§ 2.40 p.m.
§ Lord TREFGARNEMy Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
§ The Question was as follows:
§ To ask Her Majesty's Government what would be the cost or saving to the Customs and Excise Department if the turnover level above which small traders were not required to register for VAT purposes were increased from £5,000 per annum to (i) £10,000 and (ii) £50,000.
937§ Lord JACQUESMy Lords, it is estimated that raising the exemption level for VAT from an annual turnover of £5,000 to £10,000 or £50,000 would result in losses of revenue in a full year of about £40 million and £150 million respectively. There would be some saving of administrative expenditure but this would be equivalent to only a small proportion of the loss of revenue.
§ Lord TREFGARNEMy Lords, while thanking the noble Lord for that reply, may I ask whether he is sure that to increase the level as I have suggested would not, on balance, be beneficial, bearing in mind not only the financial implications but what might be called the aggravation implication and the nuisance value of this tax at the lower ends of the registration scale?
§ Lord JACQUESMy Lords, there are several very good reasons why we should not increase the exemption limit. The first is that our exemption limit is higher than that of any other EEC country. There is at present in circulation a draft Directive which sets an exemption limit which is lower than ours; so that it is clear that the movement in the future is likely to be downwards rather than upwards, and we do not wish to have a see-saw.
Secondly, when a trader is registered he can claim tax on the purchases he has made—and that includes tax on capital expenditure. We know that if either of the limits suggested by the noble Lord were adopted at least half of the traders concerned would continue to be registered because at the present time they are net receivers of tax and not net payers of tax. Thirdly, if a trader de-registers he must pay tax on his existing stocks and assets; and that would affect his cash flow. Finally, if a large number of traders were exempt at one date from VAT there would be an exceptional burden on administration, and other work in connection with VAT would have to be neglected.
§ Lord BLYTONMy Lords, as a condition of our joining the Common Market was that we accept VAT, why do noble Lords who voted for it squeal when it is applied?
§ Lord HARMAR-NICHOLLSMy Lords, is the noble Lord aware that there 938 are many more reasons why it would be a good thing to give this exemption, and that the main reason is that small traders are literally being forced out of business altogether? Moreover, if you add this high figure exemption position to the extra rates they are having to pay and to the extra problems that small businesses face, it may be that if they are forced out of business the saving that is made will be very much less than the £40 million mentioned by the noble Lord. If one wants to retain the small trader as an integral part of the trading capacity of this country, then something on these lines must be done.
§ Lord JACQUESMy Lords, the noble Lord is "flogging the wrong horse". If he had listened to the Answer that I gave, he would know that more than one half of the traders affected would be out of pocket if they were not registered.
§ Lord BLYTONMy Lords, can my noble friend give me an answer?
§ Lord TREFGARNEMy Lords, while thanking the noble Lord for his answer to my first supplementary question, and without going into the merits or demerits of the matter, may I ask whether it is a fact that the figure of £5,000 was set a good time ago and that since then inflation has come to pass? Is it not the case that if the figure of £5,000 was correct two or three years ago, a much larger figure must be correct now?
§ Lord JACQUESMy Lords, if the figure of £5,000 was changed to take account of inflation since the given date, the figure would be £8,000. But that does not over-ride the reasons I gave for not increasing the limit.