HC Deb 14 July 1988 vol 137 cc546-7
8. Mr. Heathcoat-Amory

To ask the Chancellor of the Exchequer if he has any plans to approximate indirect t ax rates to the European Community average.

Mr. Lilley

No, Sir.

Mr. Heathcoat-Amory

Does my hon. Friend agree that the EEC Commission proposal to harmonise VAT rates throughout the Community is based on the fallacy that different rates distort competition? Will he point out to the Commission that that is not the case, because VAT is a tax on consumers, not on production costs, and that businesses can reclaim VAT? Does my hon. Friend agree that the EEC Commission might find it inconvenient and untidy to have different rates of tax in different parts of the Community, but that that hardly justifies an assault on the tax powers of individual Parliaments?

Mr. Lilley

My hon. Friend is absolutely right in saying that VAT causes no distortions of commercial trade, because it applies equally to imported and domestic goods, and requires comparatively limited border control. The only distortion is cross-border shopping. The European Commission's proposals to deal with that are rather misconceived. That is perhaps better solved by liberalising controls on cross-border shopping, and then leaving market forces to constrain individual countries through the rates of VAT that they choose to apply.

Mr. Win Griffiths

Will the Minister confirm that all those goods and services that are currently zero-rated will continue to be so rated for the foreseeable future?

Mr. Lilley

I can confirm that the British Government will not allow their powers to retain zero rates to be constrained by the EEC.

Mr. John M. Taylor

Does my hon. Friend agree that the lesson of the United States of America is instructive? In that single market individual states are free to levy their own rates of indirect taxation. The outturn is that market forces are the ultimate constraint on those rates.

Mr. Lilley

My hon. Friend is absolutely right. That illustrates that it is quite unnecessary to constrain the sovereign power of individual countries to set their own indirect tax rates. It would be paradoxical if the member states of the European Community had less power in this respect than the individual states of the United States of America.

Dr. Marek

Will the Economic Secretary state here and now that there will be no VAT on transport, books, newspapers and periodicals? If he will not, does he realise that these items will then be the subject of some shabby horse-trading in a smoke-filled room some time in 1992 when the Common market comes to make its compromises?

Mr. Lilley

I have made it absolutely clear already that we shall not concede our right to retain the zero rate on any products on which we already have it.