HC Deb 07 May 1985 vol 78 cc677-724
Mr. Tony Blair (Sedgefield)

I beg to move amendment No. 2, in page 5, line 16, at beginning insert 'Save in so far as Schedule 5 to the Principal Act applies to the classified advertisements concerning births, marriages and deaths.'. Failure to accept the amendment will mean that old-age pensioners and families who wish to record death will have to pay 15 per cent. in addition to the price of advertisements. Those who wish to announce or record the happy event of a marriage or birth will also have to pay an extra 15 per cent. As usual, the hardest hit will be those who are least able to pay.

The Government's policy has at least the merit of consistency. They are consistently against the interests of the poor and consistently in favour of the interests of the rich. The imposition of VAT on newspapers will raise a measly £50 million. We should contrast that with the thousands of millions of pounds that have been given to the top 5 per cent. of wage earners to see how inequitable the Government's proposal is.

It is as well to set the amendment in the context of the importance of advertising to our national, local and regional newspapers. In 1983, it was estimated that classified advertisements were worth £584 million to national newspapers and some £817 million to local and regional newspapers. That £817 million breaks down into £430 million for the daily local and regional newspapers, £207 million for weekly newspapers and £180 million for free newspapers. In the regions, 80 per cent. of newspaper revenue comes from advertisements. Figures show that in 1984 there was an increase of about 29 per cent. in advertising revenue for regional and local newspapers.

It is estimated that 20 per cent. of advertisements are private classified advertisements.

Although it is not possible to break down births, deaths and marriages as a percentage of private classified advertisements, they must represent a considerable proportion.

An independent report on regional and local newspapers has estimated that there will be a drop of 5 per cent. in advertising from private individuals and a loss of revenue of about £5 million as a result of the imposition of VAT.

Some 25 per cent. of the staff of regional and local newspapers work in the advertising section. The most dramatic effect of the imposition of VAT will be in ordinary individuals, because births, deaths and marriages are, by their nature, personal and individual.

The state death grant has been disgracefully low for some time, which means that the poorer individuals have to meet a great amount of the cost of funerals. This extra 15 per cent. will impose an additional burden on them. They will not be selling anything VAT-able. Not being businesses or corporations, they cannot offset the VAT against sales. The imposition of VAT on newspaper advertisements must be treated as a direct 15 per cent. tax that must be passed on by the newspaper.

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We have always had all-party agreement on VAT—which I hope still exists—that we should attempt to exempt or zero-rate items of necessity. That is why there is no VAT on food, despite the mistaken wish of some people. Certainly the Labour party intends to maintain that policy. The same considerations apply to advertisements for births, marriages and deaths. They may not be necessities in the strict sense, but people wish to place such advertisements because of circumstances that plainly make it equitable and fair that special treatment should be given to them.

It is mean and petty to visit this increase upon private individuals. We do not know Government estimates for the revenue from VAT on classified advertisements, but, when discussing the imposition of additional tax, we must balance the revenue with the consequences to the individuals concerned.

I hope that the Minister will deal specifically with the role of the EEC—especially the reasoned opinion of the Commission—in the Government's decision to introduce clause 10. In October 1984, the Commission gave a reasoned opinion that zero rating on certain United Kingdom items should cease. Of course, EEC countries can claim exemption for social reasons or benefit to the consumer. Although the Commission said that newspaper advertisements did not fit within those categories, and should cease to be zero rated, the Government disagreed at that time. If they felt then that they should be zero rated because of social reasons or benefit to the consumer, why have those same considerations not motivated the Government in deciding whether to accept the amendment?

Mr. Robert Sheldon (Ashton-under-Lyne)

If the Government wish to counter any action by the Commission, that is the easiest thing in the world to do. The derogation remains, and we can contest any action as much as we wish. The problem arises because the Government agree with the Commission and are helping it to bring to an end some of the exemptions and zero ratings that is wants abolished.

Mr. Blair

My right hon. Friend is absolutely correct. He will no doubt be aware that the Treasury and Civil Service Select Committee, in its report, said that zero rating should remain. I agree that the Government are assisting the EEC in its work. Yet when the Commission first gave its reasoned opinion, because of pressure from, among others, their Back Benchers, the Government said that they would not bow to the EEC. That is an about-turn. It shows that the Government will not pay attention to the report of the Select Committee and do not accept that for social reasons and benefit to the consumer zero rating should remain.

Mr. Austin Mitchell

Not only are the Government not taking any notice of the Select Committee, they are not taking any notice of their own officials who, in reference to the Commission's reasoned opinion, said: We rely on the belief that our zero-rates are for clearly defined social reasons and for the benefit of the final consumer.

Mr. Blair

I am grateful to my hon. Friend, who confirms my point.

When the Commission first gave its reasoned opinion, the Government were keen to allay the fears of their Back Benchers and not to appear to bow to EC pressure. They were keen to say that the Commission had it wrong and that there were social reasons and benefit to the consumer why zero rating should remain. Therefore, what possible justification can there be for the Government to reverse their position? Either they have changed their mind and no longer accept that there are social reasons or benefit to the consumer, or they believe that, even though there are such reasons, they intend that zero rating should cease.

It is difficult to understand why, when these matters were first published in 1977, there was no objection from the Commission. I understand that my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) was concerned with those matters at that time. The Minister must tell the House the extent of EC pressure on the Government. Do they now believe that there are no longer social reasons or benefit to the consumer, or do they believe that there are still those reasons but they will impose the tax anyway?

The Finance Bill in many ways has crimes of omission in terms of what it should be doing for British industry and the British people which are much greater than its crimes of commission. It is a nothing Budget on the broad scale, but at this level it could have a serious effect on private individuals, many of whom are least able to withstand the economic pressures of our time.

Given the small revenue, the serious effect on the newspaper industry and on consumers, the social reasons why newspapers should remain zero rated, the Government's attitude and the attitude of their officials before the Select Committee, I submit that very good justification must be given by the Minister if he asks the House not to accept the amendment. I wait with interest to hear his reasons.

Mr. William O'Brien (Normanton)

I support the amendment because the imposition of VAT on advertising will hit many organisations. Charitable organisations will be greatly affected because they must advise people of their activities, and advertising in newspapers is frequently the means that they use. When, for example, a charity runs a street collection, it must advertise the result of the event. Imposing VAT on newspaper advertising is bound to place an additional cost on charities.

I received a letter dated 22 April on the subject. It said: The Government does, of course, recognise the immensely valuable role which charities play in this country. If the Government take that view, they should help such organisations, not place further financial burdens on them. The letter went on: The relief would cost many tens of millions of pounds, which would have to be made good from elsewhere. That referred to relieving charities from this imposition of VAT. If the Government are sincere in wishing to help such organisations———

The Temporary Chairman (Mr. David Crouch)

Order. The amendment deals with applying VAT to certain categories of advertisements concerning births, marriages and deaths. We shall come later to the question of the application of VAT to charities.

Mr. O'Brien

I appreciate that, Mr. Crouch. I quoted from the letter—which was sent to me by the Minister—to show that VAT on newspaper advertising will hit many people in addition to those who wish to notify their families and friends of births, marriages and deaths. The imposition of VAT on small advertisements will place an additional financial burden on those who live in urban and rural areas. I trust that the Minister will comment on that aspect as well as on the more general points made by my hon. Friend the Member for Sedgefield (Mr. Blair).

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Mr. Randall

I, too, support the amendment. I will, during my remarks, use the expression "classified advertisements" to represent small advertisements relating to births, marriages and deaths.

If adopted, the amendment would save the newspaper industry millions of pounds. We are discussing what is essentially a tax on the ordinary person. As my hon. Friend the Member for Sedgefield (Mr. Blair) pointed out, it was suggested in the pre-Budget briefing by Price Waterhouse and Company that the loss of revenue to newspapers as a result of the imposition of VAT on classified advertisements would be about £5 million a year, and that must have a great effect on local and regional newspapers.

It would greatly harm those who are establishing small businesses. In Hull, which, as I have mentioned previously, is an area of entrepreneurs, we are proud of the number of new businesses that are being established. In many instances, new companies are not initially registered for VAT. In any event, when they are first established, they must advertise considerably.

Although the amendment is concerned with advertisements relating to births, marriages and deaths, it is valid to refer to other small advertisements, especially as the Government claim to wish to encourage small businesses. Those establishing small firms will be badly affected by this VAT change.

What effect will this form of VAT have on the newspaper industry? Many newspapers are today embarking on the introduction of expensive high tech equipment. The reduction in profits that will result from this imposition of VAT is bound to have an adverse effect on that form of investment.

This loss of revenue through VAT being imposed on classified advertisements could result in cuts being made in editorial space and, indeed, in the size of newspapers. My principal worry is the effect that it will have on regional papers, particularly those that run on tight margins.

Before coming to speak to the amendment I telephoned the editor of my local paper, the Hull Daily Mail, which is a good newspaper of which I am proud. I am happy to say that it publishes everything that I provide.

The Hull Daily Mail has a circulation of about 115,000 copies a day. It is a daily evening paper, and part of the Northcliffe group, which I believe includes 13 newspapers and many periodicals. The editor of the paper intends, if the provision becomes law, to pass the increase on to the customer, initially at any rate, although the newspaper is fairly profitable. The editor deals with these forms of advertising from day to day, and he intends to pass on the increase. The ordinary person will have to carry the can. The Government are imposing yet another level of taxation.

The papers most affected by this tax will be the small weeklies and the free papers. The editor of the Hull Daily Mail said that the paid-for papers were being discriminated against because they carried a high proportion of private advertising whereas a number of the free papers tended to deal with commercial advertising. I hope that the Minister will take that into account.

It is important to realise that there has been a phenomenal growth in free papers. I believe that about 700 papers are now produced, employing about 14,000 people full time and about 96,000 part time. The industry is growing rapidly. I hope that the introduction of VAT on advertising will not hamper that growth and destroy the employment opportunities that it provides. I am sure that other hon. Members, like me, find that a new free paper seems to be pushed through their letter boxes every week.

The example that I have quoted suggests that the 15 per cent. VAT is unlikely to be absorbed. Certainly the less profitable papers will not be able to absorb it. They will pass it on.

What about the customers themselves—the people who place the advertisements? There are different categories of classified advertisements, but the area that arouses the strongest feeling is that of births, deaths and marriages. The people who wish to place such advertisements may be on low incomes for whom an extra 15 per cent. will be a serious matter.

A significant number of people live on low incomes. The programme "Breadline Britain" suggested that 7 million or 8 million people are living in poverty. Such people often wish to advertise births, marriages and deaths.

I found out in discussion with the editor of the Hull Daily Mail that there is a tradition in Hull of using classified advertisements when a local personality dies. On the day following the death, there is a queue in the department that deals with classified advertisements to put in column inches about the personality concerned. That is a great tradition in west Hull, and the introduction of VAT on this form of advertising will spoil it.

In Hull, the older people like to commemorate silver and golden weddings, for instance. They like events to be recorded for posterity in the newspaper. This form of tax will end that tradition.

For all those reasons, I support the amendment.

Mr. Austin Mitchell

What amendment No. 2 seeks to prevent is a tax on grief and joy, and also a tax on announcements of marriage—an event that arouses emotions somewhere between the two. Effectively it is a tax on feelings, and, as my hon. Friend the Member for Kingston upon Hull, West (Mr. Randall) pointed out in his moving speech, a tax on the expression of those feelings. It would tax the commemoration of the death of a loved one who has passed on—a husband, wife or member of the family. Some people like to commemorate such events every year, others at five-yearly intervals, in the "In Memoriam" columns. My hon. Friend's emphasis of that point suggested that he might be composing his own epic poem—"Lines on the failure to be reselected to Kingston upon Hull, West". There are some joys, confined to these Benches, that the Government would certainly be willing to tax.

The tax will not raise a large sum of money. It will tax real feelings. It is unreasonable and unnecessary.

We seek, through amendment No. 2, to reduce the scope of the tax, but we must consider the Government's general proposition. It would be reasonable on two grounds to oppose the tax altogether. It is a concession to European pressure that should never have been made, because it invalidates the Government's proclaimed opposition to wider aspects of that pressure. The Government said that they would resist that pressure, but they are now making a concession, in the form of this extension of VAT to advertising, that will be absolutely irreversible and will weaken the defence of zero rating in general.

The tax is harmful to charities—they are the subject of a later amendment—and to consumers. It is especially harmful, too, to an essential element of local democracy and society and of our way of life—the local newspapers. Local newspapers have many faults. In politics and in their general attitudes, they are too conservative. They have been made slothful by monopoly. However, they are an essential part of local life and democracy and they are in a difficult financial situation. They face fierce competition from the multiplicity of media, especially the local free sheets. A tax on their advertising will make their situation worse.

The erosion of our zero-rating system is unnecessary. The system works well and has been tried and tested. It has been supported by Governments of both parties over the years. It was introduced by the Conservative Government who negotiated our entry into the Common Market. They were particularly proud of the zero-rating system and the social purposes that it served. That view was backed by the succeeding Labour Government.

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The European Commission does not like the zero-rating system. It would rather people saw what they were paying for, and paid a tax directly to the EEC. The Commission thinks that VAT should be seen as such a tax. I doubt whether that will enhance the popularity of the Common Market.

The Commission likes harmonisation for harmonisation's sake, and advertisements in newspapers are taxed in every other EEC country except Greece. The tax is 14 per cent. in Germany, 19 per cent. in Belgium, and 22 per cent. in Denmark. The Commission would like to see that tax system extended to this country I do not understand why the Commission takes that view. Taxing advertisements would not enhance the working of the internal market, and classified advertisements of births, marriages and deaths are not an exportable commodity.

It could not be said that our system gives advantage no a competitor—although if birth announcements are not taxed that might be an incentive to have children! I am not sure about the logic of the Commission's position. Does it want a 15 per cent. tax on birth announcements to keep down the British birth rate and make us a less effective competitor? In terms of the internal market and customs union, there is no reason why advertisements should be taxed.

The concession maintained by the amendment is obviously for the benefit of the final consumer, which the Commission says is a legitimate reason for zero rating. Of course, if the final consumer is the subject of a death announcement, the concession benefits his family.

More important, our concession is legal. All Governments have maintained and defended full control of our internal tax regime. After the 1975 renegotiation, the document put to the British people by the Labour Government emphasised that we had maintained full control of our internal tax regime and that there would be no pressure and no need for us to reduce the scope of zero rating. That scope was never questioned in the negotiations that led up to the sixth directive.

As my hon. Friend the Member for Sedgefield (Mr. Blair) stressed, the Government would not have accepted the sixth directive had questions been raised about the zero rating of any of the items mentioned in the so-called reasoned opinion of the Commission. We accepted the directive on the basis that it sanctified, maintained and sustained our system of zero rating. But the Government are selling that down the river.

The sixth directive allows zero rating for a transitional period for clearly defined social reasons. In this case, the valid social reasons are to keep in existence a healthy, financially viable local press, and the benefit of the final consumer, which, presumably, is covered by births, marriages and deaths advertisements. The transitional period continues until the Commission decides unanimously to end it. So why are we rushing along in this ill-considered fashion?

Illogically, and with only murmured warnings, the Commission came out in October 1984, after a long delay, with a reasoned opinion of our zero rates on live animals, sewerage services and water supply for business, newspaper advertisements and news services, protective boots, clothing for industrial use and other items.

The Select Committee on the Treasury and Civil Service felt that the opinion was prompted by the Commission's legalistic obsession with harmonisation. The Government opposed the Commission views and were right to do so. Treasury officials told the Select Committee—they were speaking generally, but newspaper advertisements are part of the generality—that the Commission's interest in harmonisation was greater than the circumstances of the UK really require". The officials pointed out that the Commission's action was understandable, but they regarded it as "legalistic". They were "surprised" by the objections made to zero rating.

The Select Committee argued: VAT is a tax on consumers and…any reduction in the amount of VAT payable must be of direct benefit to the consumer…Registered traders net off their input VAT before remitting the balance to the exchequer, so that the result of zero rating is always to benefit the consumer, whether directly or indirectly. It is curious that the Government, having expressed their opposition to the reasoned opinion and defended zero rating, should undercut their arguments, abandon their case and close their options by this clause. Once imposed, the VAT cannot be taken off. That would be contrary to article 28(2) of the sixth directive because abolition and reintroduction do not amount to the maintenance of zero rating, which is sanctioned by the directive.

