HC Deb 23 January 1995 vol 253 cc39-63

  1. 2. For the purposes of this Schedule the following supplies are always for domestic use—
    1. (a) a supply of not more than one tonne of coal or coke held out for sale as domestic fuel;
    2. (b) a supply of wood, peat or charcoal not intended for sale by the recipient;
    3. (c) a supply to a person at any premises of piped gas (that is, gas within paragraph 1(1)(b) above, or petroleum gas in a gaseous state, provided through pipes) where the gas (together with any other piped gas provided to him at the premises by the same supplier) was not provided at a rate exceeding 150 therms a month or, if the supplier charges for the gas by reference to the number of kilowatt hours supplied, 4397 kilowatt hours a month;
    4. (d) a supply of petroleum gas in a liquid state where the gas is supplied in cylinders the net weight of each of which is less than 50 kilogrammes and either the number of cylinders supplied is 20 or fewer or the gas is not intended for sale by the recipient;
    5. (e) a supply of petroleum gas in a liquid state, otherwise than in cylinders, to a person at any premises at which he is not able to store more than two tonnes of such gas;
    6. (f) a supply of not more than 2,300 litres of fuel oil, gas oil or kerosene;
    7. (g) a supply of electricity to a person at any premises where the electricity (together with any other electricity provided to him at the premises by the same supplier) was not provided at a rate exceeding 1000 kilowatt hours a month.
  2. 3.
    1. —(1) For the purposes of this Schedule supplies not within paragraph 2 above are for domestic use if and only if the goods supplied are for use in—
      1. (a) a building, or part of a building, which consists of a dwelling or number of dwellings;
      2. (b) a building, or part of a building, used for a relevant residential purpose;
      3. (c) self-catering holiday accommodation;
      4. (d) a caravan; or
      5. (e) a houseboat.
    2. (2) For the purposes of this Schedule use for a relevant residential purpose means use as—
      1. (a) a home or other institution providing residential accommodation for children;
      2. (b) a home or other institution providing residential accommodation with personal care for persons in need of personal care by reason of old age, disablement, past or present dependence on alcohol or drugs or past or present mental disorder;
      3. (c) a hospice;
      4. (d) residential accommodation for students or school pupils;
      5. (e) residential accommodation for members of any of the armed forces;
      6. (f) a monastery, nunnery or similar establishment; or
      7. (g) an institution which is the sole or main residence of at least 90 per cent. of its residents,
      except use as a hospital, a prison or similar institution or an hotel or inn or similar establishment.
    3. (3) For the purposes of this Schedule self-catering holiday accommodation includes any accommodation advertised or held out as such.
    4. 40
    5. (4) In this Schedule "houseboat" means a boat or other floating decked structure designed or adapted for use solely as a place of permanent habitation and not having means of, or capable of being readily adapted for, self-propulsion.
  3. 4.
    1. —(1) Paragraph 1(1)(a) above shall be deemed to include combustible materials put up for sale for kindling fires but shall not include matches.
    2. (2) Paragraph 1(1)(b) and (c) above shall not include any road fuel gas (within the meaning of the Hydrocarbon Oil Duties Act 1979) on which a duty of excise has been charged or is chargeable.
    3. (3) Paragraph 1(1)(d) above shall not include hydrocarbon oil on which a duty of excise has been or is to be charged without relief from, or rebate of, such duty by virtue of the provisions of the Hydrocarbon Oil Duties Act 1979.
    4. (4) In this Schedule "fuel oil" means heavy oil which contains in solution an amount of asphaltenes of not less than 0.5 per cent. or which contains less than 0.5 per cent. but not less than 0.1 per cent. of asphaltenes and has a closed flash point not exceeding 150°C.
    5. (5) In this Schedule "gas oil" means heavy oil of which not more than 50 per cent. by volume distils at a temperature not exceeding 240°C and of which more than 50 per cent. by volume distils at a temperature not exceeding 340°C.
    6. (6) In this Schedule "kerosene" means heavy oil of which more than 50 per cent. by volume distils at a temperature not exceeding 240°C.
    7. (7) In this Schedule "heavy oil" shall have the same meaning as in the Hydrocarbon Oil Duties Act 1979."
(4) In section 97 (orders etc.) in subsection (4) (orders requiring approval) the following paragraph shall be inserted immediately before paragraph (a)— (aa) an order under section 2(1C);". (5) In Schedule 13 (transitional provisions and savings) paragraph 7 (fuel and power) shall be omitted. (6) This section shall apply in relation to any supply made on or after 1st April 1995 and any acquisition or importation taking place on or after that date.'.—[Mr. Heathcoat-Amory.] Brought up, and read the First time.

The Chairman of Ways and Means (Mr. Michael Morris)

With this, it will be convenient to discuss also amendment (a), in new subsection (IA)(b), leave out '8' and insert '5'.

4.38 pm
The Paymaster General (Mr. David Heathcoat-Amory)

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

New clause 1 provides for the rate of value added tax on domestic fuel and power to be held at 8 per cent.. It reflects the decision of the House on 6 December 1994 and the subsequent resolution passed by the House on 13 December. The new clause is necessary to stop the otherwise automatic move to the standard rate with effect from 1 April this year.

Through amendments to the Value Added Tax Act 1994, the new clause establishes the 8 per cent. rate and defines the scope of its application by means of a schedule to the 1994 Act. The scope of the 8 per cent. rate mirrors exactly what prevailed before. Thus the detail of the schedule is no more than a carry-forward to the existing definition of domestic fuel and power.

A positive rate of VAT on domestic fuel and power makes sense both for revenue and for environmental reasons. All other European countries with VAT systems tax such fuel, usually at their standard rates. In our case it is accompanied by a generous compensation package. When linked with falling energy prices, that package did and does protect vulnerable people against the introduction of VAT at 8 per cent. to this sector.

Prices for gas and electricity are 1 per cent. lower than they were two years ago, even allowing for the introduction of 8 per cent. VAT in April last year, so the compensation package is an addition to household incomes. It is worth more than £400 million in 1994–95, rising to about £750 million in 1995–96. That is about half the yield of the tax in a full year. All pensioners, most disabled people and all persons on income-related support have been receiving extra help since April last year through permanent additions to the relevant benefits.

With that in mind, I commend the new clause and the 8 per cent. VAT rate on fuel and power to the House.

Mr. Andrew Smith (Oxford, East)

The new clause carries into effect the victory—although the Minister did not put it quite like that—of the great popular campaign against the increase in VAT on fuel to 17.5 per cent. It is worth remembering that the Bill as it stands would do nothing to change that rate from 1 April. The new clause is therefore necessary to give effect to the victory that we won in December.

It would have been nice to hear the Paymaster General acknowledge that the people of this country got it right and the Government got it wrong. The House should pay tribute to all who campaigned against the increase—many of them pensioners groups—to bring about a remarkable parliamentary defeat for the Government. It was one of only three occasions since 1979 when the Government have been defeated on a vote with a three-line Whip.

All too often, the work of petitioning, writing to hon. Members and other forms of lobbying, although exerting influence, does not get the hearing that it should in our imperfect democracy. It is good for us all when people power, democratically expressed, makes itself felt and makes such a tangible difference. That is why we shall be happy—we are well aware that there is many a slip `twixt cup and lip—to allow the new clause safe passage into the Bill, so that people can be assured that they will not have to face 17.5 per cent. VAT on domestic fuel from April and that it will be held to 8 per cent.

There are still some important points to explore before the House can proceed. The fact that the vote was won last year, halfway through what the Government had intended to be a staged increase to 17.5 per cent., means that we now have three rates of VAT in the system, including the zero rate. The intermediate 8 per cent. rate that the Government have chosen for VAT on fuel arose, to some extent, by chance. Perhaps the Paymaster General will therefore tell us whether he envisages that the 8 per cent. rate will have a permanent place in the VAT system.

First, will the Minister—as he should—give an absolute and clear assurance that the Government have once and for all abandoned their ambition to put up VAT on domestic fuel to the full standard rate of 17.5 per cent.? Secondly, does he foresee the possibility of other goods or services being taxed at 8 per cent., either by way of transfer from the 17.5 per cent. band or, for that matter, from the zero-rated or exempt bands? Since the number of bands that we can have is limited by European law, the Government ought as a matter of principle to tell us whether they see the 8 per cent. band as a fully fledged, permanent fixture or as a one-off for domestic fuel only.

