HC Deb 11 May 1988 vol 133 cc412-39

10 pm

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

I beg to move, That this House takes note of European Community Documents Nos. 8199/87 on indirect tax rates and structures, 8200/87 on value added tax rates, 8201/87 on the removal of fiscal frontiers, 8202/87 on a value added tax clearing mechanism for intra-Community sales, 8203/87 + COR 1 on convergence of rates of value added tax and excise duties, 8204/87 and 8205/87 on taxes on cigarettes and other manufactured tobacco, 8206/87 on excise duty on mineral oils and 8207/87 + COR 1 on excise duty on alcohol.

Mr. Speaker

I have selected the Opposition amendment.

Mr. Lilley

This is a very timely debate. Next weekend the Economic and Financial Affairs Council, hereafter known as ECOFIN, is meeting informally to discuss approximation. It is right that the House should have the opportunity to discuss these matters beforehand, if not to hear them. I know that my right hon. Friend the Chancellor of the Exchequer will study carefully the views that will be expressed by hon. Members tonight.

I am very grateful both to the Select Committee on European Legislation and to the Treasury and Civil Service Select Committee for their invaluable reports.Both reports confirm that, in most significant areas, the Government's overall approach is one which most hon.Members support.

Perhaps it would help if I summarised the three main features of the Commission's proposals. First, the Commission has proposed the approximation of value added tax rates. All member states would apply two positive rates—a standard rate between 14 per cent. and 20 per cent.; and a reduced rate between 4 per cent. and 9 per cent. There would therefore be no scope to apply a zero rate. The reduced rate would apply to foodstuffs, excluding alcohol, energy for heating and lighting, water, passenger transport, pharmaceutical products, and to books, newspapers and periodicals. All other taxable items would be standard rated.

The second major feature of the proposals is that exports would no longer be zero rated. Tax would be charged across frontiers, at a rate applicable in the exporting country. A clearing house would reallocate displaced revenues to member states in which goods or services are consumed.

Third, the Commission has proposed a complete harmonisation of rates on excise duties. The proposed rates are based on a mixture of weighted and arithmetic Community averages.

Before commenting on the proposals, I should emphasise that the Government share the Commission's ultimate objective to create a single internal market by removing unnecessary obstacles to trade. We are wholeheartedly committed to that, but, as we have already made clear, we have fundamental difficulties with the Commission's approach.

We simply do not think it is necessary for the completion of the internal market that tax rates be approximated. Moreover, we have a major difficulty with the Commission's proposals for zero rates. As drafted, the proposal makes no provision for zero rates, although the Commission has hinted at temporary derogations for member states with particular difficulties.

We have made specific pledges to the electorate to retain zero rating on food, fuel and power, and children's clothing. I can assure the House that we neither wish nor intend to resile from those pledges. So I would have been happy to accept the amendment in the name of my hon. Friend the Member for Thanet, South (Mr. Aitken) and our hon.Friends.

Mr. Teddy Taylor (Southend, East)

In view of the Minister's spendid assurance about VAT on fuel, if the European Court of Justice tells the Government in about three weeks' time that they are breaking the law by not levying VAT on gas and electricity on industry and commerce—on every small and big firm in this country—will the Government stand firm and reject the European Court's decision?

Mr. Lilley

We are talking about fuel and power for domestic consumption, which is not an issue in the infraction case. If the infraction case were to go against us in the matter of fuel and power for industry, that would not represent a burden for industry. It would be offset against the value added tax levied on output.

Apart from the specific pledges of zero rating on other goods, no specific pledges have been made that would restrict the freedom of action of my right hon. Friend the Chancellor of the Exchequer. We believe that it should remain for my right hon. Friend, who is responsible to this Parliament, to decide whether to retain zero rates on the items on which specific pledges have been made.

Mr. Michael Foot (Blaenau Gwent)

Is there any good reason why we should not now have a pledge on books and newspapers, an issue that has caused so much interest and concern? Why cannot we have a simple pledge on that score, which would relax or remove some of the controversy?

Mr. Lilley

It has been the practice of successive Governments not to limit the freedom of action of Chancellors of the Exchequer in that way. In the exceptional circumstances of a general election, specific pledges were made. We do not intend to limit the freedom of action of my right hon. Friend the Chancellor of the Exchequer in any other way. My right hon. Friend made it clear at the meeting of ECOFIN in November 1987 that the United Kingdom cannot accept proposals that would in any way restrict its ability to retain zero rates of VAT.

We have other areas of difficulty with the Commission's proposals of which the most important are its proposals for excise duty on alcohol and tobacco. The Commission's use of average rates means that in the United Kingdom the duty on alcoholic beverages would fall by between 40 and 85 per cent. while the duty on cigarettes would fall by about 10 per cent. Changes of this magnitude would have a marked effect on Britain's health and social policy. We have made it clear that the United Kingdom has fundamental difficulties with the Commission's approach in this respect.

Mr. Bob Cryer (Bradford, South)

As the Minister knows, the difficulties that he has described will return again and again, producing uncertainty in the publishing industry, for example, and in other areas to which he has referred. Can he say that the chief organiser of these difficulties, Lord Cockfield, who is an appointee of the Prime Minister—he is the source of all these ridiculous proposals—will be replaced when his term of office comes to an end? In that way the source of these difficulties will be diminished.

Mr. Lilley

No, I cannot give that assurance. I can say to the hon. Gentleman that Britain is not alone in having problems with these proposals.

Mr. Michael Fallon (Darlington)

My hon. Friend has spoken of the Government's objection to the changes in excise duty on tobacco and their objection to the magnitude of the change that would be involved. Will he confirm that the Government object also to the sheer crudity of taking an arithmetical average as a means of achieving the harmonisation of excise duty?

Mr. Lilley

I have said that we do not think that it is necessary for achieving the ultimate objective, so I am inclined to accept my hon. Friend's point of view.

As I have said, the United Kingdom is not alone in facing difficulties with the proposals. Almost every member state has problems with the concept of a clearing house for VAT revenues. As proposed, the clearing house would be largely unaccountable, inauditable and open to fraud. The overall tax proposals would cause some countries that rely heavily on indirect taxes to lose a substantial amount of Government revenue, and others would have to increase indirect taxes substantially, or even impose them for the first time, on specific products.

Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak)

Will my hon. Friend accept that many of us have a tremendous amount of sympathy for him in his position, he being at heart a sensible person who is living in a world of nonsense? How can it be right that those of us who like to smoke, as I do every now and again, and those who like to drink, as I do every now and again, will find that harmonisation will make drinking and smoking cheaper and make all other sensible things more expensive? Many of us accept that 1992 will be a good year for this country, but how can harmonisation be anything other than a great nonsense?

Mr. Lilley

I admire my hon. Friend's integrity in being able to withstand the prospect of cheapening his vices, and opposing the proposals which would bring that about.

We ought not to forget that the ultimate objective, both of the Commission's proposals and of our own approach to the internal market, is to dismantle unnecessary barriers to trade. The Commission has made clear the fact that it views its proposals simply as a necessary precondition of obtaining agreement on the dismantlement of barriers. Unfortunately, there is now a danger of getting bogged down in disagreements on that intermediate step. Therefore, attention is turning to the idea that we should move directly to starting to dismantle unnecessary barriers.

Mr. John Butterfill (Bournemouth, West)

Does my hon. Friend agree that, in the United States, the fact that different states impose individual levels of local tax appears to create no such barriers? Is that not a much better model for the European Community than the line proposed by the Commission?

Mr. Lilley

My hon. Friend makes an important point, and it is one that I intended making. I am grateful to him for making it for me. He is correct in saying that experience in the United States has shown that individual states can retain fiscal powers without damaging the self-evident internal market that the United States as a whole possesses.

Differences in VAT rates in Europe are usually small by comparison with the other factors that may affect prices either side of national borders and bring about a cross-border trading distortion.

Mr. Tony Lloyd (Stretford)

Does the Minister accept that VAT on public transport is a relatively small component compared with the subsidy which most other European nations apply to their public transport systems? Will the Minister ensure that our partners in the Community accept that fact, before insisting that we impose VAT on our largely unsubsidised fare levels?

Mr. Lilley

I accept the hon. Member's point, but I do not believe we shall need to deploy that argument because of wider differences and difficulties which we are not alone in facing.

The Commission itself has acknowledged the attractiveness of taking steps towards beginning to dismantle barriers before starting on the process of approximation. We believe there is ground for hope in that respect.

