§ Motion made, and Question proposed, pursuant to Standing Order No. 52(1)(b),
§ That provision (including provision having retrospective effect) may be made in the Finance Bill amending the provisions of Schedule 8 to the Value Added Tax Act 1994 by virtue of which supplies of preparations and extracts of meat, yeast or egg are zero-rated.—[Mr. Jamieson.]5.39 pm
§ Mr. Letwin
I am not clear about the meaning of the motion. Nor am I entirely clear about the guidance on Member's interests, so, for the avoidance of any impropriety, I declare a possible interest in that a pet shop may have been a client of the bank of which I am a director.
The motion is the most vexed of those before us this afternoon. I have a few straightforward questions that Ministers may wish to answer now so that we do not have to deal with them when we reach the considerable number 673 of substantive questions to be debated later. I am not clear—the notes on clauses do not make it clear—whether the situation is as I envisage it, which is that up till the time when the lacuna that gave rise to the substantive change was spotted, pet shops were paying VAT.
§ Mr. Letwin
I am glad to see that I am right in that. In that case, this Ways and Means motion cannot possibly have the effect of changing the revenue that was extracted or would now fall to be extracted from those who were previously operating under the mistaken assumption that the law was correctly constructed and that Customs and Excise had the right to levy the VAT that it was levying.
The motion must therefore relate to the future and to the question of how much can be raised in the future. Will the Paymaster General give us an estimate of the effects on the Revenue of that change in the future? What will be the immediate effect—the first-round effect? What additional VAT revenue will be raised assuming no demand elasticity? What will be the second-round effect—the long-term effect—assuming that things change and people use less pet food as the price rises?
I take it that the Treasury has done an analysis of both those effects. For reasons which I do not want to dwell on now—it would intrude into the substantive debate—I do not want to go into detail about why I think that this is an important question to answer. However, I hope that the Paymaster General can clear up the factual point and give us an idea of those two projections, which I presume the Treasury has made.
Will the Paymaster General give us some guidance? Has it been normal practice in the past to have a Ways and Means motion when an uncovenanted error has been discovered ex post? That would be instructive for the future ordering of parliamentary business.
§ Mr. Fabricant
I am a little surprised that the hon. Member for Burton (Mrs. Dean) is not present. The headquarters of Bovril and Marmite are located in Burton, which is close to Lichfield. The House will know that Bovril and Marmite make use of beef extract and yeast, which are the substances referred to in this Ways and Means motion. My hon. Friend the Member for West Dorset (Mr. Letwin), who leads from the Front Bench so expertly and fluently, asked about pet foods. Will VAT be applied only to products used in alcoholic beverages, such as yeast and egg—which I suppose is used in egg nog or advocaat—or will it be applied to Marmite and Bovril?
We need an assurance that VAT will not be applied to Bovril. [Interruption.] As my hon. Friend the Member for West Dorset says, we must make a plea for Bovril and Marmite to ensure that they remain exempt. If VAT were applied to those products, employment in Burton would be affected, and it is conceivable that people in Lichfield work in that factory, which is only a few miles down the A38. More importantly and more directly related to this Ways and Means motion, we need an assurance that this small measure does not mean that VAT will be put on human food. Will the Paymaster General give a clear and 674 unequivocal assurance that VAT will not be applied to Bovril or Marmite as a precursor to VAT on foods generally?
It would be utterly hypocritical if the hon. Lady could not give that assurance. Many of us remember the scares that the Government caused before the last general election when they were in opposition. They asked for such guarantees, even without the Ways and Means motion which spurs me to ask this practical question.
If Bovril and Marmite are not to be exempted, will other products also not be exempted? If so, will the Paymaster General list those products? It is not just the hon. Member for Bovril—or the hon. Member for Burton—who ought to be present; others should be here, given that food industries in their constituencies may now have to pay VAT and other duties on food under the present Government, for the very first time.
