Indirect Tax Harmonisation and Statistics

HC Deb 15 November 1990 vol 180 cc721-53

4.8 pm

The Paymaster General(Mr. Richard Ryder)

I beg to move, That this House takes note of European Community Documents Nos. 6762/89 on approximation of indirect taxes, 9775/89 on excise duty rates, 9776/89 on taxes on cigarettes and manufactured tobacco, 9777/89 on excise duties on mineral oils, 9778/89 on excise duties on alcoholic beverages, 6641/90 and the Supplementary Explanatory Memorandum submitted by Her Majesty's Customs and Excise on 12th November 1990 on supplementing the common system of value-added tax, 6642/90 on administrative co-operation in the field of indirect taxation, 6725/90 and 8801/90 on statistics relating to trading of goods between Member States, COM(90) 430 on the general excise regime, COM(90) 431 on general arrangements for the movement of products subject to excise duty, COM(90) 432 on harmonisation of the structures of excise duties on alcoholic beverages, COM(90) 433 on taxes other than turnover taxes levied on manufactured tobacco and COM(90) 434 on structures of excise duties on mineral oils; and supports the Government's view that the technical proposals can form the basis of a single market without fiscal frontiers that is effective against fraud and provides the statistics needed by Government to control its economic policies while minimising the burdens on business, particularly for the smaller traders; and recognises the need for early progress on these proposals, separate from those on indirect tax rates on which decisions need not be reached before 31st December 1991.

At the Economic and Finance Council next week, Finance Ministers will be asked to consider a package which has been drawn up during many months—indeed years. My purpose this afternoon is to explain these technical proposals as concisely as I can and to listen to some of the views expressed by hon. Members on both sides of the House which could influence the line that the British Government take at next week's Council meeting and subsequent ECOFINs. First, I should explain that in the normal course of events this debate would have been opened by my hon. Friend the Member for Warwickshire, North (Mr. Maude), the Financial Secretary to the Treasury, who is responsible for negotiating on Britain's behalf in Europe. The reason for his absence today is that he is negotiating for us at a Budget Council in Brussels, and I am acting as a stand-in.

Mr. Barry Field (Isle of Wight)

Even if my hon. Friend is a stand-in for the Financial Secretary, can he confirm that he will resist with equal zeal the European Commission's demands for value added tax on passenger transport, especially on ferry transport, as that would have a disastrous effect on offshore islands in the United Kingdom? When discussing harmonisation of taxation, will my hon. Friend be able to consider concessions on duty-free sales being phased out under EC regulations, as that is a matter of considerable concern to British shipowners and would have a considerable effect on increases in the price of cross-Channel travel?

Mr. Ryder

The existence or abolition of duty-free sales will not be tackled in earnest at ECOFIN on Monday. As my hon. Friend says, however, it is an issue which will be considered at ECOFIN during the next few months. The British Government have yet to make a decision on the line that we shall take on duty-free sales. I am in the process of meeting several delegations of people who wish to maintain the existing duty-free procedures, as I suspect my hon. Friend does. Only yesterday, I met my noble Friend Lord Rees—a former Chief Secretary to the Treasury—who led a delegation of people representing the industry, who want to maintain the status quo. I shall meet other deputations during the next few weeks, before the Government take a final decision.

My hon. Friend the Member for the Isle of Wight (Mr. Field) will recall that I wrote him a letter on 24 October about passenger transport.

Mr. Barry Field

An excellent letter.

Mr. Ryder

I thank my hon. Friend for that kind remark. I hope that the arguments that I expressed were helpful to him. That is the present Government position and at this stage I have nothing further to add.

Abolition of fiscal frontiers has been one of the most contentious areas of the entire single market programme. There is no argument about the objective—indeed, abolition of fiscal frontiers is firm Government policy—but there has been considerable discussion about what needed to be done to achieve that objective. The United Kingdom's approach to the package of measures that we are discussing this afternoon has been an excellent example of the Europe that the Government are committed to—a practical Europe which offers benefits for people and businesses.

European Finance Ministers meet next Monday to consider progress of the official working groups on the Commission's VAT and excise technical proposals. The proposals follow agreement by the Finance Ministers' Council last year that, for the time being, the present, familiar system, whereby goods are exported untaxed and subjected to VAT and excise duties in the country of destination, should continue to apply, but without fiscal frontier controls. It is proper that the House should have the opportunity to debate these proposals first, and that the information available to the House should be as up to date as possible. I therefore submitted a supplementary explanatory memorandum on Monday to inform the House of developments on the Commission's proposals for control of the VAT system, once fiscal frontiers for intra-EC trade have gone.

As the House knows, the United Kingdom Government have spearheaded efforts to work out the practical fiscal arrangements for the creation of a single market, so as to provide a better environment for wealth creation through increased competition and unrestricted trade. During the negotiations on the technical systems to replace the existing customs formalities, the Government have kept it in mind that the new systems should be deregulatory, simple, as close to domestic arrangements as possible and as strong as possible against fraud without involving an unacceptable level of additional bureaucracy. Moreover, the new systems must be capable of implementation by 1 January 1993. Our intention is that traders should be left free to concentrate on what they are supposed to be doing—trading.

Under the VAT technical and administrative co-operation proposals—Council document Nos. 6641/90 and 6642/90—the great majority of intra-Community supplies, those between VAT registered businesses, will continue to be zero-rated. However the conceptual basis will change, since the idea of "import" and "export" will have no place in the internal market. Instead, tax will become due on the acquisition of goods by a business from another member state and the business will show this liability on the normal periodic VAT return used for domestic transactions, with the concurrent right to deduct tax as appropriate. In this way, VAT will still accrue to the member state where the goods are consumed.

For example, a United Kingdom business purchasing furniture from Italy is currently liable to pay VAT at the time the furniture actually enters the United Kingdom, with the inevitable costs and delays of formalities at frontiers. Under the concept of "acquisition", VAT would become due on transfer of the legal ownership of the furniture and would be accounted for through the United Kingdom's purchaser's normal records, without any need to endure frontier formalities.

To avoid significant trade and fiscal distortion, special arrangements will be introduced for private purchases of new motor vehicles and mail order sales, and cross-border purchases by exempt businesses and non-taxable organisations in excess of 35,000 ecu per year.

Mr. Alex Carlile (Montgomery)

May I put to the hon. Gentleman a point that arises from what he has just said? If liability is to arise on transfer, that raises serious problems about when title to goods passes. The law on when title to goods passes is very different in the various Community countries. Indeed, there are differences between the laws of England and Scotland on that subject. Those differences are but small compared with the differences between the law of England and, let us say, the law of Greece. Is an effort being made to harmonise the law on when title to goods passes?

Mr. Ryder

The hon. and learned Gentleman highlights an important point. I know that that point was made when these matters were discussed at official level in Brussels. Efforts will be made to ensure that his point is taken on board. My view, although it may be proved wrong, is that there is little chance of the Economic and Finance Council reaching agreement on Monday next. An agreement in principle will, I believe, be reached at a later stage. I shall certainly ensure that my hon. Friend the Member for Warwickshire, North, who will represent the Government next Monday and who will read Hansard before he departs for Brussels, is made aware of the hon. and learned Gentleman's points.

Inevitably, removal of customs fiscal frontier controls will risk creating new fraud opportunities. To counter this, the Commission has proposed an enhanced system for mutual assistance between national tax authorities after 1992. That would provide the means for much greater exchange of information to ensure that the benefits for legitimate traders of removing those frontiers are not also a benefit for the fraudulent. This information will be supplied by one Administration only for the use of another. It will thus be confidential and, save as allowed by the providing member state, will be used only for taxation purposes or in connection with judicial or administrative proceedings connected with tax assessment.

Other member states, for reasons of their own, have gone for much heavier controls which we have consistently opposed. They have argued for controls such as mandatory listings of all intra-EC trade, transaction by transaction. This would impose major new burdens on business. The domestic system of audit of traders' ordinary commercial records is already well proven by Customs and Excise; we shall therefore continue to argue that, in providing information for this cross-border verification, only the minimum additional requirements for business to provide information necessary should be considered. To this end, we are considering a less burdensome compromise proposal, that traders shall periodically provide a summary of customers and aggregate sales to each.

In revising the sixth VAT directive, the basis of the Community VAT system, to provide for the post-1992 technical arrangements, the Commission's text neglects to carry forward a number of derogations, including that for our zero rates. The Commission already accepts the continuation of zero rates and its objective is, therefore, certainly not to eliminate them. It may, however, be an attempt to obtain more leverage to press for early agreement on the precise scope of the zero rate category.

Of course, the Government have pledged to protect the United Kingdom's zero rates—not only in the specific pledges given in respect of food, domestic fuel and power and children's clothing and footwear, but as a general defence of the indirect tax structure which we believe suits this country. The United Kingdom's position is ultimately protected by the need for unanimity on fiscal proposals. However, other member states with important derogations to protect also cannot give final agreement to the technical proposals. Conscious of this, we are seeking to reach agreement in principle on the technical system, without becoming sidetracked once more in the rates harmonisation argument. Once agreement in principle on the technical system has been reached, we shall return to this question and the important details of the proposals where existing arrangements need to be protected.

The Commission's technical proposals provide a clear basis on which fiscal frontiers can be removed, and the economic benefits of the single market obtained without the straitjacket of centrally determined tax approximation. Our priority this year is therefore to reach agreement at Community level on the technical systems to apply after 1992. This is an imperitive if we, and businesses, are to be ready for 1993. We do not intend to become sidetracked by fruitless discussion about rates. Indeed, Finance Ministers have agreed that decisions on this issue need not be reached until the end of 1991.

The Commission finally presented to EC Finance Ministers at the Economic and Finance Council proposals for controlling cross-border commercial consignments of excise goods.

Mr. Hugh Dykes (Harrow, East)

My hon. Friend has confirmed that one of the features of the complicated negotiations has been a willingness on all sides to compromise and accept an emerging package that will be beneficial to all. I apologise for having missed the initial part of my hon. Friend's speech.

There are always special national interests in member states, even for Euro-enthusiasts to refer to legitimately so has my hon. Friend been able to clarify further the position of British sherry in respect of the proposal for higher duty rates on fortified alcoholic products, which would harm the position of British sherry? I declare a direct interest—it is on the public register—as the parliamentary representative of the, British Wine Producers' Committee. Will the December meeting with Customs and Excise in Brussels, at which a representative of my hon. Friend's Department will be present look into that again carefully to ensure that the interests of British sherry are properly safeguarded, as are the many other national interests of member states in these complicated negotiations? Can he reassure me?

