HC Deb 20 January 1995 vol 252 cc975-81

Order for Second Reading read.

1.59 pm
Mr. Alan Simpson (Nottingham, South)

I beg to move, That the Bill be now read a Second time.

I shall be brief, mainly because the Bill contains only three substantive clauses, and is remarkably modest and sensible. Although there are only three main clauses, there are four areas in which its aims can be identified. They are: to stimulate home insulation work; to generate employment in the home insulation industry, which is especially labour intensive; to complement the Home Energy Conservation Bill, which has just received its Second Reading; and to make coherent the use of taxation as part of the Government's environmental and energy conservation policies.

Clause 1 requires the Secretary of State to draw up a list of energy-saving materials or products to be covered by the Bill. Clause 2 reduces the rate of value added tax on such materials to one that is no higher than that applying to VAT on domestic fuel and power.

May I draw hon. Members' attention to the list? Clause 1(2) distinguishes the products which are to be automatically included: all such materials or products which are used solely for the purpose of improving the energy efficiency of buildings. I am grateful to the Association for the Conservation of Energy, which set out the type of materials that it thought would be included automatically in that list. Its list includes domestic heating controls, draught-proofing materials, loft insulation, cavity wall insulation, hot water tank jackets and low-emissivity glazing.

The association has also advised me that it was important to give the Secretary of State additional powers of discretion to include in the Government's list items whose primary purpose is to contribute towards improvements in energy efficiency in buildings, but which also have auxiliary purposes, and I gladly took that advice in drafting clause 1(3). The list could, with time, be varied. The key point is that, once the Minister had exercised the duty to produce a list and the discretion to include additional items, an adjustment in the level of VAT that applied to those items would automatically follow.

Although it is a strange experience for me, I must acknowledge a debt of gratitude to the former Chancellor of the Exchequer, the right hon. Member for Kingston upon Thames (Mr. Lamont). In his Budget speech on 16 March 1993, the then Chancellor voiced for the Government a new principle of taxation. He felt that it was important to set the principle down, before the House, as one that ought to apply for the 21st century. The former Chancellor said: For the first time, the rate of VAT on domestic fuel and power will be the same as that charged on goods like loft insulation material, which improve energy efficiency. This will bring to an end the current anomaly, which makes nonsense of any attempt to use the tax system to improve the environment."—[Official Report, 16 March 1993; Vol. 221, c. 183.] The former Chancellor pursued an impeccable logic—it is transparent nonsense to tax goods that save energy more heavily than we tax energy consumption—and I am deeply grateful to him for making us face that stark reality. There is no point in having environmental or energy conservation policies that are moving in one direction, when the weight of the tax system pulls in the opposite direction.

It cannot be in the Government's interest to hold a view the de facto consequence of which acts as a disincentive to people to pursue energy efficiency measures such as insulating their homes to reduce their energy bills. We must take the former Chancellor at his word and accept the Government's new logic, and simply apply it to correct the anomaly that exists today. Although the House decided to reduce VAT on domestic fuel bills to 8 per cent., VAT on home insulation materials remains at 17.5 per cent.

Mr. Nigel Evans (Ribble Valley)

The hon. Gentleman said that VAT on fuel had been reduced to 8 per cent. What happened was that the second tranche of VAT was not implemented. Does he agree that, had it been implemented, it would have been extremely difficult to bring the rate back to 8 per cent., which could have been done only with the agreement of other EU countries?

Mr. Simpson

It would have been difficult, but not impossible. Although we decided to keep VAT on domestic fuel at 8 per cent., the anomaly which the former Chancellor identified in terms of the gap between the tax on energy-saving materials and the tax on energy use remains. The purpose of the Bill is to try to pursue the logic of the former Chancellor's argument and remove the tax anomaly we face today.

Mr. Mike Gapes (Ilford, South)

Does my hon. Friend agree that it would be sensible for the Government to look seriously at that problem, because the logic of the position described by my hon. Friend is that we should try to create a taxation regime that assists energy conservation while helping the poorest people in society?

Mr. Simpson

Absolutely. That compelling point of logic will have to intrude on all aspects of our taxation policies in the coming years. Moreover, as I said in the earlier debate, if the Government raise the tax on energy use, it is the poorest people who will have the least scope for exercising elasticity of demand in terms of the fuel they use. For those at the lowest end of the income scale, raising taxes on fuel use is demand inelastic. We must find ways to give low-income households easier access to energy-reducing materials to make their homes more energy-efficient.