I dare say that the Paymaster General will say that this is just another example of tax co-ordination with Europe, where VAT on food is the norm; but what will be the annual value of transactions affected by the change? How much of the tax will be on food, how much on pet food and how much on alcoholic beverages, particularly advocaat?
Mr. Clifton-Brown: Is this not yet another example of the Government's hitting the poor with regressive taxation? Are they not taxing basic foods in the worst possible manner?
§ Mr. Fabricant
I take exception to that. I always like Marmite on my toast, and, while there is nothing wrong with being poor, I would be mendacious if I said that I was.
What consultation has the Treasury had with food and drink manufacturers? I am not talking just about Bovril, and I am not talking just about beer manufacturers, which are also based in Burton. What consultation has taken place about the amount that would be raised? What evidence exists to suggest that the current tax regime unduly benefits this part of the food and drink industry, to the detriment of other parts? Why has the measure been introduced? The House needs to know. What are the ulterior motives?
The Paymaster General looks at me in surprise and horror.
§ Mr. Fabricant
I give way to the Paymaster General. Perhaps we shall hear an answer as well as a question.
§ Mr. Fabricant
The Paymaster General says that we are talking about pet food, but that is not at all clear from the motion. If we are, can she give us a firm undertaking that VAT will be imposed on neither Marmite nor Bovril, and that a Labour Government will never—I repeat, never—impose VAT on human food? If she will not give that undertaking, will she withdraw the disgraceful remarks that she made when her party was in opposition, 675 and when she posed similar questions to my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), who was then Chancellor of the Exchequer?
If the change—I refer to the amendment provided for in the motion—be deemed always to have had effect, what will be the "retrospective effect"? How far back does the Paymaster General mean to go—three years, six years, nine years? What will be the clawback? If it applies only to pet foods, what will be the implications for major manufacturers and major employers such as Pedigree? The Paymaster General laughs, but Pedigree is the largest pet-food manufacturer in Europe. Based in the east midlands, it employs hundreds of people, who could lose their jobs as a direct consequence of this measure.
I do not need to tell you, Mr. Deputy Speaker—I have raised the issue on the Adjournment, and in questions—that the last tax harmonisation introduced by the Labour Government of which I was conscious involved the introduction of water regulations. The regulations seemed innocent enough in themselves, but, as a result, Armitage Shanks in my constituency was taken over by a United States company, and jobs were lost—simply because the Government thought that co-ordination in Europe would put us at the heart of Europe, notwithstanding that loss of jobs. That, of course, has nothing to do with the motion that is under discussion.
We need assurances today. We are not just talking about Marmite and Bovril, but about the entire food industry. The Paymaster General may proudly say, "It affects only pet foods" but what are the job implications for firms such as Pedigree and others? How many years back will the retrospective action go?
§ Mr. Peter Luff (Mid-Worcestershire)
As I listened to the apocalyptic comments of my hon. Friend the Member for Lichfield (Mr. Fabricant), I wondered whether Nostradamus had in mind the motion when he prophesied all kinds of things for this period in July; somehow, I suspect not.
Like my hon. Friend the Member for West Dorset (Mr. Letwin), I have racked my mind to think of an interest to declare. I cannot think of one, except that, having heard my hon. Friend the Member for Lichfield speak, I should declare that my son is a prodigious eater of Marmite and that my dog eats large quantities of Bonio dog food.
As Chairman of the Select Committee on Agriculture, I thought that it was an issue on which I should perhaps detain the House for a few moments. The motion seems to be one of the more regrettable of those on the Order Paper, principally because it is retrospective. The Minister may argue that it corrects an error by the previous Government and is therefore not retrospective, but it has not been law for the past five years and the Government intend to make it so, first by the motion and then by the new clause, which we will debate later. That is of some concern.