Mr. Ryder

I thank my hon. Friend for that intervention. I explained just before he came into the Chamber that the negotiations at ECOFIN on Monday were being undertaken by my hon. Friend the Financial Secretary to the Treasury who is today at a Budget Council in Brussels. The negotiations are entirely in his hands. Nevertheless, I am aware of the problem about British sherry, though I did not know of my hon. Friend's interest in the subject until he mentioned it. I can assure him that we will continue to do our best to protect the interests of British sherry as long as those interests are consistent with our general approach to the negotiations which, as my hon. Friend knows, have been going on for the past few years. As my hon. Friend appreciates, the discussions are extremely technical and we have come a long way relatively quickly, bearing in mind the position from which we started.

The Government have played a constructive role in trying to reach compromises. Indeed, many of the compromises that I have set out are the direct result of ideas suggested in Brussels by the British Government. That is a further example of the positive way in which we negotiate on these technical matters. Such negotiations take place almost every week, but are little noticed in the House or by the press.

As I said, the Commission finally presented proposals for controlling cross-border commercial consignments of excise goods to ECOFIN in October. There are four proposals: one on controlling intra-EC movements without frontier checks, and three on excise duty structures for alcohol, oils and tobacco. The essential elements of the proposal on controls are that excise duties would continue to be charged in the member state of consumption, with the majority of commercial movements travelling under a duty-suspension scheme between authorised warehousekeepers and traders. We broadly welcome the new movement proposal, which, as I explained to my hon. Friend the Member for Harrow, East (Mr. Dykes), largely follows United Kingdom ideas.

Common excise duty structures facilitate cross-border trade by creating an understandable and recognisable common system of classification and an agreed basis for taxation. They are also essential for determining a common system of control. The Government therefore believe it sensible to enter into negotiations on the structure proposals. However, they are linked with the earlier Commission proposals for harmonised duty rates, to which I shall refer shortly. That is unacceptable and will be resisted, in accordance with our market forces beliefs.

A subsidiary point arising from these arrangements to ensure that commercial transactions in excise goods pay duty in the country of destination—but one of considerable public interest—is the implications for personal cross-border shopping. As one part of the fiscal preparations for the single market, in July 1989 the Commission proposed an increase in three annual stages in the travellers' allowances for goods acquired duty and tax-paid in another EC country. By 1992, these proposals would quadruple the value allowance for goods subject only to VAT to about £1,100 and double the allowances for wines, spirits and tobacco.

The Government have consistently supported increases in those allowances. Indeed, we are willing to agree straight away to the levels proposed by the Commission for 1992, rather than to have annual rises. Increased allowances are an important signal that the single market is for people as well as businesses.

So far, the proposals have been bogged down because some member states that are concerned about fiscal leakage are unwilling to adopt the proposed transitional increases. We are willing to consider all compromise proposals which may achieve movement on this key issue. After 1992, in general, limits on travellers' allowances should not be necessary, but we will need some means to distinguish excise goods—drink and tobacco—for personal use which can be bought at low duty rates in other member states from commercial importations which should pay United Kingdom duty. A high limit, beyond which larger quantities could reasonably be considered commercial in intent, may be a strong possibility. By gradually increasing travellers' allowances for cross-border shopping, the Government believe that market forces will be given the scope to bring about such convergence of tax rates as is necessary.

The Commission's revised excise duty rate proposals, published in January, are not very different from the previous 1987 proposals, and are therefore equally unacceptable. Essentially, it suggests, for tobacco and alcohol, differentiated minimum rates to be applied from 1 January 1993, coupled with target rates, for which no date is specified. For mineral oils, the proposal is for minimum rates, without target rates, for petrol, LPG, methane and kerosene used as engine fuel, and rate bands for diesel, heating oil and heavy fuel.

We do not believe that such changes to United Kingdom excise duties are necessary for the single market or desirable, given the very different economic and social circumstances of the 12 member states.

The United Kingdom's visible trade statistics are gathered mainly from customs documentation, which is completed when goods pass through frontier controls. With no fiscal frontier controls, those customs declarations for EC trade will join the bonfire of paperwork. Instead, the new statistics proposal creates a link between VAT returns and statistical systems. The majority of traders would simply provide aggregate details of EC imports and exports on their normal VAT return. Only larger traders would be required to provide a specific statistical return. Our objective is that this detailed return should be limited to about the largest 20 per cent. of traders, in terms of the value of intra-EC imports and exports. This would capture details of some 96 per cent. of United Kingdom trade with the EC.

I have attempted to keep my opening remarks as clear and concise as possible, but a wide range of issues are encompassed by the motion and I have tried to cover the main issues. I believe that these proposals, while not perfect, reflect well on the Government's persistence and commitment to a practical, achievable system—an approach which has succeeded this year in persuading others in Brussels of the need to focus priorities on the practical requirements for removing fiscal frontiers by the end of 1992.

Much remains to be negotiated, and I welcome the opportunity to hear hon. Members' views.

4.30 pm

Dr. John Marek (Wrexham)

I am pleased that the House has been given the chance to debate these topics. As the Paymaster General pointed out, there are many different issues and papers before us. However, although some of the issues may be technical, they are nevertheless important as they will affect future indirect taxation in Britain and the future collection of statistics. Therefore, it is only right for the House to be able to debate them. I pay tribute to the Select Committee on European Legislation for its work before today's debate.

The hon. Member for Harrow, East (Mr. Dykes) may have missed the first few minutes of the debate, but he has been here ever since—unlike the hon. Member for Isle of Wight (Mr. Field), who came in and intervened before the Paymaster General had said anything of real substance, apart from his apology for the absence of the Financial Secretary, who is no doubt absent for some lobbying purpose. The hon. Gentleman then immediately disappeared, and has not been seen in the Chamber since. If he returns while I am speaking, I shall repeat what I have said and give him a chance to intervene if he wishes.

Mr. Nigel Spearing (Newham, South)

I am grateful for the encomium that my hon. Friend addressed to the Select Committee on European Legislation, of which I have the privilege to be Chairman. Will he also pay tribute to the staff of that Committee, the civil servants who write memoranda about complicated documents and the Vote Office staff? Is it not both notable and a scandal that the motion encompasses 37 documents, all of which were made available to hon. Members and the Vote Office but which constitute a very indigestible meal? I hope to catch your eye later, Mr. Deputy Speaker, so that I can say more about the matter.

Dr. Marek

I gladly join my hon. Friend in paying tribute to the work of staff from all parts of the House who have brought forward these documents, but their work has meant that we ought to have more time to consider them. I wonder whether last Thursday's business statement gives hon. Members enough time to consider all these matters—especially in view of the fact that the Vote Office has also been caught unawares, and cannot collate the documents until Thursday night or Friday morning.

I share some of the worries of the hon. Member for Harrow, East that some of the banding for duties on liquors and spirits is a little odd. The band should encompass different products within the whole range; the duties should not perform arbitrary jumps, as they appear to do at present. That is a technical point, but I hope that the Paymaster General will look into it so that, for example, British sherry is not disadvantaged and still table wine is placed in a single category, regardless of its strength.

There are other little inconsistencies. For instance, the Commission's latest proposal seems to have abandoned the principle of levying duty on alcoholic beverages according to their alcoholic strength. There are now different proposals for wines, spirits and beer. Both sides of the House agree. We look to the Paymaster General and the Financial Secretary to put our case at ECOFIN and at the further meetings which will no doubt be necessary.

This big topic falls into four parts. Some papers deal with changes relating to excise duties, others with changes relating to value added tax and its collection, and others with co-operation between member states, principally for the purpose of protecting the Revenue. We must not forget that those papers are important. A further set of papers deals with the collection of intra-EC trade statistics. There seems to be general acceptance in this country that that should be continued.

The discussions between the Government and our Common Market partners have been fairly co-operative. There have been no histrionics about these matters or the kind that occurred recently about a single currency. There has been no Minister shouting, "No, no, no," from the Dispatch Box about these proposals. Yet the proposals were clearly unacceptable to this country some years ago. There has been co-operation and they have been changed. The system for VAT will not be based on an origin system. There will be a transition period, and a destination system of taxation will be available until 1996.

That can be compared with the difficulties that we had when the last European Council decided that stage 2 of the Delors plan should start in 1994. We must interpret these matters in a European way. If an agreement cannot be reached by then, the clock can be stopped. Whether one likes it or not, this simply means that discussions will continue until an agreement is reached. I far prefer negotiations to take place in a cool, calm and deliberate way, unlike the rather public discussions about a single currency and its effects on this country.

Mr. Dykes

What about the planning for a single market development with the deadline of 31 December 1992 and matters such as European monetary union and the proposal for the deadline for the second stage? It was apparently all right to have a deadline for the single market and to work out the details after the deadline was agreed, but not all right for EMU. Why is there a difference?

Dr. Marek

I entirely share the hon. Gentleman's point of view and I know what is behind his question, but it is not for me to answer. Perhaps he should address himself to the Minister when he replies or to those on the Government Front Bench in a subsequent debate. The hon. Gentleman has made a good point.

These matters can be dealt with co-operatively. The proposals are not all completely acceptable, but they are much better than those before us when we last debated this issue on 11 May 1988. At that time, the Opposition tabled an amendment and my view has not changed since then. The amendment stated that the House of Commons should be consulted in advance of Ministers of the Crown agreeing to taxation changes at European level. I say that on the basis not of sovereignty but of democratic accountability. The House should know in advance what Ministers propose to do about taxation. Our amendment did not find favour with the House two years ago, so we decided not to table it again because that would be an abuse of the House's time.

We have come a long way. The proposal for the 14 per cent. to 20 per cent. band rate has been replaced by a minimum rate. The lower band, in which the rates of VAT could range from 4 per cent. to 9 per cent., is to be retained, but it is now recognised that certain goods can be zero-rated. I am sure that all hon. Members welcome that and the refreshing new attitude taken by the European Commissioner, Mrs. Scrivener, to this matter. Clearly, minimum rates for VAT are all that is required. We do not have to set a band rate for the top rate of VAT, because it is up to individual countries. If it were too high, citizens would be able to go to another Common Market country to purchase those goods at a lower rate. However, the matter is important and I am glad that the Paymaster General said that the Government are committed to zero-rating food, domestic fuel and children's clothes and footwear.

