HC Deb 14 March 1985 vol 75 cc253-4W
Mr. Bright

asked the Chancellor of the Exchequer (1) if he will estimate what share of the market in goods currently zero-rated for value added tax is held by domestic producers and what share is held by foreign producers;

(2) if he will estimate the increase in import penetration if goods currently zero-rated for value added tax were exempt in the next financial year;

(3) if he will list the categories of goods currently zero-rated for value added tax; and if he will estimate the revenue to be raised from each of them if they were exempt from value added tax in the next financial year;

(4) whether any study has been conducted into the administrative savings to be made by small firms if goods currently zero-rated for value added tax were exempt in the next financial year;

(5) if he will estimate the proportion of family expenditure currently accounted for by goods which are zero rated for value added tax; and by how much it would change if they were exempt in the next financial year;

(6) what the effect on the retail price index in the next financial year would be if goods which are now zero-rated for value added tax were exempt;

(7) what is his policy towards the exemption of goods and services from value added tax in the light of the provisions of the European Economic Community's sixth value added tax directive.

Mr. Hayhoe

Goods and services which are zero-rated are specified in schedule 5 to the Value Added Tax Act 1983; the main items are:

  • Group 1—Food and drink, except (a) when supplied in the course of catering and (b) certain foods, alcoholic and soft drinks and pet food.
  • Group 2—Sewerage services and water.
  • Group 3—Books and newspapers.
  • Group 4—Talking books for the blind and handicapped and wireless sets for the blind.
  • Group 5—Newspaper advertisements.
  • Group 6—News services.
  • Group 7—Fuel and power (but not road fuel).
  • Group 8—Construction of buildings.
  • Group 9—International services.
  • Group 10—Transport.
  • Group 11—Caravans and houseboats.
  • Group 12—Gold.
  • Group 13—Bank notes.
  • Group 14—Drugs, medicines and appliances.
  • Group 15—Certain import transactions, prior to customs entry of the goods; transfer of goods or provisions of services by a United Kingdom or Isle of Man business to its address abroad; supplies to fulfil contracts relating to internatinal defence collaboration projects.
  • Group 16—Charities.
  • Group 17—Young children's clothing and footwear.

Supplies of goods are also zero-rated if the goods are exported or shipped as stores on a voyage or flight to a destination outside the United Kingdom.

Most goods and services which are zero-rated are supplied by domestic producers. The main exceptions are food, young children's clothing and footwear.

The zero-rate of VAT applies directly to about 25 per cent. of consumers' spending, and to a further 10 per cent. in respect of expenditure on housing, which is indirectly affected by the zero-rating of new construction.

The EC sixth VAT directive specified those goods and services which member states must or may exempt from VAT. To extend exemption to other supplies, whether at present standard-rated or zero-rated, would be in breach of the directive. My hon. Friend's questions about the various effects of exempting supplies which are now zero-rated are therefore hypothetical.

Mr. Gregory

asked the Chancellor of the Exchequer what communications he has had with the manufacturers of confectionery for the Indian community in the United Kingdom about the applicability of value added tax to their products.

Mr. Hayhoe

None.

Mr. Bright

asked the Chancellor of the Exchequer what representations Her Majesty's Government received from the European Commission concerning the compatability with the sixth value added tax directive of the exemption of certain goods and services from value added tax; and if he will make a statement.

Mr. Hayhoe

The EC Commisssion has issued one reasoned opinion on the United Kingdom's exemptions from VAT, concerning medical goods supplied together with services by the medical and paramedical professions. The Commission's case is that the directive's exemption for "medical care" covers services only and not related goods. It is the Government's view that the words "medical care" were deliberately used to cover supplies of both goods and services needed to treat a patient's condition and we have firmly rejected the reasoned opinion. It is now for the Commission to decide whether to pursue the matter to the European Court of Justice.

Mr. John Mark Taylor

asked the Chancellor of the Exchequer how many representations he has received since his Budget on matters related to value added tax.

Mr. Hayhoe

A very large number.

Mr. Batiste

asked the Chancellor of the Exchequer what would be the net cost to the Treasury, taking into account savings of administrative costs, of raising the threshold for value added tax to (a) £50,000, (b) £75,000 and (c) £100,000.

Mr. Hayhoe

Increases in the limit of this magnitude would cause such a change in the nature of the tax that it is not possible to make a realistic estimate of the net cost.