HL Deb 30 April 1985 vol 463 cc119-20

2.55 p.m.

Lord Monson

My Lords, I beg leave to ask the Question standing in my name on the Order Paper.

The Question was as follows:

To ask Her Majesty's Government why the proposed VAT exemption limit for small traders was increased by less than the rate of inflation in both the 1984 and 1985 Budgets.

The Chancellor of the Duchy of Lancaster and Minister for the Arts (The Earl of Gowrie)

My Lords, the revalorisation of the VAT registration threshold is by reference to the original registration limit of £5,000 and inflation since then. In 1983 the true figure was heavily rounded up from about £17,700 to £18,000 to provide a more convenient level of threshold. With the lower rates of inflation in 1984 and 1985 the figures were rounded up by lesser amounts, producing thresholds of £18,700 and £19,500 respectively. Excluding the elements of rounding up I can assure the noble Lord that the increases in the 1984 and 1985 Budgets correspond with the inflation rates of 5.1 per cent. and 4.6 per cent., for the appropriate periods.

Lord Monson

My Lords, I am grateful to the noble Earl the Minister for that reply. Does he not agree that even if one examines the longer period so as to eliminate anomalous fluctuations for individual years, the balance is still not quite right in as much as the retail price index rose by 46.7 per cent. between January 1980 and January 1985, whereas the VAT threshold rose by only 44.4 per cent over the same five-year period? In other words, there was a small fall in real terms.

Secondly, does the noble Earl not agree that it would greatly help redundant steel workers, coal miners, textile workers, and others who want to set up in business on their own account, using their redundancy money, if the threshold were raised to £50,000 as suggested by his noble friend Lord Campbell of Alloway during our debate a fortnight ago?

The Earl of Gowrie

My Lords, as someone who in normal life, if that is the way to describe it, is a small trader, I can say that these limits and the thresholds are very important to me. I shall look at the point which the noble Lord makes about people who are starting businesses and we shall see what is the best that we can do.

Lord Barnett

My Lords, will the noble Earl clarify the Government's position? Are the Government seeking to persuade the EC that the Government should be allowed to increase the threshold beyond the rate of inflation or are they content with the present situation?

The Earl of Gowrie

My Lords, I do not think that it is the nature of Governments to be content with the present situation. I do not know the state of negotiations with the EC, but I shall try to find out.

Lord Whaddon

My Lords, can the noble Earl remind the House of the cost of collecting this tax from the smaller firms? How much in the pound does it cost?

The Earl of Gowrie

My Lords, again, I would need prior notice of that question; but one of the attractive features to Governments of VAT is that it is a very cost-effective method of tax collection because those who pay the tax collect it themselves.