4.45 pm

I also draw the Minister's attention to the strong case made by many people and organisations, including the Association for the Conservation of Energy, and by my hon. Friend the Member for Nottingham, South, (Mr. Simpson), who presented the Energy-Saving Materials (Rate of Value Added Tax) Bill, in favour of transferring to the 8 per cent. rate certain energy conservation goods, to bring them into line with the rate charged on fuel. Paradoxically, the former Chancellor—the right hon. Member for Kingston upon Thames (Mr. Lamont)—set this case out clearly at the time of the 1993 Budget when he said: For the first time, the rate of VAT on domestic fuel and power will be the same as that charged on goods…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.] That was actually a ruse whereby the right hon. Gentleman tried to justify that which could not be justified—putting VAT up to 17.5 per cent.—but his point related to comparability between the rate of VAT on fuel and on energy-saving materials.

In the House on Friday we heard many arguments about this from Conservative Members, especially the hon. Member for Eltham (Mr. Bottomley), who urged reconsideration of the rate of VAT imposed on materials for energy-saving purposes. The Association for the Conservation of Energy has suggested a number of logical candidates for an 8 per cent. rate: draught proofing materials, loft insulation, cavity wall insulation, hot water tank jackets, lower emission glazing, and domestic heating controls. The association envisages two results: increasing the market for energy saving goods, which would bring in revenue to the Treasury; and improving the environment by saving energy.

I should be grateful if the Minister would let us know the Government's thinking on comparability as between the proposed rate of VAT on domestic fuel and the rate levied on materials that people buy to save energy. Will Sir Crispin Tickell and the Prime Minister's team be looking into this issue as part of the so-called green tax strategy described in The Observer yesterday?

I understand that there are problems to do with European VAT laws, which do not include energy-saving materials in the category of goods on which reduced rates are chargeable. Does the Minister intend to explore this as an option to help meet our environmental commitments in Europe? When the Government launched VAT on fuel, they used the excuse of the environment as cynical cover for what was essentially a tax-raising measure. Do they now realise that that was a grave mistake? Do Treasury Ministers acknowledge that the Government were wrong to break their promises about VAT on fuel, made at the time of the general election, just as they were wrong to break their promises on other taxes and on national insurance?

Will the Minister assure us today that the Government will not extend or increase VAT? He and his colleagues seem not to understand even now just how gravely their broken promises damaged not just themselves but democracy and public confidence in this House. At the election they said that they had no plans or intention to extend or raise the rate of VAT; yet they went on to do exactly that.

The Government owe it to the House of Commons and, more importantly, to the country, as they try to unscramble the awful mess in which they find themselves with regard to VAT on fuel, to tell us whether they now plan to extend or increase VAT. The only perpetual motion machine yet invented is the Tory propulsion of VAT: they are keeping the boundaries of VAT moving forward all the time, sometimes in huge leaps, as with VAT on home improvements and fuel, sometimes by smaller steps, as with VAT on orange juice, language schools and, most recently, certain sectors of transportation.

The increase in VAT on fuel that the Government proposed would have been extremely damaging. Even at 8 per cent., the tax reflects a Government who have been addicted to VAT and to indirect taxation generally. Even allowing for inflation, the amount of VAT per week paid by a typical family has risen from £370 a year in 1979 to £1,140 at 1994 prices, and total indirect taxation, including VAT, has increased from £1,562 to £2,545. Those are the figures calculated by the Library.

Even without the extra tranche of VAT on fuel, pensioners will still be hard pressed. The Paymaster General referred to the compensation package, but pensioners will still find it difficult to keep themselves warm in the cold winter months. Single pensioners will now receive only 20p per week compensation instead of the 50p that they had been promised, bringing total compensation for them to an inadequate 70p a week, while pensioner couples will receive just £1.05. In cutting the compensation package, the Chancellor of the Exchequer appears to have ignored completely the representations made so strongly by people throughout the country. There are enormous variations between regions in heating costs and in types of housing. The right hon. and learned Gentleman could and should have been more generous in living up to his initial promise to pensioners.

We must not forget that many people will receive no compensation at all. Those who receive maximum help with housing benefit receive nothing to help them pay increased heat and power bills. The unemployed, the disabled and the most vulnerable groups in our society receive no compensation to lessen the burden of the essential cost of keeping warm. The Opposition believe that the Chancellor has failed fully to take into account the needs of such groups. In his negligence, he leaves the poorest 20 per cent. of households £44 a year worse off as a result of the imposition of VAT on fuel.

The sorry story of VAT on fuel has brought the Conservative addiction and its costs home to people—to their pockets and their purses—in no uncertain terms. I ask the Paymaster General to give the Committee a firm assurance that the Government will extend VAT no more. As the new clause becomes part of the Bill, that is the assurance that we want to hear, as do those outside the House of Commons—the people are sick of the Government and their VAT policies.

The proposal behind the new clause is to carry into law a great people's victory in holding down VAT on fuel at 8 per cent. and the Opposition will do nothing to put that victory at risk. The people campaigned, petitioned and fought for month after month to hold VAT at 8 per cent. and nothing that we do today should put that at risk.

Mr. Alex Salmond (Banff and Buchan)

The impact of amendment (a) to the new clause would be to reduce the imposition of VAT from 8 per cent. to 5 per cent.

Like the hon. Member for Oxford, East (Mr. Smith), I welcome the substantial victory that was achieved late last year by a combination of parliamentary interests against the Government. Perhaps the most significant feature of today's debate has been the perfunctory way in which the Paymaster General introduced the new clause. It is clear that the Government do not want to be reminded of the circumstances of their retreat at the end of last year or indeed to dwell on the subject of VAT on domestic fuel at all.

My party has chosen a 5 per cent. amendment partly because, as the hon. Member for Oxford, East said, it is important to tease out from the Government what will be the lower rate across the range of VAT. Secondly, 5 per cent. is probably in accordance with European Union regulations as the rate to which the Government can move without seeking a specific derogation from our partners in the Community. Once having abandoned a zero rate, it is difficult to move back to one under current regulations, although I should obviously have preferred to be arguing for a zero rate.

It was irresponsible of the Government to take domestic fuel, an essential for all people throughout the country, and apply VAT to it, contrary to electoral promises. They did so against a background of substantial fuel poverty and the fact that every year thousands of people suffer from hypothermia and tens of thousands die from cold-related illnesses in the broader sense. Throughout the country, millions of our fellow citizens suffer from endemic fuel poverty.

There is a specific argument that Scottish Members have advanced in the Chamber on many occasions. We say that VAT on fuel is especially unfair because it results in unequal burdens throughout the country. That is applied common sense because of temperature variations in different parts of the country. In a memorable exchange about 18 months ago, a junior Minister at the Department of Social Security tried to convince the House that it was colder in England than in Scotland. I do not know what mountain-top temperature he was comparing with temperatures in various areas in Scotland, but that was the burden of his argument.

More recently, however, the Scottish National party was delighted to have the Government caught telling the truth. On 24 November last year, in a written answer to a question tabled by my hon. Friend the Member for Moray (Mrs. Ewing), the Department of the Environment finally owned up to the reality of temperature variations and the impact of that on fuel costs throughout the country. The Minister said: The percentage of extra fuel required to heat a typical semi-detached house with gas central heating is as follows for each of the specified locations. Bristol is taken as the base.

(a) Edinburgh +28 per cent., (b) Glasgow +23 per cent., (c) Aberdeen +41 per cent., (d) Dundee +32 per cent., (e) Lerwick +53 per cent and (f)Braemar +66 per cent."— [Official Report, 24 November 1994; Vol. 250, c. 249.] According to the Department of the Environment, those were calculated using the Building Research Establishment's domestic model—the acronym being BREDEM; that is the name given to the computerised model in the Department.

That Government answer raises what can be called the 66 per cent. question or, in Scottish politics, the Kincardine and Deeside question. The Member whose constituents suffer most from the imposition of VAT on domestic fuel, the hon. Member for Kincardine and Deeside (Mr. Kynoch), has been an extraordinary Government loyalist in the various debates that have taken place in the Chamber over the past two years or so. However, I thought from that answer that the Government had at last owned up to what the rest of us knew from our common sense—the fact that there are temperature variations throughout the country, particularly as one moves from south to north or north to south.

