The Chair
Good morning, ladies and gentlemen. Before we begin, I have a few preliminary announcements. While I am in the Chair, Members may, if they wish, remove their jackets. I imagine that Mr Howarth will extend the same courtesy, but that is for him to say, not for me. No refreshments other than water may be consumed in Committee meetings, so if Members are in need of coffee or anything like that, they will have to go outside. Please could all Members ensure that mobile phones, pagers and the like are switched off or on silent? It is infuriating both to the Chair and to other Members to have people constantly ringing. It would be appreciated if Members could use electronic devices for parliamentary purposes, not for doing sudoku or whatever.
The pile of boxes behind me is provided for Members to keep their papers in. During the process of the Bill, there will be an accumulation of papers—that I can promise you—and if you wish to leave them in the room, they will be locked in the cupboard behind me. So it is possible to leave papers here, obviously other than those that arrive in your personal boxes and post during the week, and collect them before the start of each sitting. During the lunch break, the room will be locked. Mr Howarth will take the Chair at 2 o’clock, but, in the interim, if you wish to leave papers or indeed anything else within reason on the desk—I would not advise you to leave very valuable things—they can be left safely in the room. The room will be locked between 1 pm and 2 pm, so do not feel that you have got to take everything with you.
As a rule, Mr Howarth and I do not intend to call starred amendments, which have not been tabled with adequate notice. The required notice in Public Bill Committees is three working days, so amendments need to be tabled by the rise of the House on Monday for consideration on Thursday and by the rise of the House on Thursday for consideration on the following Tuesday.
Not everyone is familiar with the Public Bill Committee, so we will have a very brief teaching—this is also for the benefit of long-standing Members and, indeed, the Chairman. I think I am right in saying that I am now the longest-serving member of the Panel of Chairs and even I find these processes confusing sometimes. The first rule is: if you are in any doubt, ask. Please do not feel that we sitting in this Chair are so fierce that you cannot stand up and say, “Please, I don’t understand that.” We may or may not be able to explain, but if we cannot, Mr Hamlyn, our superb Clerk, will be able to.
The process is this: we first consider the programme motion on the amendment paper and the debate on that is limited to half an hour. For those of you who are not aware, that is the motion that was agreed at a pre-hearing with a small group of the Committee under the chairmanship of Mr Howarth. The agreement was reached on both sides Committee by consent. That does not mean that you cannot talk about it, but you cannot do so for more than half an hour.
We then proceed to a motion to report any written evidence. That is because, in the course of the sittings of the Bill, written evidence will be received and we need the Committee’s consent to ensure that that is made available formally and becomes part of the record for the Committee. We then begin the line-by-line consideration of the Bill.
The selection list for today’s sitting, which is available and I hope all Members now have a copy, shows how the amendments selected for debate have been grouped together for debate. Amendments are normally grouped on the same issue or similar or related issues. Ladies and gentlemen, I would be grateful if you would pay particular attention to this, because this is the article of the most confusion and it is important that everyone understands the process.
You will find a group of amendments. Clause 1, which will be the first piece of the Bill debated, is debated as a clause. The motion will be that clause 1 stand part of the Bill, and that will be a broad-ranging debate, because there are no amendments tabled to clause 1.
Clause 2, in similar fashion, will be a general stand part debate, but in addition we are debating new clauses 1 and 3. The first point of confusion is that whether or not a Member, on either the Government or Opposition side, wishes to put those provisions to a Division, it will not happen then because Divisions take place in order throughout the course of the Bill. While new clauses 1 and 3 will be debated with clause 2, if they are voted on at all it will not be until much later in the proceedings, when we get to them on the amendment paper. That applies to any other amendments.
If a Member—often an Opposition Member—seeks to table and then move an amendment, it may become the lead amendment in a group. It will be grouped with amendments of a similar nature or subject matter. Only the lead amendment will be moved at that time. People have a tendency to stand up and say, “I wish to move this,” but they cannot. You must wait until we have reached it on the amendment paper, which may be the middle of next week or next month, depending upon how long the sittings take.
If you are in any doubt, please ask. Because there are a significant number of new Members on the Committee, Mr Howarth and I will endeavour to be as generous within the terms of proper procedure as we can, but once the tipping point is reached and the business moves on, it is not permissible to go back, so you need to keep your wits about you. It is normally assumed that Government amendments will become part of the Bill and that the Government will therefore always wish to move them. That is accepted by the Chair and understood by both Front Benches.