Mr. Ron Leighton (Newham, North-East)

Instead of saying that the Government have difficulties with these matters, why cannot the Minister make a clear and unambiguous statement, with no here or there, that the taxation of the British people is a matter for the House and for no one else? We should be taking these decisions, not a body unelected by the British people and not removable by them.

Mr. Lilley

I gave clear and unequivocal pledges in the matter of zero rates, as the hon. Gentleman will recall. We have already conceded in some respects the power to tax to the European Community. Not long ago, I reported to the House the European Court of Justice case affecting spectacles, which ruling the House will be bound to observe—and the Government accept that it is so bound. I could not go as far as the hon. Gentleman wishes.

The Opposition amendment has been selected for debate and I presume that its intention is to ensure tighter parliamentary control over European fiscal legislation. I have every sympathy with that objective. However, the amendment ignores the excellent work of our European Select Committee in ensuring that Commission proposals are debated before they are finalised. The amendment will also hamper the Government's ability to negotiate forcefully on Britain's behalf, as well as making it harder for member states ever to achieve agreement. It is unworkable and unnecessary. I imagine that that is why the procedure incorporated in the amendment was firmly rejected by the last Labour Government.

Mr. Nigel Spearing (Newham, South)

Is the Minister saying that, important though the Procedure Committee precautions are, he is denying the right of the House to decide what tax shall be placed upon the British people? If he is saying that, he is rolling back 300 years of constitutional history.

Mr. Lilley

I have just been reading the reports of the debate in 1976, in which the hon. Gentleman took part. His Government were then preparing to negotiate the sixth VAT directive. He made a similar point then and failed to persuade his own Government, and I am afraid he will not persuade me. It will be interesting to hear how erstwhile members of that Government and their supporters square the contents of the amendment with the practice of the last Labour Government.

Mr. Spearing

What about the Single European Act?

Mr. Lilley

This is not changed one whit by that.

It is still early days. Last November, ECOFIN referred these proposals from the European Commission to its economic policy committee for economic evaluation. The committee's interim report to ECOFIN in April highlighted many of the problem areas inherent in the Commission's proposals. The committee recommended that, irrespective of what Ministers eventually decided about harmonisation, member states should take steps as soon as possible to reduce obstacles to trade. That is an approach with which the Government can heartily agree.

Ultimately, any change to European tax law requires the unanimous agreement of member states. So the United Kingdom's position is safeguarded and there is no question of our being obliged to accept proposals with which we disagree. I repeat: the pledges that we have given to the electorate on zero rates are firm commitments by which the Government stand.

I have deliberately kept my remarks as brief as possible to enable as many hon. Members as possible to contribute. The purpose of the debate is to allow the Government to sense the feeling of the House. I look forward to hearing the views of hon. Members before ministerial discussion of these proposals gets under way.

10.17 pm
Dr. John Marek (Wrexham)

I beg to move, at the end of the Question to add: `and supports the Chancellor of the Exchequer in his recent statement that value added tax harmonisation is a distraction; and resolves that no Minister of the Crown shall give assent to any European Economic Community Instrument that authorises variation in the scope or rate of value added tax or excise duties payable in the United Kingdom unless authorised to do so by a Resolution of this House.' We accept that frontier controls play a part in the control and administration of value added tax and excise duties for the United Kingdom. The Commission proposes their abolition by 1 December 1992 and says that great benefits will accrue to the Common Market as a result. Lord Cockfield, the Common Market Commissioner who is in charge of creating the single European market, said at Monday's launch of a book on the Cecchini report that the case for integrating the economies of the member states was fully proved. The study is optimistic about the effects of achieving a single European market, and we do not disagree with that, although we reserve our position on the degree of projected economic improvement.

The Commission says that it is essential that VAT and customs and excise duties be harmonised within the Community so that frontier controls can be abolished and a clearing house can be established to redistribute VAT and allocate it to the member states of the Community to which it is due.

I do not believe that these measures are necessary for further economic progress within the Community. Other factors affect company decisions about where to locate and the main conditions that are necessary for fair competition. Differences in costs to industry and variations in tax structures between member states are certainly two such factors. The Commission has conducted a survey of 11,000 business men and the results show that the various VAT rates are not thought to be a serious barrier to intra-Community trade. The survey, which was carried out in 1986 by the Bureau Europeen des Unions de Consommateurs, found that prices of pharmaceuticals varied by as much as 500 per cent. between member states. Video recorders were 63 per cent. more expensive in Denmark than in the Netherlands, despite the fact that VAT was only 4 per cent. higher in the former. Prices of spare parts for well-known makes of car vary between countries by up to 52 per cent., before VAT. So I am sure that the rate of VAT and indirect taxes are not important for companies when making their decisions on location, or for competition and pricing policy. It is far more likely that the availability or otherwise of regional development grants, for example, will be seen as more important.

However, there are some problems with the present system. The main justification for VAT harmonisation is the Commission's desire to keep cross-border shopping under control. That happens to some extent in areas such as Luxembourg, the Rhine valley and the border between Denmark and Schleswig-Holstein. I have not heard the Danish Government complaining too bitterly about the cost of the present system, nor have I heard such complaints from the countries surrounding Luxembourg.

The United States manages to live with different taxation in different states despite urban borders such as that between New York state and New Jersey. There are liquor shops in one state but not in another in places throughout America, but that is not seen as intolerable.

The problem, if problem there be, is that a member state of the Community can attract retail customers by levying a lower rate of VAT than its neighbour. If the rate is sufficiently low and the geography is favourable, for example, if there is no Channel, and if the articles or goods are suitable—funerals, for example, are clearly not suitable—retail customers may be attracted across the state border.

That outlines the problem with the Commission's proposals. In order to overcome what may be a problem between some states in some places in the EC, the Commission proposes an all-embracing set of rules. First, it is surely not necessary to set an upper limit to any range of VAT as it is the possibility of member states bidding one another down that causes cross-border shopping problems. Secondly, Commission-identified problems do not occur throughout the Community, but only in some places. The United Kingdom, because of the Channel, is virtually unaffected by different VAT rates in other member states. Again, other factors are more important. Thirdly, some goods, as I have said, such as funerals, are simply not subject to cross-border shopping.

There are other reasons for not accepting the proposals. If implemented, through the extension of the VAT base, they would affect the standard of living of the poorer households. I know that the Government do not care one jot for those. That has been shown by their Budget measures and the cuts in social security and housing benefit—

The Chancellor of the Exchequer (Mr. Nigel Lawson)


Dr. Marek

It is not unworthy; it is absolutely right. The Government do not care one jot about the standard of living of the poorer households. However, enough of that. There is some cross-party accord on this matter and I shall endeavour to be diplomatic from now on. Nevertheless, the poorest households will be hit hardest if VAT is charged at positive rates on items such as food, energy or public transport.

For example, households on an income of under £60 a week—that includes many households with pensioners and people who are unemployed—spend 43 per cent. of their incomes on goods that are currently zero rated. That is made up of 23 per cent. on zero-rated food and 20 per cent. on other zero-rated items. Contrast that with moderately wealthy families on £450 a week. They spend only 19 per cent. of their incomes on zero-rated goods—10 per cent. on food and 9 per cent. on the others.

Looking at the matter another way, the poorest fifth of all households spent 24.7 per cent. of their disposable incomes in 1985 in direct taxes compared with the top fifth who spent only 18.6 per cent. Many of those poorer households are too poor to pay income tax, but they spend one quarter of their income on other taxes. That is one of the most important statements that I shall make tonight.

The imposition of VAT on books, periodicals and newspapers will damage the quality of those items. It will damage the financial viability of regional and local newspapers. It will be a tax on knowledge. It will be a tax on bibles. It will reduce the number of books available to public libraries and schools. I am sure that many of my right hon. and hon. Friends will wish to make those points much more pungently than I do. The social benefits of reading cannot be disputed. That is particularly true at present when there is considerable anxiety about the problems of illiteracy. It would be an act of madness to restrict access to the printed word, inevitably hurting the poorest and weakest members of our society when education reform deserves a place near the top of any political agenda.

The printed word is not limited to books.

Mr. Barry Porter (Wirral, South)

Will the hon. Gentleman give way?

Dr. Marek

I shall give way once, but it will be the last time because I want to put the Opposition's case and, like the Economic Secretary, I want to give Back Benchers plenty of time to make their comments in this short debate.

Mr. Porter

As the hon. Gentleman knows, I admire his intellect, but if he would halve his pace and double his volume, we might be able to understand what he is saying.

Dr. Marek

I take that as a helpful comment. Perhaps it should be addressed to those who control the microphones. If they could double the volume, we might get somewhere.