Why has one aspect of the reasoned opinion been singled out? What is the logic of the Government's position? What is the point of all this? The exemption served a valuable social purpose because it helped to maintain the viability of our press, particularly the local press.

It is worth emphasising that newspapers in other countries have benefits that our newspapers do not enjoy. Zero rating of advertisements was a partial benefit for our newspapers, but was no substitute for the substantial benefits received by newspapers in other EEC countries. Now even that partial benefit is being knocked away by the Government.

In France and Belgium, newspapers enjoy tax concessions. They enjoy subsidies in Belgium, France, Italy, Luxembourg, and most famously—though outside the EEC—in Sweden, where subsidies can be provided to support a competing local press in localities where a monopoly would otherwise result. Newspapers enjoy cheap loans in Denmark and postal concessions in all countries of the EEC. They enjoy telecommunications concessions in Belgium, France and Ireland, and rail concessions in Belgium, France, and Italy. The concession which has been swept away by the Government was a small substitute to help the press to maintain its financial viability.

The tax revenues arising from the change are small, £52 million in a full year, according to the Newspaper Society, and £50 million according to the Treasury. This loss to newspapers comes at a time when local newspapers particularly are in a difficult competitive situation. Competition is particularly intense from the free sheets, and such competition might drive other established local papers in the free sheet direction. Advertising is crucial because 80 per cent. of the revenue of local newspapers comes from advertising and only 20 per cent. from sales.

An estimate is given in the report of the Select Committee on the Treasury and Civil Service of the contribution of the different sections of advertising which have been taxed under the clause. Classified advertising for local and regional newspaper produced £464 million in revenue for those newspapers in 1983, of which recruitment accounted for £88 million, property £108 million, motors £110 million, and other categories £157 million, with which we are concerned in the amendment. Therefore, advertising is crucial to local newspapers, yet under the clause it is being taxed. It is estimated that there will be a drop in volume of advertising of about 5 per cent. as a result.

The category which we seek to defend in the amendment is the most unacceptable one to tax because it is a tax on feelings, and its consequences to newspapers are directly harmful. Therefore, we should support the amendment so that the feelings and emotions of our constituents may be expressed tax free, we should support the local press, which is in a difficult financial situation, and we should oppose the Government's concession to the EEC, which undermines the validity of the Government's opposition when they come to defend the rest of our zero-rating system.

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Mr. Fisher

I am grateful to my right hon. and hon. Friends for having tabled the amendment, which recognises, in a way that the Government have been unable to recognise, the effect that this short clause will have on individuals.

I suspect that the Government did not really think through what they were doing. They where so keen to extend the range of indirect taxation by extending VAT, and they were so put off and perturbed by the active campaign on behalf of books, publishing and the cover price of newspapers, that they were distracted by political pressures. Even they did not have the nerve, correctly. to put VAT on children's shoes, because they recognised the emotive nature of so doing.

No doubt the Government felt that this extension of VAT was an easy option. Because it affects small advertisements and announcements of births, deaths and marriages, involving small sums, no doubt they told themselves that no one would object, that people had to put in such advertisments anyway, and therefore that they would be able to get away with it. I suspect that Minister's, if they had thought at all along those lines, did not really recognise what the impact on people would be.

I do not know whether the Minister's local paper has a births, deaths and marriages column. I am sure that it does, because these columns appear in every newspaper. I do not know whether the Minister's local paper has an in memoriam column, or whether this is another example of the north-south divide so that it is more common in the midlands and in the north of the country. In Stoke-on-Trent, it is an important element of our local paper.

On Tuesday last, 30 April, which was the last day before the tax come into effect, our local paper in Stoke-on-Trent, the Evening Sentinel, reported eight births, four comings of age, 49 deaths and 66 in memoriams, which is not a particularly large figure. At weekends there are probably more than 100 in memoriam advertisements. The Minister, just for a second, might listen to one of them and recognise who he is taxing and why. It says: 78 today. Another birthday we cannot share, my birthday gift must be a prayer. The years we spent together …are never really gone, they leave behind special memories for looking back upon. You suffered much in silence, your spirit did not bend, you fought for life with courage, until the very end. Each leaf and flower may wither, each evening the sun may set, but those who are thinking of you today are …those who do not forget. God bless—your loving wife". Lower down in the same column, the Evening Sentinel published a small advertisement of its own: VAT ON ADVERTISING. Government Regulations introduced in the recent Budget mean that VAT at the current rate of 15 per cent. must be added to all advertisements published from May 1st, 1985". That is the sort of advertisement that the Government are taxing. The Minister cannot be proud of or pleased with that. Did he and the Government, in introducing this provision, intend that a woman like that who wishes to commemorate the passing of her husband and what he meant to her should have to pay 15 per cent. tax on registering her love and her grief at the passing of her husband? I cannot believe that the Government or the Minister intend that. The Minister really ought to accept the amendment.

Mr. Hayhoe

The amendment seeks to continue zero rating for classified advertisements in newspapers and magazines concerning births, marriages and deaths. Before I respond to the detail of the amendment, it may be sensible for me to say a word about the general effect of the clause and, indeed, to respond to the invitation extended to me by the hon. Member for Sedgefield (Mr. Blair).

The reason for the change that animated my right hon. Friend the Chancellor was that it removes an anomaly. Advertisements in all other media are already taxed—television, radio, hoardings, billboards, leaflets and promotional material. Only advertisements in newspapers and magazines were not taxed. In fact, advertisement in books were taxed—not that they occur all that frequently.

Mr. Martin J. O'Neill (Clackmannan)

What similarity is there between the substance of classified advertising and the kind of advertising that takes place on television and on the radio? I do not know whether the Minister listens to commercial radio, but there is not the kind of classified advertising there to which my hon. Friends have referred.

Mr. Hayhoe

But I have listened to the debate and to what the hon. Member for Sedgefield said when he asked what animated the Government to bring forward the clause. The hon. Gentleman did that as a background to dealing with the amendment which refers to classified advertising. I shall come to that in a moment.

As to the reasons for the tax, first, it removes an anomaly. It is one thing to relieve newspapers and magazines from VAT, which had been forecast before the election, but quite another to extend that same relief to those who advertise in them. Because the Chancellor decided not to extend VAT to the cover price of magazines and newspapers but believed that it was right to make all advertisements taxable, he took this step. As has been acknowledged, it provides some useful revenue, and it is a further step in the direction of a shift in the burden of taxation from earnings to expenditure.

I confirm that the increase in revenue will be £30 million in 1985–86 and £50 million in a full year. Those figures take account of the fact that net revenue will accrue only from those traders and private individuals unable to reclaim the tax. It does not affect the VAT position in relation to the cover price of books and magazines.

Mr. Campbell-Savours

Has the Minister not learnt anything from last year's proceedings? The imposition of VAT on building improvements was regarded as a monstrous bungle by his Department and substnatial unemployment was forecast as a result. The imposition of VAT on fish and chips also led to forecasts from HOTAG of massive redundancies, which have indeed taken place. Has the Minister learnt nothing from those mistakes? Does he not think that the case put by people now forecasting unemployment in the newspaper industry should be heard? In the light of his two previous bungles, should he not take those views into account, especially in view of the employment implications?

Mr. Hayhoe

I do not know why the hon. Gentleman intervened to make those observations, which he could have made in the general debate. I was responding to the invitation to explain the reasons for the tax. I appreciate that there are differing views in the Committee. That is partly why we debate these matters. If the Opposition did not disagree with the Government on this, they would presumably not have chosen to debate it.

A great deal has been said about the EEC, first by the hon. Member for Sedgefield, when he opened the debate, and later by the hon. Member for Great Grimsby (Mr. Mitchell) who referred several times to the Select Committee on the Treasury and Civil Service and to the wider European Community considerations. I confirm that the EEC challenged our zero rating of newspaper advertising and news services as being contrary to the sixth directive. Incidentally, the reasoned opinion did not challenge the zero rating of books, newspapers and magazines; it concentrated on advertisements and news services. The British Government rejected the Commission's reasoned opinion and that position is fully maintained in respect of all the items challenged by the Commission.

Paragraph 46 of the Select Committee report sets out the position extremely fairly. It states: The argument that the British Government is its own master in matters of taxation also allows that the Chancellor may wish to reduce the extent of VAT zero rating"— in other words, to extend the VAT base— in order to pursue his declared aims of widening the tax base and shifting the weight of taxation from direct to indirect taxes. This decision is his prerogative"— and, of course, Parliament's— and is a political one which is not central to this report. The Select Committee continued, endorsed by the hon. Member for Great Grimsby and others, that the change to extend zero rating, if it is made, would be solely for domestic reasons. The decision is a political one on which we make no judgment. It has not been part of our inquiry. A British Chancellor can make his own decisions for his own reasons.

Mr. Blair

As I anticipated, the Minister has denied that the EEC had anything to do with the decision. The basis of the Government's rejection of the Commission's reasoned opinion, however, was that there were social reasons and that benefits to the consumer were involved. Do the Government still take that view? If so, what possible explanation is there for the imposition of the tax?

Mr. Hayhoe

I have just given the explanation. My right hon. Friend the Chancellor thought it desirable. But the decision in no way undercuts our position in relation to the EEC, and the Opposition do a disservice to our national interest by suggesting otherwise. The explanation given by the Select Committee is accurate, because the Select Committee understood that these are matters for the British Government, the British Chancellor and the British Parliament to decide. If Parliament and the Government so decide, it is not a matter for the Community. The decision can be made quite separately without in any way undercutting or weakening our position with regard to the Community.

Mr. Fisher

My reading of the Select Committee report is rather different. The report rightly emphasises that if the Government go ahead with this, it will be the Chancellor's own political choice. The Minister has confirmed that both in his reference to the report and in his gestures of assent. He is saying that the Chancellor's political choice is to tax classified advertising in the same way as all other forms of advertising and, of his own free will and volition, to impose this tax on the grieving and the recently bereaved. The amendment deals specifically with that form of advertising. Is it really the Chancellor's personal political wish to tax those people? Will the Minister also tell us how much will be raised from the tax on classified advertising? In other words, what price has the Chancellor put on taxing these people?

Mr. Hayhoe

Perhaps the hon. Gentleman will contain himself. He knows me well enough to know that I shall deal with the amendment and respond to what has been said. He is wasting the Committee's time by intervening in that way. I was responding to the invitation from the Opposition Front Bench to explain the background to the measure and the European Community aspect, to which the hon. Member for Great Grimsby devoted a large part of his contribution, but the hon. Member for Stoke-on-Trent, Central (Mr. Fisher) chose to jump up in a fury while I was doing so. I shall come to his points in due course, although what I have to say may not convince or appeal to him. I know from last year's debates what a Herculean task that would be. Nevertheless, I shall explain the Government's view.

I wish to emphasise an important point that the hon. Member for Sedgefield picked up once again. I assure the Committee that the change has been made for reasons of domestic taxation policy.

Mr. Fisher


Mr. Hayhoe

This is a perfectly proper subject for debate and disagreement, but I hope that no suggestion will be made which will weaken the British Government's position in relation to other challenges from the European Commission. On other zero-rated items we may be challenged in the European Court. We shall fight our corner on behalf of the British interest as we see it, and I hope that nothing that is said today will seek to undercut our position in that respect.

Mr. Robert Sheldon

Does the hon. Gentleman foresee any difficulty from the Commission if a future Government wished to reverse the present decision?

Mr. Hayhoe

My next note is to confirm what the hon. Member for Great Grimsby said—that departing from zero rating was a one-way journey and irreversible. I acknowledge that. That is known widely, and the Select Committee refers to it in its report. If the Committee endorses the Chancellor's decision, the decision cannot be reversed at a future stage within the rules of the Community as they now exist.

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I shall speak fairly generally about the different classes of advertisers who will be affected. Registered traders who deal in taxable goods and services will be able to reclaim the tax under the normal mechanism. Traders in the exempt sector, such as finance, insurance, education and health, will either be unable to reclaim any tax or have the tax recovery restricted to the extent to which they make taxable supplies.

The hon. Member for Kingston upon Hull, West (Mr. Randall) referred to small traders. Small traders who are not registered for VAT—their annual turnover would have to be below £19,500—would not be able to reclaim the VAT and, therefore, VAT would stick on them. It would also stick on private individuals who would also be unable to reclaim the tax.

The hon. Member for Normanton (Mr. O'Brien) mentioned charities, but I shall not deal with that point now because there is an amendment specifically about that, which we shall discuss later.

Obviously, the impact on the newspaper and magazine industry will vary for each publication, depending on the balance of its income between cover price and advertising, and on the extent of the advertising that it receives from the exempt sector—mainly financial—small unregistered traders, and private individuals unable to reclaim the tax. I acknowledge immediately that the burden will be greatest on the regional and local press, which depend most heavily on advertising revenue, and perhaps on that proportion of advertising revenue where the charge is not reclaimable and where it will stick. That applies particularly to free newspapers which depend entirely on advertising revenue, although the rates that they charge are generally lower than those of their competitors, where there is a cover price.

The quality national newspapers will be harder hit than the tabloids because of their greater dependence on advertising revenue and because they carry more classified and financial advertisements. Other publications which depend on a high volume of classified advertisements and those with a high number of financial advertisements may suffer a higher proportional loss of revenue.

No detailed study has been made of the effects of the tax on advertising alone. The study completed by the trade associations considered the combined effect of a tax on both advertisements and cover price. The best estimate by Price Waterhouse was a 3 per cent. volume reduction for regional newspapers. That was, however, an average figure, and obviously there will be a considerable range. The effect will depend on the extent to which advertisement rates fully reflect the tax and the extent to which advertisers who are unable to reclaim the tax are prepared to increase their expenditure. Although the effect may be significant for some specialist publications, the reduction is expected to be small overall because VAT is likely to stick on less than about one fifth of total press advertising.

I shall now turn to the particular points of the amendment.

Mr. Campbell-Savours

The Minister said that in some cases the figure would be more than 3 per cent. Will he confirm that that could lead to job losses?

Mr. Hayhoe

From the information available at present, the chances of a loss of jobs are small.

Mr. Campbell-Savours

That is what was said about the impact of VAT on fish and chip shops.

Mr. Hayhoe

Many of the representations that we have received have argued that the change will reduce employment because publications will close or expansion will be curtailed. I think that that is the sort of point that the hon. Gentleman has in mind. It is difficult to isolate the effect of this tax change from the many other factors that influence employment prospects. Our best estimate of the net effect of the measure on employment is that it should be marginal across the whole range of the press and magazines.

I shall now deal with our debate about classified advertisements for births, marriages and deaths. It is hard to quantify the costs. The best estimate of the loss of revenue is between £5 million and £10 million in a full year, if the amendment is agreed to. Obviously, that is especially relevant to private advertisers, as they place most classified advertisements. That means that little of the tax will be recoverable from such advertisements. The simple consequence is a tax on final consumer expenditure. The same is true of the other private classified advertisements—for example, the sale of household goods, motor vehicles, houses and so on. Hon. Gentlemen have already given the figures for the breakdown of overall classified expenditure.

The hon. Member for Stoke-on-Trent, Central pointed out that announcements of births, marriages and deaths are of special social significance and should be singled out for continued relief. I am not persuaded by his arguments. The arguments are most forceful for death announcements. Obviously, grieving relatives wish to let others know of a death as quickly and efficiently as possible. Announcements about births and marriages are a form of discretionary spending, and there is insufficient justification for continuing VAT relief on them, as VAT is to be imposed on press advertisements generally. If VAT relief were continued on them, there would soon be pressure to extend that relief to other commemorative or congratulatory messages, such as engagements and wedding anniversaries. The hon. Member for Kingston upon Hull, West mentioned the importance of classified advertisements for golden weddings. Pressure may even be extended to the Valentine classified advertisements, which have become a growth industry in recent years. It is difficult to see where relief would end if we took that avenue.

Although I accept the case is strong for death announcements, it would be extremely difficult to devise and administer a relief for that category of advertising alone. It would place an extra adminitrative burden on newspapers, because they would have to make special accounting arrangements to identify and deal with the one or two types of advertisements which would continue to be zero rated.

The hon. Member for Sedgefield spoke about the impact on pensioners. I recognise his anxiety, that poorer old-age pensioners will have particular difficulty in meeting the additional cost of VAT on death notices. Happily, such an event occurs fairly infrequently in most families. The additional VAT charge on such advertisements in regional or local newspapers throughout the country will probably be about 50p or £1 for the whole advertisement. It is to be hoped that such an advertisement would be only rarely inserted by a particular family.

