops in our constituencies. They are small businesses. We want to see them thrive, and we are concerned that they should do so.

However, while it is true that many of these shops are small businesses, there are still a number of multiple chains run as franchises but which are substantial companies, such as the McDonalds chain, which is one that I and my family frequent from time to time. [HON. MEMBERS: "Hear, hear."] I am delighted that other hon.

Members also frequent McDonalds. I assure the House that I am not in receipt of any pecuniary benefit from that company.

5.45 pm

I have often felt, when going into one of these shops, that there is something of an anomaly in the arrangements whereby there is one price if one eats the product there and another price if one takes it away. For a long time I was under the misapprehension that the extra cost was for seating, lighting and so on. There is no charge for a knife and fork, because there is no knife and fork. The extra is the VAT for eating in. Those who buy their food to take away will be justified in paying the 15 per cent. extra, or there is an anomaly.

Mr. Austin Mitchell (Great Grimsby)

rose—

Mr. Howarth

I shall not give way as I wish to be brief. I know that the hon. Gentleman wishes to make his own speech, and I am sure that he will have the opportunity to do so later, so I shall not give way now. There is nothing unsound in the principle being advanced by the Government in this case. It is an anomaly that should be sorted out.

I represent a midlands seat, and I assure the hon. Member for Rochdale that fish and chip shops are as much a part of our way of life as they are in the north. They are part of the way of life of all Britain. I cannot conceive that what is viewed by many as a national institution will be deserted on the grounds that 15p in the pound will be put on as a VAT surcharge. I eat fish and chips.

I derive my evidence for my view from the fact that I went into fish and chip shops in my constituency—not all of them—and took a straw poll of the customers there. I had not notified the proprietors in advance that I was coming, as perhaps I should have done. I asked the customers, "When 15 per cent. VAT is introduced on 1 May, as the House in its wisdom will endorse this measure, will you continue to consume fish and chips, or will you be put off by the 15p in the pound increase?" One has to bear in mind that in my area a piece of cod arid a portion of chips cost about £1, and that will go up to £1.15. Few people there said that they would stop buying fish and chips.

Mr. Ron Lewis (Carlisle)

How many were there?

Mr. Howarth

There was a long queue of customers.

Mr. Austin Mitchell

rose£

Mr. Howarth

I shall give way, but only if the hon. Gentleman makes a short intervention.

Mr. Austin Mitchell

Does the hon. Gentleman accept that a survey, not limited to one fish and chip shop, shows that of those who were asked whether they would buy less take-away food as a result of this taxation, of the social group DE 57 per cent. said they would buy less, of the unemployed 67 per cent. said they would buy less, of retired people 60 per cent. said they would buy less and of students 67 per cent. said they would buy less?

Mr. Howarth

I prefer to take my own analysis of people in the shops, not that of people drawn at random from the streets who probably do not eat fish and chips. I did not go to just one fish and chip shop. Some of those whom I asked were unemployed and others fell into the categories that the hon. Gentleman mentioned.

Mr. Ron Lewis

I am following the hon. Gentleman's argument. I was in his constituency on Easter Monday visiting relatives. I assure him that what he is saying now is different from what I was told then.

Mr. Howarth

It was a rare privilege for the hon. Gentleman to be in my constituency. Had he informed me that he would be there, I should have been delighted to have offered him a cup of tea, with or without fish and chips. Perhaps when he next comes he will be kind enough to let me know, and I shall be delighted to repeat my invitation.

I freely accept that difficulties face the industry. The hon. Member for Middlesbrough mentioned the increase in potato and fat prices. The industry is undoubtedly finding it difficult. However, people will continue to buy fish and chips, despite the opinion polls from which the hon. Member for Great Grimsby (Mr. Mitchell) quoted. Fish and chips are fundamental to the way of life of people right across the spectrum. I cannot conceive that they will be put off by an increase of 15p in the pound. There is evidence that the fall in trade immediately after the Budget, when people were mistakenly under the impression that VAT had been imposed immediately, is beginning to pick up a little, and I believe that it will settle down in due course.

I must confess to feeling some disappointment that Labour Members feel that the imposition of VAT on take-away foods is an extension of the class war that does not exist and that this is somehow an attack on working people. People from all walks of life in Britain eat fish and chips. This measure is not an attack on any particular group. It is an attack on nobody. It is a welcome development that our Budget strategy should be less reliant on the taxation of income and more reliant on the taxation of spending. That is what the British people want and that is one reason why they voted so strongly for the Conservatives in 1979 and again in 1983.

It is worth pointing out, as I have done to the people in the long fish and chip queues in my constituency, that, thanks to the Budget, 850,000 people will be taken out of tax altogether. That surely will be welcomed by the Opposition. In addition, the increase in income tax thresholds is about £2 a week. I am sure that out of that there will be help for those who are reliant on fish and chips. I accept that there are people who eat fish and chips five times a week, although that cannot be healthy or cheap. Cooking at home with the usual materials is often a much cheaper way to eat than buying fish and chips. The £2 a week that the average taxpayer will be gaining from a lower tax take will be more than sufficient to compensate even the heaviest fish and chip and other take-away food consumer.

It is no good simply being in favour of the good parts of the Bill, such as the reductions in taxation—the giveaway bits—and not being prepared to bite on the bullet. Labour Members may think that the investment income surcharge is a better way to adjust the taxation system. I support wholly, entirely and with enthusiasm the abolition of that because it is a penal double tax on those who have saved for their retirement.

Mr. Austin Mitchell

The Government are taking from the poor to give to the rich.

Mr. Howarth

That is a not so. That is a completely unfounded—indeed, most ungenerous—remark to make.

Many who have saved for their retirement are making sure that they are not a burden on the state. Therefore, they are not calling at our surgeries with problems which we, as Members of Parliament, have to sort out. While nobody likes extra taxation—I do not particularly like this one—if, in the overall strategy, sums have to be raised fom somewhere, this measure is as logical as any by which to raise it.

In support of my contention that most of the British people will continue to buy fish and chips and other take-away foods, as they have done in the past, I hope that hon. Members will join me in continuing to patronise fish and chip and other take-away food shops in our constituencies. After all, our way of life leads us to find this a convenient form of food. I hope that we shall demonstrate our conviction that we should support those profitable small businesses, and set a good example to our constituents.

Mr. Maxton

I agree with the hon. Member for Cannock and Burntwood (Mr. Howarth) on the last point only. As busy Members of Parliament we should perhaps declare an interest as users of take-away restraurants in some form or another. I certainly am. The hon. Member for Croydon, South (Sir William Clark) shakes his head. I assume that he is not one of those who uses take-aways. I am a regular user of fish and chip shops, Indian and Chinese take-aways, and even the baker's shop. When we go home late after a busy day we do not want to arrive home either to cook for ourselves or to ask our wives to do so. Therefore, we buy some form of carry-out to eat when we get home.

That is at the core of the misconception around which the tax is based. The tax is based on the concept that takeaway food is an extension of the catering industry and that there is competition between the take-away restaurant and the restaurant where one sits down. That is fundamentally wrong. That is not what take-away food is about. Take-away food is bought in place not of taking one's wife or kids to a cafe for fish and chips but of sitting down to a meal cooked at home. If the Chancellor of the Exchequer and the Chief Secretary feel that there is competition with other small businesses, such as restaurants, they are wrong. The take-away food businesses are competing with those who provide fast foods, such as frozen foods. In other words, take-away foods compete with the supermarkets. People use take-away food not instead of going to a cafe but as a replacement for meals in their homes.

One small section of my constituency relies almost entirely upon fish and chip and other take-away food shops. They are the very poor whose electricity supply has been disconnected and whose houses have no other source of energy. They can obtain food only from a take-away food shop, because they have no means of cooking in their own houses. Many are single-parent families, and the only hot meals the young children get may be take-away meals. It is the poor who are hardest hit by VAT on take-away foods, particularly on fish and chips. It affects old-age pensioners, students and schoolchildren. It is an anomaly that the Government, who have been forcing up school meals prices, closing many school kitchens, and forcing children out into the take-away areas to get their food at lunch time, are further increasing the prices charged to these children. It is the very poor who are being hit, because they suffer most from unemployment. For those reasons, I support my hon. Friend's amendment.

6 pm

I wish to make one specific point that I raised earlier with my hon. Friend the Member for Middlesbrough (Mr. Bell) on the question of bakery shops which provide hot food. An anomaly exists here, which the Treasury will have to resolve. During the general election most of us—except perhaps the hon. Member for Croydon, South—relied probably even more than at any other time on take-away food. In my committee rooms, we rarely stopped to go and eat a meal in a restaurant. Members of the SDP probably go and sip claret for half the night, and that is why their candidates do not win as many seats as we do. During the general election, in my constituency, I often went to the baker's shop at lunch time to buy for myself and my workers, who contributed towards the cost, take-away food.

The baker's shop to which I refer is part of a fairly large chain which has a franchise. It has two parts: the shop where it sells cakes, bread and suchlike—not hot food, but normal baked foods—and a separate counter where it sells hot pies, made-up sandwiches, rolls and food of that nature. In particular, it sells what is a traditional Scottish food—the hot mutton pie. It is almost unheard of in the south of England, and is rare even in the north of England. It is the round, flat Scottish mutton pie. It is sold in bakers's shops hot, and specifically from a hot cabinet. It does not remain hot from baking, but it is sold hot specifically. Such bakery shops normally have two tills: one for the normal bakery foods and the other for the take-away food of sandwiches and hot pies. If such shops are to arrange their affairs properly, they will have to have three tills: one for the sale of cakes and bread, the second for made-up sandwiches and rolls, and the third for hot mutton and other hot pies, because they will be VAT-rated, whereas the rest are not.

Most of these bakers' shops charge the same price, whether for cold food or for food from the hot stands. In future they will have to charge a different price for food from the hot stand. They will have to charge 15 per cent. extra on hot pies as against cold food from the shop. Would it be tax evasion if they sold all their pies cold to the customer, and provided a service whereby the pies could be heated free after they had been sold and the money handed over? Arguably, that must be the case. If during the morning a shop sells out of the cold pies for sale to the customer to take away and heat up at home, and a customer comes in to buy pies to take home and is told that there are none left but that there are some hot pies in the hot stand, what will happen? Will the shop be entitled to take the pies out of the hot stand and sell them as normal pies, or will it still have to charge 15 per cent. extra? In the present situation, the shop will have to charge the 15 per cent.

At this point, it is arguable that the first VAT on basic foodstuffs will be introduced. In a sense, this is a tax on basic foods anyway, but I think that this tax will now apply in the baker's shop. I do not think that most bakers will charge prices 15 per cent. higher for food from the hot ovens and hot stands only. I believe that they will increase the prices of all their pies, not just the hot ones. If they do not do that, anomalies will be created. If they do that, the normal cold pie will be taxed. This may not be direct taxation, or a tax that the Chancellor of the Exchequer wishes to impose, but it will be a tax. That is the kind of anomaly that the legislation creates.

In Scotland, it is traditional at lunch time to buy foods to take back to small factories without a canteen. Surely it is an anomaly to have a tax on hot pies, but not on sandwiches which are ready made up and sold from the shop. They are all take-away foods. Why is one taxed and the not? These anomalies are so great that it does not make sense for the Chancellor of the Exchequer and the Chief Secretary to continue with this proposal. It would make sense if they were to consider withdrawing it rather than having it imposed on 1 May.

Mr. Fisher

The House has heard a wide variety of speeches from Conservative Members, ranging from the coherent and courageous speech of the hon. Member for Chorley (Mr. Dover), who said that he would vote with the Opposition for the amendment and against the Government, to the critical and interesting speech from the right hon. Member for Blackpool, South (Sir P. Blaker). I was unclear whether the right hon. Gentleman would join us in the Lobby to support his criticisms. I hope that he will follow the logic of his own logical and courageous speech.

We also heard a bizarre speech from the hon. Member for Cannock and Burntwood (Mr. Howarth), who introduced a new concept not only in scientific market research by going into his local chippy, but, as I understood his speech, in political canvassing. He appears to have harangued his constituents on the benefit of the Budget's application to the poverty trap. If that is the way that he behaves towards his constituents, it makes me optimistic that we shall regain the Cannock and Burntwood constituency at an early opportunity. However, the response that he received in his Cannock chippy was hardly surprising. If he is correct in saying that he was in a chippy charging £1 for fish and chips, or just fish, it is no wonder that those constituents—

Mr. Gerald Howarth

This occurred in Burntwood rather than in Cannock. The hon. Gentleman will appreciate that Burntwood and Cannock are parts of my constituency. The price was inclusive for the fish and the chips. It may have been £1.05. I was talking in round figures.

Mr. Fisher

I know Burntwood and I thought that I knew most of the chippies there, but it is obviously a very classy chippy indeed that charges £1 or £1.05 for fish and chips. It is no wonder that people who go to that sort of chippy are not really worried by an extra 15 per cent. The chippy at the end of the street where I live charges 55p for fish and 24p for chips. Those of the hon. Gentleman's constituents in Burntwood or Cannock who are worried—as many of them, especially in the mining industry, will be, because they are worried about where they are going to get their hot meals from—should go to less grand, less posh, fish and chip shops round the corner.

Mr. Howarth

The only concern of miners in my constituency is that they should be left to decide in their own way whether to work. My constituents wish to continue working so that they can still afford to pay for their fish and chips.

The Second Deputy Chairman of Ways and Means (Mr. Paul Dean)

Order. The subject under debate is take-away foods.

Mr. Fisher

No doubt the hon. Gentleman will continue his political harangues in fish and chip shops, where he can make them to miners on the subject of VAT.

It is right that we should begin our debates with clause 10, because it extends VAT and indirect taxation. In a very real sense, this Budget is a take-away Budget for most people in this country, and certainly for those on below average earnings. It involves an unhappy, and socially and economically unjust, extension of indirect taxation, and we fundamentally oppose it. It is also an extraordinary extension of VAT. A few weeks ago, the Chancellor of the Exchequer stood at the Dispatch Box and claimed that the Budget was radical and reforming, yet the money for such radical reforms—which will certainly be exposed during the week, and in Committee upstairs—is to be raised by taxing fish and chips. What a squalid, ignominious and feeble base. How dare the right hon. Gentleman claim that it is a radical, reforming Budget when it is founded on a tax on fish and chips? That is ridiculous, and we look forward to making a meal of the Chief Secretary's attempt to justify this squalid little clause.

The clause is ill-considered and, as my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) made clear in his excellent speech, based on a false premise. I hope that the Chief Secretary will make clear to us what facts he and his officials were working on when they decided that VAT should be extended to fish and chips. Will he make clear to the Committee whether he was working on the facts that he gave in reply to a written question, or whether, alternatively, that question was wrongly answered? As my hon. Friend the Member for Perry Barr said, the Minister apologised for misleading the House in that written reply, but the crucial factor is not whether an apology was given, but whether those were the statistics that he was working on when he decided to extend VAT. If they were, he must admit that he was working on the wrong statistics, that his information was wrong and that the whole basis for extending VAT was wrong.

I hope that the Chief Secretary will give me his attention for a moment, because I want him to tell us what statistics he was working on when he decided to impose VAT. Will he confirm that he was working on the wrong statistics, which were given in that written reply? That is an important point, and I believe that it must make it extremely embarrassing for the Chief Secretary when trying to justify this extension of VAT. The legislation is ill-considered and, as has been said, it has been drawn up without consulting the industry or other groups in the country. In addition, it is a thoroughly misguided extension of VAT, even on the Government's own criteria. As my hon. Friend the Member for Middlesbrough (Mr. Bell) and the hon. Member for Rochdale (Mr. Smith)—who made an excellent speech—made clear, the Bill is an attack on small businesses. There are 19,256 take-away outlets, and the vast majority of them are small businesses.

6.15 pm

We heard a lot of rhetoric during the election about the fact that the Conservative party claimed to be the party of small business. But now we see the reality of those boasts and protestations. The Government are attacking a great many small businesses—nearly 20,000 of them. The legislation is also an attack on the businesses of the ethnic minorities, because almost half of those take-away outlets and small businesses are run by them. There are 2,000 Indian and Pakistani take-aways, 6,000 Chinese take-aways and more than 500 Greek and Cypriot kebab houses. That accounts for 8,500 of those outlets. In addition, many ordinary fish and chip shops are run by Chinese people. Indeed, the one at the end of my street, called the Hi-Fri, is run by a very fine Chinese family who produce excellent English fish and chips.

Thus, the legislation represents an attack on the ethnic minorities, because a great many people in the Chinese, Indian and Pakistani communities have started up businesses and are making a success of them. The Bill is a direct attack on them and makes nonsense of the Government's protestations about helping the ethnic minorities, particularly the small business men among them.

The legislation is also a direct attack on labour-intensive businesses. For example, Kentucky Fried Chicken, which has 5,000 employees, saw a 40 per cent. growth in the last year alone. The company claims to have as many as 10,000 jobs in the pipeline, but those jobs will now be frozen pending consideration of the impact of extending VAT. On my calculations, that amounts to about 10 employees per outlet. In most fish and chip shops the average is probably three to five employees per shop.

No one has been clear about the employment situation, but the industry directly employs about 80,000 people, quite apart from those who work in industries that service the take-away outlets. That is a very large employment market. If, as I believe the hon. Member for Chorley suggested, one or two people are likely to be laid off in many of those outlets, 20,000 even 25,000 people must fact the possibility of losing their jobs. That is an awful lot of people for one small clause in a Finance Bill.

I urge the Chief Secretary to tell us what consideration he gave to the consequences for employment of extending VAT, and what statistics he was working on. I am sure that he considered the employment aspect, but perhaps he will tell the Committee that he did not have any figures for the impact on employment of extending VAT. He must answer the question directly. Did he have figures for the impact on employment? If so, what were they? If he says that he did not, or does not, have any figures, we are faced with the extraordinary but not very edifying spectacle of a Chief Secretary and a Treasury team implementing Budget recommendations without the slightest thought about the consequences for employment. If he has those figures, the Committee will be interested to hear them and to know whether they square up with my admittedly amateurish calculation. The legislation could affect the jobs of as many as 15,000, 20,000 or even 25,000 people. However, we shall wait to hear what the Chief Secretary has to say about the employment figures that he was working on.