The Government would do well to remember the words of the late Iain Macleod, when VAT was first introduced in the United Kingdom: On the general principle of avoiding tax on knowledge we intend that books, journals, newspapers and broadcasting should be at zero rate. I wonder what has happened to the Conservative party since then.

The effect on deaf people will be noticeable and adverse. Amplifying aids that allow the hard of hearing to use the telephone and enjoy television would be made to bear VAT as would visual alarms such as flashing doorbells or vibrating pillow alarms. It would be VAT not at the lower rate but at the standard rate—a minimum of 14 per cent. if the Commission's proposals go through unamended. The proposals would also require charity shops to charge VAT on donated goods sold retail.

All that is being proposed with a view to abolishing frontier controls, but frontier controls will almost certainly not be abolished because they will be necessary for public security and to control drug trafficking and immigration. It has not been demonstrated that for the abolition of fiscal frontiers VAT needs to be harmonised. Tax adjustments for goods crossing intra-Community borders do not have to be made on site, with documents on the spot; they can be made elsewhere. There is no reason for upper limits on VAT, and any lower limits ought to be left to the countries affected by cross-border problems to sort out. At the very least, the lower band must be made to start at zero if it is ever introduced. It is right and necessary for some items to be zero rated and our present zero-rated goods and services account for about one quarter of total consumer expenditure in the United Kingdom. There may just be a case for a minimum duty or tax on fuel oil, used by industry, because that feeds into industrial costs, but I can think of no other instance in which a case can be made out.

It is unacceptable to impose a minimum of 14 per cent. on children's clothing in place of the present zero rate. It is unacceptable to put VAT on food. It is a pity that some food carried VAT already, although I realise that there are problems because of the revenue that it brings to the Treasury. It is unacceptable to raise VAT on items such as energy, books, newspapers, medicines and transport. As the Prime Minister said before the last election, Look, if anyone tried to put VAT on children's clothes and shoes they would never, never, never get it through the House. Three times, the Prime Minister said "never". The purpose of our amendment is to make absolutely sure that any such measures come through the House, and I hope that I have the support of hon. Members on both sides of the House on this important matter.

The amendment merely seeks to support the Chancellor in the difficult negotiations that he will have. It is a supportive amendment to enable the House, representing the people of this country, to decide these issues. Equally, the amendment is not intended to antagonise the Commission or other members of the Community, as they value democracy as much as we do.

Let me deal with the harmonisation of excise duties. The Commission's proposals would mean that the tax would go down by about £2.40 on a bottle of spirits and by about 75p on a bottle of wine. There would be a considerable increase in the consumption of alcohol, with appreciable injurious consequences to the health of the nation. We must remember that alcohol-related problems already cost the country about £2 billion a year. The cost of a packet of cigarettes would fall by 12p with a resulting increase in smoking and consequently in illness and deaths from lung cancer.

Those effects would be just as unacceptable to the country as the imposition of proposals to harmonise VAT.

In any case, there is likely to be very strong opposition to the proposals on excise duties by various member states such as Spain and Portugal. It must be best to preserve the ability of each member country to set its own excise duties.

An alternative method of controlling and administering the movement of dutiable goods across frontiers is by a system of revenue marking for goods that leave the linked bonded warehouse system that is proposed. Particular markings would give a right for a product to be sold in any particular part of the Community in uniformity, and uniformity in duties would not be required. Cross-border retail shopping would occur in some areas, but, again, for reasons previously stated, I do not consider that to be an important or insurmountable problem.

The Opposition wish to suspend judgment on any such system, and merely ask the Economic Secretary about its costs. How much will it cost to operate? What will its compliance ratio be? Would evasion be possible on a large scale, or by a few criminals? Would there be any variance in those answers if the questions were asked about different states in the Community? If there is an EEC summit meeting, some compromise by the United Kingdom will be inevitable. Will such a system be regarded seriously by other member states, and will it have general approval from the public? If that cannot be demonstrated, I foresee great problems, as harmonisation of excise duties is not an acceptable solution.

I also ask whether there is a further hidden agenda and whether the Commission is putting forward its proposals not only on the specious ground of the necessity of abolishing frontier controls, but because it eventually wishes to harmonise corporation and income taxes. If so, it should tell us and clearly spell out its long-term intentions.

I shall make one final point on the proposed clearing house for VAT reconciliation payments. Companies will have to be careful about their documentation of imports, but as the revenue authorities will be able to recover their money from the clearing house, I imagine that many member states will not be too precise about exactly what was imported. A whole new bureaucracy will be created and our experience with the CAP should make us shudder. What will happen when the inevitable happens and the clearing house cannot balance the books? A rough and ready solution may be found, but we may be sure that this country will lose out. Our collection system is more efficient and more accurate, and as a result, as usual, we will lose out if such a system is established.

Mrs. Boothroyd—I mean Madam Deputy Speaker—I apologise. Yesterday, you were Mrs. Boothroyd and today you are Madam Deputy Speaker.

Madam Deputy Speaker (Miss Betty Boothroyd)

Order. I have never been Mrs. Boothroyd in my life.

Dr. Marek

I hope I have shown that the harmonisation of VAT and excise duties is, to use the Chancellor's word, a distraction from the aim of the unified market in 1992. It is unnecessary for achieving the aim of abolishing frontier controls. The problems of distortion of competition by the judicious use of excise duties can be solved in a different way.

The Opposition are resolute in their insistence that zero rating should continue to apply for essentials such as food, children's clothes, fuel, transport, medicines and other important items that are free of VAT at present.

Derogation is not enough as it may not be permanent. By the time that derogation is considered the argument will have been abandoned.

Our amendment supports the Chancellor of the Exchequer in his attempts to persuade the Economic Community of the correctness of those arguments. It also seeks to commit any Minister—a Tory Minister or a subsequent Labour Minister—to consult and receive the assent of the House before any change is made to the rates of VAT or excise duties payable here. In doing so, it is setting out unequivocally the wish of the House that any powers to be given to the Economic Community or any changes in VAT or excise duties will be made as a result of a decisiom of this House. I recommed that the Government accept the amendment and invite all hon. Members to support it in the Lobby if necessary.

10.34 pm
Mr. Terence L. Higgins (Worthing)

My hon. Friend the Minister rightly said that this is a timely debate. It provides the House with an opportunity to express its views in advance of the EEC meetings that are about to take place. The Minister was kind enough to say that the Treasury Select Committee's third report on the "European Commission's Proposals on the Approximation of Indirect Taxation" is invaluable. That is the best compliment that the Committee has received so far on any of its reports.

In responding to that report the Government made it absolutely clear that they agree with the Committee's views. It is important to consider the arguments that we addressed in the report, but the fundamental point is the one that the Government accepted. They said: The Government agrees with the Committee that the European Commission has not demonstrated that tax approximation is necessary for the completion of the internal market.

I agree with the Minister about the importance of working towards the completion of the internal market, but I feel bound to say that proposals of the kind that we are debating this evening do not advance the cause of creating a common internal market. On the contrary, they are likely to prove extremely divisive. Therefore, I hope that the House will back the Government by saying that there is no need for these measures and that it is important to preserve the concept of zero rating.

The evidence that the Committee took from Lord Cockfield was valuable and it is attached to the report. It highlights a number of important points. It shows clearly that Lord Cockfield is preoccupied with the need to remove customs barriers, whatever the cost in terms of distorting the Community's tax system. I am not unbiased. Almost 15 years ago I had the task of steering through the original legislation on value added tax. When we were preparing for that series of debates we had the advantage of seeing the mistakes that had been made elsewhere in Europe. We learnt from those mistakes. We devised a system of indirect taxation, value added tax, which in my view is vastly superior to any other system in Europe.

That system had two essential features, the first of which was that we should have zero rating, which meant that essential items, such as food, would not be taxed. When we introduced value added tax we abolished selective employment tax, which had caused great anguish, and also purchase tax. The objectionable feature of purchase tax was that it was a multiple-rate tax that sought to discriminate between one item and another. We said that we intended to abolish purchase tax and that instead there should be zero rating for essential items, with above that a single positive rate so that distortions would not arise.

This is a retrograde proposal. It will mean a return to asking whether one item is a luxury and whether another is not a luxury. If there is to be harmonisation, it is important that it should be introduced on the basis of the best available type of tax. I believe that that is the one that we have. We should fight in Europe for zero rating and for a single positive rate of tax.

