§ Even though VAT revenues have revived in recent months, they are still coming in significantly below what was expected last year. This Budget includes a crackdown on some of the rather ingenious wheezes that have sprung up to get around paying VAT. The measures I am announcing will raise £¾ billion in revenue next year, but they also protect a further £1½ billion a year of existing revenue from further attack from ingenious accountants, acting lawfully and acting to take our revenue.
Customs will restrict access to special VAT schemes for retailers. We will also tighten up the rules of VAT relief schemes for bad debts and the option to tax commercial property to prevent widespread abuse of these reliefs. I also propose to take steps against retailers who reduce their VAT bills when selling insurance with their products.
We have already announced a three-year limit on repayments of VAT claims. This was a sensible precautionary measure in the national interest—not just that of the Exchequer. Recent high-profile court cases have revealed the potential exposure of the Exchequer to enormous claims for tax going back to when VAT was first introduced. No responsible Government could leave the Exchequer and, ultimately, all taxpayers exposed in that way. Government needs to strike a balance between what is fair to the individual taxpayer, and what is fair to the whole body of other taxpayers. The three-year cap that I have announced strikes that balance.
But one feature that attracted particular criticism from not only accountants and their clients but others was that Customs and Excise retains the right to claim underpaid tax going back six years. That argument was rather disingenuous, because Customs and Excise does not claim underpaid tax on unexpected changes to the interpretation of the law when they go against taxpayers. However, Government must not only be fair—it must be seen to be fair. I have, therefore, decided that Customs' right to claim underpaid tax, in cases where no fraud or malpractice is involved, should be restricted to three years as well.
I will be releasing today details of a package of measures to stamp out tax abuse in a number of areas, including leasing transactions, the abuse of foreign tax credit rules and paying employees in their own company's shares. I am sure that they will be accepted by the House and others as necessary and sensible measures to stem the growing loss of tax revenues, and thereby to protect the ordinary tax payer. I will not tolerate tax abuse. A number of those measures are being introduced—subject to the Finance Bill becoming law—with effect from today.
Special tax reliefs can be a powerful tool. They can play an important pump-priming role, and encourage companies and individuals to change their behaviour in a 165 way that benefits the wider economy. But by their very nature, they need to be used very selectively. We owe it to the ordinary taxpayer to keep each and every special tax relief under constant review to determine whether it is still justified, or whether it has now served its useful purpose.