That’s it. Let me repeat: if you have any problems, misunderstandings or difficulties, please ask. If there is something you really do not understand but do not feel inclined to stand up and ask about, nobble the Chair after the sitting, and we will be pleased to do our best to explain it to you. The object of the exercise is not to confuse but to assist. Like the Inland Revenue, we are here to help you.
The Financial Secretary to the Treasury (Mr David Gauke)
I beg to move,
That—
(1) the Committee shall (in addition to its first meeting at 11.30 am on Thursday 17 September) meet—
(a) at 2.00 pm on Thursday 17 September;
(b) at 9.25 am and 2.00 pm on Tuesday 13 October;
(c) at 11.30 am and 2.00 pm on Thursday 15 October;
(d) at 9.25 am and 2.00 pm on Tuesday 20 October;
(2) the proceedings shall be taken in the following order: Clauses 1 to 11; Schedule 1; Clauses 12 to 15; Clauses 18 to 23; Schedule 4; Clauses 24 and 25; Schedule 5; Clause 26; Schedule 6; Clauses 27 to 31; Clause 33; Schedule 7; Clause 32; Clauses 34 to 42; Clause 44; Clauses 46 and 47; Schedule 8; Clauses 48 to 50; new Clauses other than those relating to the subject matter of Clauses 16 and 17 and Schedules 2 and 3 or the subject matter of Clause 43 or the subject matter of Clause 45; new Schedules other than those relating to the subject matter of Clauses 16 and 17 and Schedules 2 and 3 or the subject matter of Clause 43 or the subject matter of Clause 45; remaining proceedings on the Bill.
(3) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 5.00 pm on Tuesday 20 October.
It is a very great pleasure to see you in the Chair, Sir Roger. This is not the first time I have had the pleasure of serving under you in a Finance Bill Committee, and I know the Committee is in safe hands with both you and Mr Howarth.
I welcome all members of the Committee, and I am delighted we have such a large turnout for the beginning of our proceedings. I particularly welcome the Opposition Front-Bench team: the hon. Members for Feltham and Heston and for Worsley and Eccles South. I look forward to hearing their questions and inquiries. I do not know whether the Scottish National Party has the same Front-Bench arrangement, but I welcome all members of Opposition parties and, indeed, my own colleagues, in particular my hon. Friend the Economic Secretary to the Treasury, who will be sharing some of the burden over the weeks ahead.
I am pleased that agreement was reached at the Programming Sub-Committee, and I am grateful for the support of the usual channels. I thank my hon. Friend the Member for Central Devon and the hon. Member for Scunthorpe for their work in reaching that agreement. I very much looking forward to serving under your chairmanship in the weeks ahead, Sir Roger.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
I thank the Financial Secretary for his opening words and his welcome, which I echo. I thank you, Sir Roger, and your co-Chair Mr Howarth, who I understand will be in the Chair this afternoon. It is a pleasure to serve under two distinguished Chairmen. Although I had the pleasure of serving on a previous Finance Bill Committee as a Back Bencher, this is the first time I have served on one as a Front Bencher. I was recently appointed shadow Chief Secretary to the Treasury.
I thank and pay tribute to my predecessor, my hon. Friend the Member for Birmingham, Ladywood (Shabana Mahmood), and the other outgoing shadow Treasury Ministers, my hon. Friends the Members for Wirral South (Alison McGovern) and for Newcastle upon Tyne North (Catherine McKinnell). I also pay tribute to the previous shadow Chancellor of the Exchequer, my hon. Friend the Member for Nottingham East (Chris Leslie), who is a veteran of Finance Bills and has led much of our work this year. I also pay enormous tribute to my hon. Friend the Member for Worsley and Eccles South before she leaves the Treasury team, and in advance of her excellent contributions today, for her stellar work.
I extend my thanks to the hon. Member for Central Devon and my hon. Friend the Member for Scunthorpe. I have had experience of their office, so I know that the usual channels work behind the scenes to ensure everything goes well during Bill proceedings.
I welcome those who are relatively new to the House. If this is their first Finance Bill Committee, I am sure it will be an experience they will remember. It will be a good foundation for much more that they do in the House.