Lord Cockfield and the Commission propose, not exactly the lowest common denominator, but what would be the easiest to negotiate by averaging all items. It would European Community 424 result in a hotch-potch which nobody would be happy with and which anybody who gave any thought to the matter would realise was unsatisfactory. The only reason for such a proposal is that it would lead to the removal of customs posts. That seems to me to be the question that preoccupies the Commission, rather than the creation of a sensible taxation system.

There are very real problems, and in his evidence Lord Cockfield made it clear that costs may have to be borne if one is to retain a degree of independence. If that is so, it may be worthwhile paying the price in VAT. As was rightly pointed out a moment ago, we are also concerned with harmonising indirect taxes of other kinds, particularly the revenue duties on tobacco, alcohol and so on. Again, these are taxes which over the years the House has debated for many hours, days and weeks in some cases.

The taxes are imposed for good social as well as revenue reasons. It is wrong to suppose that the arguments can suddenly be overwhelmed in the interests of so-called approximation. It will not be easy to harmonise, because there are many interests in the Community, particularly in countries which produce alcoholic drink, including this country, where the social arguments may be countered by arguments on behalf of the producers. None the less, it would be absurd if we were to reduce the tax on tobacco, for example, by 12p a packet when we consider the costs that tobacco puts on the Health Service. Surely that is one reason why we should not agree with the proposals.

The Government should tell the Commission that we are not prepared to go along with the abolition of zero rating and the other measures that it proposes. The Treasury and Civil Service Committee suggested that we should make that clear at the outset, otherwise in the course of the negotiations it would be one counter to be traded. We should say at the start that any question of abolishing zero rating is not on and then proceed to negotiate on other aspects on which it may be necessary to make concessions.

I shall not speak for much longer, because many other hon. Members wish to speak, but I want to stress that the danger of going along the route of approximation is that we will be stuck with the outcome. There is no existing machinery within the Community for changing it except by reopening the whole package. Therefore, we would be giving up a major fiscal weapon which is necessary to reflect the difference between one country and another until such time as we gradually become a single market. It would be dangerous to say that we will put the whole weight of economic management within the United Kingdom on to direct rather than indirect taxation. I do not have time to develop that aspect, but it should be considered.

I make one final point to the Opposition. I hope that I may have the attention of the shadow Chancellor. The Opposition, together with many other hon. Members, have put down amendments to the motion. It is extremely important that we remain united on the issue. I do not believe that there is any difference in the House on it. We have heard why the Government cannot accept the Opposition amendment. Having expressed their views, the Opposition should not press the amendment to a Division, because that would create the impression that there is disagreement. I believe that the House is united in opposition to the abolition of zero rating and the other proposals, which are not only damaging, but unnecessary.

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

In following the right hon. Member for Worthing (Mr. Higgins), who chairs the Treasury Select Committee, I can add evidence to the united feeling in the House on harmonisation. I, too, am strongly opposed to it. Indeed, it is an extraordinary achievement of the Commission that it has managed to unite those who are in favour of British membership of the EEC and of the development of the single European market and those who are wholly opposed to both concepts. That seems to have been a slightly perverse thing for Lord Cockfield and others to have set about doing.

The right hon. Gentleman referred to the Select Committee discussions. There was a curious exchange in the Select Committee. I refer not to the exchanges between the noble Lord Cockfield and the hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) which had a rather more acerbic quality to them, but to the point where Lord Cockfield said: in the Global Communication we said that the Member States should study the proposals and they should respond to them and we are waiting for them to respond". The Government have taken the view that it would be inappropriate to respond by that means and that they should simply do so by speaking at the ECOFIN meeting. It was curious that there should be a breakdown in communication and that the Commissioner should be under a wholly different apprehension from the Government about how those discussions were to proceed.

Mr. John Marshall (Hendon, South)

Do I hear the hon. Gentleman correctly? Is he now going against the proposals put forward by the hon. Member for Caithness and Sutherland (Mr. Maclennan), the leader of his party, only a few weeks ago?

Mr. Beith

I am happy to say that I am and that I did so at the time. If Conservative Members had been as successful in dissuading their party leader from pursuing unwise and mistaken tax proposals as we were, they would not now be saddled with the poll tax.

The act of harmonisation was in no way necessary for the achievement of the internal market. The achievement of the internal market is extremely important and valuable to this country. I was genuinely pleased to hear the hon. Member for Wrexham (Dr. Marek) assert that the Labour party believes that the creation of a single internal market is of importance and value. I did not hear loud cheers from behind him, but his assertion is welcome.

As the Chancellor of the Exchequer said, the measures are a distraction from the achievement of a single market and an irritant. They are just the sort of measures that get the European Commission a bad name and undermine the effort to achieve wider European unity. They are not necessary because it should be obvious to the Commission that it is possible to have different levels of taxes at the point of sale in a single economic unit without making the coherence of that unit impossible to maintain.

The United States has been quoted as an example of a country with widely varying sales taxes. It is perfectly feasible to have different levels of taxes operating at the point of sale and those differences do not alter the price to the customer of a commodity in the country in which he buys it. If they had a direct bearing on the price of the product in that country, they would represent a distortion of trade, but they do not have that effect and, therefore, they are not a significant impediment to the internal market.

Value added tax has not caused most of the differences in prices of commodities between Britain and other Community countries. VAT did not make cars enormously cheaper, for a period, in Belgium than they were in the United Kingdom. It was primarily the manufacturers' pricing policies which led people to buy cars in Belgium and import them into the United Kingdom and which led the Government into all those complications about whether they should be left-hand or right-hand drive cars. That was the manufacturers' pricing policy responding to the market conditions. We hope that those conditions will change in a single internal market, but VAT was not the cause of those conditions.

An alarming down side would result from harmonisation, which would not allow for a rational decision about the tax level. That is of course true in the case of VAT because of the effect on major budget items, such as children's clothes and food, and on items for which, for other reasons, we think it important to keep zero rating, for example, books and newspapers.

It becomes particularly powerful as an argument when we consider excise duties. The idea that we should now reduce the price of a bottle of spirits by over £2 is absurd, given the enormous problems that are known to exist with alcohol and the fact that a ministerial committee is currently considering ways of tackling the problem and has had lamentably little influence upon the Chancellor so far. Similarly, a 12p reduction in the price of cigarettes would be absurd.

I am prepared to contemplate that, in the future, Europe might, in a concerted way, work out what might be a sensible health policy to guide taxation in some of those areas. However, we are a long way from that at present and we are certainly not in a position where it would be logical to determine the price of those commodities and the tax burdens on them by a process of averaging what is done in this country and what is done in Greece, which is at the opposite end of the scale.

Mr. Nicholas Winterton (Macclesfield)

I am listening carefully to the hon. Gentleman, who appears merely to be repeating what so many hon. Members have already said. I wonder whether the hon. Gentleman is advising the House, and me in particular, about how we should vote at the end of this important debate. Is the hon. Gentleman saying that the Government's stand is not strong enough, or is he merely repeating arguments that the hon. Member for Wrexham (Dr. Marek), the Government and my right hon. Friend the Member for Worthing (Mr. Higgins) made? I would appreciate it if the hon. Gentleman could say what he thinks the House should do.

Mr. Beith

I am not saying that the Government's stand is not strong enough, but I would have welcomed a clearer and more unequivocal pledge from them on books and newspapers.

Dr. Marek

They did not make a pledge.

Mr. Beith

That is right. The question that I was asked did not concern books and newspapers; it was whether I think that the Government are taking a firm enough stand on the harmonisation proposals of the European Community. As far as I can see, they are. I have mentioned the apparent failure of communication between Lord Cockfield and the Government. It may be that Lord Cockfield is the one who has got the procedure wrong. No doubt the Minister will clarify that at the end of the debate.

Mr. Lilley

I think that I can offer the hon. Gentleman a better answer to give my hon. Friend the Member for Macclesfield (Mr. Winterton), who wanted to know to whom his remarks were addressed. They were addressed to the dual leadership of his party. The motion that the hon. Gentleman would have liked to support, and which I would have been happy to endorse, says that the objective of establishing the internal market in 1992 in no way requires the approximation of value added tax rates and excise duties". "Hear, hear", we all say, but the hon. Member for Caithness and Sutherland (Mr. Maclennan) and the right hon. Member for Tweeddale, Ettrick and Lauderdale (Mr. Steel) went on record saying: Europe cannot get rid of its internal customs barriers so long as VAT rates within the Community range from zero to 38 per cent. Admittedly that was in a manifesto which, after being declared dead as a parrot, became a personal statement of deeply held views, but has the hon. Gentleman been able to overcome the deeply held views of the leaders of his party?

