VAT (Hansard, 4 November 1993)

§ 1. Mr. Barron
To ask the Chancellor of the Exchequer what recent representations he has received on the imposition of VAT.

§ 5. Dr. Godman
To ask the Chancellor of the Exchequer what recent representations he has received regarding the proposed imposition of 17.5 per cent. VAT on domestic fuel; and if he will make a statement.

§ The Chancellor of the Exchequer (Mr. Kenneth Clarke)
I have received a large number of representations about VAT.

§ Mr. Barron
Is the Chancellor aware that a survey published today shows that many Conservative-controlled councils and their councillors have refused to support the Government's imposition of VAT on fuel, because, like many people, they believe that it does not recognise the ability to pay and therefore is grossly unfair? Will the Chancellor review that tax, withdraw it and take notice of what the country is saying—that millions of people believe that it should be stopped now?

§ Madam Speaker
I understand that question 5 is linked with this question.

§ Mr. Clarke
Yes, Madam Speaker.
Since the Act was passed, there has been—.[HON. MEMBERS: "We cannot hear."] The reason why people cannot hear me is that the microphones are not working.

§ Madam Speaker
If the microphones are not working, the Chancellor can raise his voice.

§ Mr. Clarke
I first came here when music hall was really music hall and us old troupers can make ourselves heard in the House when we try.
Since the Finance Act was passed, there has been a large campaign. I accept that many people, particularly the elderly, have been made quite fearful of the tax before it has been imposed. However, there was such a fall in gas and electricity prices during the 1980s that, even with the tax imposed in full, fuel bills will be no higher than they were 10 years ago. Moreover, the Government will come forward with a package of measures to help those who have difficulty paying the new tax. In my opinion, the sensible 500 approach for a House of Commons that passed the tax some months ago is to wait to see the package of help that will be forthcoming.

§ Dr. Godman
I was not informed of the linking of questions, Madam Speaker, I thought that it was a common parliamentary courtesy to be informed of such a linking.

§ Madam Speaker
Indeed it is. Is the hon. Gentleman prepared to put his question now, though?

§ Dr. Godman
Yes, Madam Speaker.

§ Madam Speaker
Thank you.

§ Dr. Godman
You are on top form again, Madam Speaker.
I have received many representations on the imposition of the tax. It is frightening many elderly people everywhere. Will the Chancellor give an assurance that he will fully protect those on low incomes, especially those on incomes that are just slightly above income support? It is a lousy rotten tax and it has caused a lot of fear among elderly people, particularly those on small occupational pensions.

§ Mr. Clarke
As I have said, we are all receiving a lot of representations. I hope that the hon. Gentleman will not join those who are arousing the real fears felt by people throughout the country. When my right hon. Friend announced the introduction of the tax we said that before it was introduced we would create a package of measures to give help to that section of the population who would have difficulty paying. That package will be announced at the usual time—my Budget statement.

§ Sir Terence Higgins
In framing his Budget will my right hon. and learned Friend bear in mind the principles that guided lain Macleod and myself when we steered the original legislation on value added tax through the House? We believed that there should be only one positive rate of VAT, with relief through zero rating for those items of greatest importance to those on low incomes. If my right hon. and learned Friend decides that there should be a tax increase in the Budget—although at this stage of the economic cycle I think that that would be a mistake—before considering anything else will he introduce VAT on fuel at 17.5 per cent. immediately, with an adequate compensation package?

§ Mr. Clarke
I well remember my right hon. Friend steering VAT through the House of Commons—it was a controversial tax, although the replacement of purchase tax was popular. The measure did not enjoy a smooth passage then; I remember voting unsuccessfully with my right hon. Friend to try to exclude at least one of the zero-rated items. Although the initial measure was good, it was not perfect, and, since its introduction, successive Governments have, from time to time, extended its scope. In the climate of our commitment to the Rio targets and a need for more revenue in the spring of this year, it seemed logical and sensible to raise part of the revenue in the March Budget from that measure, with a promise of a package of help. Between now and 30 November, I will bear in mind my right hon. Friend's other representations about the Budget.

§ Mr. Cormack
Does my right hon. and learned Friend accept that the people who are most worried about VAT on fuel are those who do not qualify for benefit? Will he give a complete and categorical assurance that those people's 501 interests will be taken into account? Will he promise that we will never again be given an announcement, then have to wait almost a year for the package?

§ Mr. Clarke
As to the assurance, I shall bear in mind what my hon. Friend says. While we wait for the package of measures, may I repeat that people should not arouse fears, but should explain to today's pensioners that the level of bills that they will pay will be no greater than those previously faced by pensioners. Some pensioners will receive help before the measure is introduced. As to introducing tax measures that do not take effect until 12 months or two years hence, my hon. Friend's political message is right. If we had immediately introduced the tax earlier this year, we would not be debating it in the autumn. It is the campaigning which has aroused feeling. The downside of that process is that it means that many hon. Members' long-standing hope that there should be more consultation about the details of complicated tax measures which Chancellors believe that they should introduce becomes ever less likely. The moment that one gives advance warning of anything in the British system one merely arouses noisy campaigns to try to stop the measure.

§ Mr. Gordon Brown
Will the Chancellor confirm the report in the Financial Times that £600 million was wrongly paid in tax refund to the Kuwaiti Government—more than enough money to prevent any pensioner from having to pay VAT next year? Will he also confirm that if the loopholes, about which everyone knows, in the business expansion scheme, executive share options and advance corporation tax were closed, no family would have to pay VAT next year? He could announce the closure of those loopholes this afternoon. Is it incompetence that prevents the Government from acting, or is it that too many people who benefit from abusing the system are too close to the Conservative party?

§ Mr. Clarke
When we investigate the matter closely, to discover whether closing the hon. Gentleman's so-called loopholes would raise any revenue, it becomes obvious that that would be about as much use as brass washers. Individual tax issues are looked at in the ordinary way by the Inland Revenue, but the rules on sovereign immunity are partly determined by international law which cannot be repudiated. The hon. Gentleman's list of other so-called loopholes does not stand up to the slightest examination. He claimed that £1 billion could be raised by not abolishing stamp duty; we have not abolished stamp duty, so that is not relevant. The difficulty is that the Labour party, which was committed to high taxation, no longer knows whether it is. It tries to pretend to the country that it can get away with everything it promises by making claims about illusory loopholes being abused by millionaires. Examination shows that those loopholes do not exist.

§ Mr. Forman
Returning to the original question, may I ask my right hon. and learned Friend whether he realises that many Conservative Members would be pleased if he were to adopt a robust and reforming approach to VAT? In that context, is he aware that the broader the base of that tax, the lower can be the rates—other things being equal —and the simpler can be the structure?

§ Mr. Kenneth Clarke
That has guided successive Governments and that is why both Labour and Conservative Governments have broadened the base over 502 the years. One improvement that the Government made when they first came in was to get rid of the separate bands which were much complained about after the Government's predecessors introduced them.
The important thing about the taxation burden is that it should be fair and should be bearable by the less well-off. The VAT on fuel provision in the March Budget was only one measure in a Budget where most of the revenue was to be gained from those in work, including the better off. Understandably, the campaign has focused on VAT on fuel, but it has been an exaggerated campaign which has aroused groundless fears among many people who are now feeling vulnerable about paying their heating bills.