I know from past experience that we have many hours in Committee ahead. I am sure I speak for all here when I say that we relish the opportunity to get further into this legislation and to change it for the better. I also know that the Financial Secretary will relish the opportunity to serve on his 11th Finance Bill Committee—or is it the 12th?
Seema Malhotra
He is certainly a veteran. If there is a record for the Minister who has steered the most Finance Bills through Parliament, if he has not won it already, I am sure he is well on his way.
When I mentioned to a colleague that the Bill has only 50 clauses, they expressed concern that the Government are already running out of business, as they were in the months running up to the election. I recall that when I served on the Finance Bill Committee in 2012, that Bill had three volumes and 227 clauses. Indeed, last year’s Finance Bill had 295 clauses. This year, the Finance Bill has 50 clauses, and we are scheduled to have only eight sittings.
The Chair
Before I put the question, those who are long in the tooth in the House and those who are not have learned a lesson: most of the remarks just made were technically out of order—[Laughter.] However, within the half-hour available for this particular piece of the process, a Chairman is normally reasonably flexible.
I should have mentioned a couple of other things. I was asked by the Opposition Front Bench team what the form of address is. I am Sir Roger—for reasons I do not entirely understand—and George Howarth is Mr Howarth at the moment, although I am sure that will change in due course. In the English Parliament, in Committee as on the Floor of House, we refer to Members by constituency or by “my hon. Friend” or “the hon. Lady” or “the hon. Gentleman”, not by “you” or whatever. “You” is the Chair, and the Chair is non-partisan and does not take part in the proceedings. So if you say, “You have said that,” I shall leap to my feet and say, “No, I haven’t,” even though we all know what was meant. We will try not to be too heavy on that at the start, however.
Question put and agreed to.
Resolved,
That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Mr Gauke.)
Clause 1
Income tax lock
Question proposed, That the clause stand part of the Bill.
Mr Gauke
The clause makes changes to ensure that there will be no increase in the main rates of income tax for the duration of the Parliament. That will provide certainty for taxpayers and enable working people to keep more of the income they earn.
The Government committed to legislate to rule out increases in income tax rates, national insurance contributions and VAT for the duration of the Parliament. Clause 1 delivers that commitment for income tax and clause 2 deals with VAT. The national insurance contributions element of the tax lock is being legislated for in a separate Bill, because it is outside the scope of this Bill.
Nick Thomas-Symonds (Torfaen) (Lab)
It is a pleasure to serve under your chairmanship, Sir Roger. On the passing of the Fiscal Responsibility Act 2010, which, like the clause, had declaratory effect, the then shadow Chancellor, who is now the Chancellor of the Exchequer, said that it was “vacuous and irrelevant”. Is the Minister as surprised as I am about the Chancellor’s U-turn on declaratory legislation?
Mr Gauke
I would draw a distinction between a Government who had no reputation for fiscal responsibility seeking to obtain such a reputation by passing such legislation and a Government who have a record of controlling income tax by increasing the personal allowance and not increasing rates, notwithstanding the challenges we face in the public finances. The clause underlines the Government’s commitment not to increase taxes, and income tax in particular, on the British people, because that is the wrong response. That is consistent with what we have done in office. The problem the last Labour Government had was that, in response to the fiscal crisis, rather than coming forward with clear proposals to reduce the deficit or even to accept a need to get to grips with that deficit, they simply sought to pass legislation. That was the wrong response then, whereas this is the right response now.
Nic Dakin (Scunthorpe) (Lab)
It is a pleasure, as always, to serve under your chairmanship, Sir Roger. The logic of the Minister’s argument does not really stack up. If the country has confidence about the Government’s fiscal responsibility, there is no need to pass legislation. I am totally confused by his argument.
Mr Gauke
We fought the last general election saying that we would introduce this legislation. We won that general election, which suggests that the British people had confidence in the overall package of our fiscal policies. If Labour Members are worried about fiscal confidence, perhaps they should look somewhat closer to home.
Mark Garnier (Wyre Forest) (Con)
Does my hon. Friend agree that one thing any Government should be able to do is give some sort of confidence to households that their tax rates will not go up, providing them with the opportunity to plan for the future with more security than they would have if this measure were not in place?
