HC Deb 02 February 1988 vol 126 cc951-6

Motion made, and Question proposed, That this House do now adjourn.

10.36 pm
Mr. Doug Henderson (Newcastle upon Tyne, North)

I am very grateful for this opportunity to consider the removal of value added tax from crisps, nuts and confectionery, including chocolate biscuits. I am also pleased that some Conservative Members are present, and I hope that at least one of them will take part in the debate.

I understand the convention that it is difficult —perhaps awkward—for the Minister to make a specific response to the matter that I am raising, certainly in quantitative terms. However, I hope that, after listening to the contributions, he will accept that issues of taxation principle are at stake and that he will feel able to refer to those principles and to give the Government's view on them, even if he enters a caveat on when any Government action might take place or the extent to which that Government action might alter the current position. I hope that the Minister will not hide behind convention —indeed, I urge him not to do so—and I hope that he will explain the Government's view on what I believe is an important issue, affecting nearly everyone in the country.

For more than a decade, hungry mouths in nearly every home have been eating crisps, nuts, confectionery, biscuits and so on, on which value added tax has been paid. At the same time—this is not a criticism; it is a comparison—food at the rich man's table, where there have, perhaps, been smoked salmon and caviar to eat, has been tax-free. Countless other luxury food items are also tax-free.

The schoolkid who likes, and can perhaps afford no more than, a packet of crisps or a chocolate biscuit at what I used to call piece-time, although I think that playtime is a more appropriate term, pays a VAT charge on those items. That child's mother, who might feel a bit peckish in the middle of the morning and, on the weeks when she is not on the Cambridge diet, might enjoy some nuts to help her out, pays value added tax on those nuts. Working men and women in industry who have an energy gap halfway through an afternoon or night shift, will often have recourse to a chocolate biscuit to give them an energy boost; they pay value added tax on that biscuit.

I am sure that hon. Members of all parties regularly visit pensioners' organisations and we all see chocolate digestive biscuits emerging at the pensioners' coffee mornings. Those biscuits attract value added tax also. All of us who, from time to time, take a break and often consume a well-known product, again a chocolate biscuit, pay value added tax on that biscuit.

The tax law on food is not only discriminatory; I would argue that it is in a muddle because some confectionery and some biscuits are taxed while others are not. A digestive biscuit is untaxed, but even if the same digestive biscuit is of the high-fibre type, which, according to the nutritionalists is better for us, if it is coated with chocolate, it is taxed. It cannot be argued that the relevant question is whether chocolate is involved in the product, because a number of other products, with a high chocolate content are tax-free.

I do not want to advertise particular brands, but I cannot think of a generic name for Jaffa cakes, which are untaxed, as are chocolate puddings. One of my favourites is sponge pudding, which is absolutely saturated with chocolate, and that too is untaxed if it comes out of a tin and is eaten at home.

Mr. Michael Shersby (Uxbridge)

I should like to declare an outside interest in the sugar industry. I am following the hon. Gentleman's points with great attention, because it seems a supreme irony that a tax is put on the confectionery which goes into the lunchboxes of many working men and women, when it is the Government's policy to have no tax on food.

It is interesting to consider whether, in the forthcoming Budget, the Government will suggest that that anomaly should be removed. I recall that, when the right hon. Member for Leeds, East (Mt. Healey) introduced the tax, he mentioned a number of reasons for doing so. One was that he had 400 million reasons for introducing the tax —all of them green ones. He meant that he needed the money.

The Government do not need the money now, and I hope that they will take the opportunity to remove that anomalous tax on part of the food supply in Britain. The hon. Member for Newcastle upon Tyne (Mr. Henderson) has done a great service in drawing the matter to the attention of the House.

Mr. Henderson

I am grateful to the hon. Member for Uxbridge (Mr. Shersby) for making that important point, especially in relation to packed lunches. I have been a tittle reticent about raising that subject, in case it was thought that I was arguing a particular corner.

I would have thought that the Minister might wish to associate himself with that point. I hear that, because of the austerity of the civil service, beer and sandwiches are being consumed at Treasury meetings, and that it is common for civil servants to bring packed lunches. I am sure that Treasury officials and Ministers would not want to feel that they are being discriminated against.

I shall return to the muddle. The best illustration of the muddle relates to the cookie that contains some chocolate. I always have problems with what have been called sexist comments, but I have watched my wife— and I have done it myself — prepare the ingredients. If chocolate pieces are added to a bowl of sugar and fat and the other ingredients to make cookies that contain chocolate pieces, those cookies clearly would not be taxable. However, if the same ingredients are used to bake cookies with chocolate on the outside, it is arguable the same cookies, with the same contents, will become taxable—and under existing law, they would attract VAT. That is the real muddle.