Although my proposals involve a cost, huge benefits stem from directly targeting our resources into areas where they will have the greatest environmental impact. My hon. Friend the Member for Ilford, South (Mr. Gapes) was right to make that point. I am grateful to the Association for the Conservation of Energy for doing some work for me in calculating the total costs that are likely to stem from the Bill, if the Government give it the support that it should receive. Before deciding about the Bill, hon. Members will want to know the scale of costs that they are letting the Government in for. ACE said: The initial effects would be an estimated loss to the Treasury of less than £10 million per annum. This does not, however, account for the estimated 10 per cent. increase in sales of energy efficiency goods which would result. The ultimate effect would be a reduction in the net loss to the Government of £2 million to £8 million per annum. A maximum loss of £8 million, but possibly as little as £2 million, shows that the cost element is minute. To put it in the context of the revenues the Government currently receive from VAT alone, that reduction would amount to a 0.02 per cent. loss from total VAT revenues of £38.9 million in 1993–94.

That minute cost would eliminate an absurd anomaly in the tax system. It would stimulate at least a 10 per cent. growth in sales of energy-saving materials, and would contribute about 10 times that amount to improving the quality of life for those who suffer the blight of fuel poverty. It would generate its own contribution to the energy saving targets set out in the Home Energy Conservation Bill and the Government's conservation measures.

I urge hon. Members to support the Bill, which is simple, logical and overwhelmingly positive, in terms both of its limited cost and of its important impact.

2.10 pm
Mr. Bernard Jenkin (Colchester, North)

This is a rather sad little debate because the hon. Member for Nottingham, South (Mr. Simpson), who has gained the privilege of such a position in the private Members' ballot that he now has the opportunity to discuss his Bill on the Floor of the House, has proposed the Energy-Saving Materials (Rate of Value Added Tax) Bill.

I share the objective as enunciated by my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont), the former Chancellor of the Exchequer, that it is sensible to tax the materials for energy saving at the same rate as we tax energy or vice versa. I voted for that principle in the House before Christmas. It is the hon. Member for Nottingham, South and his party who have voted for the current inconsistency. I suppose that that inconsistency would be excusable if we had a reasonable remedy to put that matter right. The Bill does not offer a consistent remedy, however, because the hon. Gentleman made absolutely no mention of the problems faced because of what has been agreed under the sixth VAT directive.

The Bill might have some validity if it contained the words, "This Bill shall come into force notwithstanding the European Communities Act 1971." As someone who has devoted a little time to such difficulties, I would be quite tempted to vote for the Bill just to see what would happen. It would be interesting to see whether Ministers implemented a policy that they had been instructed to implement by Parliament, which they knew to be in contravention of European Community law. It would be interesting to see whether Ministers responded to Parliament or to European Community law. If they responded to Parliament, it would be interesting to see how the European Community institutions reacted. Would they respect the decision of our sovereign Parliament or attempt to tell us that our sovereignty has been, in the words of Helmut Kohl, "consigned to the boot"?

What would be most interesting is whether, if there was a conflict between Ministers and European institutions, which was to be decided by the courts, our own courts upheld the most recent action of Parliament—the passage of the Bill promoted by the hon. Member for Nottingham, South—or whether they gave precedence to a preceding Bill. They would thereby implement what many of us suspect may be happening by slow process of attrition: that this Parliament is slowly becoming bound by the decisions of previous Parliaments. For all those reasons, I think that this is curious ground to fight on.

Mr. Simpson

I am slightly confused about the argument that the hon. Gentleman makes, and I should be grateful if he clarified it. I well recognise the long arguments that he has attempted to bring before the House about the relative powers of the House and the European Community, and the arguments that he has repeatedly tried to make about the sovereign authority of the House. I was confused because I wanted to clarify whether he is now saying that the measure that I have brought before the House cannot be supported because it would put us in conflict with European policies, or whether he is saying the opposite, that it should be supported because it reasserts the authority and sovereignty of the House and, as such, is a measure that should command the support of the whole House.

Mr. Jenkin

The hon. Gentleman anticipates what I intended to say in the closing moments of my speech—that, however tempted I might be to test that specific aspect of Parliament on the Bill, the Bill is inconsistent and inappropriate, because it would have been logical to require VAT to be increased to the full rate of 17.5 per cent. I have no idea what the future will hold; perhaps we shall have to leave that for some future Government, of whatever hue. The pattern of taxation in all developed countries is moving away from taxation on income towards taxation on expenditure and, if we want to achieve our targets, perhaps that is what we shall have to do, in the fulness of time.