Mr Gauke
My hon. Friend makes an important point. A striking point made by a number of my hon. Friends on Second Reading of the National Insurance Contributions (Rate Ceilings) Bill earlier this week was that the introduction of the tax lock in the context of employers’ national insurance contributions gives employers much greater confidence. Providing economic stability and security is an important part of the Government’s long-term economic plan. A credible party needs to present to the British people how it will provide economic security and stability. That is what this Government are doing. I look forward to the day when there is cross-party consensus that economic security and stability are important to this country.
George Kerevan (East Lothian) (SNP)
Sir Roger, not having served under your chairmanship before, I look forward to doing so. I accept the Minister’s point that he is trying to produce certainty through the clause, but it is surely the case that he is merely displacing the uncertainty. If projected tax receipts fail and the Bill is on the statute book, the Government will have to either cut public expenditure, which will impact on the economy and affect the confidence of suppliers, or raise borrowing, which again will have an impact on confidence in the economy because interest rates will have to go up. In no way can we ever introduce certainty; all we can do is put the uncertainty somewhere else, so the Minister’s argument fails.
Mr Gauke
I was making the point that it is important we provide certainty on taxes. At the last general election, the Labour party—I am not sure this was the case for the SNP—certainly said that it would not increase income tax, VAT and national insurance contribution rates. In that sense, there was a cross-party consensus—at least there was at the last general election; I appreciate things may have moved on since then—on not increasing those rates. We are underlining our pledge by legislating for it, which further strengthens our commitment. In the context of a Government who have a record of ensuring that income taxes do not increase, even when we face the most difficult circumstances, that pledge and this legislation have credibility.
The changes made by clause 1 will set out that the basic, higher and additional rates of income tax will not rise above their current levels of 20%, 40% and 45% respectively for the duration of this Parliament. The tax lock will apply to the main rates of income tax for earnings and savings. That accounts for more than 90% of income tax revenue collected, and that is what we want to lock, enabling working people to keep more of what they earn.
The tax lock does not prejudice the Government’s commitments on tax devolution. From April 2016, Scotland will have the power to vary the rate of income tax for earnings, and we are devolving further unprecedented flexibilities over income tax to Scotland through the Scotland Bill, which will give the Scottish Parliament the power to set the rates and thresholds applying to earnings income. The Government are committed to delivering that in full, giving Scotland full flexibility over income tax rates and thresholds on earnings income. The tax lock will therefore not restrict Scotland from setting higher rates of income tax, nor Wales when it has the Welsh rate of income tax.
Clause 1 delivers the Government’s commitment to rule out increases in the main rates of income tax for the duration of this Parliament, ensuring that working people can keep more of the money they earn.
Mr Gauke
I shall briefly respond to the hon. Lady’s speech. Let me be clear that if one looks at the measures set out by the Chancellor of the Exchequer in his Budget speech this summer, one will see that we are ensuring that working families will benefit from a strong and growing economy. By 2017-18, eight out of 10 working households will be better off as a result of the changes we are making to the personal allowance, the introduction of the national living wage and the welfare changes set out in the Budget.
The concern has been raised that the clause is somehow just presentational, but I return to the point I was making earlier about underlining our commitment. It is consistent with the approach we have taken to the tax system, and I think families up and down the country will welcome that. In particular, in the current context, with the official Opposition apparently moving in the direction of wanting to increase taxes, the fact that Parliament is making it clear what the current majority feels can only be helpful.
Barbara Keeley
As I have said already in this debate and the other day in the Committee of the whole House, this is a tax-raising Budget and the Government are raising taxes. I touched on some of those taxes and we have talked about the insurance premium tax. This is a tax-raising Budget and a tax-raising set of measures.
Mr Gauke
The Government are committed to creating a low-tax economy and the clause marks clear progress towards that. We must remember that the Government inherited the biggest deficit in our peacetime history. We heard criticism from the hon. Member for Cambridge, who said it should—[Interruption.] If the Scottish National party’s position is that the deficit should be larger, I strongly disagree. The deficit fell significantly over the course of the previous Parliament, but there is still further work to do. In that context, we must make some difficult decisions.