It would be very difficult to allow a concession such as that requested in the amendment. If such a concession were to be made, pressures would immediately build up to extend the relief to other worthy causes. I have little doubt that the inventive minds of hon. Members in all parts of the Committee would quickly bring forward suitable candidates for further concessions.

VAT is a broadly based tax on consumer expenditure. Once it has been extended to cover a formerly zero-rated area, I think it would be wrong to grant special relief other than in the most exceptional circumstances, and I do not regard the amendment as covering such wholly exceptional circumstances. Therefore, I hope that the Committee will not accept it.

Question put, That the amendment be made:—

The Committee divided: Ayes 111, Noes 202.

Division No. 198] [6.43 pm
Alexander, Richard Hawkins, Sir Paul (SW N'folk)
Alison, Rt Hon Michael Hayes, J.
Ancram, Michael Hayhoe, Barney
Arnold, Tom Hayward, Robert
Ashby, David Heddle, John
Aspinwall, Jack Henderson, Barry
Atkins, Rt Hon Sir H. Hickmet, Richard
Atkins, Robert (South Ribble) Higgins, Rt Hon Terence L.
Baker, Nicholas (N Dorset) Hind, Kenneth
Banks, Robert (Harrogate) Hirst, Michael
Batiste, Spencer Holt, Richard
Beaumont-Dark, Anthony Howarth, Alan (Stratf'd-on-A)
Benyon, William Howarth, Gerald (Cannock)
Best, Keith Howell, Ralph (N Norfolk)
Blackburn, John Hunt, David (Wirral)
Body, Richard Irving, Charles
Boscawen, Hon Robert Jackson, Robert
Bottomley, Peter Jessel, Toby
Bottomley, Mrs Virginia Johnson Smith, Sir Geoffrey
Bowden, A. (Brighton K'to'n) Jones, Gwilym (Cardiff N)
Bowden, Gerald (Dulwich) Jones, Robert (W Herts)
Braine, Rt Hon Sir Bernard King, Roger (B'ham N'field)
Brandon-Bravo, Martin Knight, Mrs Jill (Edgbaston)
Bright, Graham Lamont, Norman
Brinton, Tim Lang, Ian
Brown, M. (Brigg & Cl'thpes) Lawrence, Ivan
Browne, John Lee, John (Pendle)
Bruinvels, Peter Leigh, Edward (Gainsbor'gh)
Bryan, Sir Paul Lennox-Boyd, Hon Mark
Buck, Sir Antony Lester, Jim
Budgen, Nick Lewis, Sir Kenneth (Stamf'd)
Bulmer, Esmond Lilley, Peter
Burt, Alistair Lloyd, Ian (Havant)
Carlisle, John (N Luton) Lloyd, Peter, (Fareham)
Carlisle, Kenneth (Lincoln) Lord, Michael
Carlisle, Rt Hon M. (W'ton S) Luce, Richard
Carttiss, Michael Lyell, Nicholas
Cash, William McCurley, Mrs Anna
Chalker, Mrs Lynda Macfarlane, Neil
Chope, Christopher Maclean, David John
Clark, Dr Michael (Rochford) McNair-Wilson, P. (New F'st)
Clarke, Rt Hon K. (Rushcliffe) Major, John
Cockeram, Eric Malins, Humfrey
Coombs, Simon Malone, Gerald
Cope, John Marlow, Antony
Cormack, Patrick Mates, Michael
Couchman, James Mather, Carol
Critchley, Julian Mawhinney, Dr Brian
Currie, Mrs Edwina May hew, Sir Patrick
Dickens, Geoffrey Merchant, Piers
Dorrell, Stephen Miller, Hal (B'grove)
Douglas-Hamilton, Lord J. Mills, lain (Meriden)
Dover, Den Mills, Sir Peter (West Devon)
Dunn, Robert Mitchell, David (NW Hants)
Dykes, Hugh Montgomery, Sir Fergus
Evennett, David Moore, John
Eyre, Sir Reginald Morris, M. (N'hampton, S)
Fallon, Michael Morrison, Hon C. (Devizes)
Favell, Anthony Moynihan, Hon C.
Fletcher, Alexander Nelson, Anthony
Forman, Nigel Newton, Tony
Forth, Eric Nicholls, Patrick
Fowler, Rt Hon Norman Norris, Steven
Fox, Marcus Oppenheim, Phillip
Gale, Roger Oppenheim, Rt Hon Mrs S.
Galley, Roy Osborn, Sir John
Garel-Jones, Tristan Ottaway, Richard
Goodhart, Sir Philip Page, Sir John (Harrow W)
Gower, Sir Raymond Parkinson, Rt Hon Cecil
Greenway, Harry Parris, Matthew
Griffiths, E. (B'y St Edm'ds) Percival, Rt Hon Sir Ian
Grylls, Michael Pollock, Alexander
Hamilton, Hon A. (Epsom) Portillo, Michael
Hannam, John Powell, William (Corby)
Hargreaves, Kenneth Powley, John
Harris, David Prentice, Rt Hon Reg
Harvey, Robert Price, Sir David
Haselhurst, Alan Pym, Rt Hon Francis
Raffan, Keith Thomas, Rt Hon Peter
Raison, Rt Hon Timothy Thompson, Donald (Calder V)
Rees, Rt Hon Peter (Dover) Thompson, Patrick (N'ich N)
Rhodes James, Robert Thorne, Neil (llford S)
Ridsdale, Sir Julian Thornton, Malcolm
Rippon, Rt Hon Geoffrey Thurnham, Peter
Roberts, Wyn (Conwy) Townend, John (Bridlington)
Robinson, Mark (N'port W) Tracey, Richard
Roe, Mrs Marion Twinn, Dr Ian
Rowe, Andrew van Straubenzee, Sir W.
Ryder, Richard Viggers, Peter
Sackville, Hon Thomas Waddington, David
Sayeed, Jonathan Wakeham, Rt Hon John
Shaw, Giles (Pudsey) Waller, Gary
Shaw, Sir Michael (Scarb') Ward, John
Shelton, William (Streatham) Wardle, C. (Bexhill)
Shepherd, Colin (Hereford) Watson, John
Shepherd, Richard (Aldridge) Watts, John
Silvester, Fred Wells, Bowen (Hertford)
Sims, Roger Wells, Sir John (Maidstone)
Skeet, T. H. H. Wheeler, John
Smith, Tim (Beaconsfield) Whitfield, John
Soames, Hon Nicholas Whitney, Raymond
Speller, Tony Wiggin, Jerry
Spencer, Derek Winterton, Mrs Ann
Spicer, Michael (S Worcs) Winterton, Nicholas
Stanbrook, Ivor Wolfson, Mark
Steen, Anthony Wood, Timothy
Stern, Michael Yeo, Tim
Stevens, Lewis (Nuneaton) Young, Sir George (Acton)
Stewart, Andrew (Sherwood)
Stradling Thomas, J. Tellers for the Ayes
Taylor, John (Solihull) Mr. Tony Durant and
Terlezki, Stefan Mr. Michael Neubert.
Abse, Leo Edwards, Bob (W'h'mpt'n SE)
Adams, Allen (Paisley N) Evans, John (St. Helens N)
Archer, Rt Hon Peter Fatchett, Derek
Ashton, Joe Fields, T. (L'pool Broad Gn)
Atkinson, N. (Tottenham) Fisher, Mark
Bagier, Gordon A. T. Foster, Derek
Barnett, Guy Foulkes, George
Benn, Tony Freeson, Rt Hon Reginald
Bennett, A. (Dent'n & Red'sh) George, Bruce
Bermingham, Gerald Gilbert, Rt Hon Dr John
Bidwell, Sydney Godman, Dr Norman
Blair, Anthony Gould, Bryan
Boyes, Roland Gourlay, Harry
Bray, Dr Jeremy Hamilton, James (M'well N)
Brown, Gordon (D'f'mline E) Hamilton, W. W. (Central Fife)
Brown, Hugh D. (Provan) Hardy, Peter
Brown, R. (N'c'tle-u-Tyne N) Harrison, Rt Hon Walter
Buchan, Norman Hogg, N. (C'nauld & Kilsyth)
Caborn, Richard Hughes, Robert (Aberdeen N)
Callaghan, Jim (Heyw'd & M) Hughes, Sean (Knowsley S)
Campbell-Savours, Dale Janner, Hon Greville
Canavan, Dennis Jones, Barry (Alyn & Deeside)
Clark, Dr David (S Shields) Kinnock, Rt Hon Neil
Clarke, Thomas Lamond, James
Clay, Robert Lewis, Ron (Carlisle)
Clwyd, Mrs Ann Lewis, Terence (Worsley)
Cocks, Rt Hon M. (Bristol S.) Lloyd, Tony (Stratford)
Concannon, Rt Hon J. D. McDonald, Dr Oonagh
Cook, Frank (Stockton North) McKay, Allen (Penistone)
Cook, Robin F. (Livingston) MacKenzie, Rt Hon Gregor
Corbyn, Jeremy McNamara, Kevin
Cowans, Harry McWilliam, John
Craigen, J. M. Madden, Max
Davis, Terry (B'ham, H'ge H'l) Marek, Dr John
Deakins, Eric Mason, Rt Hon Roy
Dewar, Donald Maynard, Miss Joan
Dixon, Donald Michie, William
Dormand, Jack Mikardo, Ian
Douglas, Dick Millan, Rt Hon Bruce
Dubs, Alfred Mitchell, Austin (G't Grimsby)
Duffy, A. E. P. Morris, Rt Hon J. (Aberavon)
Dunwoody, Hon Mrs G. Oakes, Rt Hon Gordon
Eadie, Alex O'Brien, William
Eastham, Ken O'Neill, Martin
Orme, Rt Hon Stanley Stott, Roger
Pike, Peter Strang, Gavin
Powell, Raymond (Ogmore) Thomas, Dr R. (Carmarthen)
Prescott, John Thompson, J. (Wansbeck)
Randall, Stuart Thorne, Stan (Preston)
Rees, Rt Hon M. (Leeds S) Tinn, James
Richardson, Ms Jo Wardell, Gareth (Gower)
Roberts, Ernest (Hackney N) Wareing, Robert
Sheerman, Barry Wigley, Dafydd
Sheldon, Rt Hon R. Williams, Rt Hon A.
Shore, Rt Hon Peter Wilson, Gordon
Short, Ms Clare (Ladywood) Winnick, David
Short, Mrs R.(W'hampt'n NE) Woodall, Alec
Skinner, Dennis
Snape, Peter Tellers for the Noes:
Soley, Clive Mr. Frank Haynes and
Spearing, Nigel Mr. John Maxton.
Stewart, Rt Hon D. (W Isles)
Division No. 199] [8.10 pm
Adams, Allen (Paisley N) Hughes, Robert (Aberdeen N)
Atkinson, N. (Tottenham) Hughes, Sean (Knowsley S)
Bagier, Gordon A. T. Janner, Hon Greville
Barnett, Guy Jones, Barry (Alyn & Deeside)
Bennett, A. (Dent'n & Red'sh) Kilroy-Silk, Robert
Bermingham, Gerald Lamond, James
Blair, Anthony Lewis, Ron (Carlisle)
Boyes, Roland Lewis, Terence (Worsley)
Bray, Dr Jeremy Litherland, Robert
Brown, Gordon (D'f'mline E) Lloyd, Tony (Stretford)
Brown, Hugh D. (Provan) McDonald, Dr Oonagh
Brown, R. (N'c'tle-u-Tyne N) McKelvey, William
Buchan, Norman McNamara, Kevin
Caborn, Richard McTaggart, Robert
Callaghan, Jim (Heyw'd & M) McWilliam, John
Campbell-Savours, Dale Madden, Max
Canavan, Dennis Marek, Dr John
Clark, Dr David (S Shields) Mason, Rt Hon Roy
Clarke, Thomas Maxton, John
Clay, Robert Maynard, Miss Joan
Cocks, Rt Hon M. (Bristol S.) Michie, William
Concannon, Rt Hon J. D. Millan, Rt Hon Bruce
Cook, Frank (Stockton North) Mitchell, Austin (G't Grimsby)
Cook, Robin F. (Livingston) Morris, Rt Hon A. (W'shawe)
Corbett, Robin Oakes, Rt Hon Gordon
Corbyn, Jeremy O'Brien, William
Cowans, Harry O'Neill, Martin
Craigen, J. M. Orme, Rt Hon Stanley
Davis, Terry (B'ham, H'ge H'l) Pike, Peter
Deakins, Eric Powell, Rt Hon J. E. (S Down)
Dewar, Donald Powell, Raymond (Ogmore)
Dixon, Donald Prescott, John
Dormand, Jack Randall, Stuart
Douglas, Dick Redmond, M.
Dubs, Alfred Rees, Rt Hon M. (Leeds S)
Duffy, A. E. P. Richardson, Ms Jo
Dunwoody, Hon Mrs G. Sheldon, Rt Hon R.
Eadie, Alex Short, Ms Clare (Ladywood)
Eastham, Ken Short, Mrs R.(W'hampt'n NE)
Edwards, Bob (W'h'mpt'n SE) Skinner, Dennis
Evans, John (St. Helens N) Soley, Clive
Fatchett, Derek Spearing, Nigel
Field, Frank (Birkenhead) Stewart, Rt Hon D. (W Isles)
Fields, T. (L'pool Broad Gn) Stott, Roger
Fisher, Mark Strang, Gavin
Foster, Derek Thomas, Dr R. (Carmarthen)
Foulkes, George Thorne, Stan (Preston)
Garrett, W. E. Tinn, James
George, Bruce Wardell, Gareth (Gower)
Gilbert, Rt Hon Dr John Wigley, Dafydd
Golding, John Wilson, Gordon
Gould, Bryan Winnick, David
Gourlay, Harry Woodall, Alec
Hamilton, James (M'well N)
Hardy, Peter Tellers for the Ayes:
Harrison, Rt Hon Walter Mr. Frank Haynes and
Hogg, N. (C'nauld & Kilsyth) Mr. Allen McKay.
Howells, Geraint
Adley, Robert Best, Keith
Alexander, Richard Bevan, David Gilroy
Ancram, Michael Blackburn, John
Arnold, Tom Body, Richard
Ashby, David Boscawen, Hon Robert
Atkins, Robert (South Ribble) Bottomley, Peter
Baker, Nicholas (N Dorset) Bottomley, Mrs Virginia
Baldry, Tony Bowden, A. (Brighton K'to'n)
Banks, Robert (Harrogate) Bowden, Gerald (Dulwich)
Batiste, Spencer Brandon-Bravo, Martin
Beaumont-Dark, Anthony Bright, Graham
Bellingham, Henry Brinton, Tim
Benyon, William Brooke, Hon Peter
Brown, M. (Brigg & Cl'thpes) McQuarrie, Albert
Bruinvels, Peter Major, John
Bryan, Sir Paul Malins, Humfrey
Budgen, Nick Malone, Gerald
Bulmer, Esmond Maples, John
Burt, Alistair Marland, Paul
Butcher, John Marlow, Antony
Butterfill, John Mates, Michael
Carlisle, Rt Hon M. (W'ton S) Mather, Carol
Carttiss, Michael Mayhew, Sir Patrick
Cash, William Mellor, David
Chalker, Mrs Lynda Merchant, Piers
Chope, Christopher Meyer, Sir Anthony
Clark, Dr Michael (Rochford) Mills, lain (Meriden)
Clarke, Rt Hon K. (Rushcliffe) Mills, Sir Peter (West Devon)
Cockeram, Eric Mitchell, David (NW Hants)
Coombs, Simon Moate, Roger
Cope, John Montgomery, Sir Fergus
Cormack, Patrick Moore, John
Couchman, James Morris, M. (N'hampton, S)
Cranborne, Viscount Morrison, Hon C. (Devizes)
Critchley, Julian Morrison, Hon P. (Chester)
Currie, Mrs Edwina Moynihan, Hon C.
Dickens, Geoffrey Nelson, Anthony
Dorrell, Stephen Neubert, Michael
Douglas-Hamilton, Lord J. Newton, Tony
Dover, Den Nicholls, Patrick
Dunn, Robert Osborn, Sir John
Durant, Tony Ottaway, Richard
Dykes, Hugh Page, Sir John (Harrow W)
Evennett, David Page, Richard (Herts SW)
Eyre, Sir Reginald Parkinson, Rt Hon Cecil
Fallon, Michael Parris, Matthew
Farr, Sir John Peacock, Mrs Elizabeth
Favell, Anthony Pollock, Alexander
Fenner, Mrs Peggy Portillo, Michael
Fletcher, Alexander Powell, William (Corby)
Forman, Nigel Powley, John
Forth, Eric Prentice, Rt Hon Reg
Fowler, Rt Hon Norman Price, Sir David
Gale, Roger Proctor, K. Harvey
Galley, Roy Raffan, Keith
Garel-Jones, Tristan Rathbone, Tim
Gower, Sir Raymond Rees, Rt Hon Peter (Dover)
Greenway, Harry Rhodes James, Robert
Gregory, Conal Ridsdale, Sir Julian
Hamilton, Hon A. (Epsom) Roberts, Wyn (Conwy)
Hannam, John Robinson, Mark (N'port W)
Hargreaves, Kenneth Roe, Mrs Marion
Harvey, Robert Rossi, Sir Hugh
Hawkins, Sir Paul (SW N'folk) Rowe, Andrew
Hayes, J. Sackville, Hon Thomas
Hayhoe, Barney Sayeed, Jonathan
Heddle, John Shaw, Giles (Pudsey)
Henderson, Barry Shaw, Sir Michael (Scarb')
Hickmet, Richard Shelton, William (Streatham)
Hind, Kenneth Shepherd, Colin (Hereford)
Hogg, Hon Douglas (Gr'th'm) Silvester, Fred
Howarth, Gerald (Cannock) Sims, Roger
Howell, Ralph (N Norfolk) Skeet, T. H. H.
Jessel, Toby Smith, Tim (Beaconsfield)
Jones, Gwilym (Cardiff N) Soames, Hon Nicholas
Jones, Robert (W Herts) Speller, Tony
King, Roger (B'ham N'field) Spencer, Derek
Lamont, Norman Stanbrook, Ivor
Lang, Ian Stern, Michael
Lawrence, Ivan Stevens, Lewis (Nuneaton)
Lee, John (Pendle) Stradling Thomas, J.
Leigh, Edward (Gainsbor'gh) Taylor, John (Solihull)
Lennox-Boyd, Hon Mark Terlezki, Stefan
Lester, Jim Thomas, Rt Hon Peter
Lewis, Sir Kenneth (Stamf'd) Thompson, Patrick (N'ich N)
Lilley, Peter Thorne, Neil (Ilford S)
Lloyd, Ian (Havant) Thurnham, Peter
Lord, Michael Townend, John (Bridlington)
Luce, Richard Tracey, Richard
McCurley, Mrs Anna Trotter, Neville
MacGregor, John Twinn, Dr Ian
Maclean, David John van Straubenzee, Sir W.
McNair-Wilson, P. (New F'st) Viggers, Peter
Waddington, David Winterton, Mrs Ann
Wakeham, Rt Hon John Winterton, Nicholas
Waller, Gary Wolfson, Mark
Ward, John Wood, Timothy
Wardle, C. (Bexhill) Yeo, Tim
Watts, John Young, Sir George (Acton)
Wheeler, John
Whitfield, John Tellers for the Noes:
Whitney, Raymond Mr. Peter Lloyd and
Wiggin, Jerry Mr. Tim Sainsbury.