Unfortunately, however, the Government were not prepared to let the truth rest and I received a rather panicky letter from the Secretary of State for Scotland on 30 December, the day before Hogmanay, seeking to rubbish the answer supplied by the Department of the Environment. The letter reads: In compiling the answer to Margaret Ewing on 24 November, the Department of the Environment used data from a computer model which is set up to calculate the hypothetical costs of heating a standard semi-detached house. It is quite wrong and misleading to draw general conclusions from this. And it is quite remarkable for a Cabinet Minister to try to rubbish a written answer from another Department. Are we to believe the answer from the Department of the Environment or the panicky explanation from the Secretary of State for Scotland? Or should we rely on the evidence of our own experience? Common sense tells us that it costs substantially more to heat a home in various parts of Scotland than one in the south of England.

The Secretary of State for Scotland referred to independent studies. I have brought along one from the Sunday Mail. This excellent report was published on 7 November last year and compared heating costs in pensioners' homes in three locations, not hypothetical computerised models from the Department of the Environment. The locations were Bournemouth, Buckie and Lerwick. The heating costs of the pensioner couple in Bournemouth—Albert and Jean Clark—were £427. In Bournemouth, the average maximum temperature was 14.2 deg C, the average winter temperature was 1.7 deg C and there were seven hours 58 minutes of daylight in mid-winter. In Buckie, the heating costs of another pensioner couple, George and Mary Clark—all the couples were called Clark—were £602 and the weather facts were an average temperature of 11.1 deg C, an average winter temperature of 0 deg, and only six hours and 41 minutes of daylight in mid-winter. In Lerwick, the average bill of the pensioner couple was £630, with an average winter temperature as low as minus 1 deg and a mere five hours and 49 minutes of daylight in mid-winter.

5 pm

It is incredible that Ministers, including the Secretary of State for Scotland and the junior Minister responsible for social security, are denying an obvious fact to the House. Of course it costs substantially more to heat homes in parts of Scotland than it does to heat those in the south of England. Once one admits that fact, the inequity of imposing a flat rate of VAT on fuel throughout the United Kingdom—and, more importantly, a compensation package with no geographical variations—becomes apparent.

Yet again, the Government must tell us why they proposed such an anti-Scottish tax when there is strong evidence of crippling fuel poverty in many parts of the country. Scotland is in an unusual situation in that there is fuel poverty amid energy plenty. Scotland has about 80 per cent. of the European Union's hydrocarbon resources, but we have endemic fuel poverty unmatched in any other European country. The country with the most energy resources has the greatest problem with fuel poverty.

Scottish local authorities have done their best to compensate for the imposition of VAT on fuel and for existing fuel poverty. Tayside regional council is controlled by the Scottish National party and Grampian regional council by an SNP-Liberal Democrat administration. In recent months, they have set up substantial efficiency and anti-fuel-poverty schemes. The scheme in Tayside costs about £500,000 and involves a variety of initiatives, such as payment holidays, meals on wheels, lunch clubs, £100,000 to the organisations dealing with fuel poverty at the sharp end, help to pensioners, free phones, energy advice booklets and active support in the front line for those agencies dealing with fuel poverty. However, even the excellent efforts of those two regional councils cannot compensate for the millions of pounds that have been taken from their communities due to the imposition of VAT on domestic fuel.

Value added tax should not have been imposed on domestic fuel, but since it has been imposed, the better figure would be 5 per cent. rather than 8 per cent. The lower the figure, the better it will be for pensioners and others suffering from fuel poverty. I urge the House to follow last year's victory and move the goal posts further—this time, from 8 to 5 per cent. We owe it to our constituents to do that.

The Government have made much of their compensation package, but, as the Labour Front-Bench spokesman, the hon. Member for Oxford, East, pointed out, many of the people who suffer substantial fuel poverty are not covered by that package. As Members of Parliament for Scotland, our constituents would wish us to act directly on the frightening paradox of fuel poverty amid energy plenty. In the absence of the ability to return to a zero rate of VAT on domestic fuel in the short term, we should vote today to reduce the rate to the lowest practicable level—5 per cent.

In a private conversation, one Scottish Conservative Member, whom I shall not name, told me after the Government defeat in the vote last year, "By your actions, and by stopping a 17.5 per cent. rate for VAT on fuel, you have saved us politically," even though that hon. Member had loyally supported the Government in trying to sustain that rate. Let the Government realise today that no level of VAT on domestic fuel is acceptable in any part of the country and it is certainly not acceptable in the energy-rich nation of Scotland.

Mr. Malcolm Bruce (Gordon)

We welcome the fact that the new clause has been tabled as a result of last year's vote, after which the Government were forced to accede. Nevertheless, their defeat is costing them £800 million in revenue for which they had budgeted.

The hon. Member for Banff and Buchan (Mr. Salmond) voiced some pertinent arguments about the iniquity of the variable impact of a tax on domestic fuel, and the Government have certainly shown a lack of sensitivity to the matter. Those of us who represent north-east Scotland do not need to read the Sunday Mail to know that our fuel bills are higher than those in southern England. When the bill hits the doormat, we see how significant it is, and that the VAT element is substantially larger. People feel that VAT on domestic fuel is an unjustified and unfair burden, which disproportionately affects people on low incomes, who live in colder, darker areas where the winters are longer.

For that reason, I welcome the fact that the Government supported the private Member's Bill introduced by my hon. Friend the Member for Christchurch (Mrs. Maddock) on Friday. We undoubtedly need some practical measures to deal with fuel poverty, especially in areas where the problems of high fuel bills and inefficient heating and insulation are most acute.

From my travels to Scandinavia, I am aware that fuel poverty is rarely discussed in Norway for two fundamental reasons: first, because Norway has abundant hydro-electric power, which is almost free, and so fuel is not a major factor in household bills; and, secondly, because the Norwegians build their houses to take account of the climate. The British seem to have been extraordinarily slow to discover that we live in a cold, windy and wet island, and many of our building standards are not designed to deal with those conditions, which is regrettable.

The hon. Member for Oxford, East (Mr. Smith) wanted to know whether the new low rate was an anomaly that would be dealt with or a permanent fixture. If it is the latter, the arguments against extending VAT to domestic fuel apply equally to extending it to energy-saving building materials, insulation and so on. VAT on such goods could usefully be reduced to help people to combat the cost of 8 per cent. VAT on their fuel bills for the foreseeable future.

The story of the strange behaviour of some Conservatives who represent north-east Scotland cannot be repeated too often. It is worth recording the political reality. The Conservatives lost their last remaining seat in north-east Scotland in the Kincardine and Deeside by-election. No doubt they were very pleased—we were very disappointed—that not only did they win back that seat in the general election, but they regained Aberdeen, South from Labour. I am absolutely sure, however, that if the election were held today, that result would be reversed.

How have the people of north-east Scotland benefited from electing Conservatives? They were told that it would be handy to have people on the inside of government who could fight their cause. What did the Conservatives do to fight their cause? They voted to impose 17.5 per cent. VAT on fuel bills, they voted to change the oil tax regime to undermine the most important industry in north-east Scotland and they voted to keep our fishermen in port. That is how they have benefited from voting Conservative, and that is one of the reasons why they will not do so in a hurry again. They have learnt the error of their ways and its consequences.

Liberal Democrats certainly believe that there is a strong case for reducing VAT to 5 per cent., as proposed in amendment (a), but as part of a package that includes the introduction of a carbon energy tax partly to offset the cost of the reduction.

That brings me to another point that I hope that the Paymaster General will address. The Government maintained, somewhat late in the day, that the real reason for their wishing to put VAT on fuel was not so mercenary and mundane as to secure revenue from the British people, but that it was part of a much higher objective to fulfil environmental commitments made at the Rio summit. How will the Government now achieve those objectives, and is there any substance to reports in yesterday's papers that they are about to adopt the idea of a carbon energy tax?

If the Government are about to adopt the idea, I can assure Ministers that the principle will be welcomed by Liberal Democrats, since the Government's opposition to such a carbon energy tax has prevented the European Union from making progress in implementing the tax across the Union, which is clearly the right and proper way in which to implement it.

The Government need to answer many questions. It is recognised that although VAT is not being increased to 17.5 per cent., many people will still struggle to pay VAT at 8 per cent. and that to avoid such hardship they require practical and financial assistance. I hope that the Government acknowledge that.