Public spending is taking the greater share of the strain when it comes to fiscal consolidation, and we believe that is the right approach. I do not know whether the Opposition parties share that belief, but I very much doubt it. The clause demonstrates our commitment on income tax, just as in the next clause demonstrates it on VAT—to ensure that over the course of this Parliament we do not increase those tax rates. I think the British public will welcome those measures—after all, they were set out before the last general election. I hope that the clause has the Committee’s support.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clause 2
VAT lock
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
New clause 1—VAT treatment of the Scottish Police Authority and the Scottish Fire and Rescue Service—
‘(1) The Treasury shall, within six months of the passing of this Act, publish and lay before the House of Commons a report on the VAT treatment of the Scottish Police Authority and the Scottish Fire and Rescue Service.
(2) The report must include (but need not be limited to) an analysis of the impact on the financial position of Police Scotland and by the Scottish Fire and Rescue Service arising from their VAT treatment and an estimate of the change to their financial position were they eligible for a refund of VAT under section 33 of the VAT Act 1994.’
New clause 3—VAT on sanitary protection products—
‘(1) The Treasury must, within 12 months of the passing of this Act, lay before the House of Commons a report setting out the impact of exempting women’s sanitary protection products from value added tax.
(2) The report must include (but need not be limited to)—
(a) an estimate of the impact on VAT revenue of exempting women’s sanitary protection products; and
(b) an assessment of the impact on the purchase of women’s sanitary protection products of exempting them from VAT, with particular reference to purchasing by women aged under 25.’
Mr Gauke
I will say a word or two about the clause and then, if I may, I will respond to the new clauses that I assume will be set out by the hon. Member for Kirkcaldy and Cowdenbeath. The clause states that the standard and reduced rates of VAT will not rise for the duration of the Parliament. It also locks certain provisions in the Value Added Tax Act 1994 to prevent them from being used to change the scope of VAT by moving any goods or services out of the zero rate or reduced rate for the duration of the Parliament.
The Government believe in lower taxes and are committed to eliminating the deficit in a way that is fair to taxpayers. As part of our plan to move the UK to a lower tax economy, we made a manifesto commitment to rule out any increase in the main rates of income tax, national insurance contributions and VAT for the duration of this Parliament, as I have mentioned. Clause 2, following on from clause 1 on income tax, implements that commitment for VAT. This initiative will provide certainty to taxpayers and ensure that working people will not have to pay any additional VAT on their purchases for the duration of this Parliament.
Let me set out the changes made by the clause in a little more detail. Currently, the standard rate of VAT is 20% and the reduced rate is 5%. Clause 2 states that the standard and reduced rates of VAT will not rise, locking the rates for the duration of this Parliament. As the zero rate clearly cannot be more than 0%, it is not covered by the legislation. Supplies that are subject to the reduced rate, such as domestic fuel and power, are listed in schedule 7A, and those that are zero-rated, such as books, children’s clothes and most food, are listed in schedule 8. The supplies listed can be varied by means of a Treasury order. However, the legislation will prevent the use of Treasury orders to expand the scope of VAT by removing supplies from the zero and reduced rates.
While the 20% standard rate of VAT is among the lowest in the EU, the UK also has the lowest reduced rate of VAT permitted by EU law and is one of only eight EU member states to have successfully negotiated to apply a zero rate of VAT. The Government will not increase the reduced or standard rates of VAT and will retain the zero rate of VAT, in keeping with our commitment to creating a higher wage, lower tax and lower welfare country.
In summary, clause 2 provides the strongest possible backing for the Government’s commitment not to increase VAT for the duration of this Parliament. It delivers on our manifesto promise and is consistent with our policy to deliver a lower tax economy for hard-working taxpayers.
Barbara Keeley
Many of the points I raised about clause 1 on the principles of tax locks also apply to clause 2, which states that the standard and reduced rates of VAT will not rise for the duration of the VAT lock period. It also ensures that no goods and services can be removed from the zero and reduced rates of VAT for the duration of the VAT lock period.
The Labour party made a commitment not to raise VAT back in March and in our 2015 manifesto. Indeed, the Government’s tax lock was announced in response to our challenge about not repeating their broken promises on VAT. We are pleased the Government have agreed that VAT rates should not go up, because that will benefit people on lower and middle incomes. This legislation is perhaps a little more needed, given the Conservatives’ record on VAT. The Prime Minister made a similar commitment in 2010 not to raise VAT, only to raise it to 20% immediately after entering Downing Street. However, as with the income tax lock, we are concerned that there is nothing to prevent the Government from changing the VAT lock in future legislation.