Question accordingly negatived.

Mr. Blair

I beg to move amendment No. 3, in clause 10, page 5, line 16, at beginning insert 'Save where advertisements concern employment.'. It is fitting that we are debating the amendment on a day which has included employment questions. In answer to a question which I had tabled, the Secretary of State for Employment told the House that there were 3,273,000 unemployed claimants in April 1985. That is a staggering figure, but it is a gross understatement of the true level of unemployment. The real total is much closer to 4 million.

We argue about the policies that are best to reduce unemployment and about those that produce the present level of unemployment. However, it should be common ground that no obstacle should be placed in the way of further employment prospects. It is surprising and disappointing that the Government are not prepared to concede without hesitation an amendment that would exempt from VAT newspaper advertisements for employment. If a company advertises job prospects in a newspaper, whether it is a national, regional or local journal, it will pay VAT at 15 per cent. That is a true tax on jobs.

The position is even worse for smaller companies or firms which have only recently been formed and which are paying VAT because their annual turnover is less than £19,500. They will advertise jobs, pay VAT on the advertisements and will be unable to set that off against any VAT that they charge on sales. The VAT that they pay in addition to the price of the advertisement will go straight on to the costs of the firm and will reduce the money that is available for employment. The VAT that is charged on advertisements is a tax upon employment and will hinder greatly the prospects of those seeking jobs. It will discourage employers from advertising jobs widely.

Many people find jobs through their local newspapers. Those who are seeking work will go to the job centre and they will read their local newspapers. In any reasonable local newspaper there is usually a column of job advertisements. It is obvious that they are important so that those seeking work may learn where employment prospects lie. We should oppose any tax that prevents or hinders the individual's ability to seek work.

I hope that the Government will think again and will acknowledge that job advertisements should not be taxed. If the amendment is accepted, there is a much better chance that employers will be encouraged to advertise jobs and consequently a much better chance of individuals finding work through their local newspapers and other sources of job advertisements.

Mr. Hayhoe

The purpose of the amendment is to continue the zero rating of employment advertisements in newspapers and magazines. In effect, all recruitment advertisements would continue to be zero rated. The cost of the amendment would be less than £5 million. It would be low because the vast bulk of recruitment advertising is placed by commercial concerns rather than private individuals. Most advertisers will be able to recover the VAT charged under the normal mechanism of the tax, as it can be claimed back as input tax.

Those affected adversely will be small traders—the hon. Member for Sedgefield (Mr. Blair) referred to them specifically—who are not registered for VAT. Included in this category will be those with a turnover of less than £19,500 and traders who deal in exempt or non-business supplies. The latter category is much more substantial than the others and includes, for example, Government Departments. However, there is a certain circularity about extra tax charges that are paid with one hand and collected with the other. I should make it clear that local authorities would not be affected because they do not come within clause 20. Some parts of the finance, insurance, health and education sectors will be affected as well as some charities. We shall be dealing with advertisements by charities when we reach amendments Nos. 4 and 5.

As the cost of recruitment advertisements will not increase for the majority of employers, there will be no reason for them to reduce their recruitment advertising on account of VAT. In areas where not all the VAT will be recoverable, it is possible that there will be some reduction in the amount of recruitment advertising which is placed. A few representations to that effect have been received by the Treasury from the financial sector. I expect the effect of such reductions to be pretty small. To the extent that a reduction occurs, it is likely to be in the frequency or size of advertisements. It is improbable that an employer wishing to recruit staff will not advertise because of the VAT charge. I strongly doubt whether the extension of VAT will have a noticeable effect on the level of employment.

The amendment suggests that there should be special relief for recruitment advertisements. The revenue cost of allowing the relief would be relatively small—under £5 million—but the case for it has not been made out fully. The effect on employment would be minimal and the effect on advertising would be small. That is probably common ground because the vast majority of recruitment advertisements will be placed by people with whom the VAT charge will not stick.

If relief were allowed, it would be difficult to refuse other worthy causes. Indeed, it would make something of a nonsense of the Division on amendment No. 2. Reliefs such as this would significantly complicate the administration of the tax and put an additional administrative burden on newspapers and magazines, as they would have to deal with some zero rated advertisements and some taxed ones. VAT is intended as a broad-based tax on consumer expenditure. Once it has been extended, it is wrong in principle to select items for continued special relief. I hope that the amendment will be withdrawn or, if not, that the Committee will reject it.

Amendment negatived.

8.30 pm
Mr. Blair

I beg to move amendment No. 4, in page 5, line 16, at beginning insert 'Save in so far as Schedule 5 of the Principal Act concerns value-added-tax on advertisements by charities'.

The Temporary Chairman

With this it will be convenient to take amendment No. 5, in page 5, line 16, at beginning insert 'Save in so far as Schedule 5 of the Principal Act concerns value-added-tax on advertisements by registered charities'.

Mr. Blair

Amendment No. 4 has drawn support from a broad range of people. Perhaps the most strongly argued debate on the Bill will be about VAT on advertisements by charities. The amendment exempts charities from VAT on advertisements. I expect the Government will argue that to accept the amendment would be to accept an anomaly. They have argued that it is wrong to distinguish between different types of advertisement. There will be no anomaly if the amendment is accepted. Indeed, an anomaly will arise if it is not accepted.

The basis of charities' operations is that their income is not taxed. They raise their income primarily from donations. Therefore, clause 10 means that, although charities' income is not taxed, the primary means by which they raise that income—advertising—will be taxed. Their ability to raise money will be hampered and their costs will be increased. Moreover, charities have no VAT in respect of sales to set off against the tax that they pay on advertisements. I cannot believe that the Government want to hinder charities and to subject them to a tax that will greatly hamper their fund-raising activities. The change comes especially ill from a Government who maintain—the Prime Minister has said this often—that the more charities do, the better. They believe that more should be done privately to lessen the burden on the Exchequer.

Mr. Campbell-Savours

When the Prime Minister suggests that charities should not be zero rated, perhaps she regards them as revenue raisers on her behalf.

Mr. Blair

I take my hon. Friend's point. The Government regard charities as a substitute for state action. The whole House agrees that charities perform a useful function which should be encouraged. If, therefore, charitable income is so socially desirable that it is exempted from tax, so should be the conduit by which the money is raised.

Charities need advertising for donations, to exchange information about their services and for staff recruitment. There is a strong move afoot to exempt charities from VAT, and the Charities VAT Reform Group has been established for that purpose. The argument to exempt charities' advertisements from VAT can be made logically and without having to accept the case for general exemption. The reform group did a survey of the top 200 charities and received 110 replies which showed that they would have to pay an extra £1.2 million a year in VAT for advertising space. That sum will come directly from funds which would otherwise be used to do charitable work. Only the Exchequer will benefit. The Treasury estimates that there are between 70,000 and 100,000 charities in Britain, so the total burden will be considerably higher. It is therefore surprising that the Government have estimated that the cost will be only £1 million.

I hope that the Minister will deal with this matter. That figure of £1 million is hotly disputed by the charities. I shall be grateful if the Minister will say whether my information is right or wrong. It is that the Government's figure of £1 million is based on the Advertising Association's estimate of agency-placed advertising. In other words, that £1 million represents the amount of agency-placed advertising by charities. However, much charitable advertising is not done through agency placing. Therefore, perhaps the Government's figures are based on that misunderstanding.

The charities feel particularly strongly about this matter, partly because of the way in which the Budget has been sold for charities. It has been said by Ministers and by the Chancellor himself that, overall, the Budget is helpful to charities. That view is not shared by charitable organisations to which I have spoken.

The Government say that they have helped charities in two ways. It is worth outlining them so that we can set in context what we are talking about in the amendment. First, the Government say that they have raised the limit on relief from higher rate tax from £5,000 to £10,000. They say that that will be of assistance to charities when they receive greater donations. The Exchequer estimates that the cost of that to the Exchequer will be £1 million. I hope, again, that the Minister will specifically say whether my information is right. It is that few covenants reach £5,000, never mind £10,000. Therefore, the notion that the £5,000 limit to relief from higher rate tax is a barrier to higher covenants is not borne out when one examines the amounts of covenants.

Mr. Campbell-Savours

Is it not also noticeable that there is a certain profile which one can identify in relation to those contributions, which is that certain charities attract higher contributions, while others attract none? Therefore, the help to which my hon. Friend has referred is specific in so far as it will go only to a few, and a great number of charities will not benefit in any way, but will just lose.

Mr. Blair

I am grateful to my hon. Friend. That is absolutely right.

I have looked into these covenants. For example, not a single covenant of £5,000 is received by the Muscular Dystrophy Group of Great Britain. The steering committee of the Charities VAT Reform Group receives about £543,000 in total covenanted income. That includes some major charities such as Dr. Barnardo's, Help the Aged, International Christian Relief, MENCAP, and so on. Therefore, the total covenanted income of many of the large charities is not that large. I should like to know whether the Minister accepts that few covenants reach £5,000 and where on earth he gets his £1 million from. The charities dispute it strongly.

The second piece of mitigation put forward by the Government as to why VAT on newspaper advertisements will not affect charities too adversely when compared with the other things that the Government are doing in the Budget is that they have extended relief from VAT to computers purchased for medical research. The Government pray that in aid for what they are doing for charities. Again the Treasury comes out with some fairly extraordinary figures as to what charities will be saved through that extension of VAT relief. It says that about £5 million will be saved. That is an extraordinary figure. If it is grossed up, it comes to about £33 million. I cannot conceive the scale on which charities will have to purchase computers so that there is a £5 million saving as a result of VAT relief.

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I have made inquiries of two charities which one would expect to be at the forefront of computers for medical research—the Cancer Research Campaign and the Marie Curie Memorial Foundation. Neither believes that that relief from VAT on computers purchased for medical research will make any difference to its expenditure problems. I should be grateful if the Minister would give us chapter and verse on those figures.

When we are talking about anomalies, there is also another matter to consider. I understand that the Government have said in certain quarters that it is impossible to distinguish between socially useful charities and charities with a less socially useful function. With respect, that distinction is present in the reliefs which charities are already given. There is no reason to think that that distinction is any greater in relation to VAT relief for newspaper advertisements than in relation to any other type of tax relief.

The charities' concern is real about this matter. As amendment No. 5 shows, there is cross-party concern at the effects of VAT on advertisements by charities. Because of the way in which charities operate, they have a particular need to advertise their services and to advertise for donations. They have a particular need which is way above that of ordinary corporations, businesses or other individuals. Given that charities perform a service in our society which we all wish to see both encouraged and heightened, I cannot believe that the Government, having listened to the argument, and taking account of the proper concern of charities, will persist in rejecting the amendment.

The amendment is crucial because it is about the type of society that we wish to see. The type of society which the Opposition wish to see, and which I hope many others in the Conservative party wish to see, is one where those who go about the difficult business of raising money for charity have no hindrances put in their way, but are helped and encouraged. One certain way for the Government to make credible their promise to assist charities is to support the amendment.

Mr. John Hannam (Exeter)

I speak in strong support of amendments Nos. 4 and 5 which relieve charities of the further crushing VAT burden that is imposed in the Bill. For several years I have been involved in the parliamentary campaign to try to secure VAT relief for charities. It is sad for me to acknowledge that, despite all our efforts in recent years, the Government are now substantially increasing the charities' VAT burden.

It is hard to believe that it was a VAT working party set up by the present Foreign Secretary, when he was Opposition Treasury spokesman in 1976, which came out strongly in favour of relieving charities from the VAT burden. He said that it should be a priority. That was when VAT was about half what it is today. Since then, despite massive opposition from hon. Members on both sides of the Committee and from all organisations outside, that VAT imposition has been increased substantially. That, as the hon. Member for Sedgefield (Mr. Blair) has pointed out, runs counter to the Government's declared policy of support for voluntary bodies, and for the very ones to which we look to provide social services and the health care and welfare advice that is needed.

It is a sad story. In 1979 VAT was nearly doubled. Last year, VAT was imposed on building alterations, and leading charities providing residential services faced substantially increased VAT bills. The Imperial Cancer Research Fund, since last year's imposition of VAT on building alterations and extensions, has faced an increased bill of £330,000, the National Children's Home an increase of £200,000, the Spastics Society £120,000, Help the Aged £150,000 and the Royal National Institute for the Blind £95,000. Those are just a few examples of the burdens that such charities are having to face.

Subsequently, my right hon. Friend the Chancellor announced small concessions on building alterations for disabled people and these figures have been slightly reduced, but the potential burdens still remain. The total non-recoverable VAT for members of the Charities VAT Reform Group, which has been doing all the spadework in obtaining the necessary details, and which includes the majority of the top 200 charities, is about £10 million a year.

Many of these charities are trying to meet the increasing demands on their services resulting from the squeeze on local authority spending. Local authorities are able to recover their VAT on the same services as those provided by the charities, yet the charities are not able to recover their VAT. The result of my right hon. Friend the Chancellor's action on building alterations is that many community care projects are being cut. This cannot be a sensible policy, especially in view of the cost effectiveness of the charities' operations.