Mr. Beith

I think that it is on record that I have. When I gave way to the Minister I thought that he would throw some light on the matter for which he is responsible, which is telling Lord Cockfield the Government's view on the matter. As he has failed to do that now, I hope that he will be able to shed some light on it later. I am sorry that the hon. Gentleman did not take the opportunity that I gave him. On the other matter, I have already made my position clear.

It comes strange from some hon. Members who have spoken that they profess to want to proceed to the single European market but they are not prepared to provide the conditions essential to its creation. Freedom of capital movements and the ability to concert macroeconomic policy are important, and we cannot proceed to a successful single European market if we are prepared to make no sacrifices of national sovereignty in the process.

We return to the fundamental arguments that we had when we joined the Community in the first place. The Government are suffering from a much longer lasting disagreement than that to which the Economic Secretary referred a moment ago. They are still unable to resolve their internal disagreement about whether Britain will join the European monetary system in time for the establishment of the single European market in 1992. I put the question to the Chancellor when he gave evidence to the Treasury and Civil Service Select Committee. He was unable to add anything. Treasury Ministers have so far failed to overrule the Prime Minister's continuing objections. If the Government could settle the issue by making it clear that they will not engage in the harmonisation that is asked for and then turn their mind to the far more pressing and important question of achieving British membership of the EMS, they would be doing the country, and Europe, a service.

There ought to be no doubt about the fact that there is virtually no support in the House for the harmonisation proposals. If, however, we took a vote on who is prepared to back the true development of a single European market, we might find that the House is more divided.

10.53 pm
Dame Elaine Kellett-Bowman (Lancaster)

VAT is a subject that is close to my heart, especially with regard to children's shoes.

Shortly after becoming a Member of Parliament, I led a deputation to the then Chancellor of the Exchequer, Anthony Barber, to try to persuade him not to put VAT on children's shoes. I believe firmly that it is essential to do nothing to deter parents from buying well fitting shoes, and price is unquestionably an important factor. We succeeded in persuading him.

I have never been quite certain, but I have a distinct feeling that the fact that a sufficient number of us stood by the Bar of the House while he made his winding-up speech to have defeated the Government if he had not made the concession may have made some slight impression on him. I have always liked to believe that that was so.

Research has shown clearly that ill-fitting shoes can inflict permanent damage on children's feet which may not show until later in life. In the first few years of life, children's feet double in size and continue to grow rapidly up to seven years. They do not stop growing rapidly until the mid-teens. It is vital that shoes are changed as soon as they become even fractionally too small. The Prime Minister has said repeatedly that she will never allow VAT to be imposed on children's shoes. I am sure that she will keep her word. I was glad to hear the Minister's robust support of that promise in his speech tonight.

However, we now have these quite extraordinary proposals, fortunately only intended as a basis for discussion among member states. Two levels of VAT in broad bands are proposed to allow member states some latitude. They also acknowledge the possible need for some derogations from the VAT rules, especially in relation to zero rating. Fair enough. But it is incredible that they do not include children's shoes among the lower band or the social goods band. Children's feet have to last a lifetime. [Interruption.] My hon. Friend the Member for Billericay (Mrs. Gorman) has plenty of genes injected into her, but other people have other things.

Mrs. Teresa Gorman (Billericay)


Dame Elaine Kellett-Bowman

It is possible to get a new heart, new lungs, new kidneys and even a new brain—I think that my hon. Friend could do with some of those—but one cannot get new feet. Therefore, it is vital to look after them carefully in infancy and childhood. We should insist that children's shoes are put on a lower social goods band and that the band is changed from the proposed rate of 4 to 9 per cent. to 0 to 6 per cent. That would cost only 160 million ecu across the Community. Surely that is a small price to pay for a lifetime of healthy feet.

I very much hope that those proposals will be made by the Government and accepted by the Economic Community so that we no longer have to rely on derogation but have the zero rate permanently enshrined in European legislation.

10.57 pm
Mr. Nigel Spearing (Newham, South)

I am pleased to follow the speech of the hon. Member for Lancaster (Dame E. Kellett-Bowman), particularly on the subject of children's shoes. I have here a copy of the debate on 16 May 1972 when, despite her protestations, the hon. Lady, when she could have done, did not move her amendment My former hon. Friend, now Lord Barnett, moved an amendment to counter the proposal by the right hon. Member for Worthing (Mr. Higgins), supported by the right hon. Member for Finchley (Mrs. Thatcher), to impose VAT on children's shoes.

Dame Elaine Kellett-Bowman


Mr. Spearing

It is no good the hon. Lady saying no, because she knows it is true.

Dame Elaine Kellett-Bowman

It is not.

Mr. Spearing

It is.

On 16 May 1972 my hon. Friend, now Lord Barnett, moved the amendment to insert the words: Children's footwear of the type and size at present free from purchase tax". That amendment was voted against, not only by the right hon. Member for Finchley, but by the right hon. Member for Chingford (Mr. Tebbit).

A second amendment was to insert the words: Garments and footwear of a kind suitable for young children's wear".—[Official Report, 16 May 1972; Vol. 837, c.246.] Among those voting no was the hon. Member for Lancaster. so I hope that we shall hear no more from her and from the Prime Minister about their desire not to impose VAT because the Prime Minister, in Cabinet—which was different from the one that she presides over now—and in the House, agreed with the idea of imposing VAT on children's shoes.

I do not say that the Prime Minister is not genuine in her conversion to the belief that VAT should not be imposed, but she sometimes misleads the House when she says that the House will never vote for it. Although it did not do so then, and although the Government had to change their mind, she tried to make the House vote for those very things. That detracts from the vigour and strength with which the Prime Minister upholds the pledge that she gave at the election.

Dame Jill Knight (Birmingham, Edgbaston)

At that time there was not enough knowledge on what the wrong size shoes would do for children's feet. We had a long briefing on the matter. As my hon. Friend the Member for Lancaster (Dame E. Kellett-Bowman) said, she led a deputation on the issue. It was recognised at that time that many adults could wear small size shoes. Therefore, it was difficult to say that small sizes should be zero rated. It was decided that the rate should be determined by the type of shoe rather than by the size of shoe. There was a great deal of discussion on the matter.

Mr. Spearing

No doubt that is true, but the difficulty which the hon. Lady said was dealt with in 1972 will be with us again. I do not think what she has said is relevant. The Economic Secretary to the Treasury, some of my hon. Friends and the Government want the speed of and movement towards harmonisation to be decided by the House. Unless that is decided by the House, it will be decided in negotiations by the Prime Minister, the Chancellor of the Exchequer or a Minister. In those circumstances, the House becomes a consultative assembly. Conservative Members may deny that, but it is the truth. By not passing the amendment moved by my hon. Friend the Member for Wrexham (Dr. Marek), the House would he saying that we will not have the final word on this issue. We will give the power to negotiate and decide to the Executive. We will give the power to the Executive to decide the tax and we do not reserve to ourselves a veto on the extent and degree of the strength of that Executive. Whether the Executive be in Whitehall or in Brussels, that is the position. Some hon. Members may want that. If they do, they should say so.

Mr. George Walden (Buckingham)


Mr. Spearing

I am tempted to give way, but I do not think that I should. We are constrained by time.

We have before us the proposals of the Commission, which the Government have commented on in their explanatory memorandum. The proposals have been summarised in the report of the Select Committee. It is not the Select Committee which decides whether we have a debate, although it can recommend that. It is the House that decides whether we should have a debate before a decision is taken. However, decisions are sometimes taken before we have a debate. The role of the Select Committee is to draw attention to matters, but it cannot decide that we should have a debate. One problem tonight is that we are debating eight proposals in an hour-and-a-half. In former years each one of those proposals would have been a major feature of the domestic British Budget. Is there any Conservative Member who would deny that? Each of the main proposals in the documents before us would have been a major matter for our Exchequer. We are attempting to debate those eight super primary pieces of legislation in the time that is given to a single statutory instrument of secondary legislation.

Mr. Walden

Am I alone in sensing a little disproportion in the hon. Gentleman's remarks? We started with children's shoes, and that has now built up into a major constitutional principle. There is a little gap in between that needs to be filled. To begin with, it is a matter of common sense that most people in this country can afford to buy children's shoes, with or without harmonisation. Harmonisation would bring with it the means to direct extra funds to the small minority of people who need help. To go from there to build a huge and surrealistic issue of constitutional propriety seems to be rather indulgent, romantic and grotesque.