How will the VAT lock stand up in the face of European Union intervention? The UK is subject to EU VAT law and European Court of Justice decisions on VAT will have an impact on VAT here. On 4 June this year, the European Court of Justice judged that the UK had failed to comply with the VAT directive by applying a reduced rate of VAT to the supply and installation of energy saving materials for housing, which the Court ruled will have to be charged at the standard UK VAT rate of 20%. Another recent example of EU involvement is the 2015 Court decision in the “Go Fair” case, in which the Court found that VAT should be chargeable on the supply of care workers provided by a temporary agency. Currently, UK agencies supplying nursing staff can benefit from a VAT exemption. Will the Minister indicate whether that will change as a result of the European ruling?
The Chair
Before I call the Minister, I need to make it plain that the recommendations of the Procedure Committee have not yet been adopted and, until they are, there has to be an Adjournment of the sitting rather than a suspension. It is what is known in the trade as madness, but that is nevertheless what is needed. I do not have the power to suspend the sitting at 1 o’clock as would normally be the case to allow hon. Members on both sides of the Committee time to review papers and emails and to have some lunch. Therefore, I gently caution the Committee: if the Minister wishes to go past 1 o’clock, he is entirely entitled to do so—he may have some cross friends on both sides of the Committee—and the Whip has to have the opportunity to move the Adjournment before we can end the sitting.
Mr Gauke
Let me say that I share your ambition for the timing of the Adjournment, Sir Roger.
I have addressed some of the points about the tax lock already. As for the application of EU law and ECJ judgments, which by the hon. Member for Worsley and Eccles South rightly raised, let me be clear: EU VAT law and Court decisions will have to apply to the UK, too. Legislation will have to be changed to reflect any changes or Court decisions, otherwise the UK would be breaking the law. I do not wish to evade that point in any way. None the less, that does not undermine the basis of the VAT tax lock, because the great bulk of VAT issues on rates and the boundaries between the zero rate, reduced rates and standard rate are unlikely to change. However, I acknowledge that point. VAT exemptions are set out in EU law and cannot be changed by the UK unilaterally. We are therefore not binding our hands on the exemptions because they are not determined by the UK alone. I hope that provides a little clarity.
Barbara Keeley
Before the Minister moves on, I want to clarify once more why Opposition Members believe that the tax lock is a gimmick. If things go really wrong, it will have to change and, having bound their hands, if the Government have to increase VAT or income tax, that will really destroy public confidence out there. That is the problem.
Mr Gauke
Let me respond to that quickly. I come back to the intervention made by my hon. Friend the Member for Croydon South. We did not hear those arguments from the hon. Lady or her colleagues when we were legislating for the 0.7% expenditure on overseas aid; these points were made in the context of the tax lock. One cannot help feeling that when the Opposition’s heart is really in the legislation, they think it is the right thing to do, and when their heart is not in it, they call it a gimmick. Very similar arguments apply to both items of legislation.
New clause 1 would require the Treasury to write a report on the VAT treatment of Police Scotland and the Scottish Fire and Rescue Service, including analysis of the change in their financial position since 2012 as a consequence of their ineligibility for section 33 VAT refunds. As we heard, in 2012 Scotland’s eight locally governed police and fire authorities consolidated to become two national bodies. As a result, they were no longer reliant on local taxation for funding, which is one of the two criteria for eligibility for the section 33 VAT refund scheme. Following the restructuring, the new national bodies were therefore no longer were eligible for VAT refunds.
The new clause asks the Treasury to write a report on the VAT treatment of those bodies, including an estimate of the change to their financial position since their restructuring if they had remained eligible for VAT refunds. However, it is important to remember that the Scottish Government were forewarned of that consequence well in advance of the decision they took. The Treasury was keen to ensure that the Scottish Government considered that consequence as part and parcel of their decision to restructure the services. Because the expected cost savings to the Scottish Government outweighed the loss of any VAT refunds, I perfectly understand why they went ahead with their restructuring programme.
As I have explained, as the Scottish Government restructured those services, they are no longer eligible for VAT refunds. That is plain and clear, and the eligibility is set out in legislation. There is no need to explain it further or for a report to be submitted to the House. If the Scottish Government are now reconsidering their position and wish to discuss how the services can become eligible once again for VAT refunds, the Treasury will happily engage with them to advise. In conclusion, there does not seem to be any justification for using Treasury resource to set out in a report something that is clearly set out in legislation. As things stand, the Scottish police and the Scottish Fire and Rescue Service are not eligible for VAT refunds. I therefore ask that new clause 1 not be moved.