I do not wish to support measures that may take us backwards, having forced the Government to change tack. I agree with the hon. Member for Oxford, East that it is good for our democracy for the Government to be defeated on an issue that is not a matter of confidence. I give some credit to the Chancellor, who, although he really had no option, at least had the grace to acknowledge immediately that he could no longer resist the view and the vote of the House. That, of course, is why we are here today considering this amendment.

Liberal Democrats welcome the amendment. It is a triumph for the House of Commons and for those people throughout the country who campaigned to bring it about, but it still leaves many questions for the Government to answer and we shall certainly continue to press them for answers.

Mr. Alistair Darling (Edinburgh, Central)

This is the tail-end, in some ways, of a long debate that has taken place ever since the former Chancellor announced the imposition of VAT on fuel. As others have said, it is not surprising that the Paymaster General has had very little to say as he has simply conceded the position that the Government had forced on them because of the victory last year in managing to hold the increase of VAT to 8 per cent.

The only point with which I shall deal briefly is that made by the hon. Member for Banff and Buchan (Mr. Salmond). It is unfortunate that, as in other matters, the nationalists insist on seeing the subject as a fight between Scotland and England and that, somehow, the tax is being imposed on Scotland but not on England. To Labour Members, the battle is not, and never will be, between Scotland and England. In this example, the battle was between the Tories and the rest of the country, and on this occasion the rest of the country won and the Tories lost.

5.15 pm

I find it deeply distasteful that yet again a nasty element is introduced that, somehow, the measure is being imposed on Scotland by another country. I find that repulsive as a patriotic Scotsman. I wish that the nationalists would not insist on introducing that unpleasant element into Scottish politics time and again. Coldness knows no political or geographical boundaries. Of course it is generally colder in Scotland than it is in England, but it is cold in England, as any pensioner who, even as we speak, is freezing because he cannot afford to heat his house can testify.

This nationalist amendment is another cynical ploy from an increasingly opportunist and desperate party. The nationalists know that the amendment has no chance of succeeding because there has been no campaign behind it. Indeed, the nationalists' amendment puts at risk holding VAT on fuel at 8 per cent. because they are throwing a life-line to those in the Government who want to re-open the debate and increase VAT to the full 17.5 per cent.

Surprisingly, the nationalists have made no attempt to mobilise public support for their policy since the amendment was tabled on Friday evening. No approach has been made to other political parties seeking their support; no letters have been written to Tory rebels. It was our campaign, which had a considerable amount of thought behind it, that led hundreds of thousands of people to protest against VAT over the past 18 months. It was our campaign, which we were happy to articulate in this Chamber, that finally led to the Government being defeated on this crucial issue.

The nationalists' amendment has been tabled for them to be able to play party politics with people's VAT bills. It is a cynical ploy from a party that sees its support slipping in the Scottish polls. Labour Members will not put our VAT victory at risk by supporting an amendment of this nature.

Mr. Salmond

The hon. Gentleman has not fully grasped House of Commons procedures. A Division can be called on the amendment only if the new clause is passed; he had better answer that point for a start. He seems to have written his speech before he heard my speech. I referred specifically to VAT on fuel and the problems that it caused across the United Kingdom. The impact of the amendment, if it were successful, would not only reduce VAT on fuel to 5 per cent. in Scotland, but in England as well. He had better explain to his constituents and his supporters north and south of the border why the Labour party is not prepared to vote for VAT on fuel at 5 per cent. in Scotland and England.

Mr. Darling

There we have the main point of the amendment being tabled. It is nothing to do with any honest or serious attempt to reduce VAT. Our old nationalist chums are at it again, trying to score party political points against their opponents. They tabled the amendment in the knowledge that there was never any realistic chance of VAT being reduced to 5 per cent.

May I remind the hon. Member for Banff and Buchan about procedure? This new clause is not yet in the Bill. We are not debating a clause in the Bill. We are debating a new clause, which has to be put in the Bill to stop VAT being imposed at the full rate of 17.5 per cent.

We are seeing yet another cynical ploy from a desperate party. The nationalists will not fool anyone. Perhaps they will get one or two commentators to jump around to their tune, but most sensible people will see this move for what it is—a cynical ploy that could never have helped anybody. In the important vote, people will remember who managed to keep VAT at 8 per cent. and stop the full increase to 17.5 per cent., which the Conservative Government tried to impose and would try to do again if they should ever be returned to office.

Dr. Norman A. Godman (Greenock and Port Glasgow)

I assure my hon. Friend the Member for Edinburgh, Central (Mr. Darling) that, as the only Yorkshire-born Scots Member of Parliament in the House who has lived in Scotland for half a lifetime, I do not intend to engage in a battle of the roses between Yorkshire and Scotland or between England and Scotland. However, I have some sympathy for amendment (a).

Shortly after the Government were defeated before Christmas on the VAT increase, Mr. Donald McDonald, secretary of Inverclyde Elderly Forum, told me of his delight and pleasure, which was shared by many pensioners throughout my constituency, at the Government's defeat on that iniquitous measure. Since then, I have spoken to many elderly people in my constituency. They have expressed deep concern that VAT on domestic fuel at 8 per cent. represents a harsh penalty on their ordinary everyday lives.

All Scottish Members present, and some Conservative Members, will be aware that although my constituency is 200 miles south-west of the Banff and Buchan constituency, many of my constituents live in cold, damp houses that were built before the war several hundred feet above sea level. The weather station that assesses severe weather payments is located at sea level at Glasgow airport.

Many of my constituents, not just the elderly, and the overwhelming majority of people who live on low incomes in Gibbshill, Strone Farm and elsewhere—places well known to my honourable and old Friend the Member for Renfrew, West and Inverclyde (Mr. Graham)—suffer very badly, as they try to live on social security and to heat their inadequate homes, many of which are in the public sector. I should like to see all those houses demolished and replaced by modern, waterproof, warm homes; my constituents deserve no less from the Government.

In the meantime, I do not believe that my constituents should be paying such sums of money to heat their homes. I visited an elderly lady recently who lives in the east end of my constituency. It was a very cold day and she was sitting over a one-bar electric fire. I do not want anyone in this place to tell me that perhaps she should have saved some money during her long life in order to provide for more adequate heating.

That old lady is the mother of a large family and she was widowed many years ago. In this day and age, it is utterly disgraceful, and it reflects badly on all of us, not just on that odd-job lot on the Government Benches, that a woman in her late seventies should have to live in those conditions, sitting in her overcoat in her sitting room—

The Chairman of Ways and Means

Order. I understand the sincerity with which the hon. Gentleman is making his point, but this is the Committee stage of the Finance Bill and we are discussing specifically VAT on fuel and power.

Dr. Godman

I am grateful to you, Mr. Morris. I was simply supporting my argument with a case study that can be replicated many thousands of times in the west of Scotland, let alone in the north and north-east of Scotland. Ordinary people on low incomes should not have that imposition placed on them to add to the burdens that they already suffer.

Mr. Thomas Graham (Renfrew, West and Inverclyde)

My hon. Friend will recall how many times, before VAT was imposed on fuel, I told the House about the incredibly high cost of heating homes in our constituencies. I described the massive difficulties facing some of our pensioners, some of whom were found dead behind their doors as a result of hypothermia. The imposition of VAT on fuel will undoubtedly make it extremely difficult for many folk to see out a really bad winter in Scotland. As a result of the recent flooding, people do not know what kind of heating bills to expect. Value added tax on fuel will exacerbate the problems of people on very low incomes.

Dr. Godman

I am grateful to my hon. Friend. I cannot comment on the dreadful consequences of that appalling disaster, which affected many of his constituents recently and which elicited such a hardnosed response from the Secretary of State for Scotland and his Ministers.

The imposition of VAT on fuel creates a horrendous burden for many people on low incomes. There is a good deal of sympathy for some of the sentiments that were expressed by the hon. Members for Banff and Buchan (Mr. Salmond) and for Gordon (Mr. Bruce). Such a tax burden should not be placed on the shoulders of ordinary people. We should be giving them, especially those who are coming to the end of their lives, every possible assistance to live decent lives. That is why I have some sympathy for the amendment.

Mr. Robert Hughes (Aberdeen, North)

The problem is that the pass was sold by the previous Chancellor of the Exchequer when he first introduced VAT on domestic fuel and handed the poisoned chalice to his successor. He said that it would not be introduced for 12 months and that it would not apply fully for two years. He firmly believed that the anger about its imposition would have dissipated before the first tranche of the VAT increase was implemented. His political judgment was wrong, as was his feeling about how the imposition of VAT would be received.