The provision attacks the one-man entrepreneur who wants to start in the catering industry. One of the few ways that a person can get into the industry is by opening a take-away shop, which he may or may not be able to expand, either through a franchise or by purchasing a corner shop of his own. It is an expensive game, because a chip shop, even on a non-city centre site, can cost up to £60,000. The Government are attacking labour-intensive businesses, small businesses and the ethnic minorities when they attempt to make a go of a business.

Why are the Government doing that? The answer is in the Government brief which many of us have received.

The turnover of the industry is said to be £1,145 million a year. When the Chief Secretary and the Chancellor saw that that sum was involved, they must have been tempted to get their fingers on some of it.

The Government are attacking the people whom they always claim to support. They are attacking the people whom Tory Members in their election speeches promised to help. Little did they think when sincerely they made such fine-sounding speeches about helping the small entrepreneur that less than a year later the Chancellor would be asking them to troop like sheep into the Lobby to vote against the small business man. I fear that that few Conservative Members will be as courageous as the hon. Member for Chorley and stand by their criticism and join us in the Lobby. I wish that more Tory Members had the courage of their convictions and that, even if for different reasons, they would join us in the Lobby tonight. I suspect that they will not do that.

We are told that the take from the £1,145 million turnover will be £200 million a year. How can that be so when 15 per cent. of that turnover is only £171 million? That turnover includes revenue from some cold food and some non-ambient food, some applies to outlets with turnovers below the VAT registration limit, and some outlets will become bankrupt. The actual take from the turnover will be less than the £171 million, which I suggest, and a great deal less than the £200 million Government figure. I shall be interested to hear the Chief Secretary explain how he arrives at the figure. He may be making allowances for inflation, but even that does not produce that sum. I think that the Government's real take will be no more than £150 million, and it could be less.

My hon. Friend the Member for Perry Barr, in an excellent speech, totally destroyed the two reasons that the Chancellor gave in his Budget speech for the introduction of VAT on take-away foods. The Chancellor argued that take-away establishments were in competition with restaurants and that we were out of step with the rest of Europe. Those arguments have been demolished this evening. If the Chief Secretary can pick up the fragmented pieces, he will be doing a good job and earning his fish and chips.

It is nonsense to say that fish and chip or any take-away shops are in competition with restaurants. For the Chancellor to say that they are shows his complete ignorance about who uses fish and chip shops, when and why they use them. If the Chancellor were in his constituency at dinner time on a school day, he would see local comprehensive school children trooping into fish and chip shops—unless his constituency is different from any other.

Schoolchildren go to the chippy to buy hot chips. Do they ask themselves whether they should go to a restaurant or to the chippy for a bag of chips? Of course not. To say that schoolchildren make a rational choice between a restaurant and the chippy is nonsense. The same applies to working mums when they arrive home from work, if they are lucky enough to have a job. If they do not want to cook a meal, do they consider whether they will take their husbands and kids out to a restaurant or to the chippy? The chippy is not in competition with the restaurant. As my hon. Friend the Member for Glasgow, Cathcart (Mr. Maxton) said, fish and chip and other take-away shops provide a convenient alternative to home cooking but not to restaurants.

We have received some interesting material from the Hot Take-Away Action Group on behalf of Kentucky Fried Chicken and the large burger chains. Much of the evidence is pertinent, and we are grateful to those organisations, but much of their comment misses the point. A majority of outlets are fish and chip shops which cater for a different market. Perhaps pizza joints, kebab houses and burger shops, to a limited extent, are in competition with restaurants, but that is not true of fish and chip shops, except possibly in the case of the grandiose fish and chip shops in the Burntwood and Cannock region.

We must examine in detail the social effect of the proposal and its effect on businesses. I shall examine not the emotional aspects, but the hard figures. It is likely that a family of four will use the fish and chip shop twice a week. Single-parent families may use it more. The family who use the fish and chip shop twice a week will spend about £6 a week on fish and chips—£300 in a full year. They will be about £50 a year worse off because of the tax. That might not sound much to the Chancellor, but it is a lot to such a family. The Chancellor makes specious claims about the margins where families are better off. A tax of £50 a year is too heavy for poor families.

The tax will have an acute effect on businesses. The larger chains will have to reduce labour to cut costs or raise their prices and thereby reduce turnover. The result for the larger chain will be an increase in unemployment and a marginal increase in inflation. Is that what the Government want? Is that what the Chief Secretary had in mind when he discussed the introduction of the tax? The small shops will not be able to absorb the costs, even by cutting labour, and may go out of business. That will result in an increase in unemployment, a loss of tax revenue and further bankruptcies. The imposition of VAT will lead to increased unemployment, inflation and social deprivation all round.

In attempting to fulfil his obligations as a taxpayer by collecting VAT for the Chancellor, the small business man will have to devise a system with probably two tills. Anyone who knows about retail businesses will know that even the most ordinary tills are extremely expensive capital equipment, but there will be no capital allowances for the small business man. He will have to have two tills or devise some other way of ensuring that he keeps his records to the satisfaction of the Customs and Excise. With his small overheads, he will not be able to change them or his labour costs, and he will not be able to afford the fancy accountants who may be able to help the larger chains to minimise their problems.

The Government have no answer to those points. I await with great interest the Chief Secretary's attempt to answer them. I hope that he will answer the specific questions that I have put to him.

6.30 pm

Mr. Austin Mitchell

As a dedicated northerner who was brought up on fish and chips and who now represents England's premier fishing port which is surrounded by fields of potatoes, and a man who finds eating fish and chips life's second greatest pleasure, I should perhaps declare an interest — a passionate interest — in the subject. This proposal is of major concern to my constituency and to the fishing trade, which is centred on it. It is also politically infuriating to see this rather sordid and silly measure being rushed through. It is a last monument to a reforming Chancellor, of whom great hopes of radical reform were held out. The mountains have now laboured and produced a 15 per cent. tax on fish and chips. That is real reform from the Chancellor.

We are seeing a rerun of the syndrome that the Chief Secretary—the Treasury's own Kentucky fried chicken — voiced in 1981 — the "We need the money" syndrome: "We need the money to hand out to the better off and the people with capital, so we are putting a 15 per cent. tax on a bag of chips." The "We need the money" syndrome can have no worse expression than that. I do not want to make a meal of the issue, but it is paradoxical. There are 20,000 small businesses involved in the takeaway food industry. Most of them are family businesses. They employ members of a family who work long, inconvenient and difficult hours in a labour-intensive job. They provide an important service, and these small businesses are being hit. It is a reflection on today's Tory party. If this measure had been imposing taxation on the oil industry or the banks, we would have seen the Conservative Benches thronging with Members, all passionate and eager to make speeches to articulate the vested interests that they represent. Because it is a measure that hits 20,000 small businesses and their poorer constituents, the Conservative Benches are almost empty. There are Conservative Members present with little to say on this important matter.

This tax will be a serious blow to small businesses. Many of them are struggling. One should not be deceived by the glamour of the fast-food chains. Fish and chip shops have been hard hit by the recent changes — the escalation in the price of fish and potatoes, the destruction of neighbourhoods, the pattern of social change and the increasingly intense competition from other take-away foods. Many fish and chip shops have closed over the past few years. The trade has suffered a series of setbacks. This tax will be another setback in a long chain of difficulties. It is an extremely competitive environment which will be hard hit by the Government's measure. These small business men are not great lobbyists. They do not have the professional lobbying of the oil industry or the banks when they are hit, but they are raising a cry of pain because they know that there will be a serious effect on the industry. The measure hits small businesses and the people's food.

One of the worst things about the measure is that the Government, who have done so much to increase poverty—there are 4 million people out of work and more than 7 million people on supplementary benefit—should now have the gall, audacity and sheer lack of taste to impose a 15 per cent. tax on the people's food.

It is clear from all the research that take-away food, fish and chips in particular, is the food of low-income families, those who do not have cooking facilities, families who eat at irregular times so that it is impossible for the mother, who is probably working, to prepare food for the family—the traditional image of the English family sitting down to roast beef is wrong. These are families who eat at haphazard times because the kids, father and mother come in at different times. Take-away food, particularly fish and chips, is ideal for such a family. That type of poorer family will be hit by this measure. People living alone who do not want and cannot make the effort to cook for themselves go out and buy take-away food. The old will be hit, as will those who have long had a habit of eating fish and chips and take-away food, who perhaps do not have the facilities or money to cook for themselves. Students away from home in accommodation without cooking facilities, people who work late and people who do shift work make up the section of the community that will be hit badly by this tax.

The HOTAG campaign estimates that the average price of a take-away meal is £1.50. In Grimsby that is an exaggeration. The average price of fish and chips in Grimsby would probably be 85p. This weekend my telephone has been red hot. I have had a score of telephone calls from fish and chip shop proprietors telling me about their trade and the problems that this measure will pose for them. The average price of a bag of fish and chips is about 85p. It can be slightly less or slightly more depending upon the area and what the market will bear. The change will put the price up to about £1. It will produce the problem of whether the VAT is put on the chips or whether there is an extra charge on the fish.

The imposition will hit Grimsby. There will be a price increase for a section of the community which has had to bear the sacrifices imposed by the Government's economic policies.

I shall not discuss the anomalies that have been caused by the Government relying upon inaccurate EEC statistics, but when VAT was first proposed in 1972 Sir John Non said that his right hon. Friend had zero-rated certain items because they made up a large proportion of the low-income family's budget. It was a measure over which the Conservative Government agonised. They decided that the best way to help low-income families was to zero-rate take-away food. They drew the line there.

If one looks back through Hansard, one finds that there was a certain amount of argument about it, but it was a sensible decision. With poverty increasing, it is wrong to shift that line. It shows that the Government have no idea how most people live and eat and how difficult the daily struggle for existence is for the mass of the people. Ministers seem to believe that people eat in fish and chip shops. The Minister for Health said that on television. It is inaccurate. Most fish and chips are eaten outside the fish and chip shop.

In her famous visit to Harry Ramsden's, the Prime Minister saw a rare fish and chip shop, in which people were eating inside. It gave me some grief, because the pictures of the Prime Minister visiting Harry Ramsden's have now replaced pictures of me eating there in 1974. That is a sad come-down. The Prime Minister there gained the impression that people eat fish and chips in a restaurant. They do not. They take them out and eat them on their way or at home. That is the importance of the trade.

The Government have been fooled by the rapid rise in the number of chains, such as McDonalds, into thinking that here is a profitable source of taxation. There has been a rapid expansion in that type of trade, but over half the 20,000 small businesses involved in it are still the traditional fish and chip shops.

It is interesting to note that the fish and chip trade began in the 19th century. From the publicity that we have been sent we see that the first known reference to it was in "Oliver Twist" in 1838 and that the concept of chipped potatoes came from France in the 1860s. The rapid distribution of fish through the railway system and the rapid growth of the manufacturing towns made fish and chips the basic diet for people in the industrial centres. Indeed, it is still the basis of the take-away food industry.

The National Federation of Fish Friers estimates that there are 10,500 traditional fish and chip establishments, having a total turnover of £400 million a year.

I emphasise that point because of its importance to Grimsby, for those shops consume 190,000 tonnes of white fish, or one third of the white fish available for human consumption in Britain. Sadly, the British fleet is not catching that total; we are having to rely on imports. About 74 per cent. of the fish sold in fish and chip shops is cod; haddock—the more popular fish in the north, particularly in Yorkshire and especially in Grimsby—12 per cent.; plaice, 4 per cent.; and skate, 2 per cent. In other words, the sales of fish in fish and chip shops are a basic element in the demand for the landings of the British fishing fleet, and particularly the Grimsby fleet.

Last week, and over the weekend, I talked with fish merchants, over one third of whose trade is done with fish and chip shops. That provides a basic level of guaranteed demand which is crucial to the fleet and to British landings, particularly as the big processors — for example, Birds Eye and Findus—have taken steps, due to the uncertainties produced by the common fisheries policy and by the Government's failure to back the fishing industry, to secure imports of fish to guarantee their supplies. Therefore, the basic level of demand on the market in Grimsby is sustained by the fish and chip and restaurant trade.

That is why we have a distribution network which carries the fish from Grimsby all over the country. If there is a fall in consumption, as there almost certainly will be as a result of the increase in price resulting from the imposition of VAT, that basic demand for the landings of the Grimsby fleet, essential to keep the fleet going, will suffer. That in itself is a major reason why a Government, who have failed to help the fishing industry when it needs help to survive, should not impose VAT on fish and chips.

This step is being taken by a Government who have no sensitivity to the conditions of the people, whose members do not eat fish and chips, even if they look as though they do, and who have no idea how the ordinary people live. This duty is being imposed on a struggling industry—the fishing industry is struggling to survive.

As the Chief Secretary is almost certainly a regular fish and chip shop visitor, I am sure that he will have ready and quick answers to some questions that I have for him. They are the sort of questions that fish and chip shop proprietors and other take-away food operators have been asking.

A Grimsby fish and chip shop proprietor telephoned me on Saturday to ask what the situation would be if he made his fish and chips free and charged 90p for the salt and vinegar. Another operator of a take-away food establishment asked what the situation would be if he continued to charge the same price, without VAT, but provided in an alcove just outside his shop a microwave oven in which people could heat up the take-away food.

6.45 pm

Various questions arise from the long and involved notice issued by the Customs and Excise, about how the proportion of sales liable to VAT will be made and what appeal against Revenue assessments the fish and chip shop proprietor will have. The notice reads:

If, after the change, you still cannot keep a record of each sale, you must produce a fresh estimate of the proportion of your gross takings which relates to your standard rate of supplies. You must advise your local VAT Office in writing of your estimate, which should be arrived at by recording your transactions for a selected period. The period selected should be representative of the trading of the business.

What right of appeal will people have if they contest decisions that are arrived at? How will the system be policed with only 12 additional inspectors to be appointed by the Government? These are important questions for small business men, many of whom resent being turned into what they regard as Government tax collectors. They will face problems with the paper work because many of them confess to not understanding how it is to be done, what their responsibility will be and what their rights and powers are in relation to the Customs.

I emphasise that this tax could be imposed only by a Government who have lost touch with the realities of daily life in Britain and whose Back Benchers are supine in the face of a threat to genuine small business in the sense of hard-working, not tax-fiddling, small business, and a threat to the standard of living of their poorer constituents.

The Chief Secretary to the Treasury (Mr. Peter Rees)

This is the first debate of the Committee stage of the Finance Bill. The hon. Member for Great Grimsby (Mr. Mitchell), whose constituency and personal interests entitle him to be heard with great respect, said at the opening of his remarks that this measure was being rushed through. I do not think that anyone who has listened to the debate—and I have had the privilege of listening to every word of it—could possibly say that hon. Members had failed to do leisurely and thorough justice to what I am ready to concede is an important, if narrow, issue.

Mrs. Elaine Kellett-Bowman (Lancaster)

Will my right hon. and learned Friend point out to the hon. Member for Great Grimsby (Mr. Mitchell), who has left the Chamber, that while he was speaking there were far more Back Benchers on this side of the Committee than there were on the Labour Back Benches?

Mr. Rees

My hon. Friend is right to draw attention to that fact. I was tempted to say—because there was a certain disposition on the part of Opposition Members to suggest that the Government Back Benches were supine—that anyone who had listened to the highly informed, elegant contributions from the Conservative Benches, which more than matched the elegance, in quality if not in quantity, of some of the contributions of Opposition Members, would recognise that this had been a well-matched debate on a subject that was bound to attract the interest and attention of our fellow countrymen, and rightly so. This issue is being disposed of in a thorough manner, as one would expect.

The issues involved should be set in their true context. I have been pressed to answer many questions. I shall endeavour to answer all of them, remembering that this has been a long debate, but I must first set the issues in their factual context. There was a gross slur on the Chancellor of the Exchequer when it was suggested that he was ignorant of the gastronomic charms of fish and chips. I am assured—the point was well made by my hon. Friend the Member For Broxtowe (Mr. Lester)—that the Chancellor is well acquainted with the charms of fish and chips. Indeed, it might be said to be the gastronomic fuel with which his masterly Budget speech was constructed. Let us put that canard to rest. It has been well demonstrated that several of my Conservative colleagues are able to match chip with chip with Labour Members.

For reasons which I think the Committee will have divined, Opposition Members have concentrated almost exclusively on fish and chips, which is perhaps to give the wrong emphasis to our debate. The turnover of the take-away food industry—we are talking of take-away foods in general—is about £1.5 billion. No one can be utterly confident of that figure, and the hon. Member for Stoke-on-Trent, Central (Mr. Fisher) was disposed to say that it is £1.1 billion. I think that the more accurate figure is likely to be £1.5 billion, but I am not being dogmatic about that. However, that figure suggests that we are talking about a fairly buoyant industry. Anyone who has charted its course since the end of the 1970s will recognise that. I feel confident that it will take in its stride the modest charge to VAT which is to be imposed upon it.

I shall give the Committee the breakdown, as far as we are able to discern it, of the fish and chip sector of the take-away food industry and the whole industry. Of the annual yield of £200 million which my right hon. Friend the Chancellor of the Exchequer expects to receive from the imposition of VAT on take-away outlets, only about £70 million is likely to be contributed by the fish and chip sector—about one third of the total. However, Labour Members—I suspect because it makes a more dramatic case—have concentrated on the fish and chip sector, apart from a rather highly charged argument about an attack on ethnic food shops. As I have said, I suspect that it rather suits their case to do so. I recognise that the hon. Member for Great Grimsby has a direct constituency interest, which is an honourable and special one, but I remind the Committee that fish are caught in areas of the United Kingdom other than Grimsby and that fish and chips are cooked in other parts of the United Kingdom.

The hon. Member for Birmingham, Perry Barr (Mr. Rooker), who introduced the debate, concentrated on outlets. I understand that his figures were taken from the Euromonitor. The figures, which were not necessarily based on turnover, may have led him to give undue prominence to fish and chip shops rather than to Chinese take-aways, Indian take-away food, hamburger establishments, kebab houses, cooked chicken establishments, Kentucky fried or otherwise, and pizza houses. We should not disregard any of these important groups within the take-away food sector.

I hope that the hon. Member for Perry Barr will recognise that he was talking about outlets and not about turnover. I have given the overall figure for turnover and it is important to bear that in mind and also the proportion of the VAT revenue that is likely to be contributed by fish and chip establishments.