New clause 3 would require the Treasury to write a report on a VAT exemption of women’s sanitary protection products, including a financial assessment and an assessment of the impact on the purchasing of these products, especially by those aged under 25. I am well aware of the ongoing campaign to zero-rate or exempt from VAT sanitary protection products, which has cross-party support. I very much sympathise with the aims of the new clause, but this is not simply a case of the Government taking action.
The new clause asks the Treasury to submit a report to the House on the impacts of exempting sanitary protection products from VAT. The plain facts of the matter are that the goods and supplies to which the UK Government can apply a VAT exemption are set out in EU law. Any change to EU VAT law would require a proposal from the European Commission and the support of all 28 member states, which is no easy task.
To put this into context, the UK applies a reduced rate of 5% to sanitary protection products—the lowest permissible rate of VAT under EU law. However, different countries have different priorities, setting their tax rates to meet the economic conditions prevalent in their own jurisdictions. Across the EU, the average rate of VAT applied to sanitary protection products is more than 17%. The hon. Member for Glasgow Central made reference to the Republic of Ireland. My understanding is that it is not correct that these products are zero-rated or exempt there. The UK applies the lowest rate across the whole EU.
In discussions in the EU, some member states may consider other reviews to be of more concern to them at this time. It is not that there is any lack of sympathy for the cause. When the previous Labour Government, under Gordon Brown, reduced the rate, he did not zero-rate these products because of the constraints of EU law. Any change would require the overall consent of the EU institutions.
Mr Gauke
Before I do so, I wish to correct something. I understand that the Republic of Ireland has a zero rate for sanitary products. I correct what I said: the hon. Member for Glasgow Central was correct, so I apologise. That zero rate was agreed before Ireland joined the European Union in the early 1970s. A zero rate on these products was not in place when the UK joined the EU, or the Common Market as it then was. I am sure we would all consider that regrettable, but that was the situation. Trying to extend zero rates across the board would be difficult.
Barbara Keeley
There is a recognition of the difficulty—that certainly came out in the speeches we heard on this element of the Bill. What other Members and I would like to hear from the Minister is whether he supports doing something about it. Does he want to have a push on it? Party leaders seem to say that they do, but it would helpful if we could hear him say that he wants to do something about this issue.
Mr Gauke
There are a number of ways in which the European Union and the rules that apply within it could be improved. A strong case is made from all parts of the House that greater flexibility in this context would be helpful, but the point I would make is that we see little indication that other member states, which by and large have higher rates—the average rate is 17%—share that objective. If there is a general move, we would support that.
Other than when an accession country joins the EU and negotiates a zero rate, there is no particular indication that the Commission or member states as a whole are prepared to introduce new zero rates. Indeed, quite a lot of the advice coming from organisations such as the OECD and the general position that the Commission takes tend to be against that, so I do not want to underestimate the difficulties.
Alison Thewliss
I thank the Minister for giving way, and I am glad he was able to make that correction, because I checked whether Ireland had a zero rate this morning on the Irish Tax and Customs website. I appreciate what he is saying about things being difficult, but this is about promoting what is correct and right. I seek an assurance that he will lead on this issue. Changes could and should be made in this instance to correct a long-standing injustice, and I would like to hear a wee bit more about the Government’s ability to do that.
Mr Gauke
I come back to the point that we are not stating that we do not see the case the hon. Lady is making, but that we should not underestimate the resistance to the introduction of zero rates. The UK already has zero rates to a greater extent than most if not all other member states. As I said, zero rates have been possible only on accession, which is why the Republic of Ireland has a zero rate. There is a reason why the Labour Government introduced a 5% rate, not a zero rate. We are supportive and we would like the rate to be as low as possible, but without wider EU reform and greater flexibility in this area—other member states have other priorities—it will be a challenge. I do not dismiss the issue: were we able to progress further, I would be sympathetic, but we should bear in mind the task ahead of us.
With those remarks, I hope that new clause 3 will not be moved when it comes to it, however much I sympathise with the intentions behind it.
Question put and agreed to.
Clause 2 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Mel Stride.)