It is not a great matter of party controversy. If it was an error—the notes on clauses tell us that it was, and who are we to disagree?—by the previous Government, it should be corrected, but I cannot help reflecting on the fact that, in my experience, if errors relating to VAT on pet food are committed by ordinary citizens, their correction is rigorously enforced. However, according to 676 the motion and the subsequent new clause, Customs and Excise will be given the benefit of the doubt if it is found to be responsible for the fault and is likely to lose revenue.
A year or so ago, I had a case in my constituency of a pet shop owner who decided to sell his products by breaking bulk purchases and splitting packets. There was a huge dispute as to the VAT liability that flowed from that decision, which could have put that pet shop out of business. Fortunately, after an unsympathetic Customs and Excise inspector, a more sympathetic one came along and the matter was put right, but, often, disputes over VAT on pet food can have important consequences for small businesses. Therefore, the Paymaster General owes us a clear explanation of exactly what is going on in the new clause, bearing in mind how strongly retrospective errors by Customs and Excise are enforced.
I am concerned about the details of the new clause that are provided in the notes, which say:The practical effect of the amendment will be to restore taxation to certain foodstuffs, principally pet food, and to restrict the zero-rating to non-alcoholic beverages made from extracts of meat, yeast or egg.I recognise weasel words when I see them.
§ Mr. Fabricant
I am grateful to my hon. Friend for pointing that out. He was here when the Paymaster General pointed out rather pompously that the measure applied only to pet food. He has pointed out that it applies principally to pet food. In any event, that is what is said in the explanatory notes, not the measure itself. As Chairman of the Agriculture Committee, does he agree that the motion might, either on purpose or inadvertently, apply to foods? Therefore, it would be nice to hear a reassurance that the Government will never introduce VAT on any human foodstuffs.
§ Mr. Luff
My hon. Friend makes a good point. It is clear from the explanatory notes that the Government understand that the measure involves the extension of VAT to human foodstuffs. The notes refer tocertain foodstuffs, principally pet food".The Paymaster General shakes her head. If the measure does not refer to human foodstuffs, why do the notes on new clauses say that it does? We need a clear explanation of precisely which foodstuffs are affected and which are not.
Why the urgency? The error has gone uncorrected for five years. When was the error spotted by the Paymaster General's officials? It must logically have been spotted some time in the past week; otherwise the measure would surely have been dealt with earlier in the proceedings on the Finance Bill.
What brought the error to the Paymaster General's attention? What is the problem that has caused her the great concern? Why has it not been left for next year's Finance Bill? Why is there a great ragbag of motions before the House today?
My hon. Friend the Member for Lichfield made great play—understandably, in view of the possible effects on Marmite and Bovril—of the absence of the hon. Member for Burton (Mrs. Dean), but I say in her defence that the precipitant way in which the Government have brought the motion to the House today may have meant that she was not aware of the possible implications. If she were, I am sure that she would wish to explore them with the 677 Paymaster General. That leads to the more important question: what consultation have the Government had with the sectors of the pet food and other food industries that are likely to be affected by the motion and the substantive new clause?
Specifically, what pet foods will be affected by the motion? We do not know what the measure's practical effect on ordinary pet owners will be. It is important that, before the motion is nodded through, we hear what practical effect it will have on pet owners.
We know that some pet owners are among the poorest members of our society—those who the Government claim they wish to help. An extension of VAT on pet foods is not an inconsequential matter, but of great moment for some of those people.
§ Mr. Fabricant
Is my hon. Friend aware of the therapeutic value of pets, and that pensioners, old people and people with psychiatric problems all benefit from owning pets? Will they be able to afford to keep them if there is VAT on pet foods, or even more tax on pet foods, which will put prices up?
§ Mr. Luff
Looking at you carefully, Mr. Deputy Speaker, I judge that I should probably not get too sidetracked down that alley, but I agree with my hon. Friend.
We need to know the precise effects of the measure on pet foods. What will happen to retail prices as a result of it? What will happen to the Government's revenues? What sums of money are actually involved? What sums of money have been lost as a result of the mistake in 1994? What sums of money will be recouped in future years as a result of its correction?