Mr. Fisher

The Chief Secretary says that he has given the Committee the turnover figure, but he has not. He referred specifically to £1.145 billion, which was my figure, and said he thought it was rather more than that. Is he saying that he does not know the turnover on which he is levying the tax?

Mr. Rees

I cower under the verbal lash of the hon. Gentleman. It would be wrong of me to claim the spurious precision which the hon. Gentleman has claimed for his figure. I have given the best estimate that my right hon. Friend the Chancellor of the Exchequer, I, my right hon. and hon. Friends and Customs and Excise can offer the Committee. If the hon. Gentleman has a better source of information, I have no doubt that he will give it to the Committee on some other occasion.

It may interest the Committee to know that average consumption of fish and chips per week is to be found in the north-west. So much for the impassioned assertion of the hon. Member for Rochdale (Mr. Smith) that the Government propose an attack on the area which he represents. I am sure that we all respect his doughty defence of his constituency interests, but we must get the debate into its true perspective. Consumption in the north-west is about average, as it is in the east midlands and west midlands. I concede at once to the hon. Member for Great Grimsby that the north and Yorkshire and Humberside are areas of above-average consumption. It will interest the hon. Member for Glasgow, Cathcart (Mr. Maxton) to know that, along with the south-east, the south-west, Wales and Northern Ireland, consumption in Scotland is below average. I accept that the Scots have other gastronomic tastes. We may not be able to share those tastes, but we respect them.

Mr. Maxton

I am sure that the Chief Secretary will recognise that the fish and chip shop in Scotland sells a much wider range of goods than similar shops in other areas, including products such as black pudding, which is almost unique to Scotland—[HON. MEMBERS: "No."]

Mr. Rees

This is turning into an interesting regional debate. Sociologists will turn to the report of our debate as a rich quarry of lore on the early 1980s. To characterise our proposals—I hope that the Committee will accept this—as an attack on any particular region does not bear close scrutiny when the facts are considered.

Mr. Cyril Smith

I have a letter signed by the secretary of HOTAG, which reads:

Cyril Smith, MP, has an Early Day Motion arguing that the north will be hardest hit by the tax and also the poorer sections of society. Our poll shows this to be absolutely accurate.

Mr. Rees

I respect that powerful action group, which has recently sprung into action. I have given the figures which we have derived from the family expenditure survey and the Committee will judge for itself whether it prefers the slightly highly charged statements of the hon. Member for Rochdale or the rather more dispassionate figures extracted from the survey.

It is asserted that the Government's proposals constitute an attack on the working class. I hope that we shall be able to have a balanced debate as we scrutinise the Bill. Having been privileged to attend various previous debates on Finance Bills, and recognising various familiar faces across the Floor of the Chamber, whom I expect to see in Committee Room 10, I believe it fair to say that we have before us a balanced Finance Bill. To see such a Bill in class warfare terms will rather stultify the careful and dispassionate analysis which the Bill deserves.

I shall give another figure from the most recent family expenditure survey to set the debate in its true context.

Mr. Campbell-Savours

rose—

Mr. Rees

I shall place the facts before the Committee and then allow the hon. Gentleman to intervene. It is necessary to try to set the debate in a factual context. The Government's figures come from the most recent family expenditure survey of 1982 and they have been uprated to 1984–85 prices. It appears that the average expenditure on hot take-away food of a single person on average earnings was 87p per week. The additional price that he will have to pay, including VAT, will be 13p. The average expenditure of the average married couple was, surprisingly, rather less. It was 80p, and the VAT to be paid per week will be 12p. The expenditure of a married couple with two children was £1.53 and for that family the VAT will amount to 23p. I yield to none in my admiration for high-flown oratory on these issues, but to suggest, on the basis of the figures that I have given, that the Government propose a fundamental attack on the standards of the working class does not bear very close examination, especially when it is borne in mind that every taxpayer in the United Kingdom is likely to be £2 a week better off as a result of the dramatic increase in thresholds which my right hon. Friend the Chancellor of the Exchequer was able to introduce in his Budget statement.

Mr. Campbell-Savours

When the Minister reads Hansard tomorrow I hope he will acknowledge that my hon. Friends referred to low income groups and not to class. He may understand the point that I am making.

Mr. Rees

I know that the hon. Gentleman commands a fastidious use of language. When he reads the report of the debate in Hansard tomorrow I think he will find that the command of language of some of his hon. Friends is rather less fastidious.

The Government's proposals have also been seen as an attack on the small business sector. I am touched by the conversion of Labour Members to the support of the small business sector. I am so glad that we have at last found common ground on such an issue. I am sure that it will advance our debate in Standing Committee to know that there is a consensus in the House that the small business sector deserves consideration in fiscal matters. I look forward confidently to ringing support from the Opposition for the abolition of the national insurance surcharge and the remarkable reductions that we propose in the corporation tax rate on small businesses. I hope that those measures will go some way towards assuaging the Opposition's anxieties and make them realise that this is a carefully crafted, well-balanced Budget. That factual background sets our humble efforts in their true context.

7 pm

The hon. Member for Perry Barr was right to press us about the factors that led us to choose to levy VAT on this part of national expenditure. As my right hon. Friend the Chancellor emphasised, we wish to see a modest shift from taxation on income—direct taxes—to taxes on spending. This measure will yield about £200 million in a full year and will make a serious contribution to the tax forgone because of the changes to the tax threshold. I suggest to the Committee that one cannot pick elements from the Budget with which one disagrees if one supports the broad thrust of the Chancellor's strategy. I would understand the position if Opposition Members were prepared to argue that we should not have increased the income tax threshold, but I do not believe that they say that. I have heard Opposition Members say that counterbalancing savings would be made if the amendments were accepted. Perhaps we shall learn more about that as the Bill proceeds.

The hon. Member for Perry Barr, with his siren voice, suggested that it would be a small matter to defer the introduction of VAT until a more convenient time. Every month of VAT forgone on this element of expenditure will mean £16 million of revenue forgone. By my standards, that is a considerable sum. If our proposed modest extension of VAT was as vicious as has been suggested during the debate, there would be no question of prolonging the agony to defer the introduction until the autumn. Despite the persuasive arguments of the hon. Member for Perry Barr, I point out that a deferment of the tax would not be in the interests of the country as a whole and would cause considerable difficulties for the Chancellor's figures.

The hon. Member for Perry Barr, as he was entitled to do, and some of his hon. Friends drew attention to an incorrect answer given on the rates of VAT and similar expenditure in other countries of the European Community. My hon. Friend the Minister of State, Treasury made the position absolutely clear in his latest answer to the hon. Member for Perry Barr. My hon. Friend authorises me to repeat his apologies to the House for the fact that the error crept in. Even when one looks at the true facts, one finds that in Denmark, take-away meals are subject to 22 per cent. VAT, and no distinction is made between take-away and restaurant meals. In France the distinction is made only if a shop contains no part in which a customer can eat meals on the premises. If there is even one table and one chair, the VAT charge is 18.6 per cent., as it is on restaurant and cafe meals. In Italy the charge of 10 per cent. on take-away meals is the same as that on restaurant meals. In the Netherlands the charge varies, I am bound to concede, between 19 and 5 per cent., depending on the circumstances. Chips and sausage rolls are taxed at 19 per cent. and whole meals are taxed at 5 per cent. There is a wide variety of taxation.

The hon. Member for Stoke-on-Trent, Central, who seems to anguish over—

Mr. Gerald Bermingham (St. Helens, South)

Will the right hon. and learned Gentleman give way?

Mr. Rees

I am referring to the hon. Member for Stoke-on-Trent, Central. I did not notice the hon. Member for St. Helens, South (Mr. Bermingham) contributing to the debate, so I hope he will allow me to deal with the points made by hon. Members who have taken part.

The hon. Member for Stoke-on-Trent, Central suggested that we had made the decision after an erroneous appreciation of the facts. I reassure the Committee that that is not so. We would have reached the same conclusion on the basis of the actual figures. Even if one prays in aid the practice in the rest of the European Community, I remind the Committee that we still have one of the narrowest VAT bases in the whole of the Community. I suggest that widening the VAT base is probably in the best interests of — I should not like to say fiscal purity — a well-constructed scheme of indirect tax.

A long-established element in British political life, going back to the 19th century, suggests that we should be chary of introducing a tax on food. None the less, the introduction of VAT has meant a tax on meals in restaurants and cafes. In April 1974 the right hon. Member for Leeds, East (Mr. Healey) decided that it was right to introduce VAT on certain discretionary foods, and I admired his courage. He itemised potato crisps, chocolate biscuits and ice cream. I do not know whether they should be described as working-class foods. I do not see gastronomy in those terms.

On 30 April 1974 the then Chief Secretary to the Treasury, now Lord Barnett, said: There is nothing novel about a proposal to impose indirect taxation on inessential foods. I know that some Opposition Members would say that that statement begs the question, "What are inessential foods?" The Chia' Secretary continued:

The House will recall that purchase tax was first imposed on ice cream, soft drinks, sweets and similar products in 1962. It probably took a lot of courage on the part of the then Chancellor to take the risk of going down in history as the Chancellor who first taxed children's spending money, but I am sure there is now a broad measure of agreement that the judgment was right, to broaden the scope of the purchase tax by including some articles which most people would consider no less suitable for taxation than those which were already included."—[Official Report, 30 April 1974; Vol. 872, c. 1044.] That eloquent speech referred to the practice after the introduction of VAT on crisps, ice cream and chocolate biscuits. My right hon. Friend the Chancellor is only following where the right hon. Member for Leeds, East led.

Mr. Michael Shersby (Uxbridge)

Is my right hon. and learned Friend arguing that those foods are less essential than other foods? Is he aware that for many families, especially in Northern Ireland, confectionery is an important part of the diet?

Mr. Rees

I was not seeking to draw any refined or controversial distinctions. I was merely drawing comfort from the words of Lord Barnett as he now is. My hon. Friend assures me that those are essential foods, and that makes the case even more strongly. It means that the then Chancellor was disposed to introduce VAT on what my hon. Friend assures the Committee should be regarded as essential foods in certain regions. My right hon. Friend the Chancellor is, therefore, entitled to extend the base of VAT in this instance. I hope that the Committee, on reflection after a thorough debate, will take note of that point.

One or two technical and important matters were raised, especially by my right hon. Friend the Member for Blackpool, South (Sir P. Blaker), who was supported by my hon. Friend the Member for Wyre (Sir W. Clegg). [Interruption.] I do not wish to be presumptuous or anticipate the results of the Division, but I may be able to reassure Opposition Members.

The first question was based on the examination by Thornton Baker and Co. It was suggested that there might be a drop in trade of between 14 and 20 per cent., based on the consequences that have obtained since 13 March. I say, with respect to that distinguished firm of accountants, that that is a matter of conjecture. If the volume of expenditure on those projects is maintained at precisely the same level, there will be a drop of 13 per cent. This cannot be a matter of scientific precision. Obviously many factors must be taken into account, and we shall have to wait and see.

The hon. Member for Stoke-on-Trent, Central and others asked about the extent of job losses. I must send a thrill of horror through the hon. Gentleman and my right hon. and hon. Friends and say that I cannot give a precise figure, as many factors bear on this question. Take-away food cannot be considered in isolation. One must consider also the impact of the increase in thresholds, which will put more spending money into the pockets of many of our fellow countrymen. I must be perfectly clear and candid on this. I cannot give a precise figure, but I suspect that at the end of the day there will not be a loss of jobs. Similarly, the loss of income tax and corporation tax depends on conjecture about the loss of revenue to this sector of the national economy.

My hon. Friends the Members for Broxtowe and for Darlington (Mr. Fallon) raised an important point about apportionment, with particular regard to bakers. I am sure that such a sophisticated sector of the economy as that of take-away food will be well able to take in its stride any problems that this may cause. In this context I remind the Committee that various accountancy schemes are in force, and any trader, registered or otherwise, can no doubt obtain information about them from the local VAT office. I am sure that traders will find the practical questions a good deal less forbidding than some hon. Members have suggested.

Various points were made on the borderline, including those in a powerful intervention from the hon. Member for Rochdale. Points about the precise meaning of ambient temperature will doubtless exercise our minds when we come to amendment No. 11, so perhaps I may leave my comments on those aspects for that debate.

In conclusion, the Budget must be considered in the round. It would be quite the wrong approach to this particular Budget to pick out elements with which the Committee does not entirely agree, unless hon. Members whose amendments seek to strike out certain provisions can suggest alternative means of raising the revenue. Alternatively, we are happy to receive suggestions from them as to how a further £200 million of public expenditure could be saved. That is the only fair way to approach this Budget. Failing that, I believe that it is right and proper to accept the thrust of the proposed charges.

I hope that after this thorough and leisurely examination of the issues involved the Committee will reject the amendment, although I quite understand the motives which led the Opposition to table it. I hope that the whole Committee, having considered the facts, will realise that there is a very solid case for extending VAT at 15 per cent. to take-away foods.

Mr. Rooker

If I understood him correctly, the Chief Secretary sought to imply that there is no case for deleting parts of a Finance Bill to which hon. Members object because it must be considered in the round and we must accept the package as a whole. At that rate, we might as well not have a House of Commons or a scrutiny procedure for Finance Bills. In fact, there is no problem in deleting some provisions in the way that our amendments suggest. Additional revenue can be raised by means such as investment income surcharge and capital transfer tax. As the Chief Secretary well knows, it is not always possible for Opposition Members or Government Back Benchers to deal in amendments with the raising of additional revenue. We may as well get this argument out of the way now so that we do not have to go through it on every amendment. There is no difficulty about making the Bill fairer in the way that our amendment suggests.

7.15 pm

The Chief Secretary quoted my right hon. and noble Friend Lord Barnett. This quotation business has reached the point where I feel that I should always come prepared with a quotation of my own. On this occasion I shall give just one. I shall then be prepared to call a truce. Referring to fish and chip shops, my right hon. and noble Friend said:

In my constituency, although I may have missed a few, we certainly have more than 60, and in other constituencies in the North West there may be even more. This is not a small matter because it affects large numbers of people . . . These are not the sort of people who will eat caviar and lobster and oysters. We are discussing a different sort of person."—[Official Report, 10 May 1972; Vol 836, c. 1422.] In that speech, my right hon. and noble Friend was, of course, opposing aspects of the original introduction of VAT. For every quotation that the Chief Secretary finds, we shall dig up another. My right hon. and noble Friend has said many good things, although I might not necessarily have agreed with all of them at the time. Nevertheless, perhaps we may now call a truce.

In short, as I understood the Chief Secretary's response to the debate, he could give no answers. He said that he did not know how many jobs would be lost. My question about the number of shops that would close was based on answers from the Treasury and the Chancellor. Treasury Ministers have admitted that there will be a reduction in the number of traders registered for VAT. How many?

Mr. Peter Rees

We do not know.

Mr. Rooker

It is no use the Chief Secretary saying that he does not know. We are entitled to the answer. What is the Treasury estimate of the number of traders who will go out of business? In answer to questions, Treasury Ministers have said that they think that there will be a small net reduction. The public may think that the Prime Minister is running a dictatorship, but it stops at the doors of this House. We want answers to these questions. How many small traders will go out of business and not be registered for VAT? Does the Chief Secretary know? Treasury answers to questions state that there will be a loss. Will it be 50, 100, 200, 1,000, or how many?

Mr. Rees

We cannot say.

Mr. Rooker

If that is so, how does the right hon. and learned Gentleman know that there will be a loss? He has argued that there will be such a swelling of money in people's pockets due to threshold increases that no jobs will be lost. That argument could be extended to say that no shops will close. There might even be an increase in take-aways.

Mr. Rees

There might well be.

Mr. Rooker

The Chief Secretary now says that there might even be an increase. In short, the Government have no idea of the effect on the industry of the tax that they intend to impose.

Conservative Members have spoken against the Government but have said that they will wait until Report to see how the tax actually affects traders and constituents, with a hint—certainly from the right hon. Member for Blackpool, South (Mr. Blaker)—that something might be done then. As one hon. Member said, however, it is far more difficult to remove a tax than to stop it being imposed in the first place. I urge Conservative Members not to wait until Report. The Division about to take place will be the time to stop this tax. They should not string people along until Report in the belief that things can be changed then, with all the problems of tax already paid in the intervening weeks, which will certainly not go back to the customers.

I wish to apologise briefly to the hon. Member for High Peak (Mr. Hawkins), whom I did not intend to include in my castigation of the bone idleness of all Tory Members elected in 1983. His amendments related to the building aspect of VAT, not to food. I certainly exclude him from that criticism and I trust that he did not take it personally, given the nature of his intervention.

The hon. Member for Chorley (Mr. Dover) made a courageous speech, saying that he intends to vote with the Opposition. No doubt the Whips will take him on one side, and that will be the end of his political career. That is what happens to Conservative Members who have the temerity to vote against the Government.

The Chief Secretary seemed to chastise my hon. Friends for referring to the effect on small business men and the self-employed. There is nothing wrong with raising that question. Where are the spokesmen for the Small Business Bureau today? Why are they not here? The Small Business Bureau has its headquarters in Central Office, Smith Square; it is a Tory party organisation. The BBC should wake up to the fact when it interviews spokesmen from the bureau in discussions on small business matters.

Small business men are being attacked by the measure. The Tory party pays lip service to helping small business men, but, if anything, the Finance Bill will help medium businesses. It is not intended to help small business men. There is an attack on small business men, and they know that that is so. They write to me and to my hon. Friends about it, and they tell us so in private, but unfortunately they are not so vociferous in public.

If has been suggested that there was a leak about the life assurance change, and that it was therefore possible to measure the effect of the change that would occur. People make arrangements because of what they think will be in the Budget. We saw what happened in the case of life assurance.

I do not believe that there was a leak. Even if there had been, it would have made no difference to the take-away food industry. I do not believe that the millions of customers would have believed that the Government would be stupid enough to introduce such a tax. That being so, the leak would not have mattered a jot.

The Chief Secretary has referred to amendment No. 11, and there will be some words to be said about that amendment. I have now to draw to the attention of the House some points in the Customs and Excise notice about VAT on take-away food. The possibility of tax evasion, or fiddles, has been discussed. The food might be heated not at the point of sale but afterwards, or a charge might be made for the vinegar. It is worth quoting a couple of sentences from the VAT notice which make it clear that it is not hot items of food which will suffer the imposition of VAT. Page 2 of the notice states:

Where a supply of hot food includes an essential ingredient which is cold, such as the bread roll enclosing a hot dog or hamburger, you should treat the whole supply as liable to the standard rate.

