HC Deb 13 February 1997 vol 290 cc450-2
3. Ms Eagle

To ask the Chancellor of the Exchequer what representations have been made to him about recent levels of VAT receipts. [14171]

The Chancellor of the Exchequer (Mr. Kenneth Clarke)

I receive a large number of representations on this and other subjects.

Ms Eagle

Will the Chancellor of the Exchequer explain how many times his Government have extended the scope of VAT and increased its rate since 1979?

Mr. Clarke

That would involve the history of many Budgets. The Labour party has committed itself to our spending plans. It has obviously belatedly come around to approving the Government's fiscal policy. As far as I know, it is making no commitments to reduce any tax. Instead, it proposes to introduce a windfall tax, about which it is singularly unable to answer any questions but which would add to the tax burdens of many households.

Sir Terence Higgins

On the collection of VAT and other Customs and Excise taxes, has my right hon. and learned Friend seen the article in the Financial Times the day before yesterday and the leader in the early editions of the Evening Standard yesterday that suggest that clauses 51 to 54 of the Finance Bill would make it possible for customs to take money direct and forthwith from bank accounts and, if people have no money in their bank accounts, from other people who owe them money? Is that story true? If it is, does he appreciate that that would not be acceptable?

Mr. Clarke

I, too, read the article in the Financial Times and the editorial of the Evening Standard, as did my colleagues. I discussed it with my right hon. Friend the Financial Secretary and my hon. Friend the Exchequer Secretary, among others. We are aware of the concerns and are considering them. I am not sure that I totally recognise the proposals in the newspaper reports, but I do not dismiss them.

Sir James Molyneaux

On the July capping of VAT refunds, will the Chancellor of the Exchequer give sympathetic consideration to the settlement of claims that had been accepted and promised before the announcement was made in July?

Mr. Clarke

We are carefully examining that. My hon. Friend the Exchequer Secretary will take a close interest in the matter. Where people were promised refunds in writing before July, I assure the right hon. Gentleman that we will honour those promises.

Mr. Garnier

My right hon. and learned Friend will have seen the posters put up by the Labour party advertising that the Government are to put up VAT on fuel. [Interruption.] I am glad that Opposition Members are listening. The mistake was mine. I meant VAT on food. Has my right hon. and learned Friend also heard that Labour proposes to abide by all our tax and spending plans? Does it follow that Labour advocates VAT on food?

Mr. Clarke

I very much doubt whether my hon. and learned Friend will get an answer to a question of that sort from the Labour party. I have no plans to impose VAT on food. I have never had any such plans. The Labour party knows perfectly well that I have not had any plans to impose VAT on food. The people who put up the poster did not believe it. The Labour party should advertise the answer to a straightforward question: will a windfall tax be imposed on British Telecom and on our telephone bills? We already know that it will be a tax on fuel, to go back to my hon. and learned Friend's slip of the tongue.

Mr. Malcolm Bruce

Will the Chancellor of the Exchequer acknowledge that his inability to forecast VAT receipts correctly is a significant factor in his inability to get borrowing down? Unless the situation has improved, does he accept that one way that would immediately help to bring down the cost of borrowing would be to make the Bank of England independent and, as a result, reduce the base of interest rates by between 0.5 and 0.75 per cent. and Government debt by £1.4 billion this year, according to the Library?

Mr. Clarke

First, estimates of VAT are always difficult. Treasury estimates have been going wide of the mark for some years, since about 1990. The hon. Gentleman will know that we set out the reasons for that in the Red Book. We have introduced measures to deal with many of them in the current Finance Bill, including a three-year cap on retrospective claims. We have also taken steps to improve collection. We have in hand the task of getting right the estimates of receipts, although it will always be difficult.

With regard to making the Bank of England independent, I believe that the present arrangements work extremely well. I find myself subjected to more debate than we used to have on the subject, because I made the process transparent by ending Treasury editing of the Bank's inflation report and by publishing regular minutes. The Governor and I are agreed that there is only a small difference of judgment between us—of one quarter of 1 per cent. He thinks that I put a little too much emphasis on the present strength of sterling and I think that he puts a little less emphasis on the strength of sterling than he should. We will continue to consider the matter. We are both confident that we will hit the target and maintain the best inflation record that Britain has had for 50 years. The Governor's own forecast—the one that caused all the dispute—estimates that inflation will fall to 2¼ per cent. in the latter half of this year.

Sir Patrick Cormack

I revert to the question asked by my right hon. Friend the Member for Worthing (Sir T. Higgins). Will my right hon. and learned Friend go just a little further and give an unequivocal undertaking that the forecast in the Financial Times will never come to pass while he is Chancellor?

Mr. Clarke

We will have to consider what the Financial Times said. I have very high respect for that newspaper, but I will not sign up immediately to its assertions of what will follow. However, we are looking closely at those clauses of the Finance Bill and reflecting on the concerns raised in the Financial Times. Were those concerns fully borne out, we would wish to address them, but I do not want to concede the whole way until we have given more thought to them.

Mr. Gordon Brown

Will the Chancellor confirm that the commitments that he has just made on VAT on food were exactly the same commitments that the Prime Minister made on VAT on fuel in 1992 and then cynically broke? Given that VAT receipts depend on levels of spending and inflation, will the Chancellor repeat the commitment that he made before—that inflation would be at or below 2½ per cent. by the end of the Parliament? Will he repeat that promise, or is it yet another Tory broken promise?

Mr. Clarke

My recollection is that, at the last general election, a poster went up showing my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont) dressed as "VAT man", in a Batman costume. The public were told by the then Labour spokesman, who did not believe a word that he was saying, that we had plans in the pipeline to increase VAT to 22½ per cent. A great deal of debate took place on that. Most of the quotations on which the Labour party relied were in response to a subordinate plot to that. It was a deceitful and incorrect campaign, which was never borne out by the facts.

Will the right hon. Gentleman take the opportunity to answer a straight question about a tax which he has told everyone he proposes to introduce in a few weeks, if he gets the chance? Will I and every household in the country face the consequences of a windfall tax if it is imposed on telephone bills and British Telecom?