I have never known anger like the anger felt throughout every part of the community in my constituency, and around it, about the application of VAT to domestic fuel. Domestic fuel is a necessity: people have no choice of whether they use it. Regardless of whether VAT is levied at 17.5 per cent., 8 per cent. or 5 per cent., the argument about VAT on domestic fuel will not go away. We must all recognise that it will continue in the years ahead.

I hope that my hon. Friend the Member for Edinburgh, Central (Mr. Darling) will not think me too unkind if I say that he objected very strongly to the Scottish National party making political capital. Perish the thought that we in the Labour party would ever try to make political capital.

I would not take lessons from the SNP about how to make political capital. As my hon. Friend the Member for Edinburgh, Central said, no attempt was made to canvass the proposition for 5 per cent. until it appeared on the amendment paper. The leader of the SNP constantly tells us in the press that, especially in Scotland, the opposition parties should get together before they table amendments. This is an example of preaching one thing and doing another. That is what I object to most about the way in which the SNP behaves.

I am quite happy to take on the SNP in respect of making political capital. A most disgraceful episode occurred about a year ago when the SNP sought to make naked political capital and gain during the regional council elections. The Scottish nationalists proposed in their manifesto that, if elected, they would pay every pensioner in the Grampian area £10—in cash, not in benefits, in kind or in a fancy scheme.

The Scottish nationalists were told at the time that that was illegal. I recall saying at a public meeting that it was quite illegal and I was berated by the nationalists for daring to doubt their credibility. The Scottish nationalists said that everything had been checked out and the legal implications had been assessed. However, the nationalists had not been in office with the Liberals in the Grampian region for five minutes when the £10 suddenly disappeared from the agenda. The nationalists suddenly discovered that the proposal was not legal.

The Scottish nationalists then said that they would persuade the hydro-electric companies to make discount stamps available, but that proposition also fell by the way. The nationalists apparently now have a raft of measures that they hope will help people with their winter fuel bills.

I would be happier if the nationalists were honest and straightforward and did not make false promises that they knew to be untrue and which they had no intention of implementing. They were simply concerned with making political capital, and that is making capital in the worst possible sense.

Mr. Salmond

If the hon. Gentleman had the extraordinary knowledge that our proposals were illegal for regional councils but not for district councils such as West Lothian, where the SNP has implemented the £.10 payment, why on earth did Labour members of the regional council table it on the regional council agenda after the regional elections? Did they do so in the full knowledge that it was illegal? Why did Labour members on Grampian regional council vote with the Conservatives to stop the substantial fuel poverty action package that has been welcomed by every pensioner organisation in north-east Scotland?

Mr. Hughes

The hon. Gentleman is being disingenuous in saying that that action was legal for the district council. The SNP knew that it was illegal for a regional council, but it went ahead and made that promise. He cannot have it both ways. The SNP was flushed out by having to vote against its own proposition, otherwise it would have tried to let it pass.

5.30 pm

The issue is whether we should stick to VAT at 8 per cent. or 5 per cent. I prefer zero per cent. I hope that, in the months and years that remain—I hope that it is only months—before we have a change of Government, we are able to use the mechanisms of the European Union to review the matter. That is not beyond the bounds of possibility. We are not tied to being prevented from going back to the zero rate. That matter is negotiable and we should consider it.

The argument will not go away. I will certainly continue to argue. VAT on domestic fuel is a most unfair impost on the British people. The hon. Member for Banff and Buchan mentioned England, but the thrust of his remarks related to Scotland. He made a special appeal to Scottish Members to defend their people. My people live on both sides of the border, and they live in Wales and in Northern Ireland. They are the people whom we should seek to defend. It looks as though the nationalists have gone against their own arguments. In previous debates, they have said that they do not vote on any master that affects the people of England. That was a disgraceful attitude. I am glad that they are beginning to see the sense of their arguments, but the VAT argument will go on.

Mrs. Margaret Ewing (Moray)

I rise to speak mainly because I was surprised at what I can only call an hysterical outburst from the hon. Member for Edinburgh, Central (Mr. Darling). His remarks were slightly tempered by those of the hon. Member for Greenock and Port Glasgow (Dr. Godman)., who showed genuine concern about the issue which my party is addressing in amendment (a). We are trying to ensure that there is a reduction in VAT on domestic fuel to the extent to which that is allowable under current regulations. Thal is the point of our amendment. Our amendment applies not to one part but to all parts of the United Kingdom.

We are concerned about fuel poverty. Some hon. Members who have served in the House longer than the hon. Member for Edinburgh, Central will appreciate that I have campaigned in respect of fuel poverty for more than 20 years. It sits uneasily on the shoulders of Labour Members to forget that when I first raised the issue of a cold climate allowance and of ensuring that people were not frightened to put on their fires or to buy bags of coal, the Labour Government accused me of being hysterical and of frightening people. It has taken a long time for many people to be convinced of the arguments. Obviously, I welcome the fact that they have.

On the issue of VAT on domestic fuel, I have shared many platforms with many people in the United Kingdom. I have always been committed to trying to win the argument, which is as much about morality as about economy. If hon. Members cannot adopt a moral approach to the people who are needy, who are living in poverty and who are frightened to heat their homes, we are not fulfilling our roles as democratic representatives. My Cold Climate Allowance Bills, which have not always won favour with hon. Members, have always applied on a United Kingdom-wide basis, just as our amendment does.

Given the comments by some Labour Members, I assume that peace will break out and that they will consult us every time they table an amendment. This amendment is being debated on the day when we heard about British Gas investigating possible reductions in its services to the elderly and to the handicapped. It is even considering not sending braille bills to blind people. That makes me feel sick when we know that money can always be found for chief executives to have substantial pay increases that almost equal national lottery pay-outs. We have that moral responsibility.

Hon. Members must recognise that the amendment can be voted on and be attached to new clause 1. That is the mechanism. If new clause 1 is accepted, our amendment can be voted on. If the amendment is accepted, the Government would have to take it on board.

Mr. Darling

No one doubts the sincerity with which the hon. Lady has waged her campaign on behalf of those who must pay VAT on fuel. Given the constraints in this Parliament that are needed to obtain a majority, what steps did the nationalists take between Friday evening and this afternoon to see whether they would have sufficient support to command a majority? The issue is not the difference between 8 and 5 per cent., it is ensuring that the full 17.5 per cent. that the Conservatives wanted does not go ahead.

Mrs. Ewing

The hon. Gentleman knows the SNP's opposition to the 17.5 per cent. rate. The amendment, which was tabled in my name, was not canvassed because 250 redundancies were announced in my constituency on Friday, courtesy of the Ministry of Defence, and that matter had to be dealt with. The Labour party is extremely miffed that it did not work out the possibility of tabling such an amendment to the new clause. If that is what is worrying Labour Members, it is a shame, but there was nothing to prevent the Labour party, with all its resources, from doing exactly what my party did.

Mr. Darling

I do not wish to labour the point, but of course we considered the possibility. Given that we had to obtain a majority which, of necessity, would include some Tory rebels, we were anxious to prevent VAT from being imposed at 17.5 per cent., and we believed that the one position that we could win was to keep VAT at the present year's level. Without exception, Labour Members have always opposed VAT on domestic fuel.

Although I have great sympathy with the hon. Lady in respect of the redundancies that were announced in her constituency on Friday night, it has been my experience that the leader of the Scottish National party has never been reticent about using the press. The reason why we did not hear a cheep between Friday evening and today was simply that the hon. Lady was otherwise engaged, no matter how understandable the situation in which she found herself.

Mrs. Ewing


The First Deputy Chairman of Ways and Means (Mr. Geoffrey Lofthouse)

Order. It might be wise to return to the amendment.

Mrs. Ewing

It must be recorded that the amendment was on the blues at the back of the Order Paper on Friday, if Labour Members had cared to check. I take it from the remarks of the hon. Member for Edinburgh, Central that the official Opposition plan to call a Division on new clause 1, although I had understood that new clause 1 was not opposed. There is still an opportunity to vote on the recommendation that we have placed before the Committee. All that we are asking for is hon. Members' support. Hon. Members must make up their own minds. They must take decisions and answer to their constituents. Many people will find it very interesting if the official Opposition do not support our amendment in the Lobby tonight just because they happen to be miffed that they missed an opportunity.