Cold essential elements of hot food will pay VAT at 15 per cent. Because of that, and because of the set-up in many food shops—particularly fast food shops which cater for sit-down business too—the problems created by different tills and different rates for VAT will be considerable. The notice continues:

The incidental provision of cold items which are not separately charged for, such as a dollop of mustard, tomato sauce or chutney, should be ignored.

The get-out there is "not separately charged for". If the items are separately charged for at a phenomenal rate and the rest of the food is given with them, there is nothing in the VAT notice or the Bill which will enable the VAT inspectors to collect the tax on that hot meal. The Bill is full of loopholes, and so is the advice of the Customs and Excise to small traders.

The Chief Secretary has not answered the key questions about loss of business. He has admitted from a sedentary position — I hope that Hansard noted it — that the Government do not know whether there will be a loss or a gain in jobs, or whether the take-away shops will close down or expand. That is not way for a responsible Government to operate. I therefore ask my hon. Friends to join me in the Lobby.

Question put, That the amendment be made:—

The House divided: Ayes 139, Noes 241.

Division No. 256]	[7.24 pm
AYES
Anderson, Donald	Haynes, Frank
Ashley, Rt Hon Jack	Healey, Rt Hon Denis
Ashton, Joe	Hogg, N. (C'nauld & Kilsyth)
Atkinson, N. (Tottenham)	Holland, Stuart (Vauxhall)
Bagier, Gordon A. T.	Howells, Geraint
Barron, Kevin	Hoyle, Douglas
Beckett, Mrs Margaret	Hughes, Dr. Mark (Durham)
Beggs, Roy	Hughes, Robert (Aberdeen N)
Beith, A. J.	Hughes, Roy (Newport East)
Bell, Stuart	Hughes, Sean (Knowsley S)
Bermingham, Gerald	Janner, Hon Greville
Bidwell, Sydney	Jones, Barry (Alyn & Deeside)
Blair, Anthony	Kennedy, Charles
Boyes, Roland	Kilroy-Silk, Robert
Bray, Dr Jeremy	Kinnock, Rt Hon Neil
Brown, R. (N'c'tle-u-Tyne N)	Kirkwood, Archibald
Brown, Ron (E'burgh, Leith)	Lamond, James
Buchan, Norman	Leadbitter, Ted
Caborn, Richard	Leighton, Ronald
Callaghan, Jim (Heyw'd & M)	Lewis, Ron (Carlisle)
Campbell-Savours, Dale	Lofthouse, Geoffrey
Carter-Jones, Lewis	McCartney, Hugh
Clark, Dr David (S Shields)	McDonald, Dr Oonagh
Clay, Robert	McGuire, Michael
Cocks, Rt Hon M. (Bristol S.)	McKelvey, William
Coleman, Donald	McNamara, Kevin
Conlan, Bernard	McWilliam, John
Cook, Frank (Stockton North)	Madden, Max
Corbyn, Jeremy	Marshall, David (Shettleston)
Cowans, Harry	Mason, Rt Hon Roy
Crowther, Stan	Maxton, John
Cunliffe, Lawrence	Meacher, Michael
Davies, Rt Hon Denzil (L'Ili)	Michie, William
Dixon, Donald	Mikardo, Ian
Dormand, Jack	Milian, Rt Hon Bruce
Dover, Den	Miller, Dr M. S. (E Kilbride)
Dubs, Alfred	Mitchell, Austin (G't Grimsby)
Duffy, A. E. P.	Molyneaux, Rt Hon James
Dunwoody, Hon Mrs G.	Morris, Rt Hon A. (W'shawe)
Eadie, Alex	Oakes, Rt Hon Gordon
Eastham, Ken	O'Brien, William
Fatchett, Derek	Park, George
Faulds, Andrew	Patchett, Terry
Field, Frank (Birkenhead)	Pendry, Tom
Fisher, Mark	Penhaligon, David
Flannery, Martin	Pike, Peter
Foot, Rt Hon Michael	Powell, Rt Hon J. E. (S Down)
Foster, Derek	Prescott, John
Fraser, J. (Norwood)	Randall, Stuart
Freeson, Rt Hon Reginald	Redmond, M.
Freud, Clement	Rees, Rt Hon M. (Leeds S)
George, Bruce	Richardson, Ms Jo
Golding, John	Roberts, Ernest (Hackney N)
Gould, Bryan	Rooker, J. W.
Gourlay, Harry	Ross, Ernest (Dundee W)
Hamilton, W. W. (Central Fife)	Ross, Stephen (Isle of Wight)
Harman, Ms Harriet	Sedgemore, Brian
Hart, Rt Hon Dame Judith	Sheldon, Rt Hon R.
Hattersley, Rt Hon Roy	Silkin, Rt Hon J.

Skinner, Dennis	Wareing, Robert
Smith, C.(1sl'ton S & F'bury)	Weetch, Ken
Smith, Cyril (Rochdale)	Welsh, Michael
Soley, Clive	Wigley, Dafydd
Spearing, Nigel	Williams, Rt Hon A.
Stewart, Rt Hon D. (W Isles)	Wilson, Gordon
Stott, Roger	Woodall, Alec
Thomas, Dr R. (Carmarthen)	Young, David (Bolton SE)
Thorne, Stan (Preston)
Tinn, James	Tellers for the Ayes:
Wainwright, R.	Mr. James Hamilton and
Wallace, James	Mr. Allen McKay.
Wardell, Gareth (Gower)
NOES
Adley, Robert	Favell, Anthony
Aitken, Jonathan	Fenner, Mrs Peggy
Alexander, Richard	Finsberg, Sir Geoffrey
Alison, Rt Hon Michael	Fletcher, Alexander
Amery, Rt Hon Julian	Forman, Nigel
Amess, David	Forth, Eric
Arnold, Tom	Fowler, Rt Hon Norman
Ashby, David	Fox, Marcus
Aspinwall, Jack	Freeman, Roger
Atkins, Rt Hon Sir H.	Fry, Peter
Baldry, Anthony	Gale, Roger
Batiste, Spencer	Galley, Roy
Bellingham, Henry	Gardiner, George (Reigate)
Bendall, Vivian	Gardner, Sir Edward (Fylde)
Berry, Sir Anthony	Garel-Jones, Tristan
Biggs-Davison, Sir John	Glyn, Dr Alan
Blaker, Rt Hon Sir Peter	Goodhart, Sir Philip
Bonsor, Sir Nicholas	Goodlad, Alastair
Boscawen, Hon Robert	Gorst, John
Bowden, A. (Brighton K'to'n)	Gow, Ian
Bowden, Gerald (Dulwich)	Gregory, Conal
Boyson, Dr Rhodes	Griffiths, E. (B'y St Edm'ds)
Braine, Sir Bernard	Griffiths, Peter (Portsm'th N)
Bright, Graham	Grist, Ian
Brinton, Tim	Ground, Patrick
Brooke, Hon Peter	Grylls, Michael
Brown, M. (Brigg & CI'thpes)	Hamilton, Neil (Tatton)
Browne, John	Hampson, Dr Keith
Bruinvels, Peter	Hanley, Jeremy
Bryan, Sir Paul	Hannam, John
Buchanan-Smith, Rt Hon A.	Hargreaves, Kenneth
Buck, Sir Antony	Harris, David
Budgen, Nick	Haselhurst, Alan
Bulmer, Esmond	Havers, Rt Hon Sir Michael
Butcher, John	Hawkins, C. (High Peak)
Butterfill, John	Hawkins, Sir Paul (SW N'folk)
Carlisle, John (N Luton)	Hawksley, Warren
Carttiss, Michael	Hayes, J.
Chalker, Mrs Lynda	Hayhoe, Barney
Chapman, Sydney	Hayward, Robert
Chope, Christopher	Heathcoat-Amory, David
Clark, Hon A. (Plym'th S'n)	Henderson, Barry
Clark, Dr Michael (Rochford)	Hickmet, Richard
Clark, Sir W. (Croydon S)	Higgins, Rt Hon Terence L.
Clarke, Rt Hon K. (Rushcliffe)	Hirst, Michael
Clegg, Sir Walter	Hogg, Hon Douglas (Gr'th'm)
Cockeram, Eric	Holland, Sir Philip (Gedling)
Colvin, Michael	Hooson, Tom
Coombs, Simon	Howarth, Alan (Stratf'd-on-A)
Cope, John	Howarth, Gerald (Cannock)
Corrie, John	Howell, Rt Hon D. (G'Idford)
Couchman, James	Howell, Ralph (N Norfolk)
Cranborne, Viscount	Hubbard-Miles, Peter
Critchley, Julian	Hunt, David (Wirral)
Currie, Mrs Edwina	Hunter, Andrew
Dicks, Terry	Hurd, Rt Hon Douglas
Dorrell, Stephen	Jackson, Robert
Douglas-Hamilton, Lord J.	Jenkin, Rt Hon Patrick
du Cann, Rt Hon Edward	Jessel, Toby
Dunn, Robert	Johnson-Smith, Sir Geoffrey
Dykes, Hugh	Jones, Gwilym (Cardiff N)
Edwards, Rt Hon N. (P'broke)	Jones, Robert (W Herts)
Eggar, Tim	Jopling, Rt Hon Michael
Emery, Sir Peter	Kellett-Bowman, Mrs Elaine
Fallon, Michael	Key, Robert

King. Roger (B'ham N'field)	Pawsey, James
Knight, Mrs Jill (Edgbaston)	Peacock, Mrs Elizabeth
Knowles, Michael	Percival, Rt Hon Sir Ian
Knox, David	Pollock, Alexander
Latham, Michael	Porter, Barry
Lawler, Geoffrey	Powell, William (Corby)
Lawrence, Ivan	Powley, John
Lawson, Rt Hon Nigel	Prentice, Rt Hon Reg
Lee, John (Pendle)	Price, Sir David
Leigh, Edward (Gainsbor'gh)	Proctor, K. Harvey
Lennox-Boyd, Hon Mark	Pym, Rt Hon Francis
Lester, Jim	Rathbone, Tim
Lewis, Sir Kenneth (Stamf'd)	Rees, Rt Hon Peter (Dover)
Lilley, Peter	Rhodes James, Robert
Lloyd, Ian (Havant)	Rhys Williams, Sir Brandon
Lloyd, Peter, (Fareham)	Ridley, Rt Hon Nicholas
Luce, Richard	Ridsdale, Sir Julian
McCrindle, Robert	Roberts, Wyn (Conwy)
Macfarlane, Neil	Rossi, Sir Hugh
MacKay, Andrew (Berkshire)	Rost, Peter
MacKay, John (Argyll & Bute)	Rowe, Andrew
McNair-Wilson, P. (New F'st)	Ryder, Richard
Major, John	Shaw, Giles (Pudsey)
Malins, Humfrey	Shelton, William (Streatham)
Malone, Gerald	Shersby, Michael
Maples, John	Skeet, T. H. H.
Marlow, Antony	Soames, Hon Nicholas
Mather, Carol	Speller, Tony
Maude, Hon Francis	Spicer, Michael (S Worcs)
Mawhinney, Dr Brian	Stanbrook, Ivor
Maxwell-Hyslop, Robin	Steen, Anthony
Mayhew, Sir Patrick	Stewart, Allan (Eastwood)
Mellor, David	Stewart, Ian (N Hertf'dshire)
Merchant, Piers	Stradling Thomas, J.
Meyer, Sir Anthony	Sumberg, David
Miller, Hal (B'grove)	Taylor, John (Solihull)
Mills. lain (Meriden)	Temple-Morris, Peter
Mills. Sir Peter (West Devon)	Thompson, Donald (Calder V)
Miscampbell, Norman	Thurnham, Peter
Moate, Roger	Vaughan, Sir Gerard
Moore, John	Viggers, Peter
Morris, M. (N'hampton, S)	Wakeham, Rt Hon John
Morrison, Hon C. (Devizes)	Waldegrave, Hon William
Morrison, Hon P. (Chester)	Walker, Bill (T'side N)
Moynihan, Hon C.	Wardle, C. (Bexhill)
Murphy, Christopher	Warren, Kenneth
Neale, Gerrard	Watts, John
Needham, Richard	Wells, Bowen (Hertford)
Nicholls, Patrick	Whitney, Raymond
Normanton, Tom	Wiggin, Jerry
Norris, Steven	Wolfson, Mark
Onslow, Cranley	Yeo, Tim
Oppenheim, Rt Hon Mrs S.	Young, Sir George (Acton)
Osborn, Sir John
Ottaway, Richard	Tellers for the Noes:
Page, Richard (Herts SW)	Mr. Archie Hamilton and
Parris, Matthew	Mr. Tim Sainsbury.
Patten, Christopher (Bath)

Question accordingly negatived.

Mr. Roy Hattersley (Birmingham, Sparkbrook)

I beg to move amendment No. 3, in page 6, leave out lines 15 and 16.

The Temporary Chairman (Mr. John Forrester)

With this it will be convenient to take the following amendments: No. 4, in page 6, line 16, leave out '1st June 1984' and insert '1st October 1984'.

No. 5, in page 6, line 16, leave out '1st June 1984' and insert '1st September 1984'.

No. 6, in page 6, line 16, leave out '1st June 1984' and insert 'lst January 1985'.

No. 7, in page 6, line 16, at end add

'or contracted before 13th March 1984'. No. 8, in page 6, line 16, at end add

'excluding those contracts entered into on or before 13th March 1984'. No. 20, in schedule 6, page 133, line 8, leave out part II.

Mr. Hattersley

As the evening wears on we shall discuss the desirability of VAT being levied or not on several specific sorts of premises or alterations to specific sorts of premises. We shall discuss whether VAT is appropriate for alterations to premises owned by charities, buildings of special architectural merit and buildings of various specified groups. The purpose of amendment No. 3 is at once more simple and general. It intends to negate the Government's intention to impose VAT on building alterations of any sort. It does that for several reasons—concern for the overall pattern of employment and economic prospects in the country, concern for the state and condition of the building industry, concern for the desirability of such an avoidable tax and concern with the effect of VAT on alterations in some parts of the United Kingdom which especially need housing improvement.

I shall start by describing the affects of the new tax, if it were imposed, on the construction industry and the economy of which the construction industry is a part. There are now more than 400,000 construction workers out of work according to the Government's figures, and 225,000 of those potentially productive workers have lost their jobs during the Government's term of office. Plant stands idle in builders' yards all over the United Kingdom. Building bankruptcies are now occurring at a record rate. In spite of that, this is the moment that the Chancellor has chosen to impose a new burden on the building industry.

The Chancellor estimates that the imposition of 15 per cent. VAT on all alterations will raise £450 million in a full year. I should like, first, to consider the unlikely hypothesis that the Chancellor is right. If he is wrong, quite a different set of considerations apply. They are not unique, but they are not the considerations that are appropriate to analysing the results of his intentions if his intentions are fulfilled. For the moment, I shall assume that the Chancellor is right and that £450 million will be raised. That sum is to be added to the cost of alterations. That £450 million will be an additional disincentive to the making of alterations. In the present economic climate, price elasticity in the building industry being what it is, no extra money will be spent. The £450 million which goes to the Revenue may not be spent on building, as was initially contemplated. The same amount of cash may be transferred from the client to the builder and the same total of building accounts will be published at the end of the year, but £450 million of that total will go to the Revenue instead of being used for productive work.

If there is a straight transfer from the builder to the Treasury, the fears of the National Home Improvement Council will be realised. Subsequent events are easily calculated. If building work is reduced by £450 million in real terms, 34,740 jobs will be lost. That will cost the Department of Health and Social Security £280 million in unemployment benefits. It will also mean a loss of almost the same amount to the Revenue from the reduction in income tax which would have been raised from employed building workers but which cannot be raised from unemployed building workers.

If the money works its way through, as the NHIC fears, the Revenue will collect £450 million, but it will pay out almost £400 million in compensation. In short, the proposal will create unemployment, lose capacity and provide far less for the Exchequer than the Chancellor's superficial calculations. The exercise of imposing VAT on building alterations is a paradigm of the Government's economic policy.

Why does the Chancellor pursue such absurdities? Why does he attempt to raise revenue in this way, causing unemployment and involving himself in additional costs which almost compensate for the revenue which he hopes to raise? The building industry offers an answer to my rhetorical question. If its attitude to the new tax were not seen against its tragic background and if its condition were not tragic in general, it would be farcical to contemplate building industry employers turning to the Opposition for help. No group of employers has fed the Conservative party so consistently and lavishly and had its hand bitten so consistently and lavishly.

Tonight, I shall put that aside and, as requested, argue the industry's case against the Government's deprivation of this sector. I bring to the Minister's attention the reason why the Federation of Master Builders, in a positively poignant submission to the Opposition, suspects that the Chancellor introduced this irrational and illogical tax. The federation's submission of 16 March states:

It is the view of the FMB that the Chancellor has misled Parliament and the Country in his budget statement relating to changes in VAT on alterations to buildings. The federation's charge is that, during his Budget speech, the Chancellor, while announcing the imposition of VAT, said that the alteration in the VAT regulations was intended to end bureaucratic confusion. He added that he hoped that it would raise additional revenue. He said:

First, alterations to buildings. At present repairs and maintenance are taxed, but alterations are not. The borderline between these two categories is the most confused in the whole field of VAT. I propose to end this confusion and illogicality by bringing all alterations into tax."—[Official Report, 13 March 1984; Vol. 56, c. 302-3.] Yet that evening the Commissioners of Inland Revenue issued a press statement, which said:

As announced by the Chancellor of the Exchequer in his Budget statement, all building alteration work is to be standard rated for VAT from 1 June 1984. A number of other VAT liability changes affecting builders will also happen then. The commissioners, with a frankness which the Chancellor would have done well to copy, recounted the other changes, which for some reason—about which it would be unparliamentary for me to speculate, and which only the Chancellor knows and has not revealed to the House—the Chancellor did not tell the House in his Budget statement. For instance, there is a substantial raft of additional building work which hon. Members will find difficult to classify in rational terms as alterations, but which are to be classified as such for VAT purposes.