Mr. Spearing

I am sorry that I shall not be able to give way again. The hon. Gentleman has spoilt the debate. He is wrong. I started my speech on that matter because of remarks that had been made and because I happened to have the information with me. This is about our constitution. It is about the power of the House and the power of Conservative Members to decide what taxes should be levied on the people whom they represent. It is about the power of the Executive, and the power of the House to control the Executive. I am sorry that the hon. Member for Buckingham (Mr. Walden), who I thought was a knowledgeable and intelligent person, does not seem to understand that. He had better read his constitutional history.

The Government have not given the House much information on this matter. It was through parliamentary questions, mainly those of 23 and 24 March, that I had to get my information. I wrote to the Minister on 30 March on a matter relating to those answers but did not receive an answer until today, after four telephone calls and a personal approach. I am not blaming the Minister for that, although he should take some responsibility. The Minister and the House are not being informed about these important matters, hence the ignorant remarks of the hon. Member for Buckingham.

The tables that I have quoted do not give any information about water and sewerage. Unless sewerage services are to be confined to taking sewage from septic tanks, I calculate that on a £1 billion turnover on sewerage there must be about £150 million VAT, and that on £800 million on water at 4 per cent., about £50 million. Can the Minister tell us what the rate of VAT will be on water?

The Minister asked me about my opposition to the sixth directive in 1976. We opposed it because we knew that the derogations were only temporary. I do not believe that hon. Members knew what they were voting for, any more than the hon. Member for Birmingham, Selly Oak ( Mr. Beaumont-Dark) did over the Single European Act, or the hon. Member for Buckingham if he votes against our motion tonight. If he does so, he will be voting power to the Executive in a way that has not happened in this country for several hundred years.

I believe that the Opposition amendment is not only constitutionally right, but right because it will achieve the objectives that the right hon. Member for Worthing (Mr. Higgins) outlined. He said, "We do not like this. We want to go ahead steadily." He is in favour of harmonisation, but in a different way from some of us. That judgment should be for the House of Commons and should not be left to a Minister.

The Minister has said, as has the Prime Minister, "We shall not constrain the Chancellor of the Exchequer." That means that they will not constrain any Minister in Brussels, where they may happen to go for package bargaining and where, at some point, they will have to give way. They have not given any pledge on public transport, on instruments for disabled people, on books, even educational books, on newspapers such as The Sun, or on any other written matter. Surely the House cannot put up with a tax on knowledge. If Conservative Members do not vote for our amendment tonight, they will be saying, "We shall leave that judgment in the hands of the Executive", and not retain it in the hands of the House of Commons, where it should be.

I should dearly love to make other points, but I am not sure that I should, because the time constraints are such, and the matter is of such great importance, that other hon. Members should speak. However, I wish to conclude on one major and important point.

At the moment the power of the House is constrained by the treaty of Rome and by section 2(1) of the European Communities Act 1972. We cannot work outside those self-imposed pieces of written constitution. However, in negotiating this whole question of VAT and excise we can have control of our Executive within those constraints. There is nothing in either the treaty of Rome or section 2 (1) of the European Communities Act 1972 that is inconsistent with the amendment tabled by my right hon. Friend the Leader of the Opposition. That is illustrated by the fact that the Danish Folketing keeps control over its Ministers when they go to Brussels. We are not asking for that total control over all negotiations. We are asking that the House of Commons shall control and be the back-marker in negotiations on VAT and excise. That is much less than the control exercised by the Folketing over its Ministers.

By their votes tonight, hon. Members will determine whether the control of the House over Ministers in Whitehall is less than that of the Folketing over its Government? If hon. Members vote against the amendment, that is what they will determine.

This year, 1988, is constitutionally important for many reasons. As we will learn later, the foundations were laid in 1688 for this House to have control over the Executive, over its power to tax, to borrow money and to legislate. We have an opportunity tonight, within the terms of the treaty of Rome and of the legislation already passed by the House, to retain some of that power. If hon. Members do not vote for that opportunity they will throw away, not their power, because we are the trustees here, but those of the elected people, not just for now, but for the foreseeable future.

11.11 pm
Mr. Alan Haselhurst (Saffron Walden)

If the hon. Member for Newham, South (Mr. Spearing) had continued for a few more minutes, we might have got back to 1066, such is his perception of the great affairs unfolding before us in Europe. I can assure my hon. Friend the Member for Macclesfield (Mr. Winterton) that I will not repeat what others have said so far. I am sorry if the unanimity that my right hon. Friend the Member for Worthing (Mr. Higgins) believes to exist in the House is slightly qualified in my case.

I believe that the House is approaching this matter with extraordinary timidity. There was a defensive and negative aura to most of the speeches. I wonder how this debate will be read in our partner countries. They must think that we have problems that are so unique that they are not experienced on the continent of Europe. That is an extraordinary view.

It is odd that the greatest boldness lies in the neutrality of the Government's motion. The amendments are far more restrictive and narrow in their outlook. We need hardly wonder why the Liberal party is defunct after the way in which the hon. Member for Berwick-upon-Tweed ( Mr. Beith) spoke. Liberals will be turning in their graves at the narrowness of the hon. Gentleman's attitude because the Liberal party always trumpeted that it was more enthusiastic for Europe than the Conservative party or anyone else. That view was certainly not obvious from the hon. Gentleman's speech, but, after all, the Liberal party is dead.

I want to see the creation of a common market and I believe that it should be an area without frontiers. Real benefits will flow for the countries of the European Community when that is achieved. If we are to compete effectively with Japan and the United States, we must organise ourselves on that basis. While I do not want to get into too detailed an argument about the exact importance of the removal of fiscal barriers, that would make a positive contribution to the creation of a better single market.

My approach is to ask why should it not be done, not why should it be done. Why should we think that the proposal is so appalling that we cannot contemplate it? I concede that the difficulties are obvious enough. I am not saying that we should take the first offer of the Commission straight away, and it is right that we should negotiate from our national position of what we think is right. I am not prepared necessarily to dispute with my right hon. Friend the Member for Worthing that we should negotiate to try to secure the best system in the belief that currently we have one of the best systems. We should negotiate with a view to getting something on which we can agree.

I hope that we shall be able to address the matter rather more objectively than did the hon. Member for Newham, South. I hope also that we shall be able to do so without political partisanship. If all political parties that are represented in the House believe that the United Kingdom should be a member of the European Community, it will help the national interest if we have a collective approach to what our taxation policies are to be and whether we are to have effective harmonisation within Europe. If we are to be continually sniped at in Government by an Opposition who say, "If you do this it will be unpopular with the public and we shall vote against it", Britain's national position will not be assisted in trying to achieve the best possible system of approximation, or harmonisation, of taxes within the Community.

I deplore the fact that there are those who suggest that we should run away from this issue and parties that try to take a narrow, partisan advantage at a time when we must face major issues. The reason why we seem to be running away from the issues, if I deduce it correctly from the debate, is that some of us are scared about further concessions of national sovereignty. In the world into which we are moving, national sovereignty is of shrinking importance. I am as proud of Britain as anyone, but the way in which the world is now organised means that we achieve sovereignty only by binding together with other countries. We took that decision by joining the European Community in the first place. We are not giving away anything that is basically essential by wanting to move towards tax harmonisation.

We shall have less opportunity to determine our own taxes, but the opportunity to do so is not being squeezed out altogether. We are being invited to consider a range of taxes, which will still give us some choice. If we are arguing within the context of two bands rather than a single rate of tax, I am prepared to argue that we should try to secure a lower band which starts at zero. Of course that should be our negotiating position. We would have choice within that band to determine what our tax rates should be.

We should bear in mind the advantages that a powerful, unified market will create. Only in the past few days we have received a report from the Commission which attempts to set out the advantages that we can secure by achieving a real single market. We could hope to improve the Community's total gross domestic product by about 4.5 per cent. and increase employment by 1.75 million over the medium term. These are real and solid advantages which we can obtain for our people if we are prepared to be imaginative enough.

Our second difficulty appears to be over the problem of taxing some items that we have not taxed before. I am slightly surprised that in some instances there is fear on the Government Back Benches about this. I understand that it is part of the Government's approach that we should try to transfer the burden from direct to indirect taxation. I am glad that we are not restricting the options of my right hon. Friend the Chancellor of the Exchequer on VAT.

It would seem that there is a need for education. Anyone who listened to the hon. Member for Wrexham (Dr. Marek), who spoke from the Opposition Front Bench, might well believe that there are people in the rest of Europe who are downtrodden and poor as a result of VAT being imposed in their countries on certain items that are zero rated in Britain. Yet we spend much of our time comparing the British economy with the economies of continental Europe and discussing how much further we must still go to improve our standard of living in certain respects.