There is now the added VAT cost on advertising which, for the 18 charities on the steering committee of the Charities VAT Reform Group, will add £387,000 to their advertising budget of £2.5 million. A few weeks ago, the director of the Multiple Sclerosis Society came to the House of Commons to talk to the all-party disablement group. The main point in what he had to say was the importance of advertising as his charity's major fund raiser for research into multiple sclerosis. That society now, faces an increased cost of £50,000 a year. That sum could fund three years of vital research into multiple sclerosis in a small unit. The Spastics Society put its extra cost at £30,000, and its overall bill for the year is now up to £530,000.

My right hon. Friend the Chancellor has said that he expects to raise about £50 million a year from this measure, and he estimates that, of that, the charities will bring in less than £1 million. That is a substantially lower figure than the one produced by the Charities VAT Reform Group, whose figures are based on factual information. As the hon. Member for Sedgefield pointed out, 110 of the top 200 charities will spend £1.2 million extra this year for VAT on advertising, so the Treasury figure, like so many of the forecasts that we have to view these days, is a tailored guesstimate. The Budget concessions on convenants, which raise the limit on higher tax relief from £5,000 to £10,000, will not counterbalance the extra VAT cost. Few charities receive covenants of this size—mainly charities such as the National Trust. The 18 steering committee charities received a total of only £1.3 million last year. They will he paying almost half that amount back in extra VAT this year.

The other concession in the Budget is the relief from VAT for computers purchased for medical research. That, again, is regarded as a negligible concession by the charities group. Even the medical research charities, such as the Cancer Research Campaign and the Marie Curie Memorial Foundation, do not believe that it will be of particular assistance. Again, we have a Treasury guesstimate that this concession will cost £5 million a year. If that is true, it would involve an expenditure by charities of £33 million a year on computers for medical research. We can rightly ask how this Treasury assessment has been arrived at. Perhaps my hon. Friend the Minister will tell us.

I hope that the Committee will recognise the contradictions inherent in the charities taking on the increased burden of providing extra services that the Government are asking them to carry out, while clobbering the same voluntary organisations with huge added VAT costs. I know the old Treasury argument that is trotted out every time that we trudge along to the "no" room in the Treasury. It is that, while giving VAT relief to charities may be desirable, it has to think of all the administrative difficulties that will result from across-the-board VAT relief or repayment.

We point out that covenants are done on that basis, but the answer is that these are covenants to charities that must have a certain amount of voluntary support before they get donations. That is a weak argument, and experts from the charities have frequently offered to help the Customs and Excise to overcome any administrative problems. Overdue reform of charity law should not be used by the Treasury as an argument against granting a particular concession.

I know that the Government make large sums of money available in the form of grants to worthy bodies, and I commend them for the support that they are giving. However, many organisations, such as the Multiple Sclerosis Society, do not depend on any state aid whatever; they rely entirely for their income on the success of promotional and fund raising activities.

My right hon. Friend the Chancellor could give relief that would be of most benefit in two particular sectors. First, any service undertaken by a charity, such as providing residential care facilities of a similar nature to those provided by a local authority or central Government, or any other service purchased from a charity by a local authority, should be relieved of VAT under section 20 of the 1983 Act. Secondly, there should be immediate relief from VAT on building work, including extensions, alterations, repair and maintenance, undertaken by a charity, on properties on which they receive mandatory rate relief, plus relief from professional fees on such work.

The amendments should be supported. In Treasury terms, they do not involve a large sum of money, but in terms of their effect on our valuable voluntary organisations, including bodies such as Oxfam, War on Want and others engaged in relief operations, they would be invaluable. Their acceptance by the Government would help restore morale among all those working in our charities and reassure me that the Government recognise the impact of the VAT charges on the handicapped and disabled. I support the amendments and am prepared to support them in the Lobby.

Mr. Wainwright

It is pleasant, at long last this evening, to have an amendment from the Labour segment of the Opposition which the alliance can support, out of the bizarre menu that Labour Members have presented to the Committee for today's and tomorrow's debates. I am glad that, on this occasion, we can be united. I am especially glad that the spokesman for the Labour party, the hon. Member for Sedgefield (Mr. Blair), made it clear that he is not using this amendment as a Trojan horse in an attempt to exempt charities from VAT generally. Until we have seen a scheme for that wholesale exemption which can actually work, the alliance will be unable to support such a proposal.

I am sure that the alliance is not alone in the Committee in saying that any VAT exemption for registered charities must be an exemption for all registered charities. It would be intolerable, although it is sometimes suggested, to say that to economise in administration a general exemption from VAT should be given to some types of charity only or some sizes of charity only. It is a matter for rejoicing that Britain has a pluralist doctrine of charities. People of religions that may seem to some to be a little out of the way are fully entitled to register as charities, and people dispensing education in institutions of which some of us may not approve are equally entitled to the benefit of our charity laws, which date back to good Queen Elizabeth I. Therefore, any attempt to discriminate between one registered charity and another in tax privileges would be resisted by the alliance.

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Mr. Tim Yeo (Suffolk, South)

I wish to clarify, if possible, the Liberal party's view on this matter. Is the hon. Gentleman saying that the Liberal party would support a general relief for charities? If he is saying that he could not support that because of a technical difficulty, why could not charities be included in the same section of the Act as local authorities, which enables them to recover their VAT?

Mr. Wainwright

I do not say either of those things. I hoped that I had made it clear that as soon as someone—it does not matter who—produces a workable scheme that will grant the exemption to every registered charity, regardless of its size, location, aims or administration, the Liberal party, no doubt with other parties, will be glad to consider it. But no such scheme has been produced, and anything that I have seen has been discriminatory and limited to the sorts of charity that are alleged to have the organisation to cope with the VAT problems.

Mr. Gerald Bermingham (St. Helens, South)

Does the hon. Gentleman agree that a scheme whereby a charity could produce its VAT payments quarterly, together with its certificate of incorporation as a charity, and thus obtain recompense, would be perfectly simple to administer and operate?

Mr. Wainwright

If that were the case, we should have heard of it before now. But that is not what is suggested. It is clear that an exemption which enabled the official of a religious body or a school to draw up at the petrol pump or to visit the paint shop, buy either petrol or paint and say, "This is for a charity, so give me a special chit," would be a recipe for chaos. It would be extremely difficult, if not impossible, to police and for the trader to operate. I return to the point that the charities should face: such a scheme could apply only to some sorts of charity. If it is to be discriminatory, we want no part of it.

This debate is pleasing to us because, fortunately, in this matter there need be no discrimination, and the administration and reasonable policing should be relatively straightforward. After all, what is more public than an advertisement? If one buys an advertisement, one declares to the world the transaction in which one is engaged. One cannot buy an advertisement for one's private enjoyment or benefit and pretend that it is a charitable advertisement, because it is there in the newspaper for everyone to see. In addition, newspaper administration is usually much more sophisticated than administration at a small store selling other articles which some people wish to be exempted from VAT for charitable purposes.

The argument about local authorities does not stand up for a moment. I do not wish to usurp the role of the Government spokesman, but I am sure that he will say that, whereas there are only several hundred local authorities—all public bodies whose minutes are published and where nearly everything is available for inspection—the number of charities runs into six figures. Included in that number are some unusual bodies whose administration does not conform to a general pattern. There is a world of difference—indeed, a Pacific ocean of difference—between local authorities and the great mass of British charities. There is no analogy between them.

Since this exemption would be tolerably easy to administer, could be administered fairly, and would come to the relief of many local charities, such as churches, chapels and other assemblies, because local funds could be used to relieve local needs—the high cost of press advertising bears heavily on bodies with small resources—and because the amendment would relieve all charities without discrimination, we shall be happy to support it.

Mr. Yeo

I speak in strong support of the amendment. I have a long-standing interest in VAT in relation to charities. I was, in fact, the founder chairman of the Charities VAT Reform Group. I am grateful to the hon. Member for Sedgefield (Mr. Blair) for giving that group such favourable publicity.

The main objective of the Charities VAT Reform Group is to secure complete relief for charities from VAT. The group represents most of the major national charities and many of the smaller ones. I must correct a point made by the hon. Member for Colne Valley (Mr. Wainwright). At no stage has the group done other than campaign for complete relief from VAT. We do not suggest that there should be discrimination between charities. If the Government felt that some charities were less deserving than others and chose to make that distinction, that would be a matter for the Government and we would examine their suggestion. The group's objective has always been to secure complete relief. I am sorry that the Liberal party seems to be confused about that point.

To say that VAT relief should be denied to an organisation such as the Spastics Society because VAT relief cannot, apparently, be extended to the Moonies is an extraordinary and convoluted argument. To say that one organisation which is probably universally regarded as deserving will not receive this benefit, because it cannot be given to an organisation which is not universally regarded as deserving is extraordinarily illogical even by Liberal standards.

Mr. Wainwright

Which of the two quite contradictory arguments is the hon. Gentleman putting before the Committee? A few minutes ago, he was saying, "Far be it from the Charities VAT Reform Group to exclude any charity from the scope of its intentions," and that the group had no desire to be discriminatory. Within seconds, he went on to say that it was absurd to put the Spastics Society on the same level as the Moonies. The hon. Gentleman cannot have it both ways. He should tell hon. Members whether he wants an exemption for all registered charities, whatever the defects in our charity laws, or whether he wants the exemption to be limited to certain types of charity.

Mr. Yeo

I do not want to detain the Committee unnecessarily. That is exactly what I did say. I believe that universal relief should be granted, but if the Government choose to be selective about it I should be happy to look at their selection.

I believe that this relief is justified because of the valuable work done by charities. It is recognised by hon. Members and the public that charities do valuable work. This relief is justified also because of the accepted principle that tax concessions for charities are justified. In fact, charities are exempt from income tax and capital gains, corporation and capital transfer taxes—almost any type of tax one can think of, except VAT.

It is important to be clear about the fact that what we are seeking for charities in terms of VAT is not a concession; it is merely equality of treatment with local authorities, which already recover VAT. When I was running the Spastics Society and it ran a handicapped school for spastic children, that operation looked remarkably similar to those operations run by local authorities. The only difference between the two was that, when I repaired the roof of one of the Spastics Society schools, I paid 15 per cent. more than the local authority. There is great similarity between the two operations. For that reason, it is all the more unacceptable that the position of charities in relation to VAT should remain significantly worse than the position of local authorities or commercial companies. I do not believe that any hon. Member or anyone outside the Chamber wants that to persist.

The Government's arguments are well known. They say that, if they were to grant relief, it would be indiscriminate. That is a most extraordinary argument. That has never deterred the Government from making other concessions, of which in some cases they are justifiably proud,, for example, on legacies and covenants. In those cases no distinction has been drawn between the charities that can benefit from them.

When we ask for VAT relief we are suddenly told that charities are not be entitled to the special relief although they benefit from the other concesions because in the Government's eyes some charities are not deserving. The argument cannot logically be repeated. I hope that my hon. Friend will not repeat it tonight.

It is also argued—I have seen letters from Treasury Ministers about this—that VAT relief cannot be granted because it is only of value to those who pay VAT. That is an extraordinary argument. Of course it is valuable to them only because they suffer from the heavy VAT burden. It is of no benefit to someone who does not pay VAT.

The Royal National Institute for the Blind pays £300,000 a year and the Royal British Legion pays £250,000 a year in VAT. Such sums are paid by many similar organisations. That money could be far better used on behalf of blind people, ex-service men and others.

The argument of lost revenue is put forward, but the benefit to the community of allowing greater resources to remain in the hands of the charities, and the multiplier effect that that would have, is considerable. That argument does not stand up especially from a Government who are interested in obtaining value for money.

The administrative objections are greatly exaggerated, as my hon. Friend the Member for Exeter (Mr. Hannam) has said. I am disappointed to find that within the past few weeks letters have been sent from the Treasury saying that the relief would have to be granted to as many as 100,000 organisations. I hoped that we had passed that point in the argument. I had hoped that the detailed submissions made over the years by the Charities VAT Reform Group had reduced that figure to a maximum of 20,000 organisations. If, because of its anxiety over administrative costs, the Treasury wished to reduce the numbers still further, it could place a financial limit below which it would not consider individual cases. The numbers could then be reduced to a few hundred.

If my hon. Friend needs further confirmation of the fact that only a few charities have a turnover of more than a few thousand pounds he has only to study the report made last year by a Select Committee in another place in connection with a private Member's Bill which dealt with the reform of local charities.

I have no doubt that if the Government are interested in boosting the voluntary sector the best thing that they could do would be to grant charities a general relief from VAT. I regret that the hon. Member for Sedgefield did not feel able to give the Labour party's unequivocal support for a general relief.

I was deeply disappointed by the Budget this year which contained so little for charities after the submission from the Charities VAT Reform Group to the Treasury. It includes a shopping list of possible reliefs. Limited reliefs could be confined to specific areas—for example, the extra VAT cost of altering buildings as required by fire officers. Such relief could have met with the Treasury's favour. It was a source of great regret to charities that it did not do so.

Newspaper advertisements are a highly sensitive matter for charities. Charities use newspaper advertisements to a great extent for fund raising. Charities are debarred from advertising on television. They can advertise only in newspapers, and that is now to bear this additional cost. The figures have already been quoted. The 110 charities that have been surveyed spent £1.2 million on newspaper advertising. That is not a guess; it is an analysis of the amount of advertising last year which would have borne the extra cost of VAT. If all charities had been included, the figure would have been much higher.

The advertising bill must inevitably result in some curtailment of the charitable work carried out by those organisations. The latest extension of VAT will affect many organisations which have not previously been burdened with it. Oxfam, whose work is done mainly outside this country, has not had the problem before, but it will be brought into the net. Any hon. Member who is worried about the adequacy of our overseas aid programme should support the amendment, because the resources that organisations such as Oxfam have available for helping the Third world will be reduced.

If the Government accept the amendment, they can be confident that they will not be bestowing huge benefits on what they may regard as dubious charities because they are not large users of advertising space. The proposal will effect such organisations as Actionaid, Dr. Barnardo's and Help the Aged. They will be penalised.

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The Opposition have also tabled an amendment which contrasts with a slightly equivocal alliance position. At the time of the Band Aid record before Christmas, when there was a tremendous outcry in the country about the famine, the right hon. Member for Plymouth, Devonport (Dr. Owen)—in characteristic headline-grabbing form—jumped on the bandwagon and said how much he opposed the collecting of VAT on the Band Aid record. I look in vain for any alliance representative tonight. The right hon. Gentleman is not here, nor is any alliance Member. I shall look carefully at the Division lists to see whether any alliance Member has supported the amendment. If not, we must ensure that we publicise that fact. When there is a bandwagon, we all know who will be the first to jump on it—the right hon. Member for Devonport. But when there is an opportunity to right a wrong, he is not here. I deplore the fact that there is no alliance Member here to support the amendment, and I urge hon. Members to vote for it.

Mr. Alfred Morris (Manchester, Wythenshawe)

Mine will be a brief intervention in what is a most important debate. I shall speak briefly out of respect for the many other hon. Members who wish to participate. The hon. Member for Exeter (Mr. Hannam) has played a distinguished part in the long campaign against the onerous new burden imposed on charities by the doubling of VAT. I honour the hon. Gentleman and the all-party disablement group, of which he is an officer, for both the strength and the excellence of their advocacy over the years.

As the hon. Gentleman said, the Multiple Sclerosis Society is severely disadvantaged by VAT. It has to pay a large amount of money which could be used for much better purposes. Other victims are the Spastics Society, the Royal National Institute for the Blind and the Royal National Institute for the Deaf. Many others are also badly hit.

I wish to quote from a letter that I received today from Sir John Cox, the director of the Spastics Society. He said: The Spastics Society was not only disappointed that VAT relief was not given in the budget but we were dealt a double blow when the Chancellor extended VAT to newspaper advertising. The Society will now have to find £30,000 to cover this new VAT bill in addition to the estimated £700,000 it will already have to pay in unrecoverable VAT in 1985–86 alone. Why mug the good Samaritan in that way? Not only will VAT on advertising restrict the Spastics Society's ability to raise money; it will affect educational advertising that is designed to promote greater understanding of disability and of the problems and needs of disabled people.

Brian Rix, speaking on behalf of Mencap, has said to me: For running a charity, we are being clobbered. Is the Minister happy with that comment on the Government's approach? I hope he will think again, as he should, on the basis of the compelling evidence that has been put to him in this debate. Other Governments have found a way around this problem. The Irish Government have a list of charities to which repayment of VAT is made. What stops this Government from returning VAT to the charities whose work is, by common consent, for the public good? If other Governments can do so, why do the Government here argue that it would be administratively impossible to exclude particular charities? I strongly urge the Minister to listen to Sir John Cox, Brian Rix and all those in the voluntary sector who fervently want him tonight to agree that enough is enough and that this totally unacceptable burden on charities must now cease.