It is not surprising that there is confusion. Her Majesty's Customs and Excise must have great difficulty in determining which confectionery products should be liable for VAT. I am sure that an unnecessary amount of public expenditure goes into that determination, which should be clarified by Parliament.

Mr. Conal Gregory (York)

I congratulate the hon. Member for Newcastle upon Tyne, North on his success in Mr. Speaker's ballot with this important debate.

In my constituency, confectionery is the No. 1 industry. I should like to follow one specific point that the hon. Gentleman raised about the uses of confectionery. I hope that my hon. Friend the Minister will explain why certain types of confectionery are zero-rated in the same way as other foods. Confectionery that is used for sacramental purposes is zero-rated. That was the case in 1973; the hon. Gentleman alluded to that. Earlier today, we heard in the House of the great popularity of a certain type of confectionery to which the hon. Gentleman alluded. The Minster for Employment said that 40 Kit-Kats are consumed every second—such is the industry of his Department in doing research.

We have moved away from the times when confectionery was a special item at Christmas and on Mother's day and Valentine's day — which now approaches. I conclude that we have reached the stage of snacking on confectionery, and it is right that the Treasury consider that point and the use of a whole variety of confectionery at times other than purely special occasions.

Mr. Henderson

I am grateful to the hon. Gentleman for emphasising that point. It reinforces the general argument that I am trying to present.

There is a muddle, and Customs and Excise has a very difficult job to perform. Therefore it is hardly surprising that a number of cases have ended up in court. A recent court case, Commissioners of Customs and Excise v Quaker Oats Limited, related to a chewy bar. Tax liability was determined on the basis of whether the main manufacturing process was baking or another process. That is unacceptable and far too lax. It demonstrates the inherent weakness of the law and the need for change.

We in this country are conscious of the fact that a different attitude is adopted towards the taxation of food. Value added tax is levied on food in some EEC countries, albeit at a reduced rate. I hope that I shall not embarrass the Minister by mentioning that, at the last general election, rumours were rife that, after it was over, VAT would be levied on a wide range of foods. I remember that the Government denied those rumours. I am glad that the Government were able to make their position clear about defending the interests of consumers.

There is, however, an inconsistency, because about 20 per cent. of our food—food that falls into the category of crisps, nuts and confectionery—is subject to tax. The Government accept that those items are food. When the Government prepare their statistics for the family expenditure survey, for product surveys in Economic Trends, for unemployment, for the retail price index or for overseas trade, they include all those items as part of the calculation — and rightly so. However, that shows the inconsistency of the law and the need to address that contradiction.

The Government ought not to say that they cannot comment on that point. It would be difficult for the Government to clarify the position in their Budget proposals, but the position should be established before the House decides what would be practicable. Some may argue that it would be unwise to remove taxation from some of those products, because it would inevitably lead to an increase in consumption that would be damaging to health. I do not accept that view.

Nutritionists do not agree on what is an ideal diet. However, they agree that the diet should be balanced and that it should include a combination of carbohydrates, fats and protein. The Biscuit, Cake, Chocolate and Confectionery Alliance has argued convincingly that its products contribute 22 per cent. of the carbohydrates, 15 per cent. of the fats and 7 per cent. of the protein consumed in this country, and that their products amount to about 15 per cent. of the average person's diet. To classify those products for taxation purposes as non-food items—as luxuries that people consume at the weekend in small quantities—flies in the face of both logic and equity.

I hope that the Government will not argue that, although they would like to do something about this, they would encounter difficulties from the European Commission. In the current case that was referred to in an earlier debate, which relates to whether we should be able to zero-rate certain services, the Advocate General for the European Court of Justice cited the instance of zero-rating food as an acceptable application of the rules within Europe. He stated that that acceptability was based on social grounds.

If the Government accept some of the arguments that I and other hon. Members have presented tonight, they cannot maintain that there is a European obstacle. The Government have a strong defence under article 28.2 of the sixth directive, which allows a review of the items that are included as VAT-exempt or VAT-reduced. Under article 17 of the directive, the Commission allows certain products to have the reduced rate introduced on social grounds.

Some of my colleagues did not like the way in which the taxation was originally applied, and I am sure that some Conservative Members felt the same. Notwithstanding the arguments, we have an obligation to the House to start with a clean sheet and examine the whole question of what is and what is not food. We should recognise that an untenable position currently exists.

Of course, revenue implications are inevitable whenever a proposition like this is put to the test in the House. In the short time that I have been a Member of the House, I have noticed that, whenever revenue implications arise, uncomfortable twitching occurs among Treasury Ministers. I do not expect anything different this evening.