I do not believe that the Commission's proposals will lead to fundamental difficulties for the British people if we examine them carefully. We hear the argument about levying VAT on books. I read in The Sunday Times recently that the profit margin on books is considerable and that books could be discounted, if only the distributers and retailers were prepared to allow it to happen, by as much as £3 on a £12.95 volume. If that is correct, even VAT of 4 per cent. seems hardly a matter for anxiety.

The same argument is advanced on newspapers. If VAT of 4 per cent. were levied on newspapers, I do not see how that would inhibit readership levels. In the recent past, some of the proprietors have increased the price of many national dailies by as much as 20 per cent. in one fell swoop. We must put those matters into perspective and not run away from some of the possibilities we might have to face in our negotiations. The British public are capable of discussing such matters reasonably.

We must, of course, defend our national interest and negotiate carefully, but let us at least make clear what is in our national interest. I believe that it is to ensure that the European common market can bring for all our people the economic advances that are no longer within the compass of a single national economy.

11.20 pm
Mr. Robert Litherland (Manchester, Central)

The Minister said that he would like to know the strength of feeling among hon. Members in respect of particular subjects. I am concerned about the possible imposition of value added tax on reading matter. That my concern is widely shared is clearly shown by the number of hon. Members who have signed or tabled early-day motions on the subject. My own early-day motion 210 has been signed by 124 hon. Members, and motions tabled by Conservative Members, including that of the hon. Member for Macclesfield (Mr. Winterton), have attracted a similar number of signatories. The expression of concern spreads right across the political spectrum.

The depth of concern is also shown by the number and variety of organisations supporting the contention that value added tax on the printed word is a tax on education. The Chancellor of the Exchequer may argue that there is a case for value added tax in that sector, pointing out that the mere process of producing a book, newspaper or periodical from wood pulp or newsprint adds value to that raw product. He may argue also that ours is the only country which grants exemption for zero rating, and that taxing newspapers, magazines and books is only the same as taxing other forms of entertainment and is therefore acceptable.

However, we are all aware of the instability of the newspaper industry. That industry is renowned for its razor-sharp competition. Recently in Manchester, the Mirror Group announced a jobs cutback, with some 136 journalists being made redundant. That represents another shift away from Manchester and the north-west to London-based printing firms. Any additional tax burden could mean the closure of more titles, especially in the provinces.

The effect on employment of the imposition of VAT on reading matter could be catastrophic. The print unions estimate that some 13,000 jobs would be at risk. The industry would be reduced to even fewer ownerships than at present. Publishing houses—especially the smaller firms—would be at risk. Even more at risk would be the most recent enterprises in that field.

It has been pointed out in all the correspondence I have received on this subject that the most damaging effect of all would be on schoolchildren, students, and those who use libraries. In my maiden speech, I made the point that to a child a book should be an adventure. A book meant for a small child should not be considered as a taxable object. What Government would deny a child access to a book? Value added tax on printed matter of that kind would be viewed as a further cut in education resources.

It would also be seen as an attack on adult education. What is the point of encouraging further education if there is to be a tax that will deter people from making progress in education? To impose a value added tax on knowledge flies in the face of public opinion. What Government would deny access for the under-privileged—especially the educationally under-privileged—to these books? The printed word is a means of communication and should be dear to all who believe in the furtherance of the knowledge that is vital to our progress as a human race. It should be above being used to swell the coffers of the Treasury.

We are talking about harmony, and I hope for that tonight when we call on the Government to listen to the people, and the House, and not to Brussels. They should maintain our right to zero rating on the printed word.

11.26 pm
Dr. Marek

First, we should have had a much longer debate—of at least three hours, if not a whole day. The Opposition pressed for that, and it is regrettable that the Government got the feeling of the House wrong and held a debate of only one and a half hours.

Secondly, it is a great pity that the Government have not given a pledge not to impose VAT on books, newspapers and periodicals. No hon. Memer wants such an imposition.

Thirdly, we have heard no good reason from the Government or Conservative Members why anyone should not support the Labour amendment. The arguments for it prevailed, and it would unite the House. It would support the Chancellor in the difficult negotiations that he will have, and I commend it to the House.

Mr. Spearing

On a point of order, Madam Deputy Speaker. You know that this procedure follows that laid down for statutory instruments. Standing Order 14(b) says that if the Speaker is of the view that the time for debate has not been adequate, he shall, instead of putting the question … interrupt the business, and the debate shall stand adjourned". As this may be the last time that the House can discuss these matters before the Government start negotiations, I ask you to exercise your right under that Standing Order.

Madam Deputy Speaker

I have given careful consideration to the Standing Order and tonight's debate. I must tell the hon. Gentleman and the House that this is a take-note motion. The legislation is in the early stages of gestation; it is what I would call a preliminary canter over the field. There will be ample opportunities for further debate on this, and I shall put the Question at 11.30 pm

11.28 pm
Mr. Lilley

I am grateful to you, Madam Deputy Speaker, for that ruling. I am grateful, too, to the House for showing support from all sides for the two essential components of the Government's position.

We support the underlying objective of a freer internal market in Europe. To achieve that it is not necessary to move along the proposals for approximation and harmonisation as spelt out by the Commission.

I am sad that the Opposition Front Bench did not take up my challenge to explain why it wants us to accept its amendment, which runs flat contrary to the practice and position of the last Labour Government, let alone all other ones. The amendment goes far further than anyone has proposed in the past. it goes flat contrary to the existing rules, to which the hon. Member for Newham, South (Mr. Spearing) referred and which were laid down by a resolution of the House. It states: no Minister of the Crown should give agreement in the Council of Ministers to any proposal for European Legislation which has been recommended by the Select Committee on European Legislation … for further consideration by the House before the House have given it that consideration unless—

  1. (a) that Committee has indicated that agreement need not be withheld, or
  2. (b) the Minister concerned decides that for special reasons agreement should not be withheld; and in the latter case the Minister should, at the first opportunity thereafter, explain the reasons for his decision to the House."
Those are tight and binding conditions which have informed and ruled our debates on these matters so far. It would be unfortunate to introduce the rules proposed by the amendment because that would mean that every jot and tittle of European legislation would have to come before the House before it could be formally endorsed in the Council of Ministers by a Minister of this Government. As the right hon. and learned Member for Monklands, East (Mr. Smith) knows in his heart, having been a Minister in the previous Labour Government, that would make it impractical—

It being half-past Eleven o'clock, MADAM DEPUTY SPEAKER put the Question pursuant to Standing Order No. 14 ( Exempted business), That the amendment be made:—

The House divided: Ayes 92, Noes 215.