I wish that the Paymaster General would add to that list books, periodicals and newspapers, because that is an important point. The Government have had plenty of time in which to do that and as discussions are proceeding within the Council of Ministers in a co-operative manner, I should have thought that the Government could make this pledge to the British people. I will not go through the arguments for retaining zero-rating on books, periodicals and newspapers, save to say that it is important for educational and for cultural purposes.

When we have an agreement, it is also important that any zero-rating is not allowed simply as a derogation for a number of years or on sufferance. It should be clearly recognised that items such as food can and should continue to be zero-rated in this country as of right, if our Government so decide, and the Opposition would support that. Such zero-rating makes the VAT system a far more progressive taxation system and is to be welcomed.

Mr. Spearing

I am grateful to my hon. Friend for giving way on a point of substance which I feel that I must raise now, as well as later. Has my hon. Friend thought about the implications of a non-statement from the Government? I think that I did not hear a statement from the Treasury Bench about zero-rating on domestic fuel, on transport and on water services—the provision of clean water and the disposal of sewage. Does my hon. Friend recollect that there was some discussion on that? Is not it right for the Government to tell us distinctly at this stage—if they have not already done so—whether they contemplate that those areas of taxation will be allowable for VAT or whether they will hold out and maintain zero-rating in those areas which, so far as I am aware, have never been taxed in the United Kingdom?

Dr. Marek

My hon. Friend makes a pertinent point and I should be delighted to give way if the Paymaster General wishes to intervene. If he cannot, I suggest that he consults his Prime Minister—whoever it is—next Wednesday and makes that point to him or to her. It is an important point and it would arouse great indignation in this country if some of those services——

Mr. Spearing

Any of them.

Dr. Marek

—indeed, if any of them were to be subject to VAT in the future.

It would be very much to our benefit if all food taken away from shops were to be zero-rated. At present, there are difficult distinctions between—to use a well-known example—different types of chocolate biscuit. If a biscuit has chocolate in it, it is not liable to VAT, but if it is chocolate-covered, it is liable to be rated at 15 per cent. Hon. Members must wonder whether a jaffa cake will be liable to VAT. At present, it is not liable for VAT although 50 per cent. of it is covered by chocolate because it is not a biscuit, but a cake.

Mr. Alex Carlile

Tax the top half only.

Dr. Marek

It depends which is the top half. We have a chance to introduce a new system of indirect taxation and legislation, so it is important that it should be simple and that it should cover large categories without the need for making many individual exceptions.

Mr. Peter Viggers (Gosport)

Is it Labour party policy that if a Labour Government ever came to power they would zero-rate those items, and how much would that cost?

Dr. Marek

I suspect that the costs are minimal for some of these matters. However, I am discussing this within the context of changing the system of indirect taxation, with which the discussions, the papers and the debate are concerned. Some of the changes may produce a revenue gain. Perhaps we should consider banding for VAT. Why should we have 15 per cent. or zero? It is a debating point—although not for this afternoon. Perhaps some items may be liable for 5 per cent., others for 15 per cent. and others for zero. All these matters form part of the whole. The general principle is that, when making these changes, we should make the system simpler—and perceived by the public to be so.

Mr. Ryder

I want to point out some facts that may be helpful to the hon. Member for Wrexham (Dr. Marek( and to my hon. Friend the Member for Gosport (Mr. Viggers). The total tax raised on the items to which the hon. Gentleman referred is about £500 million a year. Zero-rating would mean the total loss of that revenue. Inclusions within a reduced rate band, to which the hon. Gentleman also referred, of between 4 per cent. and 9 per cent. would mean a loss to the Revenue of between £200 million and £350 million, so the answer to my hon. Friend is that it is the dickens of a lot of money.

Dr. Marek

The amount depends on which items the Paymaster General has included in that category. I am sure that £500 million of VAT does not currently escape on jaffa cakes. These matters are complicated and it may have been wrong of me to mention particular examples. However, no one would object if revenue was forgone in certain cases and increased in others but greater simplicity and fairness resulted. I am trying to get that point across, and I hope that the hon. Member for Gosport (Mr. Viggers) agrees with me on it.

There has been considerable concern in the Royal National Lifeboat Institution recently. I suggest to the Paymaster General that it would be useful for him to intervene if he has figures on this. A number of hon. Members have had letters suggesting that the European Commission is about to start imposing VAT on lifeboats. I know that the hon. Member for Gosport is interested in this matter and that, in this case, he is rightly keen to decrease revenue to the Chancellor of the Exchequer. Can the Paymaster General help us on this?

Mr. Ryder

I hope that this information will be helpful to our deliberations. As the hon. Member for Wrexham may know, I have received dozens of letters from hon. Members of all parties on this issue, which concerns many people. The Government are very conscious of the valuable role played by the RNLI, and we are keen to secure the right conditions in the single market for this organisation and for other charitable bodies. The Government see no reason why the existing zero rate for charities, like other United Kingdom zero rates, should not remain after 1992. We welcome the greater flexibility shown by the Commission in its revised approach to indirect taxation in the single market. Although the Commission is still suggesting that future zero rates should be limited in scope and subject to certain conditions, we have not accepted that. That position, which was confirmed again by the Government at the meeting of ECOFIN last December, is true of all our zero rates, not just of those of particular interest to charities.

Dr. Marek

I am grateful to the Paymaster General for that explanation. The position is much as I had hoped. There has recently been some new thinking in the European Commission and during the passage of various Finance Bills we have been able to secure concessions on matters relating to charitable work. For example, we had a good response from Europe on community halls.

Some of the documents deal with the collection of trade and VAT statistics—the latter principally to prevent fraud. Business must realise that it is in its own interests and in the interests of the Revenue that there should be as little fraud as possible. That necessarily imposes a burden on business, but those speaking on behalf of business cannot simply say that we should do away with all barriers and all burdens. That is too glib, because if we did away with too many of the burdens, fraud would increase, which would be to the detriment of business.

Clearly, the statistics collected need to be kept to a minimum. The Government have to do their job. They have to be able to forecast and to plan and manage the economy, and to do that, they need statistics. Over and above that, the collection of statistics can rightly be regarded as a burden on business.

It is vital that smaller firms should only have to fill up statistics forms once. It would be quite wrong for a small business which had to fill up a VAT form and perhaps a form to allow authorities in other member states to access a database then to have to fill up yet more forms for the Department of Trade and Industry. I do not know whether the Paymaster General has addressed himself to that question but I hope that he accepts that small businesses should have to fill up forms only once in a given period. They should not have to fill up different forms for different purposes.

Mr. Chris Butler (Warrington, South)

Perhaps the hon. Gentleman is coming to this point, but it would help us to follow his argument if he explained which of the five systems that Ministers will be considering next week he thinks most closely fulfil the conditions that he has described.

Dr. Marek

I do not have direct experience of form-filling so I have to rely on expert advice, but if the hon. Gentleman will bear with me I shall be coming to that matter.

Large firms may have to supply more data when the checks and barriers to trade are moved inland from the ports of entry. That may be said to increase the burden on them but that will be more than compensated for by the lack of problems at the ports. I hope that the data required will be kept to a minimum, but they must be adequate to allow the Government to do their job and the VAT authorities to satisfy the public that fraud is being kept to a minimum.

I was reasonably reassured by what the Select Committee on European Legislation said in its paper dated 14 November, which is available in the Vote Office today. Page 2 of the document says: Under this proposal, each Member State would hold the listings on the data base to which member states could gain access directly, but only for details of sales to them. If we adopt the listing proposal, perhaps listings will be confined to details of sales alone and not used for anything further. That will not be enough to ensure that fraud is kept to a minimum because two companies in different member states could collaborate to perpetrate a fraudulent act without its ever being detected. Inspectors must be able to follow audit trails, as they can in this country.

The Select Committee's paper continues: United Kingdom trade bodies who have been consulted as the negotiations progressed are not enthused by the proposed requirement for the supply of further information, but they agree that periodic aggregate sales listings would be preferable to the far more onerous proposals for detailed monthly transactions sales listings, strongly pressed earlier by some member states. Perhaps the Financial Secretary could pursue that at ECOFIN next week. Such a new system may well be acceptable so long as it is part and parcel of fraud detection mechanism which allows audit trails to be followed in certain circumstances.

I welcome the proposal to extend the arrangements whereby VAT can be charged on the destination principle at least until 1996, although I wonder whether the eventual results of the negotiations will be satisfactory and whether the system will work. I have yet to be convinced that we should adopt a system based on the origin principle and I hope that the Government will press the Commission to justify its proposals in that regard.

Clearly, it could not do so in time for the introduction of a new system in 1992–93, and I think that it is now beginning to realise that the matter is irrelevant to the single market. On the other hand, it would be useful to have a degree of harmonisation. If the Commission badly wants to apply the principle of tax being paid at origin, it must persuade us. I have yet to be persuaded and I do not think that the Commission has gone out of its way to persuade either the Parliament or the Parliaments of the other member states.

I am very much in favour of the argument for co-operation with other member states in the exchange of information. The document produced by Customs and Excise, dated June 1990 and entitled "The Control of Intra-Community Excisable Goods after Completion of the Single Market" is useful and many of its provisions seem to have been accepted by the Commission and reproduced in the various documents before us. In some of its aspects, however, the Commission could perhaps go further. Fraudulent traders should not only be caught; they should be banned from trading again for five or 10 years or perhaps for life.

I do not necessarily agree that dutiable goods that have come out of a bonded warehouse should be allowed to go back into bond for transfer from one member state to another. We do not do that in this country, although this is not necessarily a sticking point on which the agreement will stand or fall. We should get round the problem. If dutiable goods leaving a bonded warehouse do so permanently, there will be less fraud.

I welcome the fact that the Commission has abandoned its earlier plans simply to average exise duties across the Community and insist that the new levels are observed by each member state. That would have had serious repercussions for our policies on health and would have had a disastrous effect on the Revenue. We are talking not about £230 million but about £3 billion or £4 billion. The Commission's proposals are such that there could be quite a loss of revenue.

The Commission has stated that it will insist on a minimum duty with target duties above that minimum. The Opposition can travel along that road. Clearly, we must consider health. The problem is difficult because southern European countries which produce wine or tobacco tend to have much lower duties than northern members of the Community. Agreement or duties in that regard will be reached only after many years.

I believe that some of the minimum duties are welcome, but I have a reservation. As I understand it, under the proposals, if our ad valorem tobacco duty is higher than the target price, is that target price to be preserved? Is it to be inflation-proofed? I hope that the Paymaster General can help me on that point.