I know from bitter experience in the House that the simplest and most apparently innocent measure often is the source of the greatest concern to the House, or should be. Anything that begins casually with the wordsThis new clause corrects an error in the consolidation of existing lawputs me immediately on my mettle. The Paymaster General has said in an almost jocund tone, "It refers only to pet foods." It is potentially a serious measure for the House to consider. She needs to treat the matter with some seriousness, not levity, in her winding-up speech.
§ Mr. Michael Jack (Fylde)
My eye is taken by the terms of the motion. The first point on which I seek clarification was raised by my hon. Friend the Member for Mid-Worcestershire (Mr. Luff)—the provision having retrospective effect. That also worries me. Retrospection in any tax measure is something of which Treasury Ministers always fight shy. I am intrigued to know why the law must go back to what it would have been had it been correct in September 1994. I should be grateful if the Minister could spell out more clearly than the notes on clauses what the measure means for companies. I am unclear as to the financial impact of retrospective VAT legislation on those enterprises.
What I am clear about is constituency cases where VAT problems of immense complexity drag on for some time, where it is sometimes difficult or, indeed, costly to 678 unravel the consequences of what to the citizen is retrospective activity. However, here we are talking more seriously about a change in the law.
How was it that that particular error in transcribing a cross-reference from the Value Added Tax Act 1983 came to occur? Some people may think that the motion is part of a wider exercise by officials, admittedly and understandably, combing VAT legislation to close loopholes and protect the Government from perceived revenue loss. However, is the motion being proposed for other reasons? Hon. Members should be told why the error—which has lain dormant since 1983—has suddenly been resurrected, just as the century ends. How did that occur?
The motion, intriguingly, deals with "preparations". I am not sure which definition of preparation is being used in the motion. I appreciate that VAT legislation has long ensured that the manufacture of foods—the bringing together and further processing of certain ingredients, adding value—such as biscuits and sweets has always attracted VAT. I should also tell my hon. Friend the Member for Lichfield (Mr. Fabricant) that those foods are for human consumption. Nevertheless, I do not fully understand how the word "preparations" is being used in the motion. Does it entail the bringing together of raw ingredients without further processing, or bringing together some of the ingredients that would be affected by the proposal after they have been further manufactured, cooked or processed in some other way?
Ministers should give the House some clear and detailed explanation of what they are inviting us to agree. The motion, taken at face value, does not assist us in our voyage of exploration, but its import may be greater than it seems.
§ 6.2 pm
§ Sir Teddy Taylor
Will the Minister answer one brief question? Is there any way at all that the Government could mark on the Order Paper matters about which the House has no power to do anything? Perhaps I should first declare an interest: I have a dog of my own, called Corrie. When I get back from the House, he likes me to take him for a walk. Sometimes, however, I am detained in the Chamber, not because hon. Members talk too much, but because we spend our time talking about things about which we can do nothing.
I know that you will be well aware, Mr. Deputy Speaker—because of the great interest that you take in public affairs—that the House has recently spent hours and hours debating matters that we can do nothing about. We have had a great deal of discussion, for example, about genetically modified foods, about which people get very excited and agitated. However, because of European law, we can do absolutely nothing about GM food. We also had a long debate—for a whole day—on the age of homosexual consent, although Parliament could do nothing at all about it.
§ Mr. Deputy Speaker
Order. The hon. Gentleman is a very experienced hon. Member. One example by reference perhaps; but he must not go on, ad infinitum, on matters that are nothing to do with motion 7.
§ Sir Teddy Taylor
I am sorry, Mr. Deputy Speaker; but it is everything to do with the motion. I simply want 679 to ask Ministers whether, in light of Article 28(2)(a) of the EU sixth directive, they have any power to do anything about the substance of the motion?
