HL Deb 06 June 1994 vol 555 cc946-8

2.48 p.m.

Lord Monson asked Her Majesty's Government:

What is the precise date in 1996 from which the United Kingdom will be obliged to impose VAT on books, newspapers, children's clothing, public transport and house purchase, in accordance with the EC 6th Directive 1977 and Articles 7a and 99 of the Treaty of Maastricht.

The Parliamentary Under-Secretary of State, Department of Transport (Lord Mackay of Ardbrecknish)

My Lords, there is no requirement under the provisions of the 6th EC VAT Directive or any other agreement for the UK to surrender its current zero rates of VAT at any future date.

Lord Monson

My Lords, I thank the noble Lord for his rather surprising reply, given that the 1977 directive, as enlarged upon by the Treaty of Maastricht, appears to impose a clear obligation on member states to harmonise their VAT almost totally by the end of 1996. Does he agree that that obligation has been effectively endorsed by all three main political parties in this country by virtue of their acceptance of the terms of the Maastricht Treaty and that therefore the opposition parties' indignation at the extension of VAT to domestic fuel needs to be taken with a pinch of salt?

Having said that, does the Minister agree that the present Government are at fault in having agreed in June 1991 to impose a minimum VAT rate of 15 per cent., given that a lower rate could be imposed raising the same revenue if extended to a wider range of goods and services, which would also help the consumer considerably?

Lord Mackay of Ardbrecknish

My Lords, the position is perfectly clear. Article 99 of the Treaty of Rome, as amended at Maastricht, states: The Council shall, acting unanimously on a proposal from the Commission and after consulting the European Parliament … adopt provisions for the harmonization of legislation". I can assure the noble Lord that we have no intention of moving from the position that it must be done unanimously. In other words, our veto remains—unlike any positions taken by any of the parties opposite.

Baroness David

My Lords, is the Minister saying now that no VAT will be imposed on books and the other items mentioned in the noble Lord's Question before the end of this Parliament?

Lord Mackay of Ardbrecknish

My Lords, the answer that I gave was quite clearly one about the EC directive. The position is exactly as my right honourable friend the Prime Minister said yesterday on "The Frost Programme". He said: I see no likelihood that we are going to extend VAT or have to extend VAT". I point out to the noble Baroness that if, however, we go down the road of removing our vetos, then indeed our European partners—all of whom, with the exception of Ireland and ourselves, have VAT on books, for example —may well ask us to follow their lead.

Lord Boyd-Carpenter

My Lords, is my noble friend aware that many of us regard VAT as a very bad and harmful tax, and are very relieved to hear the clear indication that he has given that Her Majesty's Government are under no obligation to extend its scope?

Lord Mackay of Ardbrecknish

Yes, my Lords. I simply reaffirm what I said earlier to my noble friend. As he rightly points out, the Government are very clear about the position that we have taken; namely, that it will require unanimous agreement and we do not intend to give away that right of veto.

Lord Rippon of Hexham

My Lords, is my noble friend aware that in a recent debate in the European Parliament there was a vote in favour of a constitution proposing not only the abolition of the veto but also the restoration of simple majorities in all cases, including taxation? Will he further confirm that all the Conservative MEPs, except one who abstained, voted against that, and that the vast majority of socialist MEPs, and also the Liberals, voted for it? Will he try to persuade the Liberal and Labour spokesmen to make it clear that they will never support their MEPs in this view?

Lord Mackay of Ardbrecknish

My Lords, I am not entirely sure that one could rely on commitments from the party opposite about that matter. It seems to me that in this election campaign for the European Parliament the whole question of our veto is very obscure so far as the parties opposite are concerned. I simply say that, in sharp contrast to their desire to have everything decided by majority vote, we are perfectly clear that in certain cases the right of veto for member states—not just the United Kingdom, but any member state—is important and should remain.

Lord Stoddart of Swindon

My Lords, does the Minister agree that on "The Frost Programme" the Prime Minister ruled nothing out? Does that mean that he rules everything in, including children's clothing, food and all other items? How can we trust anything that the Prime Minister says when during the last election he pledged absolutely that the scope or the rate of VAT would not be extended if the Conservatives won the election under his leadership?

Lord Mackay of Ardbrecknish

My Lords, I simply point out to the noble Lord the remarks I made and the quotation I gave from my right honourable friend the Prime Minister yesterday: I see no likelihood that we are going to extend VAT or have to extend VAT". Of course, because of the economic situation and the need to get the budget into better balance, my right honourable friend the Chancellor felt obliged to put VAT on fuel. However, if one compares that to the situation on the Continent, all our European friends already have VAT on fuel. And the parties opposite: have always been very keen on something called a carbon energy tax, which seems to me simply to be value added tax by another name.

Lord Peston

My Lords, I did not realise that we were supposed to be involved in electioneering this afternoon. But, if the noble Lord insists, I might follow him on that point. I would certainly accept it if the Minister says definitively two things: first, that this particular directive does not oblige us to do this (I am not convinced that that is so, but let us accept for the moment that it is so) and, secondly, that the Government would use their veto if there were any pressure on us to extend VAT. Is the noble Lord then aware that in the Treasury's own Red Book on the future of taxation there has to be a very considerable rise in taxation, according to the Treasury, in order to bring the Budget into balance, and therefore in rejecting these Budget increases the noble Lord commits the Government to a great many other tax increases, presumably on direct taxation?

Lord Mackay of Ardbrecknish

My Lords, one of the interesting aspects in regard to government income is that with our economy coming out of recession— indeed it is very much ahead of the economies of our European partners—the income to the Exchequer will be considerably increased at the current levels of taxation.

So far as the first part of the noble Lord's question is concerned, the UK has always made it clear that one of the conditions for our agreement to replacing the arrangements for the definitive VAT system must be our right—I underline the word "right"—to continue with existing zero rates.

Noble Lords

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