As I read the documents, any movement in the difference between what particular countries in the Community levy as duties on tobacco cannot go in any direction other than towards the target price. Would that preclude our increasing our duty to take account not only of inflation, but from keeping our duty at the same percentage in real terms—or at the same fraction—higher than the target duty on an annual basis? I am not sure what the answer to that is.

However, if that does not happen as inflation is higher in this country than in most of the other European countries, any duty that we levy that is higher than the target rate would simply disappear very quickly. That would be completely unacceptable. If the Paymaster General understands my point, and if he has read the documents, I would welcome an answer to my question. If he cannot answer me now, I hope that he will consider the matter and perhaps write to me. I hope that he will ensure that the ECOFIN Council produces an answer.

I can also be persuaded about the banding of mineral oils, but we must be careful about introducing changes which might significantly alter consumption. If the proposals are accepted, there will be an increase in diesel consumption in this country. There are health risks with diesel and I would prefer legislation in that area to be preceded by an environmental and health assessment so that legislation could back up such an assessment. I cannot see that happening at the moment.

There is an atmosphere and a feeling within Europe that we should get our policies unified and harmonised where that would help trade and an understanding between the different peoples. We could refuse to take part in such a harmonisation. For example, our Government refuse to have anything to do with the social charter. We could make ourselves extremely unpopular in Europe, as our Prime Minister has. As a result of that, anything we propose tends to be pooh-poohed immediately by our European partners simply because the British produced it. That is very regrettable. We must change that because we can and should play our part in Europe certainly on such things as a single currency and possibly on such things as the harmonisation of indirect taxation and the collection of statistics.

With regard to a single currency, if all members of the European Common Market united and said that they would have a single currency, it is inconceivable that business and the City would allow a Conservative Government in this country to opt out, because that would be the death knell of the City and would cause enormous problems for British business. That fact needs to sink in to certain Members in this Chamber.

Mr. John D. Taylor (Strangford)

I had understood that the Opposition opposed a single currency. Is the hon. Gentleman saying that, if the other 11 countries in the Community support a single currency, we should automatically support it as well?

Dr. Marek

The right hon. Gentleman must not trap me into saying something that I do not intend to say. I said that if 11 members united and said that they would have a single currency, and they went ahead and had one because we were obdurate and kept taking the cricket ball home and would not take part in negotiations or co-operative discussions with our Community partners, then it is inconceivable that British business and the City would allow any Government to keep Britain outside the system. That must be considered very carefully, but it does not mean that I am in favour of a single currency, willy-nilly and come what may. However, if the other 11 members of the European Community go along that road, we have a duty to do our best to see whether we can formulate proposals to enable us to partake of that system.

Mr. Alex Carlile

Leaving willy and nilly out of it, will the hon. Gentleman answer the question? Is the Labour party in favour of a single currency? He said that it should "sink in" to some people, but he said that it was something that could not be avoided. What percentage of his Labour colleagues has that fact sunk into so far? Would he agree that the figure would be about 20 per cent. if those hon. Members were to show their hands?

Dr. Marek

I was thinking more about Conservative Members. However, the hon. and learned Member for Montgomery (Mr. Carlile) is seeking to extract from me something that I do not know——

Mr. Carlile

You do not know the answer.

Dr. Marek

It is not a matter of knowing the answer—the question is hypothetical.

Mr. Carlile

You do not know the answer.

Dr. Marek

I gave the hon. and learned Gentleman time to intervene. He can intervene again if he wishes—we have plenty of time. However, his was a hypothetical question. It will be a question when negotiations are about to take place. I hope that the hon. and learned Gentleman will read carefully tomorrow what I have said. I have outlined a perfectly acceptable position for the Labour party to take at the present time.

Mr. John Biffen (Shropshire, North)

Before the lion. Gentleman leaves this fascinating subject, as he is speaking from the Opposition Front Bench with all the authority that that confers, would he say what the position would be of a Labour Government confronted with a situation in which the decision to have a European central bank was to put it under banker control rather than political control?

Dr. Marek

Again, the right hon. Gentleman is trying to get me to move forward into a hypothetical situation which in principle does not exist at present.

Mr. Alex Carlile

You are in trouble now.

Dr. Marek

Not at all—I stick by what I have said. It is on the record and I am sorry that I cannot provide amusement. The hon. and learned Member for Montgomery is trying to tempt me into a discussion on the matter, but I do not intend to be tempted.

There is a world of difference between a central bank under the political control of one nation state and its Government, and a central bank that is under the political control of 12 nation states, and therefore 12 Finance Ministers. There is also a difference between a central bank modelled on the lines of the Bundesbank and a bank which is truly independent of political control. I shall not say which I prefer. We need political control of a central bank.

The difference between the Government and the Opposition is that we would enter the negotiations in a co-operative spirit, knowing that we would have a more than even chance of producing something that would be acceptable to the British people. The Government, led by the present Prime Minister, are pursuing policies which make us irrelevant to the other member states. That is the difference.

Mr. Christopher Gill (Ludlow)

In his reply to the intervention of my right hon. Friend the Member for Shropshire, North (Mr. Biffen), the hon. Member implied that it was possible to have political control by 12 Chancellors. Is he suggesting that as a way in which we could proceed?

Mr. Deputy Speaker (Sir Paul Dean)

Order. I remind the House that, although the debate can go reasonably wide, if we were to develop this point, we should be getting beyond the terms of the motion.

Dr. Marek

I agree with you, Mr. Deputy Speaker. I am glad that right hon. and hon. Members have not succeeded in what they have mischievously been trying to do.

Any changes should ensure that accurate statistics are kept and are comprehensive enough for the Government to do their job in managing the economy. They must, wherever possible, lessen the burdens on trade and keep the clients' costs to a minimum. Any changes must protect revenue. I welcome the progress that has been made so far by the European Commission, but there is more to be done. I hope that, at the ECOFIN council next week, the Minister will argue his case along those lines and will succeed, without hectoring, lecturing, huffing or puffing—I know that Treasury Ministers do not do that—in persuading our colleagues in the European Community by cogent and friendly argument.

5.12 pm

Mr. Roger Sims (Chislehurst)

One of the directives is concerned, among other things, with the target rates for the tax on cigarettes. The House will have heard me express my views on the health hazards of smoking and I do not intend to make that speech again, but I want to express my concern at a passage in the memorandum, which says: The proposal has significant implications for health policy, since a cut in the absolute level of duty would make cigarettes cheaper overall and because a rise in the proportion of tax raised by an ad valorem charge would widen the span of retail prices, offering more opportunities for selling cheap products.

It is curious that we should have these proposals before us only a day after the Commission issued a paper about the adoption of the proposals amending the directive on the labelling of tobacco products. That document starts by saying: smoking is still a major health problem; one cancer out of three in Europe is caused by smoking. In other words, cancer prevention must start with smoking prevention. If the proposal goes through in its present form, far from deterring people from smoking by increasing the price of cigarettes—there is no doubt that price is a relevant factor—it would encourage them by reducing the price. I hope that my hon. Friend will take the point on board and that our objections to this aspect will be noted and ventilated.

Another of the documents before us deals with duties on spirits. Here, I have to declare an interest as adviser to the Scotch Whisky Association. My hon. Friend the Minister has already referred to possible proposals for the phasing out of the duty-free allowance and said that this is not an immediate matter, but it is clear that it is under consideration and could come in the fullness of time. The duty-free market is a special market and were it abolished, it would not be replaced elsewhere. All of us have experience of taking advantage of duty-free sales to purchase a product that we would not otherwise have purchased. If duty-free sales are abolished, the market is lost. For the Scotch whisky industry, if the duty-free market were to go within the Community, that would mean lost sales to the value of £40 million per annum. That is the equivalent of the loss of a complete market such as that in Germany.

Furthermore, it seems that the Commission is now moving from the original ideas of harmonisation on duty levels on alcohol products. The very effect of the proposal is to maintain discrimination between duty on spirits and the duty on wine. It does no more than maintain it, because, as an explanatory memorandum says: The ratio between the duties on spirits and wine would increase from about 2:1"— that is unreasonable in itself— to about 8:1, with possible adverse consequences for UK spirits producers, both in terms of the domestic market and exports to the EC. That discrimination of 8:1 between spirits and wines does not chime with the idea of a single market. Therefore, I urge my hon. Friend the Minister to stress again that consideration should be given to proper harmonisation of the duties on alcoholic products and, ideally, that the duties should be based on the alcoholic strength of the product, regardless of its nature.

5.18 pm

Mr. Alex Carlile (Montgomery)

My right hon. and hon. Friends and I broadly support the view expressed by the Paymaster General about these documents. However, I wish to draw the attention of the House to a number of matters. The first relates to tax points for VAT and the matter that I raised earlier in an intervention about the title to goods. There is already a minefield in domestic law relating to the question of when title to goods passes. It is difficult to determine even where the dispute is between a United Kingdom supplier and a United Kingdom purchaser. Already, there is a great deal of case law on the passing of title to goods where there is a transaction across international frontiers. When VAT law is harmonised, it is important that we do not face an exponentially increased minefield. It might be of great benefit to my colleagues at the commercial Bar, but I doubt whether it would be of much benefit to those traders whose interests we are trying to serve by the single market and harmonisation.

Attempts at harmonisation of the taxation regimes of the European Community and the achievement of harmony within the Community are as different, unfortunately, as my singing in the bath and the heavenly sounds of the Bach choir. On the face of it, I suppose that the right hon. Member for Henley (Mr. Heseltine) presents a slightly more hopeful prognosis for harmony, yet that is little comfort as I suppose that realistically we must regard him merely as the leadership candidate who is seen but not Hurd.

It is time that the Government, carefully and rightly avoiding slavish acceptance of all Commission suggestions, began to demonstrate a wish to make effective the concept of Europe of which the right hon. and learned Member for Surrey, East (Sir G. Howe) spoke with such eloquence on Tuesday. Unfortunately, as we have heard in the debate—I am pleased that the hon. Member for Wrexham (Dr. Marek), having left the Chamber to have his bruised fingers bandaged, to use a cricketing analogy, has now returned to his place—it is clear that we would not obtain any greater clarity of commitment from the Labour party, which is riddled both with deeply committed anti-Europeans and pragmatists, as well as with wholesale consumers of fudge. That is as destructive a combination as one could imagine when it comes to making real progress.

In the Labour party there are three schools of thought—some committed pro-Europeans, some committed anti-Europeans like the hon. Member for Newham, South (Mr. Spearing)—the hon. Gentleman does not make his position unclear—and those who spend their time sitting on the fence, like the hon. Member for Wrexham. I fear that the iron may well have already entered his soul on the subject of Europe and that we shall have no greater clarity from the Opposition Front Bench between now and the result of the next general election than we have had in recent years.