Division No. 300] [11.30 pm
Allan, Graham Boyes, Roland
Barnes, Harry (Derbyshire NE) Brown, Gordon (D'mline E)
Barron, Kevin Brown, Nicholas (Newcastle E)
Battle, John Buchan, Norman
Benn, Rt Hon Tony Buckley, George J.
Bermingham, Gerald Campbell, Ron (Blyth Valley)
Alexander, Richard Butcher, John
Alison, Rt Hon Michael Butler, Chris
Allason, Rupert Butterfill, John
Amess, David Campbell, Menzies (Fife NE)
Amos, Alan Carlisle, John, (Luton N)
Arbuthnot, James Carlisle, Kenneth (Lincoln)
Arnold, Jacques (Gravesham) Carrington, Matthew
Arnold, Tom (Hazel Grove) Cash, William
Aspinwall, Jack Channon, Rt Hon Paul
Atkins, Robert Chapman, Sydney
Atkinson, David Chope, Christopher
Baker, Rt Hon K. (Mole Valley) Churchill, Mr
Baker, Nicholas (Dorset N) Clark, Dr Michael (Rochford)
Baldry. Tony Clarke, Rt Hon K. (Rushcliffe)
Banks, Robert (Harrogate) Colvin, Michael
Batiste, Spencer Coombs, Anthony (Wyre F'rest)
Beith, A. J. Coombs, Simon (Swindon)
Bellingham, Henry Couchman, James
Bennett, Nicholas (Pembroke) Cran, James
Benyon, W. Currie, Mrs Edwina
Bevan, David Gilroy Curry, David
Blaker, Rt Hon Sir Peter Davies, Q. (Stamf'd & Spald'g)
Boswell, Tim Davis, David (Boothferry)
Bottomley, Peter Day, Stephen
Bottomley, Mrs Virginia Devlin, Tim
Bowden, Gerald (Dulwich) Dickens, Geoffrey
Bowis, John Dorrell, Stephen
Brandon-Bravo, Martin Dunn, Bob
Brazier, Julian Emery, Sir Peter
Bright, Graham Evans, David (Welwyn Hatf'd)
Brooke, Rt Hon Peter Fallon, Michael
Brown, Michael (Brigg & Cl't's) Favell, Tony
Browne, John (Winchester) Fearn. Ronald
Bruce, Ian (Dorset South) Fenner, Dame Peggy
Buck, Sir Antony Field, Barry (Isle of Wight)
Burt, Alistair Finsberg, Sir Geoffrey
Campbell-Savours, D. N. Macdonald, Calum A.
Clay, Bob McWilliam, John
Clwyd, Mrs Ann Mahon. Mrs Alice
Cook, Frank (Stockton N) Marek, Dr John
Cook, Robin (Livingston) Maxton, John
Crowther, Stan Meale, Alan
Cryer, Bob Michael, Alun
Cummings, John Michie, Bill (Sheffield Heeley)
Cunliffe, Lawrence Milian, Rt Hon Bruce
Dalyell, Tam Morgan, Rhodri
Darling, Alistair Morley, Elliott
Davis, Terry (B'ham Hodge H'I) Mullin, Chris
Dewar, Donald Murphy, Paul
Dixon, Don Nellist, Dave
Dobson, Frank O'Neill, Martin
Eastham, Ken Patchett, Terry
Flynn, Paul Pike, Peter L.
Foot, Rt Hon Michael Prescott, John
Foster, Derek Primarolo, Dawn
Fyfe, Maria Redmond, Martin
Galloway, George Roberts, Allan (Bootle)
Garrett, John (Norwich South) Robertson, George
George, Bruce Ross, Ernie (Dundee W)
Gilbert, Rt Hon Dr John Ross, William (Londonderry E)
Golding, Mrs Llin Salmond, Alex
Gordon, Mildred Shore, Rt Hon Peter
Griffiths, Nigel (Edinburgh S) Skinner, Dennis
Grocott, Bruce Smith, Andrew (Oxford E)
Hardy, Peter Smith, Rt Hon J. (Monk'ds E)
Haynes, Frank Snape, Peter
Henderson, Doug Spearing, Nigel
Holland, Stuart Thompson, Jack (Wansbeck)
Hughes, John (Coventry NE) Wall, Pat
Illsley, Eric Walley, Joan
Ingram, Adam Wardell, Gareth (Gower)
Jones, Martyn (Clwyd S W) Welsh, Michael (Doncaster N)
Lamond, James Williams, Alan W. (Carm'then)
Leadbitter, Ted Winnick, David
Leighton, Ron
Litherland, Robert Tellers for the Ayes:
Lloyd, Tony (Stretford) Mr. Allen McKay and
McAllion, John Mr. Robert N. Wareing.
Forman, Nigel Neubert, Michael
Forth, Eric Newton, Rt Hon Tony
Fox, Sir Marcus Nicholls, Patrick
Franks, Cecil Nicholson, David (Taunton)
Freeman, Roger Nicholson, Emma (Devon West)
French, Douglas Onslow, Rt Hon Cranley
Gardiner, George Oppenheim, Phillip
Garel-Jones, Tristan Paice, James
Gill, Christopher Patnick, Irvine
Goodhart, Sir Philip Pattie, Rt Hon Sir Geoffrey
Goodson-Wickes, Dr Charles Pawsey, James
Gorman, Mrs Teresa Peacock, Mrs Elizabeth
Gow, Ian Porter, Barry (Wirral S)
Gregory, Conal Porter, David (Waveney)
Grist, Ian Raffan, Keith
Grylls, Michael Redwood, John
Hargreaves, A. (B'ham H'll Gr') Renton, Tim
Hargreaves, Ken (Hyndburn) Rhodes James, Robert
Harris, David Riddick, Graham
Haselhurst, Alan Roe, Mrs Marion
Hawkins, Christopher Rowe, Andrew
Hayes, Jerry Rumbold, Mrs Angela
Hayward, Robert Ryder, Richard
Heathcoat-Amory, David Sackville, Hon Tom
Hind, Kenneth Sainsbury, Hon Tim
Holt, Richard Sayeed, Jonathan
Howard, Michael Shaw, David (Dover)
Howarth, G. (Cannock & B'wd) Shaw, Sir Giles (Pudsey)
Hughes, Robert G. (Harrow W) Shephard, Mrs G. (Norfolk SW)
Hunt, David (Wirral W) Shepherd, Colin (Hereford)
Hunt, John (Ravensbourne) Sims, Roger
Irvine, Michael Skeet, Sir Trevor
Jack, Michael Smith, Tim (Beaconsfield)
Janman, Tim Spicer, Sir Jim (Dorset W)
Jones, Gwilym (Cardiff N) Spicer, Michael (S Worcs)
Jones, Robert B (Herts W) Squire, Robin
Jopling, Rt Hon Michael Stanbrook, Ivor
Kellett-Bowman, Dame Elaine Stanley, Rt Hon John
King, Roger (B'ham N'thfield) Stern, Michael
Kirkhope, Timothy Stevens, Lewis
Knapman, Roger Stewart, Andy (Sherwood)
Knight, Greg (Derby North) Stradling Thomas, Sir John
Knight, Dame Jill (Edgbaston) Sumberg, David
Knowles, Michael Summerson, Hugo
Knox, David Tapsell, Sir Peter
Lamont, Rt Hon Norman Taylor, Ian (Esher)
Lawrence, Ivan Temple-Morris, Peter
Lawson, Rt Hon Nigel Thompson, D. (Calder Valley)
Lee, John (Pendle) Thompson, Patrick (Norwich N)
Lennox-Boyd, Hon Mark Thorne, Neil
Lightbown, David Thurnham, Peter
Lilley, Peter Townend, John (Bridlington)
Lloyd, Sir Ian (Havant) Tredinnick, David
Lloyd, Peter (Fareham) Twinn, Dr Ian
Lord, Michael Viggers, Peter
MacGregor, Rt Hon John Waddington, Rt Hon David
MacKay, Andrew (E Berkshire) Wakeham, Rt Hon John
McLoughlin, Patrick Waldegrave, Hon William
McNair-Wilson, M. (Newbury) Walden, George
Malins, Humfrey Wallace, James
Mans, Keith Wardle, Charles (Bexhill)
Marshall, John (Hendon S) Warren, Kenneth
Martin, David (Portsmouth S) Whitney, Ray
Mellor, David Widdecombe, Ann
Meyer, Sir Anthony Wiggin, Jerry
Miller, Hal Wilshire, David
Mills, Iain Wolfson, Mark
Mitchell, Andrew (Gedling) Wood, Timothy
Mitchell, David (Hants NW) Woodcock, Mike
Montgomery, Sir Fergus Young, Sir George (Acton)
Morris, M (N'hampton S)
Moss, Malcolm Tellers for the Noes:
Moynihan, Hon Colin Mr. Robert Boscawen and
Nelson, Anthony Mr. Tony Durant.

Question accordingly negatived.

Main Question put and agreed to.

Resolved, That this House takes note of European Community Documents Nos. 8199/87 on indirect tax rates and structures, 8200/87 on value added tax rates, 8201/87 on the removal of fiscal frontiers, 8202/87 on a value added tax clearing mechanism frorintra-Community sales, 8203/87 + COR 1 on convergence of rates of value added tax and excise duties, 8204/87 and 8205/87 on taxes on cigarettes and other manufactured tobacco, 8206/87 on excise duty on mineral oils and 8207/87 + COR 1 on excise duty on alcohol.

11.43 pm
Mr. Spearing

On a point of order, Madam Deputy Speaker. I am grateful to you for taking this point of order, as I am for your ruling at the end of the debate. Although, as you indicated, there may be further debates on the legislation, the Government have discharged their responsibility to the House and I am aware of no procedure that guarantees further debates before decisions are made in Brussels. It is true that the Chancellor of the Exchequer, the Government, or any other hon. Member may raise such a debate, but that cannot be guaranteed.

Secondly, the seven directives that we have discussed tonight may, if followed up, have to come back to the House for legislation for the United Kingdom. If that happens, the terms of the decision in Brussels will have to be complied with by the House, for if a decision by the House was other than the decision by Brussels, the House would be in breach of the treaty.

Madam Deputy Speaker

The very convoluted point of order put by the hon. Gentleman, who I know is an expert on European matters, has been noted.