HC Deb 24 February 1988 vol 128 cc297-302 3.31 pm
Mr. Nigel Spearing (Newham, South)

(by private notice): To ask the Chancellor of the Exchequer if he will make a statement concerning the decision of the European Court of Justice to require the Government of the United Kingdom to impose value added tax on certain categories of spectacles.

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

As I told my hon. Friend the Member for Banbury (Mr. Baldry) yesterday, this ruling arises from the EC sixth directive on VAT, which was adopted in 1977. The Government will abide by the court's decision, but we need to study the judgment in detail—and consult interested trade bodies—before we can make any firm decisions about how to proceed. The United Kingdom has a treaty obligation to implement rulings from the European Court. Any amendment to United Kingdom law imposing taxation would have to be proposed to, and approved by, the House of Commons.

I want to make it clear that the court's decision has nothing whatever to do with the European Commission's proposals for the approximation of VAT rates. These are no more than proposals, and would require new legislation which could be adopted only with the unanimous consent of all member states. The Government have made it abundantly clear that we could not consent to proposals which deprived us of our right to apply zero rates.

Nor does this case have any bearing on the current infraction proceedings taken by the European Commission against the United Kingdom's zero rating of construction services, fuel and power and certain other goods. This concerns a different article of the sixth directive. The legal arguments are entirely different.

Mr. Spearing

Does the hon. Gentleman agree that this is the first occasion in over 300 years that any person or body has imposed a view on this House or the British Government concerning the taxation of our people? Therefore, are not this judgment and any resulting proposals of the Government of more constitutional importance than of health or financial importance, important though they be?

Secondly, in his answer yesterday in columns 140 and 141, the Minister said, as he has now, that the Government will ask the House to pass such legislation, even though it is against the will of both the Government and maybe of the House. If Parliament decides not to pass such legislation, it will be in breach of the treaty. What primary legislation will the House need to amend in order to avoid such an imposition?

Finally, the Minister may be correct in saying that the case that is pending on fuel and industrial building has no connection with the legal arguments, but does he agree that stemming from the sixth directive, the primary legislation and powers for such imposition also exist for those matters?

Mr. Lilley

The hon. Gentleman is correct to say that this raises constitutional issues, but he is not correct to say that it is unprecedented. He will recall that on an earlier occasion the British Government was obliged under the treaty of Rome, and as a result of a court ruling, to alter the balance of taxation between beer, wine and spirits. We are restricted in the laws that we can pass by the rulings that we have agreed with our partners in Europe.

The hon. Gentleman asked what primary legislation would have to be changed to free us from our obligations to enforce the rulings of the European Court. That would, of course, infringe the treaty of accession. Article 171 of the treaty of Rome requires us to adopt the rulings of the European Court of Justice.

Mr. Terence L. Higgins (Worthing)

Clearly, Britain must stand by its treaty obligations. However, if a court in this country makes a ruling on the scope of VAT which the House wishes to change, we have the power to do that. What mechanism exists for making such a change in the circumstances that my hon. Friend has outlined?

Mr. Lilley

My right hon. Friend is right to point out that the British Parliament can overrule decisions of British courts. If we wished to change decisions of European courts made under European directives, we should have to obtain the consent of our partners.

Mr. Ronnie Fearn (Southport)

My concern is for the poorer people who claim benefit in our community. May we have an assurance that the extra charges that they will now have to foot will be met by extra allowances? Can the voucher system be revised so that that is catered for too?

Mr. Lilley

I can reassure the hon. Gentleman that the poorer members of society are already eligible to receive vouchers for spectacles. Of course, they receive hearing aids free if there is medical need for them. Consequently, they will not be affected by the decision in any way.

Mr. Teddy Taylor (Southend, East)

Now that the Commission has found and taken advantage of this backdoor method of obliging the British Parliament to impose taxes that it does not want to impose, will my hon. Friend say whether we shall be obliged to levy VAT on gas, electricity, water, sewerage, protective clothing and footwear for industry and all new industrial and commercial buildings, at an estimated cost of £350 million a year, if the European Court makes a similar judgment in a few weeks' time?

Will my hon. Friend urge his legal colleagues to look into the Government's constant assertion that we have a long-time right of veto? Is it not true that under the Single European Act that right of veto lasts until 1992? If by that time we have not agreed to a uniform, harmonised method of VAT, the Commission will be perfectly entitled to go to the court and require us to impose VAT across the board because we have not fulfilled the conditions of the Single European Act.

