§ 43. Mr. Onslowasked the Secretary of State for Defence what has been the cumulative effect on the total funds actually applied for the purchase of defence equipment of the increase in value added tax to 15 per cent. in 1979.
§ Mr. GoodhartThe Ministry of Defence receives full compensation for the VAT element of its equipment programme costs in the Estimates granted by Parliament. VAT forms part of the price of the relevant goods and services, and changes to it are allowed for in the annual public expenditure revaluation exercise.
In the financial year 1979–80, when the VAT increase was introduced, £147 million of the approved Supplementary Estimates for that year was used to cover the effect on the Defence equipment Vote (Class I, Vote 2 (Defence Procurement)). From 1980–81 onwards, the full 15 per cent. rate has been reflected in main Estimates, giving Class I, Vote 2 an additional £201 million in 1980–81 and £262 million in 1981–82 against the provision which would have applied at a flat rate of 8 per cent. The cumulative effect of the increase may therefore be shown as an additional grant of some £610 million to this Vote to date.