It is rather like having a Government—I repeat the fashionable use of cricketing metaphors—who play 12th man in Europe, and deliberately so, and therefore rarely obtain any significant slice of action on the field. To adopt a footballing analogy, we have a Labour party which, if it were to be allotted a position in the European team, would be playing as substitute, or possibly at left-right-outside.

Mr. Spearing

I fear that the hon. and learned Gentleman was slightly inaccurate when he mentioned my position. His inaccuracy illustrates one of the problems of what is sometimes called, but mistakenly, a debate. I am not anti-European. I am a European person, but I am not in favour of the terms or the philosophy behind the treaty of Rome. There is a great deal of difference between the two positions.

Mr. Carlile

rose——

Mr. Deputy Speaker

Order. I realise that the hon. and learned Member for Montgomery (Mr. Carlile) is in his preamble, and I am sure that he will come to the motion that is before the House.

Mr. Carlile

I am, Mr. Deputy Speaker, and I shall.

The hon. Member for Newham, South has made his position clear, as one would expect. He is opposed to the European Community.

It is nearly two decades since we accepted the introduction of value added tax, that being a key indirect tax within the European Community. It is a relatively simple tax, although it has become complicated by some fairly abstruse regulations and exceptions for certain goods and services. It is easy and cheap to collect, mainly because it is collected by the suppliers of goods and services at vast cost to themselves but not to the Government. It probably makes good sense on those grounds.

Although fraud is common, it is generally easy to detect, provided that there are enough staff available in Customs and Excise in the United Kingdom, and in equivalent departments elsewhere, to carry out the detection. I hope that we shall hear from the Paymaster General a commitment on behalf of the Government to ensure that when harmonisation takes place the Community will ensure that there is a Communitywide force of people who are employed to detect and prosecute fraud and are trained and skilled in that detection and prosecution. I pay tribute to the great skills of the staff of Customs and Excise, who have a record second to none throughout the world in the detection of fraud in the importation of goods and, in more recent times, in VAT transactions.

As part of our VAT regime, we have shown a determination that some goods and some services—those that make a major contribution of especial utility and merit—should be zero rated. In the proposals produced by Commissioner Scrivener in May, zero-rating would remain permissible for clearly defined social reasons for the benefit of the consumer. However, that acceptance is couched in somewhat grudging terms. It is important, therefore, that the Government make it clear that we are talking about harmonisation rather than unison and that we shall retain zero rating for appropriate areas of goods and services which are part of commercial life.

That recognition of the basis of zero rating, albeit for a limited range of goods and services, shows that, grudgingly on the Commission's part, there is growing an admirable sense of reality and flexibility—of which we should make the most.

I shall direct my remarks on zero rating to two subjects that have been mentioned already. The first subject is charities. It is important to remember that charities in the United Kingdom are not replicated in the same form anywhere else in the Community. British charities are a unique species. For the most part, they operate differently from charities in other parts of the Community. They are much more independent of government. They are often extremely small, and fulfil functions that are undertaken as a matter of course by local government elsewhere.

An obvious example is the network of entirely independent charitable village halls which exist throughout my geographically large constituency and those of the two Shropshire Members whom I see in their places, who I know strongly support the charitable status of village halls within their constituencies and the zero rating of goods and services provided to and by those halls, especially the hiring of the halls. The halls are the backbone of village life in Wales, and in Shropshire, too. They are but one example of the many small charitable institutions in the United Kingdom.

Mr. Andrew Hunter (Basingstoke)

Will the hon. and learned Gentleman allow me to add Hampshire to his list?

Mr. Carlile

I am more than happy to do that, although I am less familiar with Hampshire than Shropshire as I have to drive through Shropshire on my way home, the train services being what they are.

Some extremely large charities also benefit from zero rating. The Royal National Lifeboat Institution has already been mentioned. It could be affected in two ways by the removal of zero rating. The first, which was mentioned earlier, is in its purchase of lifeboats. The second relates to the huge quantity of goods sold by that institution and by many similar charities. We can all think of examples immediately. The National Children's Home is one. Such charities sell vast quantities of goods at sales of work and VATing those goods would remove the illegitimate advantage which, most right hon. and hon. Members agree, they should maintain over the ordinary high street retail sector.

Mr. Viggers

I am grateful to the hon. and learned Gentleman for giving way. He enables me by making an intervention to avoid making a speech. As vice-president of the RNLI, I endorse everything that he said. He will be aware of early-day motion 27 which was signed by 61 Members across the board. When the Government engage in negotiations, they will perhaps win some points and have to make concessions on others. Does he agree that one area in which they should not make concessions is zero-rating of VAT for the RNLI?

Mr. Carlile

The House appreciates the work that the hon. Gentleman puts into the RNLI. I entirely agree with him and with the early-day motion, which I signed today. The RNLI fulfils a role which is unique in Europe and perhaps in the world. It is important that its position should be maintained.

Another aspect of zero rating is sometimes referred to as "books, newspapers and periodicals." I prefer to describe it as "products related to literacy." Britain's level of illiteracy and reading difficulties is still between 6 and 10 per cent. Books, newspapers and journals, despite the ever-present television screen, are the most important source of informed knowledge. Local newspapers in particular play a crucial role, especially in rural areas.

If I may be allowed to be parochial for a moment, Montgomeryshire's County Times Express and Gazette which appears on Friday afternoon each week, carries an enormous range of information which is simply not available elsewhere. We do not have a local radio station in mid-Wales which carries a notice board. My constituency is about 900 square miles so it is impossible to tell people what is going on in the district at some public point or by some form of public annunciation system.

Such local newspapers—in the private sector, of course—serve a crucial role, which would be severely wounded by the introduction of VAT. Furthermore, Wales is a bilingual country. Books and periodicals in the Welsh language serve as a crucial bridge between the English-speaking Welsh and the Welsh-speaking Welsh. They help to make Wales a country in which everyone can understand everyone else. Therefore, they fulfil an essential and useful function.

Minority languages have been the subject of much discussion in the European Community. The existence of a strong national language in Wales is a factor which should be put into the scales when discussions take place about the VATability of books, newspapers and periodicals—in other words, the VATability of literacy.

We support the notion and the aims of harmonisation, as exemplified by the documents before the House. We should bear in mind that in my party we aim for harmony, not unison or uniformity. Harmony can be heard in many forms, from Tallis's great six-choir, 36-part choral work, to a barber shop quartet—which is probably the most that we could ever achieve in the House. But harmony is different from expecting everyone to say the same, adopt the same rules and provide exactly the same tax for every aspect of life.

Whether one uses the term federalism or retention of sovereignty—the two are often difficult to distinguish—it is important that harmonisation means that local circumstances, traditions and needs, such as those of the RNLI, which is peculiar to the United Kingdom because we are a group of islands, should be taken fully into account. Therefore, the reason why we have chosen to zero-rate particular goods and services is an essential inclusion in any negotiations.

5.35 pm

Mr. Andrew Hunter (Basingstoke)

In a desire for virtue and brevity, I shall be brief, partly because what my hon. Friend the Minister said was encouraging and to a great extent he covered in spirit the essential points that I wanted to make. I wish to refer to the VAT controls on inter-Community trade post-1992. I declare an interest which is duly recorded. I am involved in trading companies which would be affected by legislation on this matter.

I have a real and growing anxiety, voiced recently by the Confederation of British Industry, the Institute of Directors and the Union des Industries de la Communaute Europeene, the Communitywide organisation, about the choice between the five systems. The matter is on the agenda for 19 November. I hope that I understood my hon. Friend the Minister correctly when he said that he did not anticipate that a final decision would be made then.

I am extremely pleased to hear that. There are grounds for anxiety that a decision might be rushed into prematurely in favour of system 3, which appears to be a front runner at present. I do not need to go into the detailed arguments. My hon. Friend the Minister will be aware that there are fears that the system could involve excessive cost, excessive flow of information, not all of which is relevant to the tasks that it seeks to achieve and that the form of the information and the way in which it is compiled and used could give rise to mis-matches. There are serious worries that system three is defective.

I was pleased to hear my hon. Friend the Minister refer to his acceptance of audit-based controls. The hon. Member for Wrexham (Dr. Marek) likewise accepted that principle. It is the guiding principle behind system five. Therefore, I hope that my hon. Friend will take to heart the worries about system three. Let us hope that there will be time for consultation before a decision is made. In my judgment, that decision should not be in favour of the third system.

5.37 pm

Mr. Nigel Spearing (Newham, South)

I intervened earlier in the speech of my hon. Friend the Member for Wrexham (Dr. Marek) to remark on the number of documents before the House today. I must confess that I came into the Chamber only to listen and perhaps to clarify some of the complex matters before us. My Committee has had the opportunity of reporting on them, but in view of what has been said—or rather, what has not been said—I sought to catch your eye, Mr. Deputy Speaker.

The debate is far more important than the attendance in the House today suggests. Indeed, it is inversely important. I call it "a debate" but in effect we are having three debates in one—I should be glad if the Paymaster General would correct any of these hazards—in that we are debating the future of British excise on alcohol, tobacco, and fuel oils, particularly for motor cars. A debate on a specific proposal relating to any of those topics could fill the Chamber. We are having a debate on VAT and on whether we should retain or whether we can retain our zero-rating. Most hon. Members who have spoken have already referred to that. Again, a specific debate on that aspect would fill the Chamber. We are also debating the arrangements within the European Community for future interstate arrangements for VAT and the question of trading statistics. If frontiers disappear, exports and imports must also disappear. That, too, is a fairly big topic, especially as we are not doing too well in that regard.

All those matters are contained in no fewer than 37 documents—supplied through the efficiency of the Deliverer of the Vote, who is rarely mentioned in this place, but to whom I pay tribute—which have a bearing on no fewer than 14 documents arising from the Commission itself.

We are often told by the media and by our colleagues about the terrible, boring debates which take place late at night after 10.30 pm and which no hon. Member ever attends. People often ask, "Why can we not have these important debates earlier in the afternoon?" Well, today we have just such a debate on the topics that I have listed. A colleague has suggested that the absence of hon. Members from the Chamber is due to the fact that half the House is away canvassing and the other half laughing. Be that as it may, I find this state of affairs seriously ironic. The important and possibly epoch-making speech that we heard in the Chamber only two days ago was about these very matters—about style, approach and fundamentals.

