Value Added Tax Bill

Debate between Christopher Chope and Robert Jenrick

Friday 8th February 2019 Commons Chamber

[Robert Jenrick]

That suggestion, which my hon. Friend set out so eloquently in her speech, has been discussed on many occasions. It is an interesting proposal, but it would have significant fiscal implications, and it would mean that any business would be able to take advantage of that; large multinational corporations would benefit, not just small and medium-sized businesses. However, it is something we might consider in future.

[Sir Christopher Chope]

The Minister says that the consultation outcome was inconclusive, but paragraph 4.34 states:

“Above all, the most consistent response regarding the level of the VAT threshold was that a reduction in the threshold would be damaging for UK business and the economy.”

Paragraph 4.35 states:

“Many responses committed to the view that an increase to the threshold would make it much easier for newly-registered businesses”

and so on. Was not the balance actually in favour of raising the threshold?

[Robert Jenrick]

As one might expect, many people wanted it to be increased, but a very large number of those who took part in the survey came to the conclusion that the bunching effect that my hon. Friend described, which is the fundamental issue here, would simply be kicked further down the road if we increased the threshold to £100,000. Of course, if one increased it to a very large figure such as £500,000 or £1 million, that might be of less concern because it would take out a swathe of small and medium-sized businesses, but the fiscal cost would be even higher. While I am the first person to seek a dynamic approach to taxation and lower taxes, we have to balance those two considerations and ensure that we do not live beyond our means as a country. As my hon. Friend the Member for South Suffolk said, taken together the proposals in the Bill carry a significant fiscal cost of several billion pounds, which I will mention briefly later.

The Bill proposes a threshold of £104,000. We already have the highest in the EU and OECD, so we lead the international business community in that respect. There is no evidence to suggest that the policies that the Government have adopted are leading to a diminution in the number of small businesses created in this country. There is a new start-up every 75 seconds. We are the start-up capital of Europe. We are the most dynamic and supportive economy in the world for entrepreneurs. If the UK economy has any challenge in this respect, it is how to help a business to scale up into a much more substantial business, far beyond the VAT threshold. We have been trying to tackle that issue in a number of ways that I do not have time to discuss today.

The measure is expensive, as we have heard. Its estimated cost to the Exchequer would be about £2.1 billion per year. I take my hon. Friend’s point that it might have a dynamic effect and that we need to take such things into consideration. It can be a criticism of the Treasury and the OBR that the processes that we have created in the past 15 years make it much harder to take the kind of attitude that a Chancellor such as Nigel Lawson would have taken in the 1980s. None the less, there is a substantial fiscal cost to the measure. The loss in revenue has to be balanced by reduced public spending, increased borrowing or increased taxation elsewhere, all of which we want to avoid. While we support the desire to improve business growth, concerns remain that increasing the threshold would simply shift the problem higher up the level.

I want to mention some of the issues that my hon. Friend and others spoke about. I know that many right hon. and hon. Members care strongly about VAT on women’s sanitary products, as do I, and wish to see change as soon as possible. The Government have taken action to address the issue, but we have been unable to succeed as a result of our continued membership of the EU. There will be opportunities for reform in the future, but not until the UK leaves the EU or after the end of the implementation period, should there be a deal, which we hope there will be. At that point, we will have the opportunity to address some of the issues.

It is worth saying that since the referendum on leaving the EU, the Government have received in excess of £40 billion of requests for reliefs from VAT using the additional flexibilities that we may have when we leave the EU. In addition, numerous other requests have been made to us, whether on excise duties or air passenger duty. In aggregate, these produce a substantial cost to the Exchequer, which would harm our ability to fund public services. We have to be realistic about our ability to act and to reform these taxes once we leave the EU.

[Sir Christopher Chope]

Is my hon. Friend prepared to publish that list of bids so that there can be a wider debate about which ones are most popular?

[Robert Jenrick]

It is not a secret. These matters are frequently discussed in the House. If my hon. Friend comes to Treasury questions, he will hear debates from colleagues who have regional airports, who would like us to reduce air passenger duty. He will hear colleagues from Northern Ireland asking us to reduce the aggregates tax so that they can increase their competitive position with the Republic of Ireland. There are numerous requests for us to use the freedoms that we will have when we leave the EU. We may be able to meet some of them, but we will have to do so judiciously. If we did all of them, as I think he might wish, we would end up with tens, if not hundreds, of billions of pounds less revenue with which to fund our public services, but he is absolutely right to want a good public debate in the years ahead about how we do this.

The Government agree that women’s sanitary products should not be subject to VAT and, in the Finance Act 2016, introduced measures to enable the zero rating of VAT for women’s sanitary products to take effect as soon as legally possible. In the meantime, at 5%, the UK applies the lowest VAT rate currently possible under EU law.

Until we are legally able to remove this tax, the Government will continue to award £15 million a year to women’s charities—equivalent to the amount of VAT raised for the Exchequer from the sale of women’s sanitary products. To date, over 70 charities have received grants from the tampon tax fund and £62 million has been allocated since autumn statement 2015. This is a ridiculous and unfair tax that we want to remove as soon as we have ability. Rest assured, this Chancellor and this Government will do so.

In summary, I thank my hon. Friend for raising these issues and for the good debate we have had today. I would not always say this, but he is ahead of his time in raising these issues. The flexibilities he wants are not available today but might be in the years ahead. This prompts an important national debate about how we can continue to champion small businesses and have a tax system that supports enterprise and entrepreneurship long into the future. Unfortunately, at the present time, under EU law, we cannot act on many, if not all the measures, he has set out and so cannot support the Bill.