However, we are not talking about the loss of all the tax revenue on these foods. I am sure that the Treasury team, understanding the secondary impact of economics, will realise that at present £590 million is raised in taxation on those products, of which about £450 million is raised from confectionery and biscuits. I know that the Minister will be aware that, by changing the law to apply taxation in the way that I and my colleagues are suggesting, he would not lose the full £590 million, or £450 million in the case of confectionery. There is a plus side to the account.

The Minister will understand that there will be benefits from the impact that reducing VAT would have on increasing the demand for products. Three of four major conglomerates which control the industry have given a commitment to control the price should taxation be removed. They know that the Government will gain from other indirect taxes and through the saving of unemployment benefit and social security as a result of increased employment in the industry. The estimate is for an additional 14,000 jobs. I would not suggest that that is a precise figure, but it is a sign of the order of the increase in employment.

Increased taxes and national insurance would accrue to the Treasury through the employment of more people in the industry and increased taxes on profits. I estimate that the net cost to the Treasury might be about £240 million in the case of confectionery and perhaps another £50 million for nuts and crisps.

I hope that the Government will accept that the case has been made that there are inconsistencies and that the people who have suffered are in the lower and middle income groups. Packed lunches have suffered badly from the way in which taxation is levied at the moment.

I asked the Chancellor of the Exchequer about this on 26 November 1987. He replied that I should take up the matter with my right hon. Friend the Member for Leeds, East (Mr. Healey), who first introduced that tax. I do not think that that sort of dismissive reply—which we have not heard from the Minister this evening—is sufficient. We must tackle the whole question of taxation consistency, logic, equity and fairness. The issue is not one of party policy, as is clear from the support that it has received on both sides of the House.

I ask the Minster to agree to early discussions with his colleagues, and particularly with the Chancellor of the Exchequer, on the possibility of assenting to my proposals.

11 pm

Mr. Conal Gregory (York)

rose—

Madam Deputy Speaker (Miss Betty Boothroyd)

Has the hon. Gentleman agreement for a second intervention?

Mr. Gregory

I sought to raise just one point, Madam Deputy Speaker.

Madam Deputy Speaker

The hon. Gentleman has already been allowed one long intervention. Has he agreement for another?

The Economic Secretary to the Treasury (Mr. Peter Lilley) indicated assent.

Mr. Gregory

I should like to delay the House for a few moments before my hon. Friend responds, mainly on financial matters, on which he is particularly competent.

First, I wish to endorse the comment by the hon. Member for Newcastle upon Tyne, North (Mr. Henderson) about the comparison with other EEC countries. I hope that my hon. Friend will make some response on that. We are trying, under the treaty of Rome, to obtain consensus; we are out of line, particularly with Italy and West Germany, in not zero-rating confectionery, or putting it on at the same rate as other foods.

Secondly, some 14,000 new jobs would be created if my hon. Friend sought that approach. Thirdly, may I ask him to counter the comment made, I believe erroneously, in the last Parliament by the hon. Member for Oldham, West (Mr. Meacher) that, if Labour returned to power, a tax would be imposed on sugar? That would be very regressive, and most unfortunate for the industry.

11.1 pm

The Economic Secretary to the Treasury (Mr. Peter Lilley)

I congratulate the hon. Member for Newcastle upon Tyne, North (Mr. Henderson) on obtaining this debate, and on the eloquence and command of detail with which he has presented his case. I know that he has taken a deep interest in this subject for some time, and has great knowledge of it, as well as concern not just from the constituency angle, but for the wider principles that it raises.

I also pay tribute to my hon. Friends the Members for Uxbridge (Mr. Shersby) and for York (Mr. Gregory) for their contributions. They too have a long-standing interest in the subject and great knowledge of it, and I am grateful to them for making their points today. I am grateful, too, to the hon. Member for Newcastle upon Tyne, North for acknowledging that I am constrained by the long-standing convention that Treasury Ministers do not make substantive comments on fiscal matters during the Budget purdah period, and I hope that he will understand that.

I have listened attentively to what the hon. Gentleman and my hon. Friends have said, and I will consider it deeply and discuss it with my colleagues. I hope that the hon. Gentleman will understand that I cannot go further than that today.

I will add one point: when the hon. Gentleman spoke about what he saw as anomalies, as did my hon. Friends, I felt that the ghost of Sir Gerald Nabarro was hanging over the Chamber, and remembered that he had made a whole career on the subject I very much hope that the hon. Gentleman does not follow suit, as I would he the principal butt. However, I am grateful to him for the points that he has raised.

Question put and agreed to.

Adjourned accordingly at three minutes past Eleven o'clock.