Mr. Graham

I am confused because the amendment refers only to 5 per cent.—it should be 1 per cent. My opposition to VAT on fuel is well known, Mr. Deputy Speaker, as is my opposition to the fuel poverty which is affecting constituents all over Great Britain.

Ministers' replies to the questions that I asked before they put VAT on fuel should have had some credibility. I asked: Did they know what the price of coal was? Did they know how much it cost for a bag of coal to be delivered to a house? Did they know how much a bottle of Calor gas cost? Did they know what a gallon of paraffin cost? I never received any answers. One would think that, with all the resources which Ministers have, they could have found that out. The Minister may wish to intervene now to tell me.

We are again speaking about fuel poverty, and the Opposition are trying to protect pensioners, the disabled and the low paid. We are constantly arguing about the issue because elderly people and others cannot heat their houses and live in comfort. The Government deny them that. The amendment aims to reduce the costs of heating the homes of the elderly and of the disabled.

The Government should tell us how much it costs to heat a home, and then they should look at by how much they are increasing that cost. There is confusion among some Members, but I am keeping strictly to the amendment. I should like to see the abolition of VAT on fuel, and the Government should go further and make some other dramatic reductions to the cost of heating homes. We do not want the Government's penny-pinching schemes to help people who are suffering fuel poverty. We need something that is more committed and would allow folk to live in comfort.

The House often gets caught up in minutiae which, at the end of the day, does not help anybody. I should like the Government to take some cognisance of fuel poverty. People are living in real hardship in cold and damp houses. Many of my constituents live in damp homes, and the local council does not have enough money to heat those houses. Hon. Members may ask what is the relevance of that. Clearly, if people are paying for heating, they will also be paying the additional VAT on fuel. If VAT on fuel were reduced, that would help people to live in comfort.

My hon. Friend the Member for Greenock and Port Glasgow (Dr. Godman) rightly let the Committee know that we have too many homes in Scotland which are damp and need heating. Too many homes have condensation and have been badly built. Do the Government come up with enough money to remedy those problems? No. They come up with an increase in VAT on domestic fuel, which brings us back to square one. Ordinary men and women who are low paid or pensioners cannot heat their homes because of this Government's actions.

Dr. John Marek (Wrexham)

During the past hour of the debate, I have become bemused about which way hon. Members in different parts of the Committee will be voting on this issue. I look at it as a simple issue. The Opposition are against VAT on domestic heating. Like my hon. Friend the Member for Aberdeen, North (Mr. Hughes), I would support a rate of zero per cent. Unfortunately, VAT on domestic fuel has been imposed for a year, and we cannot remove it without co-operation from other member states of the European Union. I suspect that such co-operation would be unlikely, given the Government's relations with the other member states.

It is surely better to have a rate of 5 per cent., which is at the bottom of the reduced rate of VAT, than one of 8 per cent. An argument has been advanced that we should leave well alone, and that we should not move the rate to 5 per cent. Another argument is that new clause 1 might not go through, but I do not believe that. The Chancellor said that he would introduce clauses as a result of a decision of the House before Christmas regarding VAT, when the Government were roundly defeated on increasing VAT on domestic fuel to 17.5 per cent. The Chancellor then said that he would take note of that decision.


The Chancellor had his revenge in his mini-Budget just before Christmas, although he need not have done so, by putting up the duties on lots of other commodities. He said that he would have regard to what the House decided, and that he would propose a new clause in time for it to be discussed in Committee. This he has done. The Treasury produced draft clauses, and we have the clauses before us.

There would be no honour on the Government side—there is some—if they incited their own Back Benchers to vote against new clause 1. I do not think that they will do that. I am prepared to accept the word of the Government that they will do their best to ensure that new clause 1 is read a second time and becomes part of the Bill.

If that is the case, what is left? After the new clause is dealt with, we can—as an attempt to find the opinion in the Committee—ask whether we want the reduced rate of VAT to be 8 or 5 per cent. I am simple-minded on the matter. I do not believe that we should have VAT on fuel, but, if we have to have it, I would rather it was at 5 per cent. than at 8 per cent.

It is clear that, for many people, the cost of energy is great. Members have talked about fuel poverty. It exists not just in Scotland but in England and, as a Welsh Member, I can tell the Committee that fuel poverty is present in Wales as well. Consumers of electricity have to pay high standing charges, and that again is a measure that bears hardest on those who can least afford to pay.

Meanwhile, the regional electricity companies have so much money that it is flowing out of their ears. There is no justice. Despite the adverse effects upon the poorer people in society, we are debating whether we should leave VAT at 8 per cent or reduce it to 5 per cent. I certainly have sympathy for the amendment, and I do not care whether it has been tabled by the SNP or by the Labour party. We should look at what the amendment says and ask whether, in our judgment, it is good for the country and for the people whom we represent.

I have no doubt that my electors would, to a man and woman, say that if I have a chance to vote for VAT on domestic fuel to be at 5 per cent. rather than at 8 per cent., that is what I ought to do. I intend to do that.

There is a problem within the Labour party. While the Scottish National party will never form a Government, the Labour party will form the next Government. I do not know what my hon. Friends on the Front Bench will suggest, but they might be worried that the Government will say that the Labour party is forgoing a certain amount of revenue. The Government may then ask where the Labour party is going to get that revenue.

I do not how much revenue a 3 per cent. reduction in VAT would amount to—it might total £0.5 billion. The Chancellor of the Exchequer in his Budget—I am speaking from memory—said that he was expecting a public sector borrowing requirement of about £30 billion in 1995–1996. As a result of changes in the economy, he is now expecting a PSBR of £21.5 billion. Those matters are dealt with by guess and by God, and estimates of the PSBR can vary by huge amounts. If the Labour party—through its support of the amendment—were able to bring the rate of VAT down from 8 to 5 per cent., what would happen to the PSBR? It would go up from £21.5 billion to perhaps £22 billion. I do not think that that is serious. I cannot say that about many things, but on its own it is not a serious problem. On the other hand, what other tax could be put up instead?

I recommend that the Government accept the amendment and resolve, as a quid pro quo, not to abolish tax on share transactions. That would more than compensate for any loss of revenue resulting from acceptance of the amendment. The tax that the Government will forgo voluntarily when they abolish duty on share transactions is about £1 billion. That is more than they would forgo if they accepted the amendment. I will not vote for the amendment irresponsibly and say, "Well, as it is something that my constituents would want, I'm not going to worry what happens to the economy as a result." I shall vote for the amendment and urge the Government, if it is passed, to recoup the money by retaining duty on share transactions. In itself, that abolition of duty would lead to more short-terrnism and difficulties for the economy.

I hope that that is a reasonably logical argument. We should not try to squabble about who thought of something first. It does not matter. People do not care tuppence about who tabled the amendment. They care only about the effect that it will have. I am sure that, if it were passed, 99 people out of 100 not only in my constituency but throughout the land—would give three cheers.

Mr. Heathcoat-Amory

The hon. Member for Oxford, East (Mr. Smith) asked about the status of the 8 per cent. VAT rate on domestic fuel and power. In my introductory remarks, I said quite clearly that we accepted the decision of the House in December of last year and have no intention of increasing the rate further. In fact, the new clause fixes the 8 per cent. rate in statute and removes its transitional status. Let us contrast what I just said with the evasive attitude of the hon. Member for Dunfermline, East (Mr. Brown), who, in the debate on the Budget, despite being asked several times by one of my hon. Friends, refused to give any assurances about the intentions of a future Labour Government on the rate and scope of VAT.

We do not intend to bring in any more reduced rates of VAT. To do so would undermine the comparative administrative simplicity of the VAT system in this country. It would create new boundary lines between rates and types of products and services, which would provide endless scope for disputes and difficult decisions.

Mr. Andrew Smith

Can we be clear about precisely what the Paymaster General said? When he said that the Government have no intention of bringing in any more reduced rates, is that what he means—no rates other than 8 per cent? Or is he saying that no other goods and services will be brought to the 8 per cent. rate? Which is it?

Mr. Heathcoat-Amory

I am saying that the VAT rate on domestic fuel and power will be a unique reduced rate in this country and we will not be adding any more products or services to the reduced rate band.

In answer to a question about energy saving materials, I can confirm—it was apparently not understood by the hon. Member for Nottingham, South (Mr. Simpson), who introduced his Bill last Friday—that such products are not on the annexe to the sixth VAT directive and therefore we could not introduce a reduced rate for such products, even if we wished to. The Commission said that it has no intention of proposing any additions to the reduced rate to cover energy-efficient materials, and therefore I must say that that, too, falls at the first fence.