We may all think that retrospective taxation is ridiculous, and agree that the Government should withdraw a motion that would unfairly apply taxation—and carry the can for it. However, my understanding of the situation—you may not think that this is relevant, Mr. Deputy Speaker, but it is—is that, even if all 635 hon. Members said, "Let's agree that we will not backdate tax on dog food", and voted accordingly, it would have no impact at all. The Government would have to levy the tax, simply because of the sixth directive.
I know that you, Mr. Deputy Speaker, and other people do not like me talking about these things, but it is time that Parliament woke up to the fact that we spend hours and hours talking about things about which we can do absolutely nothing. I simply wish that Parliament would wake up to the fact that a democracy is dying every single day, and that—on this issue, as on so many others—we are wasting our time talking about something about which we can do nothing.
Will the Minister say if, by any remote chance, I am right about that point? If, by any remote chance, I am talking a load of rubbish, as the Deputy Speaker seems to think, will the Minister say—
§ Mr. Deputy Speaker
Order. The hon. Gentleman has made a disgraceful suggestion. I am here merely to try to keep the House in order, and believe that the hon. Gentleman was straying into generalities too far beyond the scope of motion 7. I hope that he will consider very carefully what he said.
§ Sir Teddy Taylor
I am sorry—it is simply something that I feel very strongly about.
I was asking a simple question. I hope that the Minister will tell us—to avoid my having a dispute with the occupant of the Chair, which I have never had in my 35 years in the House of Commons; and to help the House of Commons—whether the Government might consider having on the Order Paper a little map, circle, scroll, arrow, or something that would not be too controversial or cause a dispute in the House, to indicate those matters about which we can do nothing. That would save a great deal of the House's time, and give me more time to go back and take my dog out for a walk.
§ 6.6 pm
§ Mr. Leigh
The Minister, in an intervention on my hon. Friend the Member for Lichfield (Mr. Fabricant)—she obviously thought that it was a devastating intervention—asked whether he was aware that the motion applied to pet food. What she did not confirm was that the motion applies only to pet food. The Minister should realise that our suspicions and concerns have been fuelled by that intervention—although I think that the argument could be resolved very easily.
The motion's implications for the Revenue are enormous: the political and revenue implications of launching any attack on the principle of zero-rating food are staggeringly important. I should really like the Minister, on behalf of the Government, to commit herself to the principle that we are not starting to renege on the 680 pledge, which was given in the general election by her and the Government, that we shall not move away from zero-rating on food.
§ Mr. Swayne
Does my hon. Friend agree that the Order Paper does not mention pet food at all, but talks about "meat, yeast, or egg"? As a consequence of the measure, and to avoid the taxation increase, we may well have to eat unleavened bread.
§ Mr. Leigh
I am not sure about the need for unleavened bread. However, I am sure that, so far, we have not received a commitment from the Minister.
My hon. Friend the Member for New Forest, West (Mr. Swayne) was right to say that Back Benchers can go only by what they are told in the explanatory notes—which should be helpful. The notes that we have been given today are not at all helpful—except, as my hon. Friend the Member for Mid-Worcestershire (Mr. Luff) has made clear, in fuelling our suspicions. If we were supposed to be reassured that the motion would apply only to pet foods, why does paragraph 2 of the explanatory notes state—as my hon. Friend the Member for Mid-Worcestershire said—that the measure will apply "principally" to pet food? Why do the notes not say that it will apply only to pet food? The House deserves a reassurance on that matter.
It would be the utmost hypocrisy for the Government—under the guise of a seemingly innocuous measure concerned only with pet food—to increase their revenues by extending VAT to ordinary foodstuffs. We want a commitment that they are not attempting to do that. We also want to know precisely which grocery items will be affected by the measure. What are the measure's revenue implications? What will be the annual value of transactions affected by the change? What will be the net effect on Treasury revenues? What consultations have the Government had with food and drink manufacturers and with retailers?