7.45 pm

The obvious example is that of a detached garage built adjacent to a house but completed after the house. The Minister nods agreement. Although all hon. Members know than now, we did not know it when the Chancellor made his Budget statement. If a garage is built in the garden, at the end of the drive, perhaps many yards from the house, it is not a new building but an alteration. The Federation of Master Builders, looking at the clear illogicality and irrationality of the definition, said that it could assume only that this is the penultimate step prior to the taxation of all new work. Will the Minister make it clear whether the Chancellor of the Exchequer is preparing the way to impose VAT on all new building work? What was his reply to the Federation of Master Builders, if he replied at all, when it expressed that fear?

If the Minister is, characteristically, reticent in describing the Chancellor of the Exchequer's intentions, I shall help him out of that vacuum by suggesting reasons which may have prompted the Chancellor to impose VAT on building alterations.

The Chancellor's first answer was that he wished to end the illogicalities — he meant irrationalities — of the present anomalies. He wished to end the anomalies between improvements, repairs and alterations. He therefore arranged it so that a garage built when a house was built would not be taxed, but the same garage built against the house in the same way a fortnight after the house was constructed would be taxed. Only a man of the Chancellor's sensitivity could regard such a tax as clearing up anomalies.

As the evening wears on, Conservative Members will draw attention to the preservation of listed properties and ancient buildings and to other anomalies concerning the number of facades on a listed building which can be changed inside or outside tax. A tax which falls on a building when one facade is renovated but not when more than one facade is renovated is not free from anomalies. Therefore, the Chancellor has not introduced a tax simply to clear the confusions which his logical mind finds repulsive.

Mr. John Gorst (Hendon, North)

In the right hon. Gentleman's garage example, has it occurred to him that it will call in question when a house is finished? If the house were finished but not the garage, one would presumably assert that the house was not finished until the garage was built.

Mr. Hattersley

The hon. Gentleman's ingenuity in such matters will be translated not into legislative action but into remunerative action in estate agents' offices and law practices. However, the Minister of State must tell us how that and many other anomalies will be overcome. We all know that the position which I described, and which the hon. Gentleman extended, can and will apply. I am glad that the hon. Gentleman, by implication, subscribes to my view that clarity and the absence of anomaly have nothing to do with the change, and I hope that he translates that support for my view into a vote for the amendment.

The Chancellor's second suggestion was that the proposal would raise £450 million in revenue. I have already assumed that that revenue might be raised, and I repeat that, were that to be the case, the effects on the building industry would be catastrophic, to the point of lost jobs and more bankruptcies. However, it is highly unlikely that this tax will raise anything like the amount that the Chancellor suggests is possible by the crudest and simplest calculation of adding 15 per cent. to the known alteration bills for last year.

The proposal is part of the Government's extraordinary exercise of increasing taxes at the same time as talking about reducing taxes. It is part of the increase in the total annual tax burden of £27,000 million which has come about as a result of action taken by a Government who came to power promising to cut taxes. In this case their strange insistence that they will reduce taxes by increasing them will have an even more bizarre result, because the £450 million that they promise will be the outturn of this tax cannot conceivably be collected by the Revenue, for the obvious reason that building alterations are an ideal area for an extension of the black economy. Thanks to the imposition of VAT, work now done on contract and invoice will increasingly be done for cash, untaxed and unsupervised. That will result in shoddy workmanship. As all of us have seen in our constituencies when the black economy has come in and offered a quick building job—the job might have been quick but it was often badly done or even unfinished. It will result in companies—if "companies" is the right word — operating with a dangerous absence of respect for safety standards and building regulations. Indeed, the president of the Building Employers Confederation described the result of the tax as "penalising bona fide firms" and "benefiting the tax-dodging cowboys."

Those who will be penalised most are the small firms, for which the Government are supposed to have especially tender regard—the honest firms which rely on alteration work for a large proportion of their turnover and which send in their tax returns and pay their dues. Two things will happen: first, the 15 per cent. increases in their bills will result in a substantial reduction in work; and, secondly, their work will be further reduced because families carrying out work on their premises will turn away from the legitimate small builder and go to the black economy cowboy, pay in cash, and be exempt from the VAT levy.

The Minister of State will know—he must reply to this point—that the firms which will be savagely hit in future are already being hit although, theoretically, the tax will not apply until 1 June. This is another example of the Government introducing a retrospective tax. I realise that VAT inspectors will consider only certificates for 1 June and thereafter, and that the tax returns will relate only to that and subsequent dates, but I also know—as should the Minister of State—that much building work was contracted before the Budget in the belief that no VAT would be imposed. Suddenly, the £10,000 contract entered into and signed in good faith will cost £11,500. It is intolerable for the Government to say to builders and their customers, "You entered into a contract for one sum and the work has already begun — the men have been engaged, the raw materials bought and the plant moved to the site—and we, the Government, will now increase the price of the contract by 15 per cent."

I do not know how that can be justified. The Chancellor brushed it off by saying that the proposal offered the industry two or two and a half months' grace, but any hon. Members — there are many — who understands the building industry will know that two and a half months is the sort of period appropriate for the smallest jobs done in the most casual way. Anyone doing the sort of job likely to be caught by this measure started it long before the Chancellor announced the change and will now have to pay an amount which he did not anticipate and which should not be forced upon him.

Mr. A. J. Beith (Berwick-upon-Tweed)

The other side of the coin—it is happening at present—is that many builders are advising customers to pay in advance so as to get the benefit of the present VAT position, thus removing from the person who makes the payment any subsequent effective pressure upon the builder to complete work or to get on with that job as opposed to other jobs that he might have on his work schedule. Is this not another of the bad booms from which the building industry has suffered—a short-term boom for a couple of months followed by a period of serious deprivation for the industry?

Mr. Hattersley

Capital allowances, which we shall debate tomorrow, will have almost exactly the same effect. It creates the suspicion that the Government want to create this short-term activity followed by a period of lassitude and then of depression. What the hon. Gentleman said is true. There are two problems for customers and builders. One is builders suggesting, or customers asking to make, early payment and therefore changing the rhythm and schedule of the work in the industry. The other is builders feeling that they must accept the early payment although they might not be sure how the contract, especially if there are variable terms for labour or material, will work out. The Chancellor, who parades himself as the great codifier of taxes—the man who will smooth the rough passages in tax legislation — should not have created all those anomalies, uncertainties and diversions.

Dr. Glyn

The right hon. Gentleman suggested two possibilities. I suggest a third—a deferral in the time by which the building should be completed.

Mr. Hattersley

I agree with that, but I must ask that hon. Members who wish to criticise the Government should do so during the Minister of State's speech rather than during mine. There are several ways out of this impasse, one of which is deferring the period. But that is not half as good a method as abandoning VAT on alterations altogether. That is the course that I urge and that I shall pursue in the Lobby tonight with, I hope, the hon. Gentleman's support.

The hardship, examples of which we have seen in constituency correspondence, will fall most desperately on areas that are least able to bear it. The increase in alteration prices will hit the inner cities. As the Government have cut capital expenditure on housing in the inner cities, poor misguided Conservative leaders of councils have said—they have certainly said it in Birmingham—that there might not be the same public capital spent on improving the inner city, but that under this Government private capital will fund the necessary alterations. This measure is a major disincentive to private capital filling the gap, and in areas with a high concentration of old property the effect on housing stock will be cataclysmic.

The inner cities and Wales have a high proportion of older property that will not be altered and, therefore, not improved. The potential decent lives of many properties that could be extended will not be extended, and the stock of decent housing will deteriorate. In short, we can say with certainty that VAT on building alterations will reduce the quality of our housing stock, increase unemployment and bankruptcy in the building industry, especially penalise the small firm, provide new incentives for tax dodging and new opportunities to dodge taxes and encourage shoddy building work. Its yield will be less than the Chancellor suggests, and its effect will be retrospective.

Not surprisingly, the building industry describes the new tax as a deplorable and savage blow against it. I look forward to hearing how the Minister of State can possibly justify this absurdity, and I look forward to voting against it.

8 pm

Mr. Christopher Hawkins

I rise to support amendment No. 3, together with amendments Nos. 6 and 8, which are in my name, and those others whose effect is similar. On amendment No. 3, I am in the company of distinguished Opposition Members because, by coincidence, the wording of my amendment is identical to theirs. There has been no plot of any kind.

I am a strong supporter of the Chancellor's Budget strategy. In a book published more than 15 months ago—hon. Members will be relieved to know that I do not intend to quote from it—I argued the need for Chancellors of the Exchequer to remove the distortions of the tax system to free the market economy to work efficiently and effectively so that it would not continue to work under the severe restraints of some of our more absurd tax laws.

I am glad that in this Budget the Chancellor has gone a long way down the road of removing restraints and anomalies. I also welcome moves towards a world in which far less time will be spent claiming allowances. In exchange, we shall have much lower corporation tax. I even welcome the strategy of a broader VAT base. I am told that if all goods were subject to VAT, the rate would be under 10 per cent., although my right hon. and hon. Friends will correct me if I am wrong.

What I do not welcome is the arbitrary choice of building extensions and alterations to be subject to the current high 15 per cent. VAT rate. If we are in the game of choosing which things should be taxed and which should not, this is one area that I would want to avoid taxing.

A decent home is a fundamental need for everyone. That has been a basic belief of the Conservative party for a long time. Whether a home is built now and to a large size initially, or is extended as a family's needs and incomes grow, it is illogical to tax the two things differently. Yet new buildings will incur no VAT while extensions will bear the full 15 per cent.

A major problem in Britain is that a large part of our housing stock is old and decrepit. House condition surveys have shown that many houses need refurbishment and new facilities such as bathrooms, and lack internal loos and so on. In some cases that amounts to the need for almost a complete rebuilding.

In 1982, in response to that problem, we announced 90 per cent. improvement grants. Now, not only have we cut improvement grants to 75 per cent. but we are also imposing 15 per cent. VAT. We are penalising precisely those home owners and building companies who until recently we were successfully encouraging to buy and do up old, rundown properties. In many cases, that policy put new life in the derelict inner cities. What we now plan is almost the reverse of our previous wise policy.

We shall also make worse the problem of the cowboy builder—cash on the nail, no questions asked and no tax paid. The work carried out by such people will be relatively even cheaper compared with reputable builders. If anyone doubts the seriousness of that problem, I should point out that the Director General of Fair Trading has received an enormous number of complaints about builders in the cash economy and only last year produced a comprehensive report. What we plan now will, in my view, make the problems worse.

Mr. Bermingham

Is it not also the case that when a cowboy builder is employed, the materials he uses are usually of secondary quality? These are often imported materials that have been bought from the continental scrap heap rather than the new, first-class materials that are normally used by an authorised builder.

Mr. Hawkins

I agree with the hon. Gentleman. There is also some evidence that at the cowboy end of the trade large quantities of stolen, as well as second-hand, materials are used.

I am also opposed to VAT on extensions and alterations because building is the number one industry that we should be encouraging. If demand is increased elsewhere in the economy — as we have seen in recent years when average earnings have gone up faster than prices—that extra demand has been satisfied largely by imports. However, demand for building leads directly to jobs and incomes at home and results in more money going to the Treasury.

Another important feature of building is that it employs large numbers of unskilled workers. A look at the long-term unemployment figures is salutary. According to a survey that I have recently seen, about 75 per cent. of the long-term unemployed are unskilled, left school with no qualifications and have acquired none since. The microchip revolution about which we talk, and for which we hope and wait, will pass those people by, but the building industry offers worthwhile jobs for the unskilled to produce things that the country desperately needs.

I am also opposed to VAT on building extensions because it hits charities particularly hard in that they cannot claim it back. It also hits many independent schools that are registered as charities. I understand that it also hits universities, but probably not polytechnics. In short, in choosing which goods to tax rather than imposing a low tax on all goods, we are with VAT hitting precisely those things that we would not want to hit.

I wish to put three short case studies to the Minister and ask him to consider whether any concession can be made to deal with these problems. In doing so, I am grateful to the Building Employers' Confederation and the Royal Institution of Chartered Surveyors for the extensive briefings with which they have provided me and many other hon. Members.

Case study number one shows the penal effect that the retrospective imposition of VAT will have on a major inner city scheme. The central station, Manchester, scheme, just north of my constituency of High Peak, is designed to promote economic regeneration in the city centre of Manchester and to preserve an important listed building. The project is funded by the county council, by central Government through the inner city urban programme scheme and by the private sector. The total cost of that project is over £18 million. The new VAT burden on that will be about £2.5 million.

That additional cost was not contemplated by greater Manchester or by the eventual lessee. It was not known that this tax would be introduced. Everything was contracted before the Budget, and the retrospective nature of this legislation will be extremely harmful both to the inner city about which we want to do something and to the listed buildings that we want to preserve.

Dr. Glyn

Is my hon. Friend saying that the 15 per cent. tax will decrease the number of listed buildings that people are prepared to put back into commercial use because 15 per cent. represents the margin of profit?

Mr. Hawkins

Yes, I am saying precisely that, and I support my hon. Friend's good point.

My second case study illustrates the inequity of the retrospective nature of the legislation, the damage to conservation, the threat to heritage property and the impact on unemployment. The restoration of the old fish market in Glasgow is an initiative between public and private enterprise that has been designed to convert a major listed building into a leisure and commercial complex. This project will create 300 new jobs. The money for the project has been found with difficulty and the imposition of VAT on the alteration work will add an estimated £25,000 to the cost. The project manager has written the following:

I am seriously concerned that there is a distinct possibility of having to abort this scheme purely as a result of the proposed imposition of VAT on this listed building and I am sure that the last thing that the Government or anybody wants is for schemes such as this in inner cities, that will undoubtedly provide additional employment, to go to the wall.

The third case is from my constituency. It concerns a young couple who have sold their old house and borrowed up to their borrowing limit from a building society to convert a derelict barn which they have planning permission to convert into a home for themselves. That will create work locally and a nice home in keeping with the countryside of High Peak. They were given an improvement grant of £4,500 towards the cost of £50,000 and everything was agreed before the Budget, but the imposition of 15 per cent. VAT will cost them £7,500, wiping out the improvement grant by a ratio of nearly 2:1.

Amendment No. 8 concerns the retrospective nature of this tax and because of the cases that I have given, I hope that some hon. Members will feel that they can support this amendment and the others with a similar intention. Unless the amendment is made, contracts made before Budget day and not completed by 1 June will be subject to VAT of 15 per cent. People's transactions will be subject to VAT that they did not expect and cannot possibly avoid. That infringes a moral belief that the House should avoid retrospective taxation wherever possible. In this case, it is possible by simply exempting contracts made before 13 March. The alternative way would be to postpone the introduction of VAT until, say, the end of the financial year, which is mentioned in another amendment, and give time for these projects to be worked through.

The director of a major property company, who until he retired recently was a director of a major national building company, is also a trustee of a large charity for handicapped people. He has given me a case. The property company of which he is a director will probably be able to avoid VAT by paying in some form of prepayment deal before 1 June. The charity, however, is at the moment doing a £600,000 conversion on a large house in Glasgow, and the VAT on that will be £90,000. It has not yet managed to raise the money for the £600,000 conversion, but hopes that it will have done so by the time that the work is completed. The charity certainly does not have £90,000 to do some sleazy deal to prepay by the chosen date of deferment. It does not have the money and cannot get it.

Therefore, I ask my right hon. and hon. Friends to consider the impact of this provision on charities, on conservation, which will be badly hit and on which we should make some concession, and on contracts made before the Budget. To defer the introduction of VAT will solve many problems. The cost of deferring to the end of the year might be £100 million or £200 million. To normal human beings such as we, earning a few hundred pounds a week, that sounds a lot of money, but it is peanuts when compared to GNP. It is less than one tenth of 1 per cent. of Britain's GNP. If we save that money, no statistician will even be able to measure that we have saved it.

To defer the tax to 1 December will also lead to quite a considerable building boom, and to more jobs and more revenue for the Treasury rather than the loss of income that will result from taxing an already hard-hit industry.

8.15 pm

Mr. Gordon Oakes (Halton)

I congratulate the hon. Member for High Peak (Mr. Hawkins) on a courageous and knowledgeable speech. I only wish that the Chancellor of the Exchequer, before he framed these proposals for VAT on alterations, had at least consulted the industry to avoid the mess that he has created with these proposals, particularly schedule 6.

I agree entirely with what my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) said about the disastrous effect that this will have on the building industry, and particularly on small builders. Thousands of jobs will be lost and there will be hundreds, and possibly thousands, of bankruptcies. This is from a Government who, as my right hon. Friend said, pride themselves on the attention that they give to small businesses, and particularly to the small builder. No section of industry could have been more shabbily treated over the past four years by the Government whom they helped to elect than the small builders.

There is also the problem of the time factor of 10 weeks. We are not dealing, as we did with previous amendments, with a retail industry, for which one can impose a date a few weeks in advance and say that tax will be imposed from then. We are dealing with the construction industry, in which weeks, and sometimes months, elapse between contracts being signed and the execution of the work. That is not because of any laziness on the part of the builders, but because they have problems such as getting the right supplies, the right materials or the design that the customer wants and for which the builder has to wait. There is the flow problem of labour and getting the job done on time. There is also the fact that very often, particularly when the work is for central heating or double glazing, the customer specifies that although he enters into a contract in December, January or February, the builder should not do the work until June, July or August. That is done for the sensible reason that he does not want a gaping hole where the window should be in the middle of winter. Therefore, he wants the builder to do the work in the summer months.

All these people will pay an extra 15 per cent., with anything between £300 and £600 being added to an ordinary, simple double glazing contract. This tax has been imposed out of the blue by the Government. The industry and the customers knew nothing about this on 12 March. Surely the Government should consider the amendments tabled by the hon. Member for High Peak and either extend the date to 1 January 1985 or, at the very least, exclude all contracts entered into before Budget day, as has been suggested by other amendments. That would stop this tax from becoming retrospective; something which we deplore in all legislation, particularly fiscal legislation.

I also deplore the fact that the Chancellor has tackled the matter in a blanket and indiscriminate way, as several of these amendments clearly show. For example, no consideration has been given to the fact that many churches, many charity buildings and many historic buildings need these alterations or they will fall down, and there is also an amendment about this effect. Did the Chancellor think about this? What is the point of the Government paying grants to extend the life of historic buildings and churches on the one hand and taking 15 per cent. back with the other in VAT? It makes no sense.