I fear that in two or three years, when the results of some of these proposals are known, there may be debates in the House in which there is retribution, wringing of hands, mystification and possibly resignations. Some hon. Member will ask, "How did all this happen?" Another will reply, "It was debated on the Thursday of the week when the right hon. and learned Member for Surrey, East (Sir G. Howe) made his speech."

We have been here before—in the late 1970s. I remember a debate conducted, I believe, by my then right hon. Friend Joel Barnett, now Lord Barnett, in which the then hon. Member for Southampton, Test and myself pressed him on certain matters and he, in his efficient way, was dodging a bit. Ten years later, VAT was imposed on housing repairs. Nobody could understand why the Chancellor of the Exchequer did what he did. Nobody told the House that the Chancellor had received a letter from the Commission—we got that out of him later in Committee. We then had VAT on glasses, with a court order and statements, and then on commercial building and many civil engineering constructions. All those things arose as a result of a debate held 10 years earlier.

The implementation of the proposals that we are considering in this debate is rather closer than that. As I understand it, the proposers hope that the proposals will come into effect as soon as possible, with a transitional period until the end of 1992 and something more permanent in 1993 and thereafter. Although I fancy that there will be a bit of delay, even if the proposals are implemented in the Budget of 1993, that is close enough.

As I have said, the debate is of much greater importance than many colleagues have yet understood. I do not blame them for that entirely because most things about the Community are wrapped in mystery either until much later or until those who have the privilege of having someone to help them understand these things try to explain what they are all about. As Chairman of the Scrutiny Committee, I have that obligation this afternoon. I shall therefore do something which may be very boring, but which is necessary. I shall read into the record a list of the reports of the Select Committee on European Legislation and where they may be found so that those who read the report of this debate will at least be able to see something of the importance of what is going on and can read the documents.

Our first report bearing on this debate was the 11th report of the 1989–90 Session, HC II—xi, in which we dealt with exise duty rates and EEC documents 9775/89, 9776/89, 9777/89 and 9778/89. Our second report was the 31st report of the Session, HC II—xxxi, on indirect taxes (administrative co-operation), dealing with EEC document 6642/90, and that on value added tax, 6641/90. We then considered the 32nd report, on indirect taxes and harmonisation, 6762/89, and then an extract from the 33rd report of the last Session, relating to HM Customs and Excise, and COM(90) 430, 431, 432, 433 and 434. As late as yesterday afternoon, we considered the report on EEC document 6641/90, relating to Customs and Excise and one from the Central Statistical Office, 8801/90.

That is the comprehensive list of the documents relating to the motion. I understand that a representative of the Treasury will be discussing them in Brussels on Monday. I hope that the Minister will correct me if I am wrong about any of this, because it is difficult even for the Select Committee to keep up with the range of matters happening yonder. I understand that it is hoped that some agreement will be reached in the new year, perhaps before Easter——

Mr. Ryder

indicated assent.

Mr. Spearing

I see the Minister nodding. Whether the House will have a further opportunity to discuss these matters is very much open to question. Indeed, I believe that according to the revised motion which was passed following the last speech of the right hon. and learned Member for Surry, East as Leader of the House, we are now having that debate.

Mr. Ryder

indicated assent.——

Mr. Spearing

I see the Minister nodding again. I make no apology for my more measured tone when I say that that emphasises the importance of this occasion.

I confess to the views to which the hon. and learned Member for Montgomery (Mr. Carlile) has drawn the attention of the House. I shall now depart from an entirely objective stance and select matters which I believe are accurate and correct but which I know that some hon. Members will say reflect my own position, which is well known. I therefore take off my Chairman's hat and put on that of the hon. Member for Newham, South.

I believe that these proposals replace those of Lord Cockfield—a name from the past. In the Cockfield report, 290-odd regulations and draft directives created the so-called "1992 single market". We are nearing the completion of that list as its provisions are now coming into force—we do not have to wait for any big bang. The proposals relating to VAT and excise duty were particularly contentious. We debated them some time ago and I believe that it is true to say that they did not find acceptance throughout the Community for one reason or another, which is understandable because Lord Cockfield was probably being too ambitious.

I am no expert in this matter, but I appreciate that trying to reconcile the VAT structures of Ireland, Denmark and Italy, for example, stretches the imagination and political ingenuity of anyone concerned. The deep interests within each of those countries, their political structures, and the assumptions of their populations are difficult to reconcile—let alone those of the United Kingdom and the attitudes to taxation which are habitually and justifiably held by our friends in France and Germany. All that is being done to the great god of the benefits of harmonisation, although I am not sure that they have been agreed or even estimated.

The new VAT proposals would create two bands. I will first read into the record the Government's attitude, although the Paymaster-General has already made it clear. The Explanatory Memorandum relating to document 6762 of 1989, signed by the then Economic Secretary to the Treasury, states on page 4: The move away from both the fixed band for the standard rate of VAT and fixed rates for excise is welcome, as is the Commission's acceptance that certain zero rates may be retained on social grounds, though the list of items to be included is not indicated. But the Commission's long-term aim remains the centrally imposed approximation of indirect tax rates, which the United Kingdom Government continues to believe to be unnecessary and inappropriate. That is a clear statement, not shouted or discourteous. The key is that the list of items affected is not indicated, and nor are the precise figures, although I make no complaint about that as a technique.

When VAT was first introduced and was subsequently doubled, there were many great debates. We are now considering an adjustment to our 15 per cent. standard rate, and ingenious proposals for what amounts to a double band. I am not sure whether that arrangement is meant to be transitional or to operate after 1993, but I do not suppose that that makes such difference, because the all-important timing has yet to be decided.

There is to be a standard rate somewhat above 9 per cent., but the minimum amount above 9 per cent. has yet to be decided. It could be 12, 13 or 14 per cent. Each country will be allowed to impose a higher rate if it suits its convenience and accords with certain desiderata. Commission document No. 6762/89, published on 22 May 1989, states in paragraph 8: An alternative to the rate band would be to replace it with a minimum rate applicable from 1 January 1993 without any upper limit being set for Member States' needs in so far as the standard rate is concerned. Each Member State would choose a rate at least equal to the minimum rate, having regard not only to the national budgetary implications of its choice but also to the 'competitive pressure' that would stem from the rates chosen by neighbouring Member States or by the Member States which were its main trading partners. That is the suggested criterion for the standard rate, which would apply to almost everything.

There is a proposal also for a reduced rate. Paragraph 10 of the same document states: The Commission considers that the proposed band (4–9 per cent.) best meets the needs of the situation and that the essential task is to agree on the products to be taxed at the reduced rate relative to those chargeable at the standard rate. For the Commission, it is indispensible to reach agreement from the outset of the prepatory phase on the fact that a common structure based on two rates is the necessary condition for attaining a sufficient degree of alignment. Some may consider that proposal a little fuzzy, but we can see what the Commission is driving at. I understand that that is the document on which negotiations are to take place. Some may welcome the ability to reduce VAT on certain commodities or services, but I reckon that the reduced rate will be fairly limited. It is more likely that certain goods which are currently zero-rated will be lifted into the 4 per cent. to 9 per cent. tax band, with a minimum of 4 per cent.

That brings me to the vexed question of zero-rated commodities. It is notable that hon. Members who have spoken so far who might otherwise be in favour of the procrustean harmonisation thrust upon us by the treaty of Rome pointed out the need to retain zero rating, which was the subject of my earlier intervention in the speech of my hon. Friend the Member for Wrexham (Dr. Marek), in respect of the Government's intentions.

Perhaps we should get that issue out of the way immediately. The Prime Minister said something about it at the time of the last general election. I do not know whether she was supported in her view then by the right hon. Member for Henley (Mr. Heseltine) or by the right hon. and learned Member for Surrey, East, but I suspect that she was. I refer to the question of children's shoes, and so on. But what about transport, domestic fuel, water supply and disposal, books, magazines and newspapers, referred to by the hon. and learned Member for Montgomery (Mr. Carlile), and with whose remarks I wholly agree.

I understand the Prime Minister's position and her resentment on occasions. At the time of the general election, neither she nor the Chancellor of the Exchequer could give an undertaking—any more than they can now—that books, magazines and newspapers would never be taxed. That situation already confronts the Government and the public. I referred earlier to the relative obscurity of debates on technical documents having long numbers. I make no apology for commenting now that there does not appear to be for this debate any representative from this country's great newspapers in the Press Gallery at a time when we are debating whether or not there should be a tax imposed on this country's newspapers in the future. Important matters are debated in the House without the public realising their importance. If the Minister wishes to intervene at this point, I shall certainly give way. If not, I will describe the Commission's general views on zero rating.

Zero rating was something of a derogation in any case because there is a big difference between exemption and zero rating. We achieved exemption for certain goods through the good wheeze of zero rating. In 1970 or 1971, before we even joined the EEC, the House had a great debate on the subject of VAT on children's shoes. I remember that my noble Friend Lord Barnett moved an amendment to exempt them, the right hon. Member for Finchley (Mrs. Thatcher) voted against and there was a tremendous row.

We may be able to retain that exemption, but what about other commodities? Page 5 of the 22 May letter states: Since there is a twofold need to reduce the present coverage of zero-rating"— there we are, they are talking of reductions— and to take account of the social role assigned to VAT in some Member States, a relaxation of the Commission's position could be envisaged provided a number of conditions were met. It would be necessary, in the framework of a final compromise, to authorise Member States who so wish, to maintain zero-rating for a very limited number of products currently subject to the reduced rates, provided this did not pose any risks of distortion of competition for the other Member States. That is a big proviso and it means that zero rating in one state and the standard rate in the neighbouring state would be regarded as a distortion of trade under the relevant article of the treaty, and people could be taken to the European Court as a result.

Even if we want zero rating on some commodities, it might be difficult. For example, if water is free of VAT in one country, production costs would undoubtedly be lowered for certain products, and that could result in court proceedings.

The section in the document on excise is specific in meaning but obscure in its language. When Lord Cockfield produced the proposals on harmonisation of excise, great attention was paid to changes in alcohol excise duty. The Paymaster General may correct me if I am wrong, but there were staggering reductions in the duty on certain alcoholic drinks, favouring products with a high alcohol content—such as spirits. Beer came off least well.

There were great reductions which put down the cost of alcohol remarkably—by 30 per cent. in some instances—because our excise duty had to be reduced considerably to harmonise with the rest of the European Community. That was one of the reasons why the Cockfield proposals were withdrawn. I understand that the Treasury stood to lose between £3 billion and £4 billion because of the reductions in alcohol duty. I give those figures from memory—the Paymaster General can correct me and perhaps give his estimate of the range of revenue loss to the Treasury under the present proposals.