We want to be reassured that, as a consequence of the negotiations, the principle of zero-rating food will not be abrogated. We also want to know what evidence there is to suggest that the current tax regime is unduly benefiting that part of the food and drink industry to the detriment of others. Unless we get all those reassurances, we are perfectly entitled to be suspicious of what is going on this afternoon.
§ Dawn Primarolo
I hope that I shall be able to reassure the House on this modest and sensible measure. There is no extension to foodstuffs that are currently zero-rated. The hon. Member for Lichfield (Mr. Fabricant) can have his Marmite soldiers and drink his Bovril this evening in the sure knowledge that there is no challenge.
While legal issues arising from an appeal to the VAT and duties tribunal earlier this year—but after the Budget—were being examined, it was discovered that a transcription error had been made in the Value Added Tax Act 1994. Throughout the relevant time, VAT has been raised on those products. No new VAT is being imposed and there is no extension. The manufacturers, the Government of the day and their officials believed that VAT on pet foods could be charged and collected, as it 681 had been since 1973. We collected the tax because that was the position before the transcription error was made in 1994. We now have to correct the law.
§ Dawn Primarolo
No. The items had never been zero-rated. The previous Government supervised the changing of the 1994 Act, when the transcription error occurred. They were fulfilling their legal obligations under the requirements to impose VAT. We are committed to maintaining zero rates on food. They are not affected in any way.
§ Dawn Primarolo
I should like to make this point first. The explanatory notes make it clear that the zero-rating of foodstuffs is not affected.
The grouping covers pet foods primarily, but there are certain other preparations—
§ Dawn Primarolo
I should just like to deal with this point. The other preparations are extracts of meat, yeast or egg, such as advocaat and yeast products intended for use in home brewing. That was the law as we had all understood it.
I have also been asked whether there is a precedent.
§ Dawn Primarolo
I should like to deal with this point and get all the facts on the table before hon. Members work themselves up into a lather again about the problems.
I was asked whether there had been errors before. Unfortunately, there have. The previous Government had to make a correction to the Finance Bill in 1995, because the starting date for earlier changes to bad debt relief was omitted when the provisions for consolidation into the Value Added Tax Act 1994 were made. The measures are not retrospective because—
§ Dawn Primarolo
I will give way in a minute. Hon. Members should be patient. It will help to have the facts.
This is not retrospective taxation because the legal liability to tax has not been changed contrary to the expectation of the taxpayer. The taxpayer had been paying the tax.
If the House voted against the motion, it would cause chaos. Manufacturers and the Government believed that the law gave cover. I am sure that a test court case would show the intention of the legislation before 1994, but it is better to correct legislation when an error is found.
§ Mr. Letwin
I am grateful to the Paymaster General for giving way. That is the point on which I have been 682 trying to intervene, without being in any kind of lather. The hon. Lady said a moment ago that it had not been illegal to levy VAT during the intervening period when the mistake was in force. Is that not because my hon. Friend the Member for Rochford and Southend, East (Sir T. Taylor) is right and the sixth VAT directive is in force, meaning that in law VAT could be levied on the products? Is this not merely a tidying operation with no effect on the outcome of cases?
§ Dawn Primarolo
That is my point. There is no change. If we did not make the alteration, the Government could be left open to a loss of revenue, which would be unwise. Any prudent Government would act.
This is a simple proposition. An error was made; taxpayers and the Government have behaved in good faith. The law will now be corrected. There will be no refunds, no additional charge and no increase in food prices for pet lovers. I am sorry that the hon. Member for Rochford and Southend, East (Sir T. Taylor) feels that his time may have been wasted. There is no extension on foods; those are the simple facts.
§ Question put and agreed to.
§ That provision (including provision having retrospective effect) may be made in the Finance Bill amending the provisions of Schedule 8 to the Value Added Tax Act 1994 by virtue of which supplies of preparations and extracts of meat, yeast or egg are zero-rated.