Worse still is the problem of the disabled, and there are starred amendments down from the hon. Member for Exeter (Mr. Hannam) and my right hon. Friend the Member for Stoke-on-Trent, South (Mr. Ashley), both of whom clearly have a passionate interest in the disabled. The Government provide grants and invalidity benefits, and the local authorities give grants to improve the lifestyle of the disabled by various improvements in their homes. The improvement may be a lift, or something much more simple, but it transforms the life of the disabled.

Under their blanket proposals the Government are giving no consideration to the fact that the disabled will pay 15 per cent. VAT. Again the Government are giving with one hand and taking away with the other. Moreover, they are taking it away from those most unable to pay what is for them a levy on the necessities of life, not some luxury. On the one hand the Government realise that such improvements are necessary, desirable and essential, and on the other they proceed to tax them. The Treasury and the Chancellor have not even thought out the implications of this blanket imposition of VAT.

The Government spend hundreds of millions of pounds on advice, on the energy efficiency office, and on grants to assist people in Britain to conserve energy. That same Government then tax everyone who is rash enough to follow their advice. There is a tax of 15 per cent. for installing the means to save energy. That must be a crazy policy. If the Chancellor were to consider other European countries, he would see that almost invariably energy efficiency products are safeguarded.

Central heating is singled out for special treatment in schedule 6 on page 134. Other forms of heating such as stoves, cookers and so on may escape, but space heating and water heating are singled out for the 15 per cent. treatment. The industry could show the Chancellor a direct correlation between the installation of central heating between 1979 and 1982—the figures for 1983 are not available—and the reduction in the use of all forms of energy. If that continued there would be a tremendous energy saving, yet anyone who has the temerity to install central heating in his home, despite the fact that he is saving energy and improving his lifestyle, must pay a tax of 15 per cent.

I well remember that when I was Under-Secretary of State for the Environment and we discussed rating revaluation, Conservative Members to a man pointed out how wise it was to install central heating and how wrong it was to increase the rateable value of a person's home because he had installed central heating. Although I argued against that view, I had a sneaking sympathy for it. If they think that I was hypocritical, how hypocritical are they for imposing 15 per cent. VAT on central heating?

There is no doubt that double glazing has a considerable energy saving effect. It has been said that if this VAT is imposed the principal firms—the good, reliable and responsible firms—will lose contracts to the cowboys. There is no doubt about that. People will go to the cowboys, not only to save the 15 per cent. VAT, but to cut corners in other directions. The industry is worried not only about the loss of business but about the loss of reputation that will result when someone goes to a cowboy and finds that the double glazing is not efficient or effective. They will blame not the cowboy but the double glazing industry. Therefore, a whole batch of customers will be lost.

I do not know whether the amendment that has been tabled by the Liberals will be called, but if it is I shall vote for it. It is a sensible amendment which seeks to exclude anything relating to energy efficiency from the effects of this VAT.

The small owner-occupier, the darling of Conservative Members, the little man who buys an old house, does it up, improves it by installing central heating and double glazing, will be hit hard in whatever direction he may travel. Not only he will be hit, but also the many thousands of people who are locked into a system of electric heating installed in the early 1960s before the energy crisis in council houses, who cannot afford to turn on the heating in the depth of winter because of their fear of the electricity bills that will result. I hope that some of the £200 million which the Chancellor hopes to raise from this tax will go back to local councils in order to give some protection to those people, usually old people, who find themselves locked in that energy trap.

What has the Chancellor got against fitted kitchens? According to the schedule, it seems that if I install fitted wardrobes or cupboards in my house I do not pay VAT, but if my wife installs a fitted kitchen VAT must be paid. Fitted kitchens are the trend at the moment among the very people that Conservative Members seek or pretend to encourage—the small chap buying his house whose wife wants to install a fitted kitchen.

Dr. Keith Hampson (Leeds, North-East)

I may be wrong, but I think the right hon. Gentleman will find that VAT now applies to all white furniture fittings in houses.

Mr. Oakes

No doubt the Minister will correct me if I am wrong, but the last paragraph of schedule 6 is ambiguous. It talks about fitted furniture other than fitted kitchens. Fitted kitchens seem to be singled out for special treatment. Ladylove Ltd. is a firm in my constituency well known in the north of England for the manufacture of good fitted kitchens. It has experienced considerable difficulties because of the lack of building in Britain due to the recession. It has had to shed labour but has tried to keep going. This could mean the end of it.

I plead with the Government, between now and Report, at least to look at the anomalies that this measure creates for the disabled, churches and historic buildings, the kitchen and furniture industry and, most particularly of all, the energy saving industry in Britain.

Sir William Clark (Croydon, South)

It is a pleasure to follow the right hon. Member for Halton (Mr. Oakes). He argued against the imposition of the tax. The debate has revolved around two aspects—those hon. Members who want the imposition of the 15 per cent. tax withdrawn, and those who think that 13 March is far too rigid a date. I fall into the latter category. I cannot see how the Government can justify such retrospective legislation.

There is no point in baulking the issue. Many contracts in the building industry are entered into, as many hon. Members have said, long before the work starts. To give an extension to 1 June—a couple of months—means that few contracts that were entered into before 31 March will escape the tax. As previous Chancellors have done, where we are changing a tax—as indeed we are, on the composite rates of banks—one year's notice should be given to the taxpayer. Instead of amendment No. 3, which is similar to that tabled by my hon. Friend the Member for High Peak (Mr. Hawkins), I should like to see contracts entered into before 13 March excluded from this tax of 15 per cent. I have no connection with or vested interest in the building industry, but there will be tremendous argument within the industry in determining what is a new building and what is not. My hon. Friend the Member for High Peak has given excellent examples of the various anomalies. I can give the further example of a school which happens to be a very good grammar school, and is a charity. It intends to put up some new laboratories for microchips, computers and so on in the grounds of the existing school. If the school was to buy some land the other side of the road, and erect the buildings there, I presume that would be regarded as a new building, but, because the building is to be erected in the grounds of the present school, it will be subject to the tax. A total of £7 million charitable money will be spent on it, which means that the bill will go up by almost a further £1 million. I have no vested interest in the school. It is not in my constituency, but is in the constituency of my hon. Friend the Financial Secretary to the Treasury. In his absence, I plead for him on behalf of his constituents. The Whitgift school will be hit very hard.

8.30 pm

Another example that I can give, again of a charity, is a church that needs restoration and a certain amount of improvement. An appeal was launched six to nine months ago for £150,000—not a large sum. It so happens that I was asked to be one of the patrons of the appeal to help raise some cash. The Archbishop of Canterbury, Mr. Speaker, and the Mayor of Croydon are also patrons. Again, I have no vested interest. Croydon parish church has raised £145,000, and has approximately £5,000 more to raise. However, the imposition of the 15 per cent. tax means that Croydon parish church appeal will need another £15,000. Of the £150,000, roughly two thirds was to go to improvements calculated according to the various grants from the Department of the Environment. What does the parish church do now? The constituents of my hon. Friend the Financial Secretary to the Treasury and the congregation that attends the Croydon parish church would surely expect Treasury Ministers to examine the matter.

I cannot understand why 13 March is sacrosanct. The two cases that I have given—certainly the case of the church—should surely be treated on their merits. If the Government say that they are unable to give a year's notice, as has been done in the case of the composite rate, which I know will mean a diminution of this year's revenue, surely they can say that between now and Report they will give an undertaking to look sympathetically at cases like Croydon parish church, and the many other similar cases.

Mr. Campbell-Savours

If the Government do not get the money that they intend to raise from the imposition of VAT, how else will they get it to pay for the capital transfer tax reductions that the right hon. Gentleman seeks in the Budget?

Sir William Clark

I cannot see that that is relevant to what I am endeavouring to argue, but perhaps I have not made myself sufficiently clear, and the hon. Gentleman would like me to repeat my arguments. I was talking not about capital transfer tax, but about the indirect retrospection in this tax. I hope that my hon. Friends will give an undertaking to look at this again between now and Report, and consider whether each case can be judged on its merits. The Government obviously could not give an open-ended commitment that any contract entered into before 13 March was exempt from the tax. A time limit would have to be put on it, which I suggest should be the end of the fiscal year.

Mr. Gorst

Does my hon. Friend not fear that, if the Government are unsympathetic to what he seeks, this objectionable principle of retrospective taxation will mean that in future customers and suppliers of the building industry will have to make their arrangements subject to the possibility that the Government will make further retrospective tax impositions, and that therefore all building contracts will have to be subject to there being no changes in taxation?

Sir William Clark

My hon. Friend makes a valid point. Most building contracts to my knowledge have an escalation clause to cover possible changes in the rate of VAT. However, when a contract has been signed, everybody assumes that the rate of VAT will not change. Consequently—to return to the case of the church—the church, which has signed the contract, is then subject to another 15 per cent.

This is a serious matter for business. The right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) raised the question of what is and what is not a new building, which we shall consider subsequently. In the case of listed buildings, it is crazy for the Customs and Excise to say that, if one is constructing a building and one leaves one small wall up, it is a new building, but that if one leaves two walls up, it is not a new building, but is an extension of a building. How does one go about building a corner site? I do not think it is right that any Government department—for example, Customs and Excise—should interpret a Bill which is in many cases ambiguous, and leads to anomalies. The guidelines to what is and what is not a new building should be laid down in Committee.

I hope that my hon. Friends have also considered the effect on the rating system and rating costs of the country. If, indeed, the enveloping goes on, when there are grounds for it, albeit that there is a reduction from 90 per cent. to 75 per cent., the 75 per cent. will be 75 per cent. of the improvement costs plus 15 per cent., so that in grant it will cost more. What about contracts between public departments and builders? They have entered into a contract, and they will now pay another 15 per cent. Will the money be made available within the budget of the Consolidated Fund to increase the amount of cash available to the Department to alter whatever the building is? This matter should be examined carefully between now and Report, because many anomalies will arise.

It is regrettable that insufficient consultation took place on the clause with the industry concerned. I have no vested interest in the building industry, but it is common sense that, if a rigid date is to be set for the imposition of the tax, one should look behind that date to identify the implications. Hon. Members on both sides of the House have endeavoured to point out some of the anomalies. When my hon. Friend replies, I hope that he will give an assurance that between now and Report he will consider whether each case might be treated on its merits, otherwise extreme hardship will be suffered because of retrospection.

Mr. Beith

I hope that it is already apparent to the Minister of State that he has got things wrong. I also hope that it is already apparent to him that there is very little support in any part of the Committee for the package on VAT that he is putting forward—least of all for the proposition that he has cured some terrible anomaly. In fact, he has created far more anomalies than he started with. I hope to join others in persuading him that the proposal to extend VAT to building alterations is wrong. He has clearly created a chain of anomalies that is far greater than that which existed when he dreamt up this notion.

What, if anything, could the Government do at this juncture, with our economy in the state it is, which would be particularly valuable? I believe that they could maintain and improve our existing building stock. Of all the measures that a Government might take to deal with the present economic situation, what has a fairly rapid effect on the generation of employment and the wide distribution of employment opportunities throughout the community? The answer is: measures that develop and sustain the building industry. On both of those counts, the proposal to extend VAT to building alterations must surely stand condemned, because it attacks one of the areas of activity in which the Government can most readily assist the country at a time of high unemployment, and can most readily direct that assistance so that it is not spent on imports or on measures that do not go directly to the communities affected by such problems.

The Government have made a disastrous mistake in choosing to carry out this switch policy. I sincerely hope that before we have completed our consideration of the Bill, that feature of the Budget's proposals will be substantially, if not totally, changed. Rehabilitation of our building stock is one of the best things that we could be doing at present; and inviting the development of the black economy is probably one of the worst things that any Treasury Minister could do. Indeed, that is another facet of the problem. Why on earth have we got Treasury Ministers before us, inviting us to support proposals that will make it more tempting for private citizens to use cowboy operators in order to avoid a heavy tax imposition? The incentive is being given to go through the operator whose transactions are in notes, not cheques, whose accounting is done on the backs of envelopes and who does not use bills of which copies are kept. That is what is likely to happen as a result of this measure.

Of course, the existing VAT provisions on building work already present problems, and VAT on repairs presents problems to some of the groups about which hon. Members have expressed concern tonight. For example, the existing VAT on repairs is already a problem for churches and village halls. However, the problem will be made far worse by the imposition of 15 per cent. VAT on building alterations. I ask the Minister of State to look at the characteristic problems of church and village halls, which he has no doubt come across in his constituency work. Indeed, all hon. Members attend functions in them. Such buildings were put up 30, 40 or 50 years ago and do not have adequate modern toilet facilities. Therefore, substantial alterations have to be carried out to ensure that there are proper toilets to which the disabled also have access. There are buildings in which there are no decent hygienic kitchen facilities, and substantial building alterations have to be carried out in order to provide them. Voluntary organisations in towns and villages all over the country are saving or raising money to carry out such alterations, yet they now face the prohibitive burden of additional costs being incurred on basic community buildings such as village and church halls.

The burden involved in repairing such buildings will now be made worse. The imposition of VAT on alterations will affect them drastically. Of course, in those areas where all such facilities are directly under the wing of the local authority, the position will be different. But why are the Government imposing a penalty on those areas where voluntary effort is providing many basic essential community facilities? The Government are telling local authorities, in effect, that they will have to step in and provide all the village halls and basic social facilities in their areas, because they, the Government, intend to penalise voluntary effort and to make it more expensive for volunteers than for local authorities to do the job. That is an absurdity.

8.45 pm

In supporting the amendment, I wish to turn to its implications for our heritage of historic buildings. We can deal with the problem by way of later amendments. I welcome the fact that the hon. Member for Rutland and Melton (Mr. Latham) has such an amendment on the Order Paper. I shall certainly support it. I hope that, if it has to be pressed to a Division, many of his hon. Friends will support it, too. However, I also hope that we may have some indication at this stage that the Government will reconsider their attitude to imposing VAT on building alterations. When the whole series of specific problems is considered, it is clear that the answer is that the Government should not impose VAT on building alterations, and should not place the crushing burden on the building industry and on the very wide range of employment that it provides. That is the route that they should take, but, if they do not, we must look to more specific amendments.

We have recently been through a period of considerable change of public policy in the direction of retaining our heritage of buildings and of retaining and adapting existing buildings instead of demolishing and replacing them. That has happened at many levels and in many different types of building. Big country houses have been adapted into flats for the elderly and so on when they are no longer suitable as residences and can no longer be maintained on that scale. Next week, His Royal Highness the Duke of Gloucester will visit my constituency to look at just such a project at Belford Hall in Northumberland. That 18th century house, which has been derelict since the war, will now, we hope, be restored to socially valuable use by means of extensive adaptations. We hope that some of the work will have been started quickly enough to avoid the worst of the VAT imposition. But that house is typical of the many projects that this proposal will hit so very hard. Sensible use is being made of the building. It is the source of such pride that it is most appropriate that a royal visit should be made to it. Indeed, the Duke of Gloucester has taken great interest in and visited such projects in many parts of the country. It is appalling to see such projects hit by this proposal.

Again, in Berwick-upon-Tweed, which has an enormous number of historic buildings, we pioneered the idea of the revolving scheme or trust—the Historic Buildings Preservation Trust—which buys houses that are falling derelict and cannot be maintained, adapts them for modern use, sometimes by subdividing them, and then releases them on to the market. The funds are then used to restore other buildings. Without that sort of thing, many of the buildings that are such important features of the historic town centre would have decayed to the point at which there would have been no alternative but demolition. Yet this high level of VAT would also be imposed on those projects. In some areas, workers' cottages, which are too small for modern use, have been adapted, put together in pairs and turned into single dwellings. Bathrooms and other facilities have been added to them. In such ways, part of the traditional fabric is maintained in town centres and at the same time decent housing is provided.

Earlier, I mentioned that the existing VAT provisions led to great difficulties in the maintenance of churches and chapels. Demolition is now a very serious threat. During Question Time today the hon. Member for Wokingham (Sir W. van Straubenzee), answering questions on behalf of the Church Commissioners, said that he was able to point with some pride to the fact that the Church of England had demolished relatively few buildings. However, the threat was there, and many hon. Members pointed out that the imposition of VAT could threaten that record. Indeed, the record is not so good for the many non-conformist chapels, which are important features of the architectural scene in many of our towns and cities, particularly in the north of England. It has simply not been possible to maintain some of them, and until recently their historic value and significance had not been greatly recognised.

All that has changed. During the past few years such buildings have been adapted for use by the churches, or adapted for alternative use. Let us take, for example, the case where the Church wants to continue to use a big historic building but cannot do so unless it adapts it to modern conditions. For example, the area used for services may need to be reduced in size so that it can reasonably be heated. Many churches make such alterations. They may put in a ceiling where previously there had been a lofty roof, or adapt the building so that the ground floor is used for other purposes and a first floor is created to be used for worship. Such adaptations have been carried out in many churches. In that way valuable buildings are retained both for worship and for other community purposes.

The churches main committee has produced many examples of such projects which I hope have already been drawn to the Chancellor's attention, some of which are on quite a big scale. An example is the Victorian church in Richmond which is being converted to provide facilities for the elderly at a cost of £383,000. It will cost an extra £10,000 to provide those facilities when VAT is imposed.

Another example is the Methodist church — a listed building — which has been adapted at a cost of £242,000. About £100,000 was raised locally. Another £22,500 will now have to be provided for that project.

Some churches, no longer required for worship because the local population is now too small, are being adapted for alternative uses. Such projects are threatened. In the centre of Newcastle the fine All Saints church overlooking the quayside has been adapted, at considerable cost, as a hall for a variety of public uses. Such projects will be severely hit.

Other types of building will also be affected. Dock warehouses in cities such as Liverpool are being adapted for alternative use instead of being demolished. Such projects make a contribution to inner city regeneration. They provide facilities and opportunities for all sorts of things that we want to encourage. They retain valuable skylines. In the countryside, farm buildings are being adapted to provide workshops for small industries and crafts. Such projects are threatened.

What is the alternative? We are talking about churches and voluntary organisations with limited resources arid about projects in which a substantial financial contribution is involved. The Government are making the alternative of demolition attractive. They are distorting the free market. Demolition will be more attractive than retention and conservation. They are creating the antithesis of the free market philosophy as well as the antithesis of the public policy to retain buildings.

