The Exchequer Secretary to the Treasury (Mr David Gauke)
I congratulate my hon. Friend the Member for Beverley and Holderness (Mr Stuart) on securing this debate. He has already made his case to me, leading a delegation of MPs to see me on 17 April, as he said, and I know that he has also made representations to my right hon. Friend the Chancellor. He also spoke passionately about the proposal in our debate on the Finance Bill on 18 April. I am pleased to have the opportunity in the time available to respond in more detail to the concerns that he and other Members have raised.
Let me begin with some general points to put the measure in context. Removing the zero rate of VAT from static holiday caravans is one of a series of VAT measures announced in the Budget that are designed to make the VAT system fairer to all traders and easier to administer and comply with. It will help to create a level playing field by ensuring that all holiday caravans are taxed in line with the sale of other forms of holiday accommodation that have restrictions on permanent occupation, such as touring caravans, camper vans, narrowboats, timeshares and new holiday homes.
Let me address two issues that were raised in my hon. Friend’s speech and in interventions. The first relates to revenue and costings, the second to the impact on businesses. First, the conventions used in the Treasury’s policy costings were set out in the 2010 Budget policy costings document. In brief, policy costings take account of direct effects on the tax base, but do not include indirect behavioural effects—for example, on employment, wages and salaries, or general consumption. However, the indirect economic effects are not ignored; instead, they are captured in the Office for Budget Responsibility’s economic forecast, taking into account, for example, the changes on the relevant sectors.
Diana Johnson (Kingston upon Hull North) (Lab)
I am listening carefully to the Minister. There are 43 people chasing every job vacancy in my constituency this month. The Treasury is not going to make any money from introducing VAT on static caravans, as it has failed to take into account the undoubted unemployment that will result from this measure.
Mr Gauke
As I have said, the Office for Budget Responsibility takes into account the second-round effects of all measures in the Budget.
Time is short, so let me turn to the demand reduction estimates and the figure of 30% that a number of hon. Members have quoted. HMRC has estimated that, as with what are described as “discretionary leisure durables”, expenditure on static holiday caravans will be impacted by the measure, with a 1.5% fall for every 1% increase in price. However, we should all be clear that this reduction in expenditure will apply only to static holiday caravans sold to the final consumer, and only to the proportion of the price of such caravans not already subject to VAT. The reduction in expenditure does not, therefore, apply to the approximately one third of caravans sold to caravan sites for rental. Their price should not change, as the caravan site will normally be able to reclaim the VAT in the usual way. That part of the static caravan market will not be affected by the measure. Neither will the measure affect the 20% of the price of a static holiday caravan that is already subject to VAT in respect of its removable contents.
Taking account of those factors, the overall fall in expenditure should be less than the 30% reduction indicated in the impact assessment. That is because the estimated 30% reduction refers only to the specific parts of the market that will be impacted by the measure: sales to private individuals who cannot reclaim the VAT.
Mr Stuart
Can my hon. Friend confirm that the Treasury did not do that much work on this? Where did it get the one third figure from? It is not one that I have heard from anybody. The Tym & Partners report, which is available and has been since January, talks about 277,760 owned statics and 49,600 rented statics. By no means is 49,000 one third of 277,000. It has been suggested that 750 companies will be affected, but the real figure is more than 2,000. The Treasury did not do its homework and Ministers are in a tough spot because they did not spot that.
Mr Gauke
That estimate was made on the basis of the evidence that the Treasury and Her Majesty’s Revenue and Customs had before them. The point I wish to make is that a genuine consultation is taking place and we look forward to receiving evidence that my hon. Friend has and others have, so that we can make a further assessment of those costings.
Let me now discuss the impact on caravan manufacturers. We recognise that the impact on static holiday caravan manufacturers will not be trivial. The level of the impact will, of course, depend on the variety of products produced by those manufacturers. Many hon. Members are concerned about caravan sites, but it is worth bearing in mind that caravan holiday parks have a variety of sources of revenue, most of which will not be affected by the VAT change. Such sources include: charging a siting fee; running a shop; group insurance scheme commission; commission on the resale of used holiday caravans; and commission on letting on behalf of the owners—sub-letting—and so on.
I recognise that applying VAT to the sale of new holiday caravans will not be welcome, as this has been a significant income stream for many parks. However, there is a good deal of flexibility within the range of products and services that caravan holiday parks offer to allow them to adapt their mix of business to the new VAT treatment of holiday caravans. I recognise that there are challenges involved in adapting to these changes in the tax regime, but there is scope for adaptation.
The main point I wish to make today is that we would welcome any evidence provided through the consultation, which, as my hon. Friend has pointed out, has been extended, be it evidence on the costing or on other matters.
Mr Gauke
I have only one minute left, and I just wish to complete this point. We have listened to earlier representations, and we have extended the consultation period until 18 May to allow HMRC to engage further with representative bodies in order to better understand the implementation issues and how best to define a “holiday caravan” for VAT purposes. We are particularly keen to use the consultation to ensure that the new rules are workable and simple for businesses to administer. We understand the strength of feeling on this matter and genuinely want to listen to the concerns—