The Bill exposes completely the hypocrisy of Opposition Members who, like the hon. Member for Ilford, South (Mr. Gapes), argue constantly for greater European integration and more qualified majority voting and for unthinking acceptance of a single European currency.

Mr. Gapes


Mr. Jenkin

If I malign the hon. Member for Nottingham, South, I apologise, but the hon. Member for Ilford, South certainly fits into that category, and I give way to him with immense pleasure.

Mr. Gapes

I do not want to divert the debate to other subjects. We are in danger of moving away from the subject of energy conservation, and it would be wise if we had a proper debate at another time rather than discuss other subjects. But I wish to object to the words, "unthinking acceptance of a single currency" and simply register that that is not my position.

Mr. Jenkin

I am encouraged. I shall not be drawn down that path; I simply note that it is the policy of European Community institutions to move towards fiscal harmonisation as a means of achieving economic and monetary union, and the Bill is in direct conflict with that. I am surprised that the hon. Member for Nottingham, South received much encouragement from his colleagues, because Conservative Members know that they want to drag us down that path.

In any case, I urge rejection of the Bill because of its inconsistent approach to taxation policy.

2.17 pm
Mr. Richard Spring (Bury St. Edmunds)

I applaud the sentiments behind the Bill—the desire of the hon. Member for Nottingham, South (Mr. Simpson) for energy conservation and his wish to concentrate the emphasis on the matter. I understand the desirability of that. However, in this morning's debate, that was discussed highly constructively.

There are significant problems in the Bill. The most significant problem is the issue of an intermediate rate of VAT. I speak with some experience of that matter. The town of Newmarket is in my constituency. For many years, the bloodstock industry argued strongly in an attempt to reduce the rate of VAT payable on the sale of bloodstock to a level comparable with that of the Republic of Ireland and of France. I felt, at the time, that that was wholly wrong and argued with members of the industry, because I believe that it is important that this country does not go down the route of having countless different levels of VAT. The complications of that from a fiscal and administrative point of view are enormous.

There are many worthy causes. Every hon. Member knows of constituents who have an interest in a particular subject and are pleading for a lower rate of VAT. The VAT rate of 8 per cent. on domestic fuel came about as a result of events with which we are all familiar—it is an exceptional case that arose as a result of a vote in the House. In all my experience of dealing with the difficult problems of the bloodstock industry, one message came through loud and clear. If we have different levels of VAT, we shall open a can of worms for many people. It would present difficulties for the Treasury and the administration of the country's fiscal and tax-raising systems.

My hon. Friend the Member for Colchester, North (Mr. Jenkin) mentioned the sixth VAT directive, of which I have experience through my negotiations on behalf of the bloodstock industry. A European Union list gives scope for reduced VAT levels on certain goods and services. But the blunt truth is that energy-efficient goods are not included on the list. I hope that the hon. Member for Nottingham, South heard that. The heart of the Bill is incompatible with European law. It will not be possible in practice to obtain a lower rate of VAT for energy-efficient goods and services. If the provision became law, it would result in a clash between the British Government and the European Union. There were many blood-curdling negotiations about what should be included on the reduced list originally and I can assure the hon. Gentleman that that list is unlikely to be changed in any way.

Mr. Paul Boateng (Brent, South)

Does the hon. Gentleman accept that other states of the European Union already have different rates of VAT for different products and services? Why should not we in this country ensure that energy conservation is not penalised by tax as it is at present?

Mr. Spring

The hon. Gentleman misunderstands. I entirely support the British Government's position. Given the great difficulties with intermediate rates of VAT that we have seen on the continent, it is right to have two rates of VAT: zero and 17.5 per cent.—it makes for good administration. After a considerable amount of negotiation and after agreement among the European member nations about its scope, a list was drawn up of possible goods and services that would attract reduced VAT. Energy-efficient goods and services were not on the list. I am sorry to have to disappoint the hon. Member for Brent, South (Mr. Boateng).

Mr. Paul Tyler (North Cornwall)

Is the hon. Gentleman saying that, notwithstanding the vote of the House last month, he proposes that VAT on fuel should be increased to 17.5 per cent? That is the logic of his position.