Mr. Dafydd Wigley (Caernarfon)

I join the voices that have come from all parts of the Committee in support of this series of amendments. I appeal to hon. Members of the Liberal party and others who may feel that we should be arguing about the finer print to concentrate on the main argument. That argument has been put year after year by those who work hard in the sphere which we are discussing.

On the Government Benches I see the hon. Members for Exeter (Mr. Hannam) and for Suffolk, South (Mr. Yeo), who have worked hard for a number of years on behalf of the cause that we are discussing. They must be feeling extremely frustrated that the Goverment have failed so far to respond to the pleas that have been made and are rapidly painting themselves in the public mind as an Administration who are anti-charity.

I find this diffucult to understand, because the Government have on numerous occasions emphasised the important role of the voluntary sector. Time and again we have heard—in connection, for example, with disablement—that the voluntary sector should be doing more and should be filling some of the gaps which inevitably have arisen because of cuts in Government expenditure. Yet the very means of raising money for the voluntary sector—advertisements for charities—is being penalised by the Budget. I feel a sense of despair about the way in which the Government have yet again savaged charities.

As we have heard, there are answers to the technical problems that arise. In any event, those problems must be overcome, because there is a real danger that we shall find ourselves on a downward spiral. Many charities advertise to raise money, and part of that money is recycled to raise more money, and so on. If we go into the cycle the other way round, taking out of the equation money which would be used to raise more money for worthwhile work, less will be available to promote and project charities, and less will come in.

Hon. Members in all parts of the Committee have responded individually when charities have needed urgently to project an issue. We have been asked to chip in £10 or £20, taking perhaps a half-page advertisement in a publication, for a worthy cause. VAT will add 15 per cent. to the cost of that—an imposition that could be avoided.

We have seen how some charities have been able to respond quickly, as with the famine crisis in recent months. Following dramatic pictures being shown on television, advertisements in the press on behalf of some charities hit home at a critical time. VAT on advertising will penalise people doing that excellent work.

I shall not repeat figures which have already been presented to the Committee by other hon. Members. Excellent work has been done by the all-party Charities VAT Reform Group. It is high time that the Government took notice and stopped using the perennial "No" to the pleas that are made on behalf of charities.

Dr. John Marek (Wrexham)

I support the amendments, though not unreservedly, because charities must tidy up their own shop. While I support most charities, and contribute to some, there are two types about which I am not happy.

Reference has been made to dubious charities, and there are many of them. The total number of charities runs into six figures. There must be hundreds, perhaps thousands, of charities of a dubious or questionable nature, and if VAT relief were granted on their advertising, that would be taxpayers' money going astray. I support the amendments, but it is clear that a review of charity law, how charities register, and what type of charities may register, is long overdue.

There is another type of charity about which some of my hon. Friends worry. I refer to the public schools. The average person is not aware that they are charities. Those who send their children to public schools are, by and large, wealthy enough to be able to opt out of the public sector. Everyone pays rates and taxes that contribute towards public sector schooling, but some people can opt out of that schooling and have their offspring educated at their own cost. I do not really object to that. I object to the privilege that is enjoyed by those who have been to public schools, but I do not mind that the public schools enjoy charitable status and do not have to pay VAT. Such charities, in any case, rarely advertise in the press. The dubious charities may advertise in the local and national press. The local press will be hit quite hard, certainly over classfied advertising.

Overall, I support the amendments. There may be administrative complications, but I do not really think that the Minister can rely on that answer. My hon. Friend the Member for St. Helens, South (Mr. Bermingham) has suggested a possible solution. Charities could be given relief by means of a cut-off point or some other method. The will should be there. Mencap and Oxfam, for instance, are bona fide, worthwhile charities, and it is immoral to tax such bodies.

I have some reservations. Charity law needs to be tidied up. However, I hope that the Minister will be able to suggest something on Report which will embody the spirit of the amendments in the Finance Bill.

Mr. O'Brien

Among the amendments to the provision about VAT on newspaper advertising, amendment No. 4 has created the greatest concern among all parties in the Committee. I hope that the Minister will take note of the concern expressed in all sections of the Committee on this important and emotive subject.

The charities have been hard done by in the past. When VAT was doubled, they were hit hard. The imposition of VAT on improvements to accommodation and new building hit charities in many areas, particularly those engaged in the relief of poverty. I hope that the Minister will consider the points made tonight about the relief of VAT on advertising by charities.

A letter that I have received from the Minister of State says: The Government does of course recognise the immensely valuable role which charities play in this country, not least in taking the pressure off health and local authorities. That is a truism, and I hope that the Minister will accept it this evening. However, I am sure that when he replies to the debate he will use the following passage from the same letter: VAT reliefs for charities on specialised goods needed for their work have been significantly extended since 1979 to include ambulances …welfare vehicles and other aids for the handicapped.

I accept that, but a number of hon. Members have mentioned the number of charities that will have to pay VAT on advertising. A prime example is the Royal British Legion, which has to advertise—sometimes even with full-page advertisements—to get help. The legion will be hit hard. It pays £250,000 in VAT each year and that burden will rise. The legion does sterling work to relieve poverty and does not receive covenants of £10,000 and so on, so it will not benefit much from other changes in the Budget.

I hope that the Minister of State will accept the points made by hon. Members on both sides of the Committee. I urge Conservative Members to mobilise their forces, because no Opposition Member will oppose the amendment. However, it would be preferable if the Minister agreed to accept it.

9.30 pm
Mr. Bermingham

I am always puzzled when people say that tasks are administratively difficult. Where there is a will, there is a way.

Every charity has a registered number. A group cannot become a charity without being registered. Therefore, every charity has a number. Even the Treasury should be able to understand that.

All that we need to do is to persuade the Treasury to agree that every charity that advertises should receive from the company to which it pays the money a receipt showing the number and name of the charity and a sum of money plus VAT. Like all registered traders, the charity could take its receipts to the Customs and Excise every quarter and claim tax back.

Numerous traders make such claims every quarter and the number of charities that will advertise is tiny. The Treasury does not seem to understand that the vast bulk of the 100,000 charities are organisations such as the South Malden Registered Tree Preservation Society—I have made up that example—with assets of £150, virtually no income each year and no activity. It would be eminently easy for charities to get the money back.

Compassion is supposed to rule in our world. The Government keep telling us that these are stringent times and there must be self-help and private sector involvement in helping the elderly, the young, the sick, the disabled and everybody else. But only an uncompassionate Government could say to those whom they are asking to help ohers, "Terribly sorry. In order to raise funds, we shall take a little more from you."

The Government say that the change will cost about £1 million. I do not care about the sum involved, because a greater principle is involved, which is whether we have a compassionate, caring society that recognises the value of work done by charities.

Charities need to advertise to raise funds. Our national budget is over £120 billion and £1 million is a relatively infinitesimal sum. Any administrative difficulties could be overcome by the simple method that I have recommended. I know from experience that the Treasury does not like anything that is simple or straightforward or that seeks to exempt. Charities nowadays, it would seem, are as much for squeezing as anybody else.

I saw the Prime Minister on the 6 o'clock television news tonight attending a party in the House today for handicapped children. When asked whether she would rather be at Prime Minister's Question Time or at the party, she rightly said at the party, and how much she admired the character of the children. I wonder whether the Prime Minister would take a little time this evening to extend that flicker of human kindness and pass it on to the Chancellor of the Exchequer. She might suggest that, if the Government are to have a compassionate face, they could start by telling Treasury officials not to worry about the complexity, and that the hon. Member for St. Helens, South had offered a simple solution to how charities could get back the money, so Ministers could be instructed to withdraw the VAT on advertisements placed in newspapers by charities.

It would be not a bad start to the second quarter of 1985 if the Government would show just a little compassion and let the charities keep all the money that they raise through advertising. After all, the charities need it far more than the Government do.

Mr. Hayhoe

The debate has ranged much wider than the amendment. I make no complaint about that, because I know that the subject excites a great deal of genuine and sincerely held interest and deep passion throughout the House.

First, I pay tribute to the all-party Charities VAT Reform Group, which was started by my hon. Friend the Member for Suffolk, South (Mr. Yeo). Although I have had disagreements with representatives of the group when I have met them, I fully support the work of the group. It helps Parliament and the country better to understand the problems. As discussions proceed, I hope that an even deeper understanding of many of the problems involved will develop between us.

I deal first with the cost of the amendment. Although I am advised that the cost will be approximately £1 million, I acknowledge, as has been said by the hon. Member for Sedgefield (Mr. Blair) and other hon. Members, that the Charities VAT Reform Group, in a survey of a limited number of charities, has already estimated that the cost would be £1.2 million. Indeed, as I said to my hon. Friend the Member for Suffolk, South two or three weeks ago, I should like to put my officials in touch with those responsible for the survey. We ought to be able to agree on the factual realities of the matters under discussion. We may differ about how we treat them, but at least we should attempt to achieve a better understanding. I am concerned at these apparently substantial differences between the estimate that the hon. Member for Sedgefield gave, supported by some of my hon. Friends, and the estimate that I have been given. That offer remains open. I hope that discussion will take place and that we can clarify the position.

Mr. Blair

I support the Minister in his statement. He said that he would like to verify the figure of £1.2 million. If the figure is verified, will that make a difference to his position on the amendment?

Mr. Hayhoe

No, it will not, as the hon. Gentleman will discover. However, I think that as far as possible on this and many other issues we should try to achieve at least a common acceptance of the facts because that is a prelude to reaching decisions which are better informed, and that surely is desirable.

I am advised that the £5 million estimate is based on present expenditure on medical computers by bodies which will be eligible for the relief, including charities providing care and treatment for the handicapped and research institutions, many of which are charitable bodies. For example, universities and health authorities will qualify for the relief. The estimate is not precise and the value of the relief is expected to increase as the use of computers increases. Nevertheless, it is the best estimate available and it goes much wider than the charities that have been canvassed because under the old regime universities and research institutions had to pay VAT, whereas they will now benefit from the relief announced by my right hon. Friend the Chancellor.

Mr. Blair

If the £5 million estimate is based not primarily on charities but on other bodies which will secure relief on computers for medical research, does the Minister accept the charities' view that the relief will have a neglible effect on their costings?

Mr. Hayhoe

I do not wish to dispute the specific replies given to the hon. Gentleman by specific charities. I am simply saying that the relief must be seen in a wider context, in which, I am advised, a benefit of some £5 million will flow from my right hon. Friend's proposal.

The hon. Member for Sedgefield said that he intended to support amendment No. 5 which deals with registered charities, but he may not fully appreciate the effect of that qualification. Not all charities are required by law to register with the Charity Commission and that qualification would exclude the churches as well as charities in Scotland and Northern Ireland. It is estimated that about 40 per cent. of the charities in the United Kingdom are not among the 150,000 or so registered with the Charity Commission.

The hon. Member for St. Helens, South (Mr. Bermingham) also referred to registration, but this is a very complicated area. My hon. Friend the Member for Suffolk, South, with whose group we have discussed these matters, will recognise that complexity, as did the hon. Member for Colne Valley (Mr. Wainwright)

Mr. Bermingham

I think that the Minister has misunderstood my point. The only charities known to the law are the registered charities, each of which has a number, so all that one needs to do is to have that number put on the invoice to the charity.

Mr. Hayhoe

If the hon. Gentleman reads my explanation in Hansard, he will realise that that would exclude about 40 per cent. of the bodies which are seen as charities and benefit as charities within the United Kingdom. That illustrates the complexity of the matter.

I have naturally considered carefully the possibility of special relief for charities in this context, as I did when VAT was extended to building alterations last year. Such relief, however, would be indiscriminate in that it would not be restricted to those providing vital welfare services and enjoying wide public support but would extend to thousands of far more controversial and restrictive organisations—religious sects, historical and antiquarian societies, musical and brass band societies, theatres and art galleries, and so on. An immensely broad group of organisations qualify for charity status in that sense.

I well understand those who have called with feeling for a review of charity law. However, that is wider than the scope of the amendment and my responsibilities within the Treasury. For many years I have considered the matter, and I echo the sentiment that there is considerable merit in seeking a rationalisation of the law on charities. However, tonight I must deal with the amendment and what has been said in the context of the present position.

9.45 pm

The way in which we now operate would lead to a lack of discrimination between charities about relief. I am speaking about more than just relief on advertisements. At least half of the interventions were about general charity relief. Most of both speeches of my hon. Friends related to the need for general relief, and the majority of hon. Members who participated in the debate wanted general VAT relief for charities. Their speeches went wider than the amendment, but every hon. Member who spoke supported the narrower relief for press advertising.

Mr. Alfred Morris

I have been following the Minister carefully. He was rightly worried about the veracity of figures. I can assure him of the accuracy of the figures given to me by Sir John Cox, the director of the Spastics Society. How can the Minister justify the imposition of £730,000 in unrecoverable VAT on the Spastics Society in the present tax year? Is the Minister saying that that is justified?

Mr. Hayhoe

That is the result of the law as it exists. When the right hon. Gentleman was in government, his Government did not opt for general VAT relief for charities. I acknowledge that the increase in the general rate of VAT from 8 per cent. to 15 per cent., the extension of VAT to alterations, and this year's extensions increase that burden. Many of the interventions dealt with the principle involved, but the Labour Government did not believe that they could justify giving general VAT relief. I could quote what the then Chancellor of the Exchequer said, but I shall not weary the Committee with that.

Reference has been made to the additional cost imposed by press and magazine advertisements being VAT-able for charities. The extra reliefs that have been given apply within the entire charitable area, although not to the same people, and exceed the new imposition. Most of the debate has been about the argument for general relief. If this modest relief—modest in terms of money because only a million or two are involved—were conceded, it would inevitably lead to the more expensive claims for general VAT relief. A significant number of hon. Members who have spoken have made that clear. Because of the difficulties that we rehearsed last year in a similar debate about VAT on alterations, in which larger sums were involved, I regret that I cannot advise the Committee to support the amendment. It must be seen in the general context. The Government have given direct tax concessions worth about £400 million a year, which have been substantially extended since 1979. Tribute was rightly paid to the substantial increase in grants from the Government to charitable bodies.

Looking at the question in the round, while recognising the deep feelings of those who believe that charities should be excluded from the extension of VAT to their advertising, for the wider considerations that I have described, I must recommend the rejection of the amendment.

Mr. Blair

The fault of the Minister is not that he has made a bad speech but that he has a bad case. The tragedy of a debate such as this is that it has been won conclusively by speakers from each side of the House, yet one fears for the conclusion of the vote.

The Minister says that there is an anomaly in giving VAT relief to charities on their newspaper advertisements. Charities have a series of reliefs from tax. There is no greater anomaly in adding the proposed relief than in allowing charities relief from capital transfer tax, corporation tax, or any of the other taxes.

If it is said that the administrative difficulties in giving VAT relief on newspaper advertisements are too great, my reply is that we should never accept an argument from a Minister about the simple cost of administration until it is given great scrutiny. One such line from a Minister in a debate of this sort is a wholly insufficient basis for rejecting the amendment.

The Minister's argument was even worse when he dealt with the costings. The Minister had no proper reply to any of the points concerning costings. I asked the Minister whether, should he discover that the charities were right about the additional costs, that would change his mind. He said that it would not, yet he says that the facts are necessary in order to make a proper decision. It seems that the Minister makes a decision first and inquires into the facts afterwards. That is a cackhanded method of administration.

It is not right to say that one must accept the general case for VAT relief for charities in order to support the amendment. I purposely said that at the beginning because I wanted to maximise support, and I do want to get drawn into that broader argument. The case for VAT relief on newspaper advertisements is a particular one, because the way that charities raise money is through advertising. That puts them in a totally separate category. The Minister's attempts to resist the amendment do not reflect credit on him. It is time that the Government's reality matched their rhetoric. It is time that they supported amendments which do precisely what they want to do and encourage charities in our society.

Question put, That the amendment be made:—

The Committee divided: Ayes 119, Noes 220.

