VAT (Hansard, 30 November 1989)

§ 3. Mr. Bill Michie
To ask the Chancellor of the Exchequer what percentage of the average household expenditure is accounted for by value added tax; and what was the equivalent figure in 1978.

§ 19. Mr. Harry Barnes
To ask the Chancellor of the Exchequer what percentage of the average household expenditure is accounted for by value added tax; and what was the equivalent figure in 1978.

§ The Economic Secretary to the Treasury (Mr. Richard Ryder)
A married man on average earnings with two children, who will have seen his real take-home pay increase by nearly 32 per cent. since 1978–79, would have paid approximately 2.7 per cent. of his earnings in VAT in 1978–79 and will pay about 5 per cent. in 1989–90.

§ Mr. Michie
The Economic Secretary is apparently admitting that a married man with two children and average earnings will pay double the VAT that he paid 10 years ago. Does that not show that the Government give tax cuts with one hand but with their other, invisible hand take more away through VAT and mortgage rate hikes?

§ Mr. Ryder
The hon. Gentleman conveniently forgets that when we came to office in 1979 we faced a large budget deficit, bequeathed to us by the Labour Government. As a result, we raised some taxes during the first two years to 824 get into surplus. We are now in surplus again. In recent years, the take has been diminishing. The crucial figure for the hon. Gentleman to recall is the 32 per cent. to which I referred in my main answer.

§ Mr. Harry Barnes
Value added tax is a regressive form of taxation as it takes more from the poor than from the wealthy. Will the Government ensure that they do not go further down that road by putting VAT on essentials, including medicines, newspapers, books and children's clothes? What will be the position if the Government go down that road given that the public will also face the extra burden of the poll tax?

§ Mr. Ryder
The hon. Gentleman asked two supplementary questions. First, VAT is not regressive because VAT payments as a proportion of expenditure rise with income. Secondly, I do not wish to anticipate next year's Budget statement to be made by my right hon. Friend the Chancellor.

§ Mr. Burns
In the light of my hon. Friend's previous answer, does he agree that it is voodoo economics for the Liberal Democrats in Chelmsford to call for an increase in VAT to 18 per cent. to curb inflation when that would put 1½ per cent. on the rate of inflation, cost £75 billion to industry and commerce, and increase the expenditure of the average household through increased VAT payments?

§ Mr. Ryder
It is never difficult to find a loony Liberal, but if there were to be any difficulty I know from my own experience that it is easy to find one in Chelmsford.

§ Mr. Anthony Coombs
Are not the Government to be congratulated on resisting the European Commission's proposals to extend VAT to children's clothes and food? Will my hon. Friend confirm that as a result of the enormous changes in national insurance and taxation which have taken place in the past 10 years, the average household pays—on a tax basis alone—£10 less per week now than it would have paid in 1979, and that 2 million people have been taken out of tax altogether?

§ Mr. Ryder
That is correct.

§ Mr. Jack Thompson
Will the Minister consider commenting on the effect of VAT on unemployed households, and will the Treasury consider issuing a leaflet explaining the VAT implications for households in which the parents are unemployed so that they can identify the things that they cannot buy?

§ Mr. Ryder
If the hon. Gentleman cares to write to me, I will consider his suggestion. I remind him that the benefit system in this country already takes care of the sort of people to whom he has referred.