Mr. Spring

The hon. Gentleman misunderstands. A specific technical point defeats the essence of the Bill'. It is not possible for us to go to the European Union and ask for a separate rate of VAT on energy-efficient goods. That proposition lies at the heart of the Bill and it is a flaw in the Bill. I am not here to argue whether it would be good or bad were we to be allowed to take that action under European law. But I have stated the position, which is precisely the point made by my hon. Friend the Member for Colchester, North.

Mr. Jenkin

The hon. Member for North Cornwall (Mr. Tyler) does not understand the sixth VAT directive that we have agreed. One is not allowed to reduce VAT rates of below 15 per cent., only increase them. One is allowed to reduce VAT rates only if they are already above 15 per cent., and then only to the rate of 15 per cent.

Mr. Spring

I am grateful to my hon. Friend for further clarifying the position.

I applaud the sentiment behind the Bill—to encourage good practice in energy conservation. As we heard in this morning's debate, a plethora of measures have been sponsored by the Government on different levels to achieve that end—good practice in energy conservation and the reduction of heating bills. That is happening in practice at the moment.

Mr. Simpson

I am not sure whether we can resolve the matter in the Chamber this afternoon. While drafting the Bill, I checked whether it was within our legal competence to propose a measure that reduced the level of value added tax on home insulation products from 17.5 per cent. to 8 per cent. I was told very clearly that the measures set out in the Bill are perfectly legal and are within the sovereign powers of the House to decide. That is the ruling that I received on the specific point with which the hon. Gentlemen are taking issue.

Mr. Spring

I do not think that it is fruitful to bandy interpretations of the sixth European Community value added tax directive. However, I was not called the bloody boring Member for bloodstock by a Treasury Minister because I was not involved directly in this area of concern and activity. I believe that I am correct, and if the hon. Gentleman looks more carefully at the issue, he will realise that.

I am concerned about the talk of a "definitive list" of materials in the preamble to the Bill. How would the list be derived and what are the bureaucratic implications of such a list? While I understand and sympathise with the Bill and the sentiment behind it, for the reasons that I have enunciated, I believe that it is flawed and therefore essentially unacceptable.

2.26 pm
Mr. Nigel Evans (Ribble Valley)

I am glad to be able to contribute to the debate. As my hon. Friend the Member for Bury St. Edmunds (Mr. Spring) said, it is immaterial whether we think that it is a good or a bad measure. I think that the hon. Member for Nottingham, South (Mr. Simpson)—I understand that he is a good pro-European—will be somewhat relieved if the Energy-Saving Materials (Rate of Value Added Tax) Bill, although well-intentioned, gets no further today. Even if we passed the Bill, we would be prevented from reducing the rate of value added tax by the sixth European Community VAT directive.

Mr. Jenkin

It is very important that hon. Members assert that we are able to legislate on anything because we are a sovereign Parliament. However, the measure would bring us into conflict with European Community law, with all its attendant consequences, which may not be desirable in this case.

Mr. Evans

Of course we can pass any legislation that we like. However, if we were to go to the European Union and say, "By the way, we've decided to reduce the rate of VAT to 8 per cent. on this list of energy conservation items," the Union would say no. That would be the end of it and we could not implement the measure.

The legislation is fraught with problems. In the past, we had more than two rates of VAT. We now have the zero and 8 per cent. rate of VAT, and in the past we had a normal rate and a luxury goods rate as well. Perhaps the hon. Member for Nottingham, South is suggesting that we should go back to the days when we had three levels of VAT: a zero rate, a middle rate of perhaps 8 per cent. and another rate. If we pass the Bill today, there is nothing to say that we could not reintroduce a luxury goods rate of VAT.

I wonder whether the legislation is a precursor to the Labour party's change of attitude towards VAT. I bandied words with the hon. Member for Lewisham, Deptford (Ms Ruddock) in an earlier debate, and I suspect that I will do no better now than I did then in trying to tease out of her the Labour party's policies on VAT or any other issue. The legislation may be a precursor to the Labour party introducing a range of levels of VAT on certain goods. Newspapers are zero-rated, and there were arguments for and against that. The same is true of young children's clothes. Food was mentioned time and again. I wonder whether the Labour party has it in mind to introduce an 8 per cent. rate on food. We know already how sensitive Labour is, after it made the faux pas the other day in respect of public school fees, when one Labour figure intimated that Labour was seriously considering imposing VAT on public school fees. It was only a matter of moments before—

It being half-past Two o'clock, the debate stood adjourned.

Debate to be resumed upon Friday 27 January.