Division No. 200] [9.54 pm
Adams, Allen (Paisley N) Cook, Frank (Stockton North)
Ashdown, Paddy Cook, Robin F. (Livingston)
Ashton, Joe Corbett, Robin
Atkinson, N. (Tottenham) Corbyn, Jeremy
Bagier, Gordon A. T. Cowans, Harry
Beith, A. J. Craigen, J. M.
Bennett, A. (Dent'n & Red'sh) Davis, Terry (B'ham, H'ge H'l)
Bermingham, Gerald Deakins, Eric
Blair, Anthony Dewar, Donald
Boyes, Roland Dickens, Geoffrey
Bray, Dr Jeremy Dixon, Donald
Brown, Gordon (D'f'mline E) Dormand, Jack
Brown, Hugh D. (Provan) Douglas, Dick
Brown, R. (N'c'tle-u-Tyne N) Dubs, Alfred
Bruce, Malcolm Duffy, A. E. P.
Buchan, Norman Dunwoody, Hon Mrs G.
Caborn, Richard Eadie, Alex
Callaghan, Jim (Heyw'd & M) Eastham, Ken
Campbell-Savours, Dale Edwards, Bob (W'h'mpt'n SE)
Clark, Dr David (S Shields) Evans, John (St. Helens N)
Clarke, Thomas Fatchett, Derek
Clay, Robert Field, Frank (Birkenhead)
Cocks, Rt Hon M. (Bristol S.) Fields, T. (L'pool Broad Gn)
Concannon, Rt Hon J. D. Fisher, Mark
Foster, Derek O'Neill, Martin
Foulkes, George Pendry, Tom
Garrett, W. E. Penhaligon, David
George, Bruce Pike, Peter
Gilbert, Rt Hon Dr John Powell, Raymond (Ogmore)
Godman, Dr Norman Prescott, John
Golding, John Randall, Stuart
Gould, Bryan Redmond, M.
Hamilton, James (M'well N) Rees, Rt Hon M. (Leeds S)
Hannam, John Richardson, Ms Jo
Hardy, Peter Sheldon, Rt Hon R.
Hogg, N. (C'nauld & Kilsyth) Short, Ms Clare (Ladywood)
Howells, Geraint Short, Mrs R.(Whampt'n NE)
Hughes, Robert (Aberdeen N) Skinner, Dennis
Hughes, Sean (Knowsley S) Soley, Clive
Janner, Hon Greville Spearing, Nigel
Jones, Barry (Alyn & Deeside) Stewart, Rt Hon D. (W Isles)
Kennedy, Charles Stott, Roger
Kirkwood, Archy Strang, Gavin
Lamond, James Thomas, Dr R. (Carmarthen)
Lewis, Ron (Carlisle) Thompson, J. (Wansbeck)
Lewis, Terence (Worsley) Thorne, Stan (Preston)
Litherland, Robert Tinn, James
Lloyd, Tony (Stretford) Wainwright, R.
McDonald, Dr Oonagh Wardell, Gareth (Gower)
McKelvey, William Wareing, Robert
McNamara, Kevin Welsh, Michael
McTaggart, Robert Wigley, Dafydd
McWilliam, John Winnick, David
Madden, Max Winterton, Mrs Ann
Marek, Dr John Woodall, Alec
Maxton, John Wrigglesworth, Ian
Meadowcroft, Michael Yeo, Tim
Michie, William
Millan, Rt Hon Bruce Tellers for the Ayes:
Mitchell, Austin (G't Grimsby) Mr. Frank Haynes and
Morris, Rt Hon A. (W'shawe) Mr. Allen McKay.
O'Brien, William
Adley, Robert Chalker, Mrs Lynda
Alexander, Richard Chope, Christopher
Ancram, Michael Clark, Dr Michael (Rochford)
Arnold, Tom Clarke, Rt Hon K. (Rushcliffe)
Ashby, David Cockeram, Eric
Aspinwall, Jack Conway, Derek
Atkins, Robert (South Ribble) Coombs, Simon
Baker, Nicholas (N Dorset) Cope, John
Baldry, Tony Cormack, Patrick
Banks, Robert (Harrogate) Couchman, James
Batiste, Spencer Cranborne, Viscount
Beaumont-Dark, Anthony Currle, Mrs Edwina
Bellingham, Henry Dorrell, Stephen
Benyon, William Douglas-Hamilton, Lord J.
Best, Keith Dover, Den
Bevan, David Gilroy Dunn, Robert
Blackburn, John Durant, Tony
Body, Richard Dykes, Hugh
Boscawen, Hon Robert Evennett, David
Bottomley, Peter Eyre, Sir Reginald
Bottomley, Mrs Virginia Fallon, Michael
Bowden, Gerald (Dulwich) Farr, Sir John
Brandon-Bravo, Martin Favell, Anthony
Bright, Graham Fenner, Mrs Peggy
Brinton, Tim Fletcher, Alexander
Brooke, Hon Peter Forman, Nigel
Brown, M. (Brigg & Cl'thpes) Forth, Eric
Bruinvels Peter Fox, Marcus
Bryan, Sir Paul Gale, Roger
Buck, Sir Antony Gower, Sir Raymond
Budgen, Nick Gregory, Conal
Bulmer, Esmond Griffiths, E. (B'y St Edm'ds)
Burt, Alistair Hamilton, Hon A. (Epsom)
Butcher, John Hampson, Dr Keith
Butterfill, John Hargreaves, Kenneth
Carlisle, John (N Luton) Harris, David
Carlisle, Kenneth (Lincoln) Harvey, Robert
Carlisle, Rt Hon M. (W'ton S) Hawkins, Sir Paul (SW N'folk)
Carttiss, Michael Hayes, J.
Cash, William Hayhoe, Barney
Heathcoat-Amory, David Price, Sir David
Heddle, John Raffan, Keith
Henderson, Barry Raison, Rt Hon Timothy
Hickmet, Richard Rathbone, Tim
Hind, Kenneth Rees, Rt Hon Peter (Dover)
Hirst, Michael Renton, Tim
Howell, Ralph (N Norfolk) Rhodes James, Robert
Jessel, Toby Rhys Williams, Sir Brandon
Jones, Gwilym (Cardiff N) Ridsdale, Sir Julian
Jones, Robert (W Herts) Roberts, Wyn (Conwy)
Jopling, Rt Hon Michael Robinson, Mark (N'port W)
Kilfedder, James A. Roe, Mrs Marion
King, Roger (B'ham N'field) Rossi, Sir Hugh
Lamont, Norman Rowe, Andrew
Lang, Ian Ryder, Richard
Lawrence, Ivan Sackville, Hon Thomas
Leigh, Edward (Gainsbor'gh) Sainsbury, Hon Timothy
Lennox-Boyd, Hon Mark St, John-Stevas, Rt Hon N.
Lester, Jim Sayeed, Jonathan
Lewis, Sir Kenneth (Stamf'd) Shaw, Giles (Pudsey)
Lightbown, David Shaw, Sir Michael (Scarb')
Lilley, Peter Shelton, William (Streatham)
Lloyd, lan (Havant) Shepherd, Colin (Hereford)
Lloyd, Peter, (Fareham) Shersby, Michael
Lord, Michael Silvester, Fred
Luce, Richard Sims, Roger
McCurley, Mrs Anna Skeet, T. H. H.
Macfarlane, Neil Smith, Tim (Beaconsfield)
MacGregor, John Soames, Hon Nicholas
Maclean, David John Speller, Tony
McNair-Wilson, P. (New F'st) Spencer, Derek
Major, John Stanbrook, Ivor
Malins, Humfrey Steen, Anthony
Malone, Gerald Stern, Michael
Maples, John Stevens, Lewis (Nuneaton)
Marland, Paul Stewart, Andrew (Sherwood)
Marlow, Antony Stradling Thomas, J.
Mates, Michael Taylor, John (Solihull)
Mather, Carol Taylor, Teddy (S'end E)
Mayhew, Sir Patrick Terlezki, Stefan
Mellor, David Thomas, Rt Hon Peter
Merchant, Piers Thompson, Donald (Calder V)
Meyer, Sir Anthony Thompson, Patrick (N'ich N)
Miller, Hai (B'grove) Thorne, Neil (Ilford S)
Mills, lain (Menden) Thornton, Malcolm
Mills, Sir Peter (West Devon) Thurnham, Peter
Miscampbell, Norman Townend, John (Bridlington)
Mitchell, David (NW Hants) Tracey, Richard
Moate, Roger Trotter, Neville
Montgomery, Sir Fergus Twinn, Dr lan
Moore, John van Straubenzee, Sir W.
Morris, M. (N'hampton, S) Viggers, Peter
Morrison, Hon C. (Devizes) Waddington, David
Morrison, Hon P. (Chester) Wakeham, Rt Hon John
Moynihan, Hon C. Waldegrave, Hon William
Neale, Gerrard Walden, George
Nelson, Anthony Waller, Gary
Newton, Tony Ward, John
Nicholls, Patrick Wardle, C. (Bexhill)
Norris, Steven Watson, John
Osborn, Sir John Watts, John
Ottaway, Richard Wheeler, John
Page, Sir John (Harrow W) Whitfield, John
Page, Richard (Herts SW) Whitney, Raymond
Parkinson, Rt Hon Cecil Wiggin, Jerry
Parris, Matthew Winterton, Nicholas
Peacock, Mrs Elizabeth Wolfson, Mark
Pollock, Alexander Wood, Timothy
Portillo, Michael
Powell, William (Corby) Tellers for the Noes:
Powley, John Mr. Tristan Garel-Jones and
Prentice, Rt Hon Reg Mr. Michael Neubert.

Question accordingly negatived.

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

Mr. Norman Buchan (Paisley, South)

We all know what agitation there has been during the past year at the Government's intention to do the unspeakable arid the unthinkable—to tax publications, books and newspapers. The campaign was vigorous, accurate and eventually successful. However, there is no doubt that the possibility was large, and the likelihood was that it would have happened had the campaign not been mounted.

I recall that the last time such a proposition was mooted was in 1940, at the very time when we were fighting with our backs to the wall and being exhorted by Churchill to fight on the beaches. The Battle of Britain was being fought overhead, yet the Parliament of 1940 decided, against the will of the Chancellor, Kingsley-Wood, that there should be no such tax. A. P. Herbert said that if there were a tax on the Bible, it would be the first time that the word of God had been taxed. The thing was blown out of the water in a burst of laughter. This year's campaign has prevented a similar contemptuous end, because I believe that there are enough Conservative Members who have voted against such a proposition if it had been put forward.

We are therefore left with this mean-minded fag end of a proposition to bring in the same sort of taxation on newspapers and publications, with the tax on advertisements. I am no friend of such a tax. By definition, a value added tax is always unjust and can cease to be unjust only when it is highly selective, and when it is highly selective it can make all sorts of errors in application. We all know that. VAT is an unfair and unjust tax, so I am no friend of it. I am also no friend of the institution that brought it into being—the Common Market.

However, there is a case for looking at the expenditure of big business on advertising. As the arguments over the past two or three hours have shown, certain issue have at least been recognised by some Conservative Members; for example, in relation to job advertisements. There has been cross-party sympathy, although not necessarily expressed by a high vote.

We are left with the principle of the issue and also with other areas that are affected adversely. I shall refer to only one where I thought that the Government would show some consideration. It is the arts, first, because the arts already pay VAT. It is nonsensical that the theatre, music and cinema are subsidised by the state on the one hand, and on the other pay VAT, which immediately reduces the level of what is a mean and insufficient subsidy. The arts are in peril because of what they have to pay in VAT. It is nonsense.

Secondly, the arts sell their wares in a particular way—by newspaper advertising. The problem is that they have to advertise not once or twice, but continuously. Unless they advertise, day in, day out and night in, night out, they cannot sell their wares. A large-scale single advertisment does not do, because people need to know what is happening on a particular night. For instance, at the end of the week there will be a swapping over of "Henry V" and "Richard III" by the Royal Shakespeare Company. People need to know the dates on which the plays will be on. Therefore, there has to be continuous and expensive advertising.

In the Standard, three or four pages are taken up night in, night out by necessary large-scale advertising. It is costly to the major companies. It is costly to music establishments which have a run of concerts throughout the week. The programmes have to be made known. It is expensive for the theatres, and above all for the small theatres—the small visiting theatre or local theatre which must have continual advertising. I assure the Minister that the level of taxation on such small theatres will be heavy and continuous.

That would not be too bad if the Government were continuing their support for the arts, but over the past few years they have, and in the forthcoming two or three years they will, savagely cut support for the arts. Next year, support for the arts will be cut in real terms by 8 per cent. When we add to that rate-capping on local authorities, it will be seen that many of the arts will be in extreme danger. Even that monetarist Rees-Mogg, the chairman of the Arts Council, has referred to the number of clients that will be put in jeopardy because of the Government's subsidy policies, which will result in a cut this year and every future year. On top of that comes a thing which may topple many of them, the imposition of VAT on the very sector in which they should be expanding to draw in more box office returns to replace the lost subsidy—advertising.

The Committee must oppose the clause. I hope that we can build up a campaign to get some sense into the Government and some understanding that if they are to impose this tax, although I hope that they will not and will concede the case at a later stage, they must at least make it understood to the Minister for the Arts and the Chancellor that the forecast level of subsidy must be increased. Some measures must be taken to stop the parlous crisis facing the arts and provide proper support to them.

Mr. O'Neill

Much of what I was to say has already been covered and I have already alluded to this subject, in a debate on the Consolidated Fund Bill some weeks ago. I am sponsored by the National Graphical Association. It has to be made clear that the impact of this imposition on employment in the newspaper and print industry generally will be severe. It is not just the 35,000 jobs in the national newspapers, the 68,000 jobs in the regional newspapers or the 19,000 jobs in magazines that will be affected, but the 14,000 jobs in distribution. In all, some 136,000 people are engaged in the production of newsprint and magazines. We shall have to wait to see how true is the Minister's claim in an earlier debate that the impact on employment will be only marginal.

John Le Page of the Newspaper Publishers Association has said that he has fears about the future of two titles. The Newspaper Society has said that this may have a serious impact on the provincial press. It would be dangerous to quote figures about the impact but it will be more than marginal. I say that for several reasons. The provincial press is now of such a flexible character that we are talking not just about the publication of one or two weekly titles. Often, there are big print centres involving several newspapers that, because of the technology, have to be [Interruption.] Is it necessary for me to speak above a chorus of gabble from Conservative Benches?

The First Deputy Chairman of Ways and Means (Mr. Ernest Armstrong)


Mr. O'Neill

Thank you, Mr. Armstrong.

The local newspapers on which many of our constituents depend for information are printed on presses that produce a variety of other products and that bring about the viability of the printing firms that produce the papers. They do not exist only to produce local newspapers, but if the crutch of the local newspaper is removed, the fragile financial basis of those firms will be put in considerable danger.

We are not talking about jobs exclusively in the newspaper industry. The impact of the imposition of VAT on advertising could be such that some local titles will be endangered. It will certainly be a considerable burden on free sheets, which are often produced in the periods during which local machinery is lying idle. It would be a drain on the business if those machines were not employed.

10.15 pm

It is also fair to say that much of the new machinery which is being used in the provinces, unfortunately to a much greater extent than in other areas of the print industry, is expensive equipment whose use depends upon agreements being reached between the unions and management as to its maximum utilisation. For that to be achieved requires delicate and often painful negotiations by both sides, and in some aspects of the newspaper industry in the provinces, that painful stage has been reached, and discussion is continuing about the final stage in the implementation of the new technology. There is no point in print houses anticipating the maximum utilisation of their machinery if they discover that some of their titles or magazines will be withdrawn from production because they are no longer viable after the imposition of VAT.

The Minister suggested that the imposition of VAT will tidy up media advertising so that the press is treated similarly to radio and television. We heard earlier this evening about classified advertising. In terms of the technology and the numbers of people who can be contacted through the press—the viability of the print industry in general is not healthy, despite the many millions of pounds that have been poured into new equipment and techniques—too much of the attractive and expensive business that should go to British printers is going abroad. We are not talking about areas that have big problems with trade unions, but about the production of the brochures used by Thomson Holidays and some mail order firm catalogues, much of whose work is being done in print shops in Italy and West Germany. We are talking about sustaining a British industry that is fighting manfully to embrace new technology and take advantage of the improvements available to it. But it is being denied the encouragement and support that it deserves from the Government.

For the Government to say that simply because VAT is imposed on independent radio and television it must be imposed on the press, too, is nonsense. The same sort of tidy mindedness is clear when one reflects that, in last year's Budget, VAT was inposed on fish and chips, while this year it will be imposed on the newspapers in which they are wrapped.

