Car Prices and VAT (Hansard, 18 April 1989)

§ The Parliamentary Under-Secretary of State, Department of Transport (Lord Brabazon of Tara)
My Lords, it is a fundamental principle of UK and EC VAT law that VAT should be calculated on the price paid for goods, which reflects the payment of other taxes and duties included in the price of those goods.

§ Lord Boyd-Carpenter
My Lords, I thank my noble friend for that reply. Does it not strike him as rather odd that you should first put a tax on an article and then take that tax into account in assessing its value for the levy of VAT? Is that not what might in certain quarters be called a bit of a fiddle?

§ Lord Brabazon of Tara
My Lords, the relevant UK legislation is Section 10(2) of the VAT Act 1983, which reflects provisions of Article 11A(2) of the EC VAT Sixth Directive. The latter specifically requires that the taxable amount shall include taxes, duties, levies and charges excluding the value added tax itself. That is not unique. The same applies to wines and spirits, tobacco, petrol and goods imported from outside the Community.

§ Lord Dean of Beswick
My Lords, is it not a fact that British car manufacturers are put at a distinct disadvantage by this form of taxation in comparison with their competitors? They are put in a quite unfair position as regards competition for ordering cars. Is it not time that that was looked at, because it puts them at a distinct disadvantage?

§ Lord Brabazon of Tara
My Lords, I fail to see why it should put the UK car industry at a disadvantage when it applies to any cars, whether UK built or imported.

§ Lord Lloyd of Kilgerran
My Lords, is the Minister aware that it may be that the reply he has given to the noble Lord, Lord Boyd-Carpenter, listing those areas where VAT is charged indicates that the VAT regulations should be amended, particularly in relation to charities?

§ Lord Brabazon of Tara
My Lords, charities are a different question. However, it does not seem to me that it harms the motor car industry greatly when one sees a continual breaking of records in car 684 registrations. There were 2.2 million last year, which was a record. Car tax yields £1.25 billion for the Exchequer.

Lord Bruce of Donington
My Lords, will the noble Lord make representations to his right honourable friend the Chancellor of the Exchequer once he has resolved the publicly aired differences of opinion between himself and the Governor of the Bank of England? Will he ask him whether in reviewing a proper policy of credit control in the United Kingdom he will also give consideration generally to reducing VAT from 15 per cent. to the level at which he inherited it from the previous Government; that is, 8 per cent? That would bring down the rate of inflation.

§ Lord Brabazon of Tara
My Lords, that is rather wide of the Question. The noble Lord never ceases to harp on about the fact that VAT was 8 per cent. in 1979 and is now 15 per cent. Perhaps the noble Lord might compare the rates of income tax over the same period.

Lord Morris
My Lords, does not this Question clarify the mystery as to why the tax is known as value added?

§ Lord Brabazon of Tara
My Lords, that is probably right because it is added value to the price of the goods.

§ Lord Stoddart of Swindon
My Lords, does the tax perhaps constitute part of Her Majesty's Government's policy on roads in that instead of building decent roads and new motorways they are simply discouraging the extended ownership of cars?

§ Lord Brabazon of Tara
My Lords, not at all. That is a quite different question, but the figure that I have given for new car registrations surely proves the opposite.

§ Lord Boyd-Carpenter
My Lords, does not my noble friend's admirably lucid explanation of the position do nothing to increase one's respect for the European system of taxation? Will he urge his right honourable friend to have a go at improving the system before 1992?

§ Lord Brabazon of Tara
My Lords, rather than urge my right honourable friend to do that I shall certainly pass on my noble friend's opinions on this subject without necessarily endorsing those opinions myself.