Mr. Lilley

On the last point, I can reassure my hon. Friend, who has fought an honourable and long battle against the legal basis on which this decision has been taken, that there is no question of our freedom to impose zero rates being time-limited by 1992, or any other date.

I cannot agree with my hon. Friend that this ruling is a back-door method. It was carried out in open court, and the European Court considered the matter over a long period in a perfectly formal and normal way. Just as in this country our courts have to interpret the detailed application of our laws, in Europe the European Court of Justice has the responsibility for interpreting the detailed application of EC directives.

There is no question of this ruling having a direct bearing on the entirely separate infraction case which is currently before the court and which has to do with zero rates on the goods and services that my hon. Friend listed. We still await that judgment. We have argued the United Kingdom's case vigorously and it will be some months before we know the court's ruling. The case will be separate and distinct, based on separate legal arguments and coming under a different part of the directive. Whatever ruling the court reaches, we have an obligation to enforce it in Britain. My hon. Friend is correct in that respect.

Mr. Peter Shore (Bethnal Green and Stepney)

This is a test case which clearly establishes the supremacy of the European Court and European institutions over this sovereign Parliament, or what was a sovereign Parliament. Is not the Minister's reaction wholly inappropriate? He is trying to pretend that this is not a major judgment and a major change in our expectations. Ought he not now to be looking at the treaty of accession and the European Communities Act 1972 under which we consented to join the European Community so that he can identify amendments which would give us a remedy for external tax impositions?

Mr. Lilley

I am sure that the powers exercised by the European Court came as no surprise to the right hon. Member, who during the referendum warned, as he saw it, the country against accepting these powers. He is right to say that fundamental changes amounting to an ending of our membership of the European Community would be required to exempt us from the powers of the European Court when interpreting the laws of the European Community.

Mr. Hugh Dykes (Harrow, East)

Will my hon. Friend dismiss with contempt the hysteria of the last of the anti-EEC Mohicans who remain the the Chamber? Has he seen the remarkable leader in today's Evening Standard, which is not known for its passionate European views, which states: Britain has much to gain and nothing to lose from bringing her indirect taxes into line with Europe."?

Mr. Lilley

I read most of the newspapers, but I have not read the Evening Standard today, so I will not comment on that article.

I shall not dismiss with contempt the views of my right hon. and hon. Friends or of Opposition Members who have honourably opposed our membership of the European Community. They are free to do so. They have rightly drawn attention to the fact that some of the consequences of our membership are displayed in this ruling.

Mr. Win Griffiths (Bridgend)

Will the Minister place in the Library a copy of the arguments that were deployed before the European Court of Justice, so that we can see whether there is any truth in the reports in some papers that the problem lies with the way in which the Government have reduced support for the National Health Service in the provision of spectacles so that spectacles were no longer regarded as being provided in the NHS but as medical supplies which the public were able to buy?

Mr. Lilley

I am happy to place in the Library the ruling of the European Court, and the hon. Gentleman will see that his allegations are entirely without foundation. The matter is not even mentioned in the ruling by the court.

Mr. Robin Maxwell-Hyslop (Tiverton)

I congratulate my hon. Friend on quoting the precedent of the cider and beer tax ruling as against wine, and remind him that the whole point of the Government's response was that, instead of increasing the tax on beer and cider, they agreed to a loss of revenue by decreasing the tax on wine. On that precedent, which he voluntarily quoted, will he now do away with any National Health Service charges for spectacles and testing which would be subject to VAT under this direction, on the exact precedent which he has quoted?

Mr. Lilley

My hon. Friend will be pleased to be reminded that people who are in receipt of vouchers, who constitute about one quarter of those for whom spectacles are prescribed and dispensed, will not be affected by the ruling in any way, so there is no reason to do as he suggests.

Mr. Michael Foot (Blaenau Gwent)

As the Minister seemed to approve the suggestion that the Government's attitude is supported by one newspaper, can he give us an absolute assurance that we shall not have, by any similar method, the imposition of VAT on books or newspapers?

Mr. Lilley

I can give the right hon. Gentleman the assurance that I did not place any weight on the newspaper article, which I had not read. In so far as the right hon. Gentleman's question concerns matters which are properly for the judgment of my right hon. Friend the Chancellor of the Exchequer, I shall leave it to him.

Sir Peter Emery (Honiton)

Although it may be implied from his answer, will my hon. Friend reinforce the Prime Minister's assurance that VAT will not be placed on food?