I am not as worried as other hon. Members may be about the loss of taxation. Taxation of alcohol has been a part of social policy in this country, whether one likes it or not. I mentioned that fact to an EC official, and he told me that social policy comes under another article of the treaty of Rome—that is the way some people view these issues.

I shall read the letter of the proposal and then try to interpret it. The Minister can correct me if I am wrong. Paragraph 23 states: The Commission will propose that differentiated minimum rates, which would vary according to the principal products, should be compulsory from the end of the transitional period, i.e. from 1 January 1993. In fixing the minimum rates, particular attention will be paid to countries with low excises so as to ensure that the effort they have to make remains reasonable. The solution reached cannot take the form of frontier controls. The existence of these minimum rates would not prevent those Member States which apply the highest duties on such products from progressively aligning their duties on the long-term reference values adopted for each category of product. That is not very clear.

I gather that the Commission is to put long-term reference values on excise on all types of alcoholic liquor. Countries with lower rates at present—especially the Mediterranean countries—can gradually raise rates to that value, and countries with rates well above, such as United Kingdom, can gradually reduce them until, after a period of time, they are more or less the same. In the meantime, we shall have to put up with whatever frontier disparities may exist. We shall have to lump it for the time being.

That is the Commission's proposal, and it is radical. I am not sure whether the hon. and learned Member for Montgomery or his constituents would approve,but it is an ingenious bureaucratic and administrative solution to what would otherwise be a difficult problem. I have tried to explain the proposal in ordinary language and I invite the Paymaster General to correct me if I am wrong.

If one eliminates frontiers, one eliminates exports and imports and therefore trade statistics. In a document relating to the exchange rate mechanism, Lord Jay said that a country with a persistent structural trade deficit is turned into a depressed area by the ERM. Scotland and Northern Ireland are not depressed in human terms, but those and some of our other regions could be described as depressed areas. We do not deal with their imports and exports. Lord Jay suggests that the entire country will be turned into a depressed area by the ERM. Does the Paymaster General envisage a period after 1993 when trade statistics will disappear? If not, what trade statistics shall we have? Is he confident that their bases will be correct?

Finally, I wish to focus attention on excise duty on energy, especially on fuels. One cannot listen to the radio or watch television without hearing comments or discussion on the effects of carbon dioxide on the ozone layer. The Prime Minister says that we must have world solutions. Others say that we need international action and that we must get moving. If that is to happen, the impact of excise duties imposed by the EC, and variations on duties which will affect the relationship between one hydrocarbon and another, will have to be considered irrespective of whether duties are harmonised.

Fuel prices cannot be market-oriented if we are to minimise carbon dioxide emissions caused by combustion in energy production. If we are seriously to tackle this problem, we cannot be market-led. In this case the treaty of Rome—in terms of market competition—will have to go out of the window. It would be for the Commission to act in a non-market way if it wished to protect the ozone layer.

I have made a longer contribution to the debate than some might wish and a longer contribution than I expected to make when I entered the Chamber. I did so because I believed that, unless I did so, it would be extremely difficult for anyone reading Hansardto understand what the 37 documents meant. In a normal United Kingdom Budget, each would be the subject of a major debate on the Finance Bill. I shall be glad if the Paymaster General will correct any false impression or false facts that I may have given to the House.

6.10 pm

Mr. John Biffen (Shropshire, North)

The Paymaster General has sat through the debate with characteristic courtesy and stamina. My remarks will not detain him for much longer.

The hon. Member for Newham, South (Mr. Spearing) referred to the signficance of the debate and to the relations of the House with the Executive and the wider law-making authorities of the Community. We are still unfamiliar with how to use what influence we have. It is very much a question of influence rather than of a formal mandate.

When my hon. Friend goes to Brussels on Monday, what will be the reaction of the House? He will go with the good wishes of us all. The nuances of the debate and the tone of voice are known to him and will be assessed by him. That is all. There will be no formal vote. No Division bells will ring. He cannot even turn to his European ministerial colleagues and say, "Give me a break. You've no idea what a rough time I've had with the hon. Member: for Wrexham. Don't think that the Opposition are a soft-touch alternative."

My hon. Friend knows that the best way for us to assist him is to say that we recognise that he will not have an easy task and that his job is not just to agree to any compromise that is reached. He knows that he must express the earnest anxieties of all parts of the House. To some extent, domestic political loyalties merge in a common national attitude. The problem has been made no easier in the recent past. An attempt is being made to shoehorn Britain's relationship with the Community into the unnatural fit of domestic party politics.

I know that the hon. Member for Newham, South and I share a great deal more than we share with our colleagues. It has never been easy to fit the Community debate into the niceties of Westminster politics. That does not mean that Westminster has no real responsibility, through the Minister, to make its views known on a range of subjects, even when they seem to be technical. I fully agree with the hon. Member for Newham, South that it is the volume of documents that will almost certainly convince every research assistant that they are hardly worth dealing with when it comes to the minutiae of VAT arrangements planned for the far distant future. That, however, is not so.

If, for example, one takes the VAT rates that in the past have convulsed the House, nothing will be decided on Monday. It will be just one more canter around an almost endless circuit, but sooner or later we shall have to reach a decision. What is so unsatisfactory is that we shall move gradually from the inconceivable to the absolutely unavoidable. "Like it or not" is the most chilling phrase that can be used in EC debates.

Although this is a thinly attended House, it has to be said that, unless there is a conscious determination to give up our traditions and our authority, we shall proceed not by means of further abdication but by means of filling out our responsibilities and the opportunities for influencing decision taking in the Community.

I came to speak about statistics. I did not imagine that the debate would turn to constitutional matters, but that happened when the hon. Member for Newham, South spoke. He has done a great service to the House. I did not think that the debate would be a means of dealing with the more mundane issue of the single currency, which was the subject of a good-natured exchange between the hon. Member for Wrexham (Dr. Marek) and myself. The Minister is in a classic dilemma over the statistics: to what extent do we go for comprehension and to what extent are we deterred by the cost? The Minister has to solve that dilemma.

I agree completely with my hon. Friend the Member for Basingstoke (Mr. Hunter). I hope that full account will be taken of what he said. I am grateful to the Institute of Directors for having provided me with a brief. Members of Parliament are heavily dependent on outside assistance when assessing these issues. I do not want to be told by the Confederation of British Industry that the House failed its industrial sector, particularly as I have yet to receive any communication from the CBI on the issue. When the Minister makes his contribution and moves towards a common position on Monday, I hope that he will take account of the views expressed by my hon. Friend the Member for Basingstoke, which I do no more than echo.

My final point links up with what was said by the hon. Member for Newham, South. I should prefer an almost unintended benefit to emerge from this exercise. The Treasury is a most admirable institution, but I have some unease about the reliability of its trade statistics. That unease is widely shared. I realise that Government policy is to some extent controversial, but not even Government policy could have produced such a massive current trade deficit without any convincing offset in the form of an explicable current capital surplus

This is an opportunity to see how our statistics can be implemented with a degree of cost-effectiveness. I hope that the Minister will not allow his gaze to be blinkered by merely European horizons and that we shall emerge from the process with a better grasp of our trade statistics. Then, for once, the exercise will produce a modest dividend for the greater national good. In that spirit, I send my very good wishes to the Minister and wish him well in Brussels on Monday next. Whatever may be the nature of the present acrimony over the United Kingdom's future relationships with the European Community, on this issue my hon. Friend can speak for the whole House.

6.17 pm

Mr. Ryder

It feels as though I have consumed a mammoth meal during the last two hours. I have eaten about 15 courses. Now my right hon. Friend the Member for Shropshire, North (Mr. Biffen), with his characteristic fluency, has presented me with the bill. On his final point about statistics, I am sure that he knows that efforts are being made to improve their accuracy. Recently, the Central Statistical Office moved its home.

Without going too far on this public occasion, may I assure my right hon. Friend that his reservations and misgivings, even criticism, of the way in which our statistics are produced are shared by others, some of whom are close to Government. I am grateful to him, therefore, for underlining the point. He was right to do so. Without accurate statistics, the Government's entire monetary policy could be seriously affected. If, according to the statistics, our deficits are larger than they are in reality, any Chancellor has to take account of the statistics rather than of his own instincts.

I join my right hon. Friend the Member for Shropshire, North in congratulating the hon. Member for Newham, South (Mr. Spearing) on the assiduous way in which he always tackles these debates and reads all the documents. I share my right hon. Friend's opinion that these debates are not as well attended as they should be and it is a benefit to us today that we have been able to take part in a debate in so-called prime time. On most occasions, these debates take place for an hour and a half after 10 o'clock. I hope—I know that my right hon. Friend the Member for Shropshire, North, as a former distinguished Leader of the House will share this view—that the new system of monitoring European legislation upstairs in the new Committees will be a success. I have every hope that it will be.

My hon. Friend the Member for Chislehurst (Mr. Sims) has given me his apologies. He had to leave to attend a meeting. He raised a number of points, including one connected with his representation of the whisky industry. I assure him that I have already met representatives of the whisky industry through the Scotch Whisky Association and am due to meet them again in two weeks. I am fully conscious of the reservations they hold about the extent to which the future of duty-free allowances may be affected by decisions taken in Europe.

My hon. Friend the Member for Chislehurst was also concerned about the unitary taxation of alcoholic strength. It is true that the current duty structure is largely a result of historical developments. Governments have set out to collect revenue on various drinks rather than on alcohol as such. However, no Government have ever accepted that relative alcoholic strength should be the sole determining factor for setting duty rates, and there is no reason why it should be. Just as costs and market conditions vary across different sectors of the drinks market, so the levels of duty which each sector can bear will be different.

My hon. Friend the Member for Chislehurst was also concerned about the Government's public health objectives and the effect of allowing individuals to satisfy their personal demand for tobacco. As my hon. Friend knows, fiscal instruments are only one of a range of measures at the disposal of my right hon. Friend the Chancellor of the Exchequer to influence the consumption of such products. The Government are particularly aware that there is a fine balance to be struck between allowing a citizen the freedom of choice to consume as he wishes and the efforts to prevent the undesirable social consequences that excessive consumption may cause.

My hon. Friend the Member for Chislehurst was also concerned about unfair tax discrimination against spirits. The Government have not accepted the need for such a system. Nevertheless, it is our objective to try to ensure maximum flexibility in any agreed Community frame-work. My right hon. Friend the Chancellor, together with the House, will retain full freedom to set duty rates at levels which are appropriate and necessary for the United Kingdom.