The Department of the Environment produces beautiful booklets describing our record in adapting buildings for alternative uses. It has produced booklets on the use of farm buildings and churches. They appear at international exhibitions as demonstrations of Britain's record on the conservation of buildings. I have been chairman of a sub-committee in the Council of Europe which deals with the conservation of historic buildings. I have been able to point with pride to Britain's record. But what do I now find? All the organisations which have worked so hard are threatened with the body blow of the imposition of VAT.

Mr. Stephen Ross (Isle of Wight)

We support the setting up of the Historic Buildings and Ancient Monuments Commission for England under Lord Montagu of Beaulieu. Is it not sad that it should face a 15 per cent. surcharge?

Mr. Beith

I agree. The Prime Minister organised a reception a few weeks ago to give the commission a good send off, but gloom was cast over the occasion by the known threat that faces the conservation movement. Treasury Ministers must recognise that they are flying in the face of the Government's declared policy.

Even at the minimum level, when features of listed demolished buildings are retained a threat exists. Often the last resort, when a building is threatened, is to retain some elements of the facade, a staircase, or some other feature of historic interest.

If the retained items are of any scale or significance arid amount, for example, to two walls, the ultimate absurdity applies in that the new replacement building will attract the 15 per cent. VAT. The imposition is a body blow to the conservation and retention of historic buildings to which the Government have given their support and encouragement in other measures.

I beg Treasury Ministers to think again about the impact of the tax upon historic buildings, churches and voluntary organisations. The proposal is nonsense and should be abandoned. If it is not abandoned as a whole—nothing would be more helpful to the building industry than that—at least we must have some exemptions for the types of projects that I have described. Treasury Ministers are flying in the face of common sense and public policy. They cannot be allowed to get away with it.

Mr. Michael Latham (Rutland and Melton)

I am grateful to the hon. Member for Berwick-upon-Tweed (Mr. Beith) for supporting my amendment No. 21 hours before we get to it. I shall make only a brief intervention in this general debate. I shall leave specific points about heritage to our debate on amendment No. 21.

I declare my long-standing interest in building as a director of a fairly large private housebuilding company. Most of that company's work is and will continue to be zero-rated since it is involved in private house construction. It is concerned with some conversion and rehabilitation work which will become positively rated.

I do not agree with the total resistance to clause 10. I am not opposed in principle to VAT being imposed upon private domestic extensions. I appreciate that it is an unwelcome step, but I see no logical difference between a householder having major repairs done to his house, such as putting on a new roof on which he must pay VAT now, and his having a new sunroom, porch or granny annex which was zero rated. Obviously, I should have preferred the Chancellor to go the other way and to zero rate all repairs instead of positively rating domestic alterations.

I remember when the Green Paper on VAT was produced by Lord Barber when he was Chancellor of the Exchequer in 1971. I was a member of the National Federation of Building Trades Employers and helped to draft the federation's initial comments. We assumed that the best that we could hope for was that new private housebuilding would be zero rated. We were pleasantly surprised when the Chancellor proposed that all new construction should be outside the tax net. Naturally, the federation criticised the inclusion of domestic repairs then and has done so ever since. The amount of revenue obtainable from VAT on repairs has become so substantial over the years as to make its removal less practical. We must take action against the cowboys.

I am not opposed to the imposition of VAT on the installation of domestic double glazing. I appreciate the arguments about energy conservation, but double glazing cannot be regarded as an essential domestic item. It is entirely the choice of the householder whether to order and install it, and it adds several hundred pounds to the value of a property. If VAT is to be chargeable on any form of building work that cannot be unreasonable.

Mr. Bermingham

Is the hon. Gentleman aware that building regulations throughout the whole of northern Europe require the installation of double or triple glazing, not only because of energy conservation but because of its effect on the life of a property?

Mr. Latham

Double glazing is a pleasant, additional luxury and is not essential.

Dr. Oonagh McDonald (Thurrock)

Oh, come on!

Mr. Latham

It is no good the hon. Lady saying that, because the vast majority of people do not have double glazing and have no plans to install it.

My objection is to the speed of implementation of the measure. The date of 1 June is too soon. It is leading to chaotic scrambling to try to get things done before then. It means also that work that was contracted before Budget day is threatened with VAT being imposed when the client had not taken the extra imposition into account before placing his order.

I wish to quote the president of the Leicestershire and Rutland Society of Architects, Mr. John Anderson. He said:

the members of this society consider it their duty on behalf of their clients to record their dismay at the way this tax has been imposed, which shows a complete lack of regard for those who are committed to a legal and binding contract for alteration work which would not have attracted VAT, which still has several months to run, and cannot possibly be finished before 1st June. The extra money has not been budgeted for, and in the case of a charitable trust would not be easily obtained. However, if the work stopped they would have to meet a claim for loss of profit. A smaller builder in my constituency wrote to me on 30 March, two and a half weeks after the Budget. He said:

We have to date received several cancellations for this type of work which cannot be started before 1st June. Several other jobs are now being trimmed to bring the final figure, including the new VAT charge, within the original estimate of cost. He raised his work force from seven to nine during the last 12 months but he now gloomily foresees having to make some redundancies.

9 pm

When it met some hon. Members recently, the Glass and Glazing Federation implored that the date of 1 June should be moved back at least one month so as to prevent the cancellation of existing contracts or at least having them caught by the tax. It is fair to ask the Chancellor to take that step. In my amendment, I have chosen to move the date back three clear months, which would allow five and a half months from the Budget. If the Chancellor accepted my amendment, many domestic extensions would be completed as they could be done within five and a half months or less. Existing contracts for double glazing could be met without great difficulty.

I prefer, in fact, the amendment of my hon. Friend the Member for Croydon, South (Sir W. Clark), which would exclude all work contracted before 13 March. If he presses that amendment I will vote for it. My amendment would alleviate much of the worst hardship and remove much of the retrospective element.

Whatever the outcome of the debate, the time has come when some firm action against the cowboys in the building industry can no longer be delayed. Everyone knows that the number of fiddles and rackets has reached alarming proportions.

Mr. Austin Mitchell

This will make it worse.

Mr. Latham

I know that the hon. Member cannot make a speech, but if he wishes to stand up and say something I shall gladly give way to him.

Small reputable builders complain continually about preparing estimates for domestic improvement work, often funded by improvement grants and backed by loans from building societies or banks, and of then seeing the work go to an unregistered trader who pays no VAT and probably no other tax.

The substantial and practical report last June of the Director General of Fair Trading, which I raised in an Adjournment debate a couple of months ago, has not been implemented by the Government. It should be forthwith.

If some firm action is not taken now against cowboys by the Government, domestic alteration work will become like the "Gunfight at the OK Corral" with every cowboy blasting away at reputable builders. There will be an endless series of rip-offs, consumer fiddles and shoddy work and more and more constituency cases for hon. Members or trading standards officers.

I implore Ministers to take this matter seriously and deal with it urgently. I do not pretend to know much about esoteric tax matters, but I know a bit about the building industry, and the time to act is now.

Mr. Bermingham

The hon. Member for Rutland and Melton (Mr. Latham) prays a case in aid of the cowboys with his suggestions. I declare an interest as a lawyer, but an even greater interest on behalf of my constituency, where much of the glass used in ordinary domestic building and double glazing is made.

When one began to study the subject of VAT on property alterations one had to ask oneself a number of questions. In the debate on the previous amendment we heard the Chief Secretary say that the proposal was introduced to bring us into harmony with Europe. I concede immediately that double glazing and alterations are subject to VAT in Europe, but in my view and, I am sure, in the view of many hon. Members, we do not need to follow exactly and slavishly much of what is sought to be done in Europe.

It is bad enough that we have had to harmonise our beer and wine prices. It is disastrous that we have had to bring in VAT on cooked foods because the Netherlands and everyone else has it. Yet here we are banging VAT on to double glazing, alterations and all other sorts of building work, to the detriment of our historic buildings and churches, but above all to the detriment of our building industry. It will, of course, bring us into line with the great god called Europe, to which we are becoming so slavishly subservient that the time is coming when some of us must cry, "Stop."

Let us stop following the practices of a continent which has a different set of rules and regulations. Before Ministers seek to change the rules they should first thoroughly investigate the subject, because in this legislation there are so many ifs, buts and ands that it will be a lawyer's paradise and a builder's nightmare.

Several hon. Members have pointed out how this legislation will provide almost an open invitation to the cowboys to enter the field. It will not just be the cowboy saying, "I will do those repairs for twenty quid in my back pocket." Extensions and other major works will be undertaken by the fly-by-night builder—the person who cannot be traced or sued and who rarely finishes the job, anyway—using substandard materials.

The hon. Member for Rutland and Melton said that he was a member of a substantial private building firm. He must be aware that when the cowboy goes to work he does more harm than many people realise to the person for whom he does the job. About two years ago I was asked to defend a cowboy builder who had installed a central heating system. The radiators had come from a scrap yard in south Yorkshire. They did not just have holes in them and leak; one of them blew up and the elderly person who had sought to have the job done "on the cheap" found that not only was there a heating system that did not work, but a flooded house with £2,500-worth of damage to one room alone.

That is the quality of service that one invites when one makes it attractive for the cowboy to work for cash that goes straight into his back pocket. The substandard materials are not just radiators, but even bricks. Hon. Members perhaps have no idea of the number of demolition sites that are raided for secondhand bricks, to be used by cowboy builders; for window frames which, when painted, look as though they might recently have been manufactured but which contain wood well past its useful life; for glass abstracted from old greenhouses and used in cheap and shoddy jobs, carried out by "the little man" who wants payment in cash in his back pocket. That is the scope of the problem which the Government are likely to expand by measures of this sort. The cheap and shoddy job will become part of a growth industry in building, all because 15 per cent. is being added to the price.

The problem does not stop there. Much has been said, for example, about energy conservation. It is ludicrous that one Minister should be travelling the country telling people to conserve energy while another Minister, the Chancellor, is making it almost impossible for people to follow the first Minister's advice. Then a third Minister, while giving some grants, is cutting back on grants, and such grants as are available will be diminished further because the Chancellor is sticking 15 per cent. on the price of energy conservation products.

We live in a country which, at the current rate of double glazing, will take 121 years to reach the level which Denmark will reach in 2.9 years, when that country will have completed its double glazing programme, yet its climate is not all that different from ours. France will take 15 years to reach that stage, and its climate is better than ours.

Double glazing is not a luxury. It is a fundamentally important part of the construction of any property. There will come a time when the British building industry will wake up to the fact that it is worth while, not only as a selling point, to install double glazing in the construction of new houses. It not only enhances the quality of life of those who live in them, but improves the durability and life of the property.

I do not ask the Committee to take my word for that. Instead, I invite it to consult the experts. The experts take the view that I have outlined., that is why the glazing and building federations have been considering the problem. Why else has there been pressure to improve construction standards for double glazing units and the standard of the glass that is used in the first place? Why else has there been pressure to increase the thickness of glass walls?

The Budget will destroy the jobbing builder, or small builder, but it will do more harm than that. It will make it more expensive to install double glazing units, for example, and it will make the units themselves more expensive. The imposition of VAT will increase the cost of the units, and in any production system it is the bulk of units produced that reduces unit costs. That is a factor that is often forgotten. The unit costs of glass, bricks—obviously bricks are needed for extensions — double glazing units and window frames will increase because we shall be producing fewer of them and because demand will fall. Throughput might remain the same, but the number of units will fall.

I declare a strong constituency interest, because one of the great problems facing the glass industry, especially sheet glass manufacturers, is competition from the continent. The degree of import penetration increases and if we are to compete with the importers we must keep down unit costs. I accept that French, Belgian, German and Swedish glass will be subject to 15 per cent. VAT at the point of sale, but the unit costs of continental manufacturers are based, like ours, on current production levels. If our unit costs increase because we are producing less glass, we shall no longer be competitive and import penetration will increase. Those within the glass industry have warned me—in turn I warn the Committee—that the real spin-off from the Chancellor's proposals will be higher unit costs for the industry. He will increase the number of unemployed builders and unemployment in the glass industry, which has had enough problems over the past few years.

The entire construction industry has suffered as a result of the Government's policies and the degree of penetration of continental glass producers, who just happen to enjoy energy subsidies, has increaed. In this instance I choose to put it as gently as that. In some instances, as in France and Germany, the energy subsidies are apparent. The Belgian industry receives a colossal number of subsidies. Of course, we never talk about that. We observe slavishly that Europe imposes VAT on glass, including double glazing, and we should follow suit.

It is said that it will be rather nice to raise an additional £400 million. This imposition of VAT will raise far less than that and the on-cost will be in the quality of work carried out and in the number who lose their jobs in the construction, glass, and distribution industries.

It is for all these reasons that I strongly support the amendments. I ask the Government to think again and not to restrict themselves to considering blandly how the extra money can be raised. I invite them to think in depth about the effects of the proposed alterations. I have no moral objection to giving every industrialist in Britain every possible incentive. I have no moral objection to giving builders and local authorities every possible incentive if at the end of the day we get better houses, better quality materials and British people back to work. If we can take from the dole queues some of those who were previously employed in the construction industry, the sacrifices will be worth making.

There are many other ways of raising £400 million— I am sure that my right hon. and hon. Friends could think of hundreds of them—and the area of capital gains tax, for example, could be such a source, but I shall not take that speculation any further. I support the amendment and I ask the Committee to support it.

9.15 pm

Dr. Hampson

My hon. Friends the Members for High Peak (Mr. Hawkins) and for Croydon, South (Sir W. Clark) made a devastating case about the anomalies that will result from the timing stipulated in these proposals. My hon. Friend the Member for Rutland and Melton (Mr. Latham) reinforced strongly the case for a change because of the problems that will result for people committed to contracts. I shall deal briefly with three other aspects— two aspects of inner city policy and one general consideration of our improvement and rehabilitation policy.

It is easy to fall into the trap, as hon. Members have done, of talking about house extensions. My hon. Friend the Member for Rutland and Melton pointed out that one can argue that sun lounges and the like should be eligible for VAT. My broad question about rehabilitation concerns an essential part of Government policy. Over the years, there have been difficulties with its policy of new build. Many measures in the Budget will help and encourage the construction industry and promote new build. Nevertheless, at the heart of the Government's housing programme is a policy of improvement. We have always spoken proudly about our record. Since the Conservative party came to office, it has increased almost fourfold the number of dwelling renovations and improvements. In 1982–83 alone the number increased from 104,000 to 230,000—a tremendous success story. It is true that we have now reduced the 90 per cent. grant level, which was at the heart of that promotion, to 75 per cent. Inevitably, we must expect a decrease in the number of improvements.

The Chancellor will now impose another 15 per cent. tax on people undertaking improvements. Inevitably, that measure will increase the severity of the decline in the number of home improvements and renovations. I do not know whether the construction industry as a whole can offset that loss. The 15 per cent. tax will make it impossible for people to afford the necessary scale of home improvement. Because they do not have the required money, they will either reduce the size of the improvement or, as my hon. Friend the Member for Rutland and Melton said, turn to cowboy and shoddy builders.

There is an answer to the problem, which I should like my hon. Friend the Minister of State to consider during the passage of the Bill. It would be easy to adjust the eligibility levels for improvement grant to take account of the extra 15 per cent. that people will be òbliged to pay. That change raises the question asked by the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley): how much will be saved if we make compensatory payments? Inner city problems are not as easy to resolve as changing grant levels or the date which will apply to contracts.

I expect my hon. Friend the Minister of State to consider by Report certain aspects. My hon. Friend the Member for Rutland and Melton has tabled an interesting amendment. The hon. Member for Berwick-upon-Tweed (Mr. Beith) raised the matter broadly. However, it is not, by any stretch of the imagination, good enough to ask only for assistance for properties that are charities—I approve of this measure because a Conservative Government should not undermine or penalise the work of voluntary effort — churches, places of historic or architectural worth, disused or derelict barns or store houses. Why limit the proposals to those categories?

An acute problem is being created in inner cities because of this proposal. It is not good enough for the Treasury to take a broad brush and say, "We must extend the broad base of VAT." I approve of that policy in principle, but the Treasury should not undertake that measure regardless of the consequences for other central policies of the Government. It is not preferable to encourage builders to develop green fields and put new build on them while neglecting inner city derelict sites. I do not believe it is better to demolish than to rehabilitate. I believe that we shall see both those things.

Above all, a Conservative Government should not build disincentives into the transfer of assets from the public sector to the private sector. As we have argued in relation to privatisation and council house sales, we believe passionately in the transfer of council property into private hands. This provision, however, will encourage the reverse.

Over recent years we have encouraged private builders, such as Wimpey and Barratt, to buy derelict inner city properties from councils and refurbish them. Myrtle gardens in Liverpool is a notable example, but I believe that Wimpey has about 5,000 units of a similar type. That policy is now called into question because the 15 per cent. will mean that it is more profitable to build on green field sites. If we are lucky, the properties will be refurbished by the councils themselves, but they will not be transferred to the private sector. Councils get relief from VAT, so if the council does the work itself, or if the builders carry out the work on property owned by the council, relief will apply. If the properties are purchased and transferred to the private sector, however, there will be no relief. What kind of encouragement and incentive for the private sector is that?

An equal amount of effort has been put into redirecting the housing associations to improve the inner cities. Conservatives wish to change the nature of inner city tenure and to bring diversification to their huge housing estates. As a result, 58 per cent. of housing association funds are now directed to inner city work. The additional VAT, however, will halve the amount of new work that they can undertake this year and the situation will become worse the following year. Again, one could compensate by increasing the cash limits for the housing associations, but there is a grotesque anomaly. What is the difference between the housing association and the local authority? Both are in the business of building and improving property. We have encouraged both to carry out work in the inner cities, but the local authority will get relief from VAT whereas a housing association operating with Government money and under Government guidelines will be penalised.

The anomalies thus created run contrary to the central inner city policies of the Government and to the philosophy that we all support.

Mr. Roy Hughes (Newport, East)

The proposed imposition of VAT on home improvements will affect every area of the country, but it is causing particular anxiety in south Wales. There have been protests from building trade employers, who are normally ardent supporters of the Conservative Government, although it is difficult to understand why, in view of the deteriorating fortunes of the industry in recent years. There have also been protests from trade unions, local authorities and small builders as well as from individuals who presumably intended to improve their homes.