This is a sad day for Britain, but it is not as sad as it could have been. We know that VAT could have been imposed on books and newspapers, and we are thankful that it has not been. But, since they have gone this far, we do not know how much further the Government will be encouraged to go. I recognise that we must allow this clause to go through. The two earlier amendments related to two special areas of the debate and did not take account of the industry which produces the product that is being taxed, although I believe that we should have taken account of that. I should have thought that the Minister could have found a better target from which to raise that much-needed £50 million.

Mr. Austin Mitchell

The extension of the positive rate of VAT to newspaper advertising is unnecessary, fiddling, provocative and prejudiced—in other words, it is fairly typical of the Government's policies and strategies. First, it is part of that strategy on which the Government have embarked of taxing everything on which they can lay their hands—not only fish and chips but hamburgers, matches and lighters. It is the "we need the money" syndrome of spreading the tax burden to create the pretence that they are reducing the burden of direct taxation when all they are really doing is shifting the burden on to any item that will bear it. This is part of the typical strategy of tax duplicity on which the Government have embarked.

Secondly, we object to this measure because it will adversely affect newspapers. My particular concern is with the provincial press. The sins of Fleet street are visited on the provincial press, even to the seventh edition. All too often the provincial press is in financial difficulties. It is facing increasing competition from Fleet street newspapers which seem, in many cases, to have fallen off the back of the advertising industry. Those Fleet street journals often bear as much resemblance to newspapers as this Government's policies bear to conservatism. They are driving the provincial press into difficulties.

It is vital to our democratic way of life to preserve the provincial press. Unfortunately, all too often, the maintenance of good objective standards and good journalism depend not on the stimulus of real competition but on a monopoly's good will and conscience. Many of the evening newspapers are part of a monopoly. Some papers—the Grimsby Evening Telegraph is one, as I am sure the hon. Member for Brigg and Cleethorpes (Mr. Brown) will agree—maintain the honourable standards of journalism, albeit in the face of increasing difficulties. The financial constraints imposed upon them will be heightened by this measure which will affect newspaper revenue. About 80 per cent. of provincial press revenue comes not from the cover price but from advertising.

Thirdly, this is a retrograde measure because it is truckling to the EEC Commission. My impression is that if one gives such a commission an inch, it will take a kilometre. This attempt to end our zero-rated system of VAT is illegal, irresponsible and unnecessary. It is certainly not justified by the circumstances. Clearly the Government feel a need, for some strange reason, to bow in the EEC's direction. The Government are not able to tackle certain other aspects. They certainly would not wish to extend VAT to safety clothing for industrial purposes, but they have hit the newspapers.

I hope that the newspapers will retaliate by treating this Government and the Conservative party with the same impartiality, courtesy, objectivity and factual accuracy with which they have treated the Labour party over the years. The newspapers must accept that this measure is a direct consequence of the type of policies supported by them—increasing the tax burden by increasing unemployment and deferring to the EEC which, all too often, the newspapers support and back.

Fourthly, this is a retrograde measure because it hits especially severely at those who cannot pass on the VAT burden, including small business and small advertisers. It hits the small classified advertisements of ordinary people announcing events of joy or sorrow—births, marriages and deaths. Such advertisements commemorate the passing of loved ones in terms that may appear fusty and homespun to the sophisticated minds on the Government side but they are deeply sincere. These advertisements should certainly not be the objective of a tax.

Newspapers are working in an increasingly competitive advertising market. There is intense competition. I want to ask the Minister of State a question that affects the other participants involved in this competition. Is the competition on an equal footing? I am interested in the competition from pirate radio. Pirate radio is illegal. There has been an enormous increase in the number of pirate radio stations. In an answer earlier this year, the Parliamentary Under-Secretary of State for Trade and Industry said: my Department has monitored 74 unlicensed broadcasters on radio".-[Official Report, 8 February 1985; Vol. 72, c. 747.] A list is included which unfortunately does not contain Radio Arthur which was broadcasting for the NUM during the pit stoppage. The Department took action on 124 occasions in 1984 and so far this year it has taken action against about 15. That does not have the effect of closing them because generally the radio stations continue to broadcast.

Those radio stations broadcast on the basis of advertising revenue which is taken from the pool of advertising revenue which clause 10 proposes to tax. I understood that it was an offence to advertise on pirate radio. It turns out that in their wisdom the Labour Government made it an offence under the Marine, &c., Broadcasting (Offences) Act 1967 to advertise on stations transmitting from outside territorial waters. The stations, like the Government, have to be at sea before they commit an offence relating to advertising. The two stations which broadcast at sea deny that they take advertising revenue from this country. We do not have to believe them, but they deny it.

It is not possible to stop advertising. Although the Department of Trade and Industry has written and made threatening noises to 300 companies which have been advertising on pirate radio, it is not possible to deal with them unless they are charged with aiding and abetting. That means that the principal offender—the pirate radio—must be found guilty.

The rates for advertising on pirate radio vary enormously. A 30-second slot on Capital Radio costs £705 whereas on Radio Jackie, in south-west London, it costs £5. That may not be enormous amount, but it is taken from the pool of advertising revenue. I have to confess to an illegality by listening to Skyline Radio on the way home at night. It is quoted in The Guardian that advertising on Skyline Radio costs between £50 and £225. Payment is strictly in advance. Advertising brings that station about £600 a week. It exceeds the basic running costs of £400. It is, therefore, possible to make money out of pirate radio stations. Are those pirate radio stations registered for VAT? One of them boasts of being registered for VAT. Are the 74 registered for VAT? If they are illegal, how can they be registered?

I have heard car hire firms, hotels, discos, garages and a whole series of businesses advertising on pirate radio. Is the VAT payable on those advertisements allowable against tax? Is the advertising of those firms tax deductible? The matter plainly raises a moral issue and it is perhaps a little unfair to spring it on the Minister.

If the VAT on advertising or the advertising on pirate radio are tax allowable, why are not the hiring of call girls, prostitution or any other form of illegal activity allowable? That opens fascinating vistas that I hope the Minister will deal with. Those questions must be answered in the light of the competition that these stations now provide for legitimate advertising on commercial radio, which already pays VAT, and for newspapers, which will pay VAT under these proposals.

10.30 pm
Mr. Peter Pike (Burnley)

I wish briefly to support my hon. Friends who oppose the clause. The proposal to impose VAT on newspaper advertising is a retrograde step. Although the Government may not have actually spread the rumour prior to the Budget that VAT might be imposed on both books and newspapers, they welcomed the publicity, because it made the proposal in the Budget appear small fry compared with what people feared.

The Government are moving in the wrong direction, and having taken this first step I fear that they will be encouraged to move further down that road. Although VAT has not been imposed on books in this Budget, they may move in that direction in future. Therefore, we must oppose the clause. I hope that the Government have second thoughts because we are talking about a small and insignificant part of the overall Budget.

I am concerned about the implications for the provincial press. During recent years a large number of local and regional newspapers have closed. They have been under threat from the free newspapers and other sources going for the limited budgets of advertisers. The local and provincial press are dependent on advertising from people who cannot claim back the VAT—those advertising births, marriages, personal classified advertisements and so on. That is a substantial part of their advertising.

If the Government continue in this direction, many more local papers will be under threat. While I often differ with what they print, I believe that they have a right to print it. It would be a bad day if more of them closed. I accept that the free press has a part to play, but it is no substitute for a weekly or daily regional newspaper. I do not dispute its right to exist, but the amount of editorial material, when compared with a traditional paper, is small. Many free newspapers have few reporters and depend almost entirely on advertising revenue. The local press also depend on that advertising revenue to survive. Any pressure put on them will cause more of them to close, which would be a bad day for local news.

I hope that this is not the foot in the door to putting VAT on to newspaper cover costs and books. As I have been serving on the Transport Bill Committee, I have not heard the earlier debates, so I do not know if the Minister has already answered my point. I hope that the Government will assure us that they will not move in that direction and that, even at this late stage, they will have second thoughts about imposing VAT on newspaper advertising.

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

I apologise for not being present for all the clause stand part debate.

My hon. Friend the Member for Burnley (Mr. Pike) said that the free press was no substitute for a professional provincial press. In some areas free newspapers have become a valuable addition to journalism in Britain, but they are threatened in a dangerous way by the clause.

As my hon. Friend said, the quality of the free press is variable. Some rely almost entirely on advertisements and make no attempt at journalism. What little copy they carry is syndicated. But some, such as the North Staffordshire News and Advertiser, make a distinct effort at journalism. Indeed, because of their limited journalistic resources, they have found a mode of journalism that matches those resources. They cannot cover the whole range of local activities, so adopt a more campaigning role, and they have added a positive and distinct element to journalism.

As my hon. Friend the Member for Sedgefield (Mr. Blair) said, there are now 700 of them and they are a force to be reckoned with. By threatening them, the clause is threatening an embryo movement in journalism which may become insignificant and unimportant, but which could, as I hope will, develop into an interesting part of the media, particularly in the local and provincial sphere.

The clause affects them in a number of ways, some of which the Minister may not totally have taken into account. He may not have appreciated that the whole revenue of free newspapers now bears VAT, a move that is more radical than that which we were discussing in previous amendments in connection with VAT on charities.

This will add considerably to the costs of these newspapers. For example, a local newspaper in north Staffordshire, I was informed last week, has had to employ an extra member of staff simply to deal with the more complex type of invoicing. For a small business run with few staff, that has been a considerable extra cost.

About a third of that newspaper's advertising is placed by clients who will not be able to reclaim VAT. The paper carries 12 pages of advertising, four of which, it is estimated, are from small traders such as people in insurance and finance and from charities. The revenue of such newspapers is affected in an even more radical way than I suspect the Chancellor realised when he introduced the measure.

As I pointed out, it is to be hoped that the free press becomes a significant and valuable addition to journalism. Ironically, this VAT proposal will not only squeeze them as small businesses—and the Government claim that they see small firms as providing the main source of employment in the coming years—but will squeeze their editoral quality. If their revenue is squeezed, their attempts to become serious, albeit limited, journalistic vehicles will be equally restricted.

The Government will force them back into a laager of advertising and syndication, with no attempt being made at even the present embryonic movement into local campaigning journalism which could make them valuable. Instead, the Government will condemn them to being rather limited advertising rags. That cannot be what the Government intend. It would not be to the benefit of local communities, and in strangling these small areas of innovative journalism, the Government will also be strangling some of the small businesses that they claim to want to help.

Mr. Blair

We have already debated the effect on consumers of the imposition of VAT on newspaper advertisements, and it is right that we should also consider the effect on the newspaper industry.

Most of the relevant points have been extremely well made by my hon. Friends the Members for Clackmannan (Mr. O'Neill). for Paisley, South (Mr. Buchan), for Great Grimsby (Mr. Mitchell), for Burnley (Mr. Pike) and for Stoke-on-Trent, Central (Mr. Fisher). The House is, therefore, in the fortunate position that it will not have to listen to me for long. [HON. MEMBERS: "Shame."] I am always open to persuasion.

The Minister of State accepted the estimate of a 3 per cent. drop in revenue resulting from the imposition of VAT on newspaper advertisements. That is a high figure, considering the margins on which some papers operate.

I concur with what my hon. Friend the Member for Stoke-on-Trent, Central said about free newspapers. It is often not realised how many people are employed by those papers. It is estimated that there could be as many as 13,800 full-time employees and almost 96,000 part-time employees. All the revenue comes from advertising. The growth in the number of free newspapers has been enormous and it is clear that it will continue if it is allowed to do so. The employment effects are as important as anything else.

We have said throughout our debates that the Minister should be particular in his estimate of the employment effects of introducing VAT on newspaper advertisements. The Government's record in predicting the employment effects of VAT is extremely poor. Last year, VAT was imposed on takeaway foods and we were assured by the Chief Secretary to the Treasury that the employment effects of that would be minimal. However, the Hot Takeaway Action Group, which has carried out a large survey, estimates the effects to have been devastating and it is suggested that 20,000 people have been made redundant as a result of that imposition of VAT.

I hope that the Minister of State will give us specific predictions of the employment effects of the imposition of VAT on newspaper advertisements. We fear that it will drive many newspapers at the margin to make a considerable number of people redundant and that it may even put some papers out of business.

Mr. Hayhoe

The hon. Members for Paisley, South (Mr. Buchan) and for Burnley (Mr. Pike) referred to press speculation that the Government might put VAT on newspapers and books. I assure both hon. Members that that was speculation and that the Government had no hand in it.

The hon. Member for Burnley asked whether the imposition of VAT on press and magazine advertising is an hors d'oeuvre to VAT being imposed more widely on the printed word. I refer him to what my right hon. Friend the Chancellor said in his Budget speech. He announced that while the Government accepted that this was an area in which European Community law had to be reckoned with, and where we were bound by treaty obligations, he did not intend to make any further extensions of the VAT base during the lifetime of this Parliament. That is an absolute assurance along the lines for which the hon. Gentleman asked.

10.45 pm

The hon. Member for Paisley, South referred to advertising for the arts—concerts, theatre and the like— and was concerned that the imposition of VAT on advertising would be an additional burden upon tie arts which would have adverse effects. In fact, theatres, concert organisations and the like are registered for VAT. If they have a turnover in the year of over £19,500, they are registered and charged VAT on their ticket sales and, therefore, can reclaim the VAT that they pay on their press advertising as they now reclaim other VAT charges that they have to meet. In those circumstances, I think the generality must be that the worries of the hon. Gentleman will not be reflected in practice. Indeed, I know of no representations from the arts world on this issue, because these organisations are well aware that they can reclaim any additional input tax that they have to pay on their advertisements.

The hon. Gentleman made some general comments about Government support for the arts. This is not the occasion to reply to them, and I do not intend to do so. However, for the record, I do not accept his critical comments.

The hon. Member for Clackmannan (Mr. O'Neill) referred to the effect of VAT on advertisements in the press and magazines and was concerned about whether this might result in some job losses. As he knows, and, indeed, referred to, we had been talking along these lines on earlier amendments. I do not intend to repeat what I said then. The estimates that I have indicate that the job effect will be very small.

What I can be certain of, however, is that if job losses occur in the press and magazines, the VAT charge on advertisements will be blamed for everything. Last year, when VAT was imposed on hot takeaway food and that coincided with a record rise in the price of potatoes, fish and vegetable oil, it was never suggested that the difficulties which the industry encountered had any thing to do with the price of raw materials—it was all blamed on VAT. Anybody who is involved in tax affairs of any kind knows that one attracts that kind of comment.

I met representatives of the Hot Takeaway Action Group recently and asked them whether, on the basis of group's latest surveys, they could differentiate between the various effects. The surveys were not scientifically carried out, as the representatives acknowledged. The surveys were limited, and it was perhaps a somewhat partial sample that was taken. Therefore, even the representatives of the group do not contend that the surveys give a proper view over the whole of the hot takeaway food area, and they had to acknowledge—and did so quite freely and openly—that they could not differentiate between the various effects.

As to Government forecasts—and reference was made to my right hon. and learned Friend the Chief Secretary—the first time that we shall have evidence is later this year when we receive the family expenditure survey data for 1984, which will give us a pretty clear indication of spending on hot takeaway food. We shall have to wait until later this year to have some scientifically produced estimates in the expenditure survey, after which we will be better placed to make a judgment.

To return to the question of jobs in the printing industry generally, if management in the printing industry were offered a choice between a much more realistic and co-operative attitude by the trade unions that operate in that industry and the imposition of VAT on its press advertising, I am sure which it would choose.

I share the concern that has been expressed about the loss of printing in the country and the fact that so much printing has moved abroad over a long period of years. I am delighted that some of it is coming back to the country. That is because management is now being allowed better to manage and use the new technology. I welcome the helpful and constructive comments that have been made on this matter. If those attitudes are reflected more widely I hope that British printing, which had a fine reputation in the past, will be able to recover much of the ground that has been lost.

The hon. Member for Great Grimsby (Mr. Mitchell) referred to the VAT position of pirate radio. As he recognised, that is going a little wide of the clause. It may be out of the same pool, but so are a great many other things. The hon. Gentleman thought that he would be lucky to get an answer from me today, and he was right. Nevertheless, I shall look into the matter and write to him about it.

I commend the clause to the Committee.

Question put and agreed to.

Clause 10 ordered to stand part of the Bill.

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