The hon. Member for Wrexham (Dr. Marek) rightly underlined the importance of a point made during an intervention by my hon. Friend the Member for Harrow, East (Mr. Dykes). As the hon. Member for Wrexham knows, British sherry usually pays duty at the same rate as table wine. It is the rate that applies to all wines up to 15 per cent. alcohol. The Commission has proposed that the dividing line for the higher wines rate should be 13 per cent. alcohol. That is not acceptable to the Government, as British sherry would fall into a higher rate duty category than at present. I repeat what I said to my hon. Friend the Member for Harrow, East—that the British Government will continue to represent the interests of British sherry in Brussels.

My hon. Friend the Member for Basingstoke (Mr. Hunter) and my right hon. Friend the Member for Shropshire, North reflected the views of the Institute of Directors and the Confederation of British Industry. I assure them that officials from Customs and Excise have had meetings with the various people most concerned with the issue, including the Institute of Directors and the CBI. Indeed, a meeting with the CBI took place only this morning. My right hon. Friend the Member for Shropshire, North is right to say that we have a dilemma because two important considerations need to be weighed. We want to ensure that businesses obtain as much benefit as possible from the creation of the single market. That means keeping the burdens on them as small as possible.

On the other hand, we recognise that the end of fiscal frontiers creates new opportunities for fraud and consequent revenue losses. If we and other member states fail to have adequate control systems, revenue losses will simply mean that honest taxpayers will end up paying more. Therefore, as my right hon. Friend underlined, there is a difficult balance to be struck, but we are determined to achieve a balance that is right for British businesses and the British taxpayer. I hope that the attitude that we adopt at ECOFIN on Monday and at subsequent negotiations will fulfil the objectives set out by my right hon. Friend the Member for Shropshire, North and my hon. Friend the Member for Basingstoke.

In an intervention, I set out the Government's position on the RNLI. My hon. Friend the Member for Gosport (Mr. Viggers) has sat through much of the debate and I should like to join others in paying tribute to the work that he has done on behalf of the RNLI.

The hon. and learned Member for Montgomery (Mr. Carlile) asked about the law on transfer of title. He is right that we have an agreement in principle as being that on invoice or payment. Detailed legislation has yet to be considered, but it will be considered during the next few months.

The hon. Member for Wrexham raised a number of points. He was concerned about whether all the returns for small businesses will be on the same document. For statistical purposes, the Commission problems would simply require the information to be provided on the normal VAT return. The hon. Gentleman also highlighted possible difficulties on the origin system after 1996. I think that he will appreciate that the Government are opposed to an automatic switch to an origin system. That view is supported by most member states. We are content to agree that the system should be reviewed in 1996 but without commitment to any change. Of course, the unanimity requirement protects the Government's position now and subsequently.

The hon. Member for Wrexham identified the need for audit trails to counter fraud between member states. I agree with his judgment, and that is why we have been strongly pressing this approach at official and ministerial level. We have achieved some success.

The hon. Member for Wrexham was one of several hon. Members to raise the issue of zero rates. The Government's position has been set out in numerous occasions. The hon. Member for Wrexham referred to the possible zero rating of chocolate biscuits. He may have received the good briefing that the Biscuit, Cake, Chocolate and Confectionery Alliance sent hon. Members. If we tried to add to existing zero rates, we would place ourselves in a difficult position, because arguing for additional rates is more likely to create opposition to our existing zero rates and make our negotiating position rather more difficult.

Dr. Marek

I have certainly received no briefing. I intended to convey the principle that any change to the taxation system should simplify it as much as possible. When taxation was introduced, we held discussions upstairs, certainly on biscuits. I suggested that the system could be simplified or made more transparent.

Mr. Ryder

I accept what the hon. Gentleman says, but following an intervention by my hon. Friend the Member for Gosport I pointed out that large sums of money are involved—rather larger than many hon. Members imagine.

As the hon. Member for Newham, South knows, the sixth directive, which was adopted by the Labour Government in 1977, does not permit the adoption of new zero rates, although I understand that the hon. Member for Wrexham may have been alluding to the possibility of a banded system. In the next few months, no doubt, we shall discover whether the Labour party favours banded rates.

The hon. Member for Wrexham inquired whether unanimity is required for decisions on statistics. The answer is that only a majority decision is necessary.

The hon. Member for Wrexham and my right hon. Friend the Member for Shropshire, North were concerned about aspects of the statistics proposals, particularly how they will affect intra-EEC trade statistics after 1992. This data is necessary for the measurement of gross national product and for macro-economic management. The Government will remain responsible for their own macro-economic management after 1992, so it is vital to continue to collect comprehensive trade data. Estimates of GNP must be as reliable as possible because a substantial part of the Community budget contribution is based on it. Those estimates will be important in monitoring the effect on the United Kingdom economy of the completion of the single market, and they will continue to provide an essential tool for many United Kingdom businesses competing in the new single market.

The hon. Member for Wrexham queried the target rates for excise. Under the Commission's proposals for the approximation of excise duty rates, member states will be required to apply a minimum rate from 1 January 1993, and those below the target rates will be required to move towards them afterwards. For member states whose rates are already above the target rates, the proposals would impose a standstill. The proposal provides for a review of target rates every two years, but the details under which the review would be carried out have yet to be decided. We remain opposed to that and to any proposal for centrally imposed tax approximation that is not necessary for the completion of the single market.

Dr. Marek

The Minister said that the proposals would impose a standstill on rates levied by a member state. Does he mean a standstill in real terms, in cash terms or as a fraction of the rates over the target rate? It is not clear which possibility the Commission has in mind. I hope that it is not a standstill in cash terms, which would be completely unacceptable.

Mr. Ryder

The hon. Gentleman makes a perfectly legitimate point. I do not have a an answer readily to hand, and if I may I shall write to him.

The hon. and learned Member for Montgomery and others identified the risks of fraud in the Community following the proposals that will be introduced on 1 January 1992. Primarily, anti-fraud control will use existing audit-based techniques, centred on commercial documentation and traders' records. Our domestic VAT control system is based on audit-type controls of traders' normal commercial and accounting records, on risk assessment and on a low level of random checks. Our experience of this method of control gives us confidence that such a system would effectively control fraud after 1992. In 1989–90, control visits by Customs and Excise yielded more than £1 billion in additional tax revenue. The hon. and learned Member for Montgomery was kind enough to refer to the success of Customs and Excise, and his generous remarks will be much appreciated by those who work for it.

The hon. Members for Newham, South and for Wrexham were worried about whether the Government would change their policy on zero rates. I have already alluded to the fact that we have no intention of doing so, but for the purpose of this debate I shall reaffirm our position. We have made specific pledges to the electorate to retain zero rating on food, domestic fuel, power, children's clothes and footwear, all of which were referred to by the hon. Member for Newham, South. We neither wish nor intend to go back on any of those pledges.

Apart from those specific pledges, which were made in exceptional circumstances—the hon. Member for Newham, South reminded us of the general election—no specific pledges have been made that would restrict the freedom of action of my right hon. Friend the Chancellor of the Exchequer. It has been the practice of successive Governments not to limit the freedom of the Chancellor in such matters.

The hon. and learned Member for Montgomery emphasised his personal interest in charities. I think that he was asking whether we can give a commitment to a zero rating system for charities, and several hon. Members have tried in the past to persuade us to do that. We are anxious to secure the right conditions for charities to flourish in the single market, but we are concerned to defend all existing rates, not just those of benefit to charities.

As the hon. and learned Member for Montgomery knows, charities benefit not only from VAT reliefs on some of their more specialised purchases but from general zero rating of most food, new construction and fuel and power supply for their non-business activities. The Government have made several changes in the taxation of charities in recent years, which must have been helpful to them. The charitable organisations with which I come into contact are only too happy to recognise that we have come a long way during the past few years, and it would greatly surprise me if we did not make further progress during the next decade.

The hon. Member for Newham, South asked me about revenue loss on proposed target rates for alcohol. The estimated loss, according to Customs and Excise, is £2,830 million; he was right in his assessment. He is also right to say that the overall cost of the excise proposals is £3,165 million.

The hon. Gentleman was also concerned that the Commission had proposed to reduce the number of zero-rated items subject to conditions. He mentioned that not only during his speech but in an intervention, suggesting that a distortion of competition would result. He quoted the Commission's proposal accurately, but the Government do not accept it. However, it was an advance on the previous proposals, which did not accept the retention of any zero rates. On a number of occasions the Government have made it clear—in the House and, most notably, in Brussels—that they are not prepared to accept a loss of ability to zero rate.

This has been a very helpful debate in the lead-up to next Monday's ECOFIN. It has been a longer debate than usual; we have been here for two and a half hours instead of the one and a half hours that we are usually given to discuss such issues after 10 pm.

I end as I began, by agreeing with my right hon. Friend the Member for Shropshire, North and the hon. Member for Newham, South that, whenever possible, important issues of this nature should be raised in the House so that hon. Members have an opportunity of airing their views, however technical the proposals are supposed to be. I reiterate my sincere hope that the new system developed by my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) will assist us, making our deliberations far more efficient in matters European than they have been in the past.

Question put and agreed to.

Resolved, That this House takes note of European Community Documents Nos. 6762/89 on approximation of indirect taxes, 9775/89 on excise duty rates, 9776/89 on taxes on cigarettes and manufactured tobacco, 9777/89 on excise duties on mineral oils, 9778/89 on excise duties on alcoholic beverages, 6641/90 and the Supplementary Explanatory Memorandum submitted by H M Customs and Excise on 12th November 1990 on supplementing the common system of value-added tax, 6642/90 on administrative co-operation in the field of indirect taxation, 6725/90 and 8801/90 on statistics relating to trading of goods between Member States, COM(90) 430 on the general excise regime, COM(90) 431 on general arrangements for the movement of products subject to excise duty, COM(90) 432 on harmonisation of the structures of excise duties on alcoholic beverages, COM(90) 433 on taxes other than turnover taxes levied on manufactured tobacco and COM(90) 434 on structures of excise duties on mineral oils; and supports the Government's view that the technical proposals can form the basis of a single market without fiscal frontiers that is effective against fraud and provides the statistics needed by Government to control its economic policies while minimising the burdens on business, particularly for the smaller traders; and recognises the need for early progress on these proposals, separate from those on indirect tax rates on which decisions need not be reached before 31st December 1991.