Mr. Lilley

I can certainly assure my hon. Friend to that effect. It is in no way connected to our right to retain zero rating on all such goods and services, including food, as we promised at the election.

Mr. Bob Cryer (Bradford, South)

Will the Minister confirm that our obligations under the treaty of Rome restrict the rights of the United Kingdom Parliament? Therefore, is not the Government's only option to introduce legislation into the House of Commons to repeal section 2 of the European Communities Act 1972? That Act places on the United Kingdom the obligation of imposing additional value added tax and other charges. Is it not important that the Government introduce appropriate legislation? As the Minister said, the charge is not unprecedented. It is irrelevant whether legal arguments are different. Other charges in the pipeline are to be imposed by the Common Market on our country. The majority of people are determined that we should leave the Common Market in the not-too-distant future.

Mr. Lilley

The hon. Gentleman is probably right to point to the legislative route that will be necessary to undo the ruling. I remind him that the directive that is now being implemented and determined by the European Court of Justice was unanimously adopted by member states of the EEC in 1977, and therefore was wholeheartedly supported by the Labour Government of the day.

Mr. William Cash (Stafford)

Does my hon. Friend agree that the rhetoric of Opposition Members is empty and vacuous? They have failed to take account of the point that my hon. Friend has just made. In 1977, they failed to exercise the veto that led to the requirement being imposed upon Parliament. Will he reiterate the point that the Government have not the slightest intention of adopting a provision of the kind that was put up by Lord Cockfield in the Commission, which is unaccountable and unelected?

Mr. Lilley

My hon. Friend is quite right. We have no intention of accepting proposals that would deprive us of the right to retain zero rates. He was right also to point out to the House the contradiction in Opposition Members' views. They originally supported the directive, the consequences of which they now oppose.

Mr. Max Madden (Bradford, West)

Does the Economic Secretary agree with the view that was recently expressed by Lord Cockfield to the Select Committee, to the effect that no member state of the EEC has the right to veto the introduction of VAT within that member state, but has a right only in respect of the rate of VAT charged?

Mr. Lilley

Lord Cockfield pointed out to the Committee that the treaty states that member states shall unanimously agree such measures as they consider necessary to bring about an internal market. Whether it is necessary in order to achieve that desirable end to approximate taxes is open to dispute. We dispute that it is necessary, and we shall certainly not give our support to proposals which we cannot accept.

Mr. Patrick Cormack (Staffordshire, South)

Will my hon. Friend confirm that nothing in the judgment affects the Chancellor's right to decide at what level VAT shall be levied on any item? Therefore, there is absolutely no need for anybody to panic and think that spectacles will cost 15 per cent. more.

Mr. Lilley

My hon. Friend is correct. Spectacles and the other goods concerned already bear VAT up to but not including the retail distribution point. Therefore, the effect of the judgment is to require Britain to extend VAT to the retail margin. The National Association of Optometrists calculates that, at most, it will involve increasing the sale price of spectacles by 3 to 4 per cent. Of course, it is open to retailers to absorb the costs.

I remind the House that since we abolished the opticians' monopoly, the cost of spectacles to the final consumer has gone down by considerably more than that amount — [Interruption.] It is rich of Opposition Members to criticise our abolition of that monopoly when our action has reduced prices by more than the potential increase that we are discussing.

Mr. John Smith (Monklands, East)

Does not the Minister appreciate that the Government's way out of this practical difficulty is to supply corrective spectacles free of charge, as VAT would then not be leviable, whatever decision the European Court reached? Does not this incident underline the great importance of being careful about entering into obligations? Will he give an absolute guarantee to the House that the Government will veto all the proposals for VAT harmonisation?

Mr. Lilley

The right hon. and learned Gentleman knows full well that vouchers are available to those on supplementary benefit, family income supplement, children under 16, and students under 19 in full-time study. There is no problem with respect to those people.

However, I was interested—and I think that all hon. Members were interested — to hear the right hon. and learned Gentleman's implied slur on the previous Labour Government when he stressed the need to take great care when accepting obligations of this kind. I believe that the right hon. and learned Gentleman was a member of the Cabinet which entered into the obligations, the consequences of which we are now seeing. Is he saying that that Cabinet did not take due care?

Several Hon. Members

rose——

Mr. Speaker

Order. I have noted the hon. Members who have not been called. I am sure that we will return to this matter on other occasions and I will bear those hon. Members in mind. We have an important debate today during which many of these matters may be canvassed.