The danger of cowboy operators has been mentioned several times. Many people will no longer go to bona fide builders. All manner of dodges will become prevalent. The householder will get shoddy work and the Chancellor will obtain nothing like the income that he envisaged from the proposal. The black economy will flourish.

When one considers the deplorable housing position in Wales, one can understand the protests there. For instance, the chief officers for mid-Glamorgan recently published a report in which they pointed out that their area has the worst record in the whole of England and Wales for the percentage of homes lacking in basic amenities such as baths and indoor toilets.

Inadequate housing has a spin-off in health terms. Death rates in mid-Glamorgan are up to 60 per cent. higher than the national average. Death rates among babies in the Rhondda valley are 50 per cent. higher than the national average. Many more revealing statistics can be found in that report, and they all relate to inadequate housing. When people are dying from bad housing, the last thing they need is a hefty tax which will increase the cost of the work needed to improve their homes.

This proposal is a modern example of man's inhumanity to man. What is the Secretary of State for Wales saying about it? What guidance is he giving to the Cabinet? He should invite the Chancellor of the Exchequer to visit south Wales and see housing conditions there at first hand. The Chancellor might then have second thoughts about introducing this iniquitous tax. The last thing that housing needs at present is increased taxation.

Another recent report from the chief housing officers in Wales points out that much Welsh housing will be fit only for slum clearance by the year 2,000. If common sense prevailed in this terrible situation, one would expect that the construction industry would be encouraged, and that a major rescue operation would be mounted to try to arrest the decline. Instead, the industry is being faced with a terrible new tax.

The materials for the industry are largely home-produced. There is therefore no balance of payments problem. What is more, about 400,000 building workers are in the dole queue. This proposal will do nothing but make matters worse. It will not get rid of the bureaucratic illogicality of which the Chancellor has spoken; it will compound it. It will do a great deal of harm. There will be more bankruptcies in the industry, more unemployment, and an increased deterioration of our housing stock. I ask the Chancellor to think again.

Mr. Chapman

I am glad to have an opportunity to speak on this series of amendments, but it gives me no satisfaction to tell my hon. Friend the Minister of State that, for six reasons, I profoundly criticise the Government for the way in which they are introducing this impost.

If amendments Nos. 7 or 8 or some of the other amendments which will be considered later are pressed to a vote, I will find myself in support of them. I cannot support amendment No. 3 because I am not opposed to the principle of levying VAT in the construction industry or on building alterations, for reasons that I will explain.

I should declare an interest as a non-practising architect and the non-executive director of both a development company and a construction company.

My first objection to the way in which the Chancellor proposes to introduce VAT on building alterations is that I believe that it will be detrimental to urban regeneration. I am not thinking of just historic buildings or buildings in conservation areas. I should like to give two examples. We are finding that, unfortunately, because of the system building of the 1960s and before, many council blocks and estates are difficult to let. We have witnessed the establishment of a seed bed of private companies renovating such properties. I believe that this proposal will be detrimental to that development. Secondly, quite a few schemes for the conversion of dilapidated housing and other conversions such as old warehouses are going on. This VAT extension will encourage demolition rather than rehabilitation in some cases, but also discourage any development because the demolition costs of many buildings are far too expensive. The cost of demolishing multi-storey blocks of council flats and Victorian warehouses can be quite significant.

9.30 pm

My second objection to the Chancellor's proposal is that it will inhibit conservation work. I shall say little about that as there is a later amendment concerning historic buildings, but it is no exaggeration to say that historic and listed buildings are, by definition, much more expensive to repair and maintain. I realise that statistics can conceal many variations, but it has been calculated that the cost might be as much as five times as high. Therefore, people who are trying to renovate historic and listed buildings already face the penalty of having to pay more than for renovating a more conventional building and will now have an additional 15 per cent. on the extra amount heaped on them. That cannot be fair.

My third objection is that the proposal will hit charities and, by definition, charities are least able to bear additional costs. I feel impelled to give a constituency example. My parish church of St. John the Baptist, Chipping Barnet, not unlike a church near my hon. Friend the Member for Croydon, South (Sir W. Clark), has just raised about £170,000. Work has just started and our rector now calculates that an additional £20,000-plus will have to be found. Perhaps I should declare a personal interest in that my wife is on the fund-raising committee. Two other churches—Christ Church, High Barnet, and St. Mary's, East Barnet, are laying plans to collect contributions to alter and improve the fabric and to maintain and repair their buildings. The hon. Member for Berwick-upon-Tweed (Mr. Beith) touched on the excellent work of the building preservation trusts, which will also be severely affected. It is worth noting that commercial participation has often been encouraged in such schemes and that will now be less likely.

One of my sternest criticisms of this measure is its retrospective element. That, by any account, must be unfair. If I thought that the Government were minded to say that any contracts entered into before or on Budget day would be exempt, or rather continue to be zero-rated for VAT, I imagine that right hon. and hon. Members on both sides of the House would be reassured. It is not just a question of whether the contract has been entered into. Often in the development process, land must be acquired first. At that point the commitment is made and the planning application must be submitted. The building process is lengthy—unlike the provision of take-away food. That has its effect on the building industry, which is still the greatest industry in the country, whether measured in terms of output or manpower.

Fifthly, one of the reasons why the Chancellor extended VAT to building alterations and extensions, instead of leaving it confined to repairs and maintenance, was to get rid of the confusion, evasion and anomalies. There was and is confusion, evasion and certainly plenty of anomalies, but he has merely pushed them further along the line. This measure will not diminish them. For example, if the proposal is passed, an argument can arise as to where the definition of alteration ends and where that of new building commences.

I tried to give a layman's summary of the difference between zero rating and exemption. A Customs and Excise announcement states:

Zero-rating will no longer apply to an existing building which has been reconstructed. All such sales will be exempt". In many tax spheres "exemption" confers a benefit, but in VAT terms it is a downright penalty because, subject to certain relieving provisions, VAT on alteration expenditure is irrecoverable.

Other hon. Members mentioned the undoubted charter that this extension will give to cowboys, and talked about encouragement to the black economy. Much building is done in phases. Will phase 2, completed after phase 1, be an alteration and, therefore, subject to this new impost or will it be exempted?

Mr. Robin Maxwell-Hyslop (Tiverton)

What about the case of listed buildings where the planning authority says that the facade must be retained and everything else demolished and built new? Will a half-inch gap be left between the structure and the facade so that VAT is not payable? That would be absurd, and it is a real problem.

Mr. Chapman

My hon. Friend raises a fair point, which was mentioned earlier. If one facade were retained, the building work behind it would be regarded as new and therefore continue to be zero rated. Whether the work on the facade itself would be zero rated, exempt or liable, remains to be seen. Two walls will constitute refurbishment or reconstruction and, therefore, carry exemption or the full 15 per cent. VAT. The scaffolding business will probably do well. Perhaps my hon. Friend should think of buying shares in it.

Finally, I object to the sudden and massive increase. It is paradoxical that when the Government have reduced inflation to 5 per cent. or below, they should impose 15 per cent. VAT. Ironically, 15 per cent. VAT will have a greater deterrent effect on development than it would during a period of a higher rate of inflation.

I understand the Chancellor's strategy and I am not opposed to the principle of marginally trying to shift taxation from direct taxes to taxes on spending. I will probably get much opprobrium from the construction industry for saying this, but I believe that we shall never get rid of the confusion, evasion and anomaly until either all building is zero rated or all building comes into the VAT net.

Mr. Rooker

That is for next year's Budget.

Mr. Chapman

The sixth EC directive on VAT means that uniform VAT on all new industrial and commercial buildings is on the horizon, so the hon. Gentleman might well be right. It would have been far better had the Chancellor come clean and said, "I am sorry, but it is our intention to impose VAT on all building work," which would at least get rid of the evasions, anomalies and confusion. He might have made what I call a reverse corporation tax announcement and said, "From this financial year all building work—repairs, maintenance, alterations, extensions and new work—will be rated at 3 per cent., which will increase to 6 per cent. next year and to 9 per cent. the year after," or at worst he could have said, "It will be 5 per cent. this year, 10 per cent. next year and the full 15 per cent. the year after"—[Interruption.] My only reason for not saying that is that next year I will probably be accused of saying, "You voted for the 15 per cent. this year and you suggested its extension to all building work next year." I hope that my hon. Friend will take note of that remark.

I ask my hon. Friend the Minister to consider this matter carefully. Although I have proposed that VAT should be imposed throughout the building industry, there is certainly a strong case for excluding new housing, for obvious reasons.

Mr. Fisher

It is extremely regrettable that the Minister for Housing and Construction has not been present for this debate, which has turned into an important debate on housing. The excellent speeches from Opposition Members, especially from my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley), were almost matched by good and knowledgeable speeches from Conservative Members, especially from the hon. Members for Leeds, North-West (Dr. Hampson), for Chipping Barnet (Mr. Chapman) and for High Peak (Mr. Hawkins).

It is regrettable that the Minister is not here to listen to damning indictments of his policy and of the state of housing in Britain. It is also regrettable that the Chancellor did not discuss this measure with the Minister for Housing and Construction before he introduced it, which he manifestly has not. It is a sad example of no consultation, no planning and no knowledge of the housing industry. The damage which the Chancellor will cause, by this small change, in speeding the decline of the construction industry and of the quality of British housing will be considerable.

The hon. Member for Leeds, North-West mentioned refurbishment and large partnership deals in the inner cities. He was right to say that they should play an important part in any housing policy. He mentioned the size of the Myrtle gardens project. Another example is the Cantrell farm scheme in Sefton, where a 3,500-unit estate that has been vandalised is being partly demolished and rebuilt. That is an admirable example of the scale of operation. The scheme will cost millions of pounds, but if VAT is imposed, it will cost hundreds of thousands of pounds more. Another anomaly is that the contract for that scheme was signed in April 1983. It is a five-year project, yet the scheme, entered into for the benefit of the Sefton area by a private builder, a building society, a bank and the local authority—it was a complicated contract—will be put on a completely different basis with hundreds of thousands of pounds added to its cost.

If that is true of the unfairnesses and anomalies of the large inner partnership schemes, it is also true of small urban schemes. A city such as Stoke-on-Trent has considerable housing problems, with many old terraced houses and a high proportion of private ownership. Many of its properties lack basic amenities, and renovation plays a crucial part in its housing strategy.

9.45 pm

In Stoke-on-Trent, housing starts have dropped from 1,300 in 1978–79 to a mere 364 in 1983–84, but because of improvements in grant, renovations have gone up from 332 in 1980–81 to 776 last year. Indeed, there were twice as many applications. Therefore, renovations are crucial to the restoration of the housing stock in an old city such as Stoke-on-Trent.

Both the small companies and housing associations will be disastrously hit. This weekend I spoke to a small builder in Stoke-on-Trent. He has restored about 40 houses a year over the last two years. Considering the small amount of new build—only 54 last year—by the local authority, 40 new units is a considerable and important addition to the housing stock. That man buys terraced houses at about £2,000 or £3,000 each, spends about £7,000 on them and sells them at about £11,500. Consequently his profit margin is about £1,500 on each dwelling. Such profit margins cannot be squeezed. His standards will either have to fall, resulting in the inevitable decay of the stock; his prices will have to rise, and the market will not bear that; or companies such as his will have to go bust or be driven underground, and we have heard enough already about the cowboys' charter.

There is also a danger that VAT will be lost twice. Small companies may be tempted to juggle their non-invoiced work, illegal though it is, with their registered and VAT-ed work, and VAT could well be lost on both sets of work, with a consequential decline in revenue to the Exchequer.

If anything, the situation with housing associations is even worse. I was glad to hear the hon. Member for Leeds, North-West mention housing associations, given his great expertise in that regard. The housing association allocation in Stoke-on-Trent has been cut by 20 per cent. for the forthcoming year to only £500,000, which will mean about 25 new units. The housing associations there see the imposition of VAT as an attack on the improvement for sale scheme—nothing more and nothing less.

The Minister may argue that those housing associations can increase prices, but by doing so they will put the price of those houses beyond the reach of the very people whom they are meant to help. That is simply not practical or possible, even if the market could bear it. Indeed, the local building societies and valuers are valuing the houses at about £10,500.

The average cost of refurbishing a typical terraced house is about £10,000. The imposition of VAT will mean an extra £1,500. Where will that come from? It cannot be passed on in the sale price. Therefore, the housing associations will next year have deficits of between £30,000 and £40,000 on their IFS scheme work and that will have to be found from their own funds.

The IFS scheme, which has played an enormously important part in restoring old stock, will be under threat. That will undoubtedly have a knock-on effect for the builders with whom those associations work. As a result of that threat to those skilled craftsmen and builders, skills generally will decline. There will be a real effect on inner city decay. People have talked about this as a cowboys' charter, but it is also a vandals' charter, because it will inevitably lead, if not to the demolition of established communities, to their dereliction.

In Stoke-on-Trent we are extremely lucky—it sounds rather ridiculous to say this—in that we have been undermined by the coal industry, because it means that we have had no high rise building and very little new build. We have had to make do with the existing land use and buildings. That makes for cohesive communities and the quality of life remains, with strong local communities and an attractive form of Victorian architecture with much atmosphere and style. It gives the Potteries, if not a beautiful appearance, an individual one to which people can relate.

If this scheme goes through, it will mean that the work of restoring terraces will grind to a standstill. That will lead to decay, dereliction, council closing orders, and eventually, if not immediately, demolition by degrees. I hope that the Government did not realise the damage that they were suggesting by this measure. I hope that the Minister will listen to the expertise shown on the Government Benches—I am sure that he will discount it coming from the Labour Benches—by hon. Members with experience in the housing industry. I hope that he will see the damage that this scheme will do to the small builder, to small schemes, to the householder, to large inner city schemes and the whole housing industry.

The hon. Member for Chipping Barnet referred to the sixth directive of the EEC, but that directive gives the country the right to zero rate goods

for the benefit of the final consumer. Surely housing comes into that category and therefore there is no need to harmonise this industry with the sixth directive.

As my right hon. Friend the Member for Sparkbrook said, the danger is that this will be the beginning of a general attack on the housing industry and will lead to a general imposition of VAT on new build. That would be disastrous. This measure is disastrous enough. I urge the Minister, when he sums up, to pay attention to the expertise shown by his hon. Friends and to recognise the damage that can be done by this imposition on the housing industry.

Sir Geoffrey Finsberg (Hampstead and Highgate)

It is 25 years since I first started paying regular visits to the city of Stoke-on-Trent. I recognise the point made by the hon. Member for Stoke-on-Trent, Central (Mr. Fisher). The beauty of some of the old bottle ovens has to be seen to be believed. I can understand the depth of feeling that he expressed in his excellent speech.

I did not fall for the treacle that was spread by the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) when he was trying to persuade us that there should be no VAT on building projects. However, I feel that it is monstrous, un-Conservative and Socialistic to try to bring in retrospective dates for VAT. If someone, in good faith, has entered into a contract for a building project, it is wrong that he should find that at any stage the Government can step in and change the circumstances.

I am sure that my hon. Friend the Minister has been told by his officials that it would be complicated to try to make exceptions. I remind him that it was not found terribly complicated to fix a firm date for life assurance policies so that any policy taken out before 13 March would retain its tax benefit, whether that policy was for one year or 50 years. A building contract entered into by a private individual, a housing association or a charity is in exactly the same position. The contract is entered into in good faith and it is wrong that the Treasury should try at a late stage to upset the calculations.

In his excellent speech, my hon. Friend the Member for Croydon, South (Sir W. Clark) said that he would be happy if the Chancellor were to examine cases on their merits. That is not good enough. Either there is a binding contract entered into in good faith, or there is not. If there is, it ought to be honoured.

I shall listen carefully to what my hon. Friend the Minister of State, Treasury says in reply. I am not prepared to listen to honeyed words which mean nothing. However, if he says that a lot has been said today which requires further thought and that he is prepared to re-examine the matter before Report, if he is prepared to go that far, he will find that he will carry me with him. Whether he carries me with him may not worry him, but there is a strong matter of principle here. It is a principle on which I thought he and I were brought up when we entered the Conservative party more years ago than he or I or our respective wives would care to acknowledge—sanctity of contract. That is what is at stake in the Finance (No. 2) Bill today.

I promised myself, if not the Committee, that I would be brief. I hope that I have kept that promise. I look forward with interest to what my hon. Friend says when he replies to the debate.

Mr. Bell

I am grateful for the opportunity to follow the hon. Member for Hampstead and Highgate (Sir G. Finsberg) and to commend to the House his views on the sanctity of contract. He has highlighted an important point which I trust and hope the Minister of State, Treasury, will bear in mind when he comes to reply.

I want to draw attention to remarks made by the Chancellor of the Exchequer on 13 March 1984. At column 303 of Hansard he described the measures relating to the building industry as unwelcome. That was a significant statement for the Chancellor to make, because it meant that he knew what he was doing. He was not simply slipping this in in complete ignorance. He knew perfectly well that his remarks and the tax would be most unwelcome to the construction industry. He was right to say that and to anticipate the industry's reaction.

Under Conservative Governments since 1979, about 225,000 construction workers have ceased to be employed. My right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) referred to the fact that while construction companies have been good friends to the Conservative party, the Conservative party in government has not been a good friend to the construction industry. The latest VAT measures will have serious effects on the industry.

The Chancellor had his mind on money. He saw easy pickings. He saw that he could get £225 million this year and about £450 million next year. That was the criterion on which he was working. He was reflecting, not on the damage that he was likely to do to the construction industry, but only on the money that he could raise to balance his books. He might have taken into account the variety of people and concerns which will be affected by the tax and which have been mentioned tonight. We have heard about alterations to listed buildings and to churches. We have heard about local authorities, housing associations, voluntary groups in the form of charities, and thousands of home owners who will now be penalised as a result of the extension of VAT.

As we have heard—an amendment has been tabled to deal with this—there is an element of retrospection in this tax. That must be somewhat abhorrent, and I trust that the amendment will be moved and voted upon.

We have also heard how the proposals will affect the small builder, and here the entrepreneurial spirit which the Conservative Government say they seek to assist comes in. The small builder is likely to be the first to be hit. He is generally self-employed, he employs few people, yet he has made a considerable contribution to the improvement of housing in the country.

It being Ten o'clock, the Chairman left the Chair to report progress and ask leave to sit again.