The hon. Member for Banff and Buchan (Mr. Salmond) described the regional variations in the weather pattern in the United Kingdom and pointed out—as if we did not know—that it is generally colder in Scotland than it is in the rest of the United Kingdom. It is not quite that simple, because parts of Scotland, such as the west coast, are not as cold as certain parts of England. Therefore, any attempt to introduce regional variations in the taxation of fuel, or in the compensation package, would rapidly turn into an administrative nightmare. I am sure that the hon. Gentleman is aware that various other costs in Scotland are somewhat lower than in England, certainly in the south of England. If we were to compensate for those costs as well, in the opposite direction, the whole system of taxation and the benefit system would rapidly become bureaucratically unworkable.

Certain payments go to Scotland more frequently than to England. Cold weather payments, which the Government introduced, go differentially to those living in Scotland. Last year, for example, Scotland received 40 per cent. of the cold weather payments that were paid, and they are due to rise. They were increased from 1 November last year from £6 to £7 per week and will increase further to £8.50 per week from 1 November this year.

Mr. Salmond

I am well aware of the inadequacy of the emergency payments scheme. The Minister talks about an administrative nightmare for the Government. Will he just contemplate the fuel nightmare, which the imposition of VAT on domestic fuel has made worse for so many of his fellow citizens? Has he actually read the Cold Climate Allowance Bill, which has been introduced several times by my hon. Friend the Member for Moray (Mrs. Ewing), which suggested that regional variations in compensation be built-in to the social security system to bring about some alleviation of fuel poverty? Does he understand that all those questions were dealt with in that Bill and that all that is required from the Government is some political will not to put people into a situation of desperate fuel poverty?

Mr. Heathcoat-Amory

I well understood the points that were made by the hon. Gentleman and his colleagues, both in this and previous debates, but I am firmly of the view that any attempt to go down that road for one specific item of domestic expenditure would become administratively unworkable.

On VAT and the climate, it is worth pointing out in passing that not only do all other EC countries have a positive rate of VAT on domestic fuel and power, but in countries that are colder than the United Kingdom the VAT rate in higher. For instance, in Sweden and Denmark, the rate of VAT on fuel and power is 25 per cent. and therefore it is not the only matter to be considered under this general heading.

Mrs. Ewing

Does the Minister understand that, in those Nordic countries, the housing standards and the standards of insulation are much higher and that they have much lower winter death rates than we do in the United Kingdom, particularly when we compare them with northern parts of Scotland? I realise that VAT is one aspect of the argument, but at the moment we do not have a sufficient scheme to bring our housing stock up to the necessary quality. Until that is achieved, we must do everything possible in our power to avoid fuel poverty.

Mr. Heathcoat-Amory

That is why I said that there were a number of other factors in play. I am sure that the hon. Lady would give us credit not only for introducing but for generously funding the home energy efficiency scheme, which will receive £100 million a year over the next three years and which is far and away the most comprehensive scheme for improving the insulation and draught-proofing of domestic dwellings.

I return to the main substance of the amendment, which is the determination of the hon. Member for Banff and Buchan to force through an amendment to reduce the 8 per cent. rate of VAT on fuel to 5 per cent. That is unacceptable to the Government because of the revenue loss concerned. It would cost some £500 million a year, which would have to be made up by other taxes elsewhere or be funded by cuts in public expenditure. Under neither heading did the hon. Gentleman make any suggestions.

The Committee was entertained by the exchanges between the Labour party and the SNP on this matter. Although I resist the amendment and disagree with it for the reason given, I concede that the hon. Member for Banff and Buchan and his party are at least consistent on the matter. He opposed VAT on fuel and now wishes to reduce it to the minimum rate permitted under EC legislation. Both he and my hon. Friends were somewhat bemused and baffled by the wriggling explanation—or non-explanation--given by the hon. Member for Edinburgh, Central (Mr. Darling) in trying to describe why he will not support the amendment. If the Labour party is against this tax—its opposition to the Budget was founded on opposition to VAT on fuel—it is strange that it would rather have VAT at 8 per cent. than at 5 per cent.

6 pm

There is a clear amendment, which I understand is in order, to amend the new clause and insert 5 per cent. rather than 8 per cent., so it intrigued us that, although the Labour party and the Liberal Democrats want zero per cent. VAT on fuel, they would nevertheless prefer 8 to 5 per cent. That Mickey Mouse arithmetic and contorted logic gives us a glimpse of what a future Labour Government would be like. It clearly did not impress the hon. Member for Greenock and Port Glasgow (Dr. Godman), who said with genuine and heartfelt sincerity that he opposed the whole concept of VAT on fuel and would vote accordingly. He will certainly join the hon. Member for Banff and Buchan in the Division Lobby.

Mr. Malcolm Bruce

The Minister is correct to say that the Liberal Democrats will not support the amendment. The reason, however, is clear. We said that we favoured the 5 per cent. rate but must show how it would be funded. We proposed that it be funded by a carbon energy tax, which the Government resisted and prevented the European Union from adopting. Are the Government in favour of a carbon energy tax, which would help to finance the 5 per cent. rate? If so, not only could we support the amendment but so could the Government.

Mr. Heathcoat-Amory

That reasoning is highly specious. I confirm that we are not in favour of a carbon energy tax, which is unnecessary and would damage the competitiveness of British industry. If we imposed such a tax on British business, it would simply encourage industry, particularly heavy industry, to migrate away from the United Kingdom and the European Union to parts of the world like north America and the Pacific basin, which have no intention of imposing a carbon tax. So we could see carbon emissions rising globally, rather than diminishing.

Dr. Godman

I am grateful to the Minister for showing his characteristic courtesy. He has confused me with another hon. Member because at no time did I use the phrase, "vote accordingly". I said that I had some sympathy for a 5 per cent. level of VAT on fuel. I would prefer a zero rate. Incidentally, for what it is worth, the pronunciation of my constituency is Greenock and Port Glasgow.

Mr. Heathcoat-Amory

I apologise to the hon. Gentleman for getting the pronunciation of his constituency wrong, but I was crediting him with more logic than he has displayed. If he opposes VAT on fuel and power and wants a zero rate, it defies logic that he will not support an amendment that would reduce it to 5 per cent. and that he would rather have 8 per cent. That logic obviously impresses the hon. Member for Wrexham (Dr. Marek), who clearly said that he will support the SNP amendment. The Labour party has a mini, or perhaps a major, rebellion on its hands. I see that the hon. Member for Wrexham is now being spoken to, no doubt in stern tones, by a colleague. I doubt whether that will be sufficient to get him out of the wrong Lobby, in eyes of the Labour party, or the right Lobby in the eyes of the SNP.

So what started as a simple amendment by the SNP has driven a dagger right the way through the Labour party. Although I have no sympathy and will invite my hon.

Friends to reject the amendment, I must at least congratulate the hon. Member for Banff and Buchan on his parliamentary tactics.

The First Deputy Chairman

Order. It may assist the Committee if I advise on the order in which I intend to put the Questions. First, I shall ask whether the clause should be read a Second time; secondly, I shall put the SNP amendment; and, thirdly, I shall ask whether the clause should be added to the Bill.

Question put and agreed to.

Clause read a Second time.

Amendment proposed to the proposed new clause: (a), in new subsection (1A)(b), leave out '8' and insert `5' .—[Mr. Salmond.]

Question put, That the amendment be made:—

The Committee divided: Ayes 7, Noes 283.

Division No. 43] [6.06 pm
Barnes, Harry Marshall, jim (Leicester,S)
Canavan, Dennis Skinner, Dennis
Corbyn, Jeremy Tellers for the Ayes:
Mahon, Alice Mr.Alex Salmond and
Marek, Dr John Mrs.Margaret Ewing
Ainsworth, Peter (East Surrey) Channon, Rt Hon Paul
Aitken, Rt Hon Jonathan Chapman, Sydney
Alexander, Richard Churchill, Mr
Alison, Rt Hon Michael (Selby) Clappison, James
Allason, Rupert (Torbay) Clark, Dr Michael (Rochford)
Amess, David Clarke, Rt Hon Kenneth (Ru'clif)
Ancram, Michael Clifton-Brown, Geoffrey
Arbuthnot, James Coe, Sebastian
Arnold, Jacques (Gravesham) Colvin, Michael
Arnold, Sir Thomas (Hazel Grv) Congdon, David
Ashby, David Conway, Derek
Aspinwall, Jack Coombs, Anthony (Wyre For'st)
Atkins, Robert Coombs, Simon (Swincdon)
Baker, Nicholas (North Dorset) Cope, Rt Hon Sir John
Baldry, Tony Cormack, Sir Patrick
Banks, Matthew (Southport) Couchman, James
Banks, Robert (Harrogate) Currie, Mrs Edwina (S D'by'ire)
Bates, Michael Curry, David (Skipton & Ripon)
Batiste, Spencer Davies, Quentin (Stamford)
Bellingham, Henry Day, Stephen
Bendall, Vivian Deva, Nirj Joseph
Beresford, Sir Paul Dicks, Terry
Biffen, Rt Hon John Douglas-Hamilton, Lord James
Bonsor, Sir Nicholas Dover, Den
Booth, Hartley Duncan, Alan
Boswell, Tim Duncan Smith, Iain
Bottomley, Peter (Eltham) Dunn, Bob
Bowis, John Durant Sir Anthony
Boyson, Rt Hon Sir Rhodes Dykes, Hugh
Brandreth, Gyles Eggar, Rt Hon Tim
Brazier, Julian Elletson, Harold
Bright, Sir Graham Emery, Rt Hon Sir Peter
Brooke, Rt Hon Peter Evans, David (Welwyn Hatfield)
Brown, M (Brigg & Cl'thorpes) Evans, Jonathan (Brecon)
Browning, Mrs Angela Evans, Nigel (Ribble Valley)
Bruce, Ian (Dorset) Evans, Roger (Monmouth)
Burns, Simon Evennett, David
Burt, Alistair Faber, David
Butler, Peter Fabricant Michael
Butterfill, John Fenner, Dame Peggy
Carlisle, John (Luton North) Field, Barry (Isle of Wight)
Carlisle, Sir Kenneth (Lincoln) Fishbum, Dudley
Carrington, Matthew Forman, Nigel
Cash, William Forsyth, Rt Hon Michael (Stirling)
Forth, Eric Lightbown, David
Fowler, Rt Hon Sir Norman Lilley, Rt Hon Peter
Fox, Sir Marcus (Shipley) Lloyd, Rt Hon Sir Peter (Fareham)
Freeman, Rt Hon Roger Lord, Michael
French, Douglas Luff, Peter
Fry, Sir Peter Lyell, Rt Hon Sir Nicholas
Gardiner, Sir George MacGregor, Rt Hon John
Garel-Jones, Rt Hon Tristan MacKay, Andrew
Garnier, Edward Maclean, David
Gillan, Cheryl McLoughlin, Patrick
Goodlad, Rt Hon Alastair McNair-Wilson, Sir Patrick
Goodson-Wickes, Dr Charles Madel, Sir David
Gorman, Mrs Teresa Maitland, Lady Olga
Gorst Sir John Mans, Keith
Grant,Sir A (SW Cambs) Marlow, Tony
Greenway, Harry (Ealing N) Marshall, John (Hendon S)
Greenway, John (Ryedale) Marshall, Sir Michael (Arundel)
Griffiths, Peter (Portsmouth, N) Martin, David (Portsmouth S)
Grylls, Sir Michael Mawhinney, Rt Hon Dr Brian
Gummer, Rt Hon John Selwyn Mayhew, Rt Hon Sir Patrick
Hague, William Merchant Piers
Hamilton, Rt Hon Sir Archibald Mills, Iain
Hamilton, Neil (Tatton) Mitchell, Andrew (Gedling)
Hampson, Dr Keith Mitchell, Sir David (NW Hants)
Hanley, Rt Hon Jeremy Monro, Sir Hector
Hannam, Sir John Montgomery, Sir Fergus
Hargreaves, Andrew Moss, Malcolm
Harris, David Needham, Rt Hon Richard
Haselhurst, Alan Nelson, Anthony
Hawkins, Nick Neubert, Sir Michael
Hawksley, Warren Newton, Rt Hon Tony
Hayes, Jerry Nicholls, Patrick
Heald, Oliver Nicholson, David (Taunton)
Heath, Rt Hon Sir Edward Nicholson, Emma (Devon West)
Heathcoat-Amory, David Norris, Steve
Hendry, Charles Onslow, Rt Hon Sir Cranley
Hicks, Robert Oppenheim, Phillip
Higgins, Rt Hon Sir Terence Ottaway, Richard
Hill, James (Southampton Test) Page, Richard
Hogg, Rt Hon Douglas (G'tham) Paice, James
Horam, John Patnick, Sir Irvine
Hordem, Rt Hon Sir Peter Patten, Rt Hon John
Howard, Rt Hon Michael Pawsey, James
Howarth, Alan (Strat'rd-on-A) Peacock, Mrs Elizabeth
Howell, Rt Hon David (G'dford) Pickles, Eric
Howell, Sir Ralph (N Norfolk) Porter, Barry (Wirral S)
Hughes, Robert G. (Harrow West) Porter, David (Waveney)
Hunt, Rt Hon David (Wirral W) Rathbone, Tim
Hunt, Sir John (Ravensbourne) Redwood, Rt Hon John
Jack, Michael Richards, Rod
Jackson, Robert (Wantage) Riddick, Graham
Jenkin, Bernard Rifkind, Rt Hon Malcolm
Jessel.Toby Robathan, Andrew
Johnson Smith, Sir Geoffrey Roberts, Rt Hon Sir Wyn
Jones, Gwilym (Cardiff N) Robertson, Raymond (Ab'd'n S)
Jones, Robert B (W Hertfdshr) Robinson, Mark (Somerton)
Jopling, Rt Hon Michael Rowe, Andrew (Mid Kent)
Kellett-Bowman, Dame Elaine Rumbold, Rt Hon Dame Angela
Key, Robert Ryder, Rt Hon Richard
King, Rt Hon Tom Sackville, Tom
Kirkhope, Timothy Sainsbury, Rt Hon Sir Timothy
Knapman, Roger Scott, Rt Hon Sir Nicholas
Knight, Mrs Angela (Erewash) Shaw, David (Dover)
Knight, Greg (Derby N) Shaw, Sir Giles (Pudsey)
Knight, Dame Jill (Bir'm E'st'n) Shephard, Rt Hon Gillian
Knox, Sir David Shepherd, Colin (Hereford)
Kynoch, George (Kincardine) Shepherd, Richard (Aldridge)
Lait, Mrs Jacqui Shersby, Michael
Lamont, Rt Hon Norman Skeet Sir Trevor
Lang, Rt Hon Ian Smith, Sir Dudley (Warwick)
Lawrence, Sir Ivan Soames, Nicholas
Legg, Barry Speed, Sir Keith
Leigh, Edward Spencer, Sir Derek
Lennox-Boyd, Sir Mark Spicer, Sir James (W Dorset)
Lester, Jim (Broxtowe) Spicer, Michael (S Worcs)
Lidington, David Spink, Dr Robert
Spring, Richard Twinn,Dr Ian
Squire, Robin (Hornchuch) Vaughan, Sir Gerard
Stanley, Rt Hon Sir John Viggers, Peter
Steen, Anthony Walden, George
Stephen, Michael Walker, Bill (N Tayside)
Stern, Michael Waller, Gary
Stewart, Allan Ward, John
Streeter, Gary Wardle, Charles (Bexhill)
Surnberg, David Waterson, Nigel
Sykes,John Watts, John
Tapsell, Sir Peter Wells, Bowen
Taylor, Ian (Esher) Wheeler, Rt Hon Sir John
Taylor, John M (Solihull) Whitney, Ray
Temple-Morris, Peter Whittingdale, John
Thomason, Roy Widdecombe, Ann
Thompson, Sir Donald (C'er V) Wiggin, Sir Jerry
Thompson, Patrick (Norwich N) Willetts, David
Thurnham, Peter Wolfson, Mark
Townsend, Cyril D (Bexl'yh'th) Yeo,Tim
Tracey, Richard Young, Rt Hon Sir George
Tredinnick, David Tellers for the Noes:
Trend, Michael Mr. Timothy Wood and
Trotter, Neville Mr. Liam Fox

Question accordingly negatived.

Clause added to the Bill.

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