Tax Avoidance (HSBC)

Debate between Diana Johnson and David Gauke

Monday 9th February 2015 Commons Chamber

[Mr Gauke]

I can indeed. The previous Government looked at this and said it could not be done. We have looked at it, and have put rules in place. Indeed, we are looking at introducing penalties for breaches of them as well. I am grateful to my hon. Friend for raising that point.

[Diana Johnson (Kingston upon Hull North) (Lab)]

The Minister said a couple of times that there was no information or evidence against Lord Green at the time of his appointment. Can the Minister spell out exactly what due diligence was carried out at the time of his appointment?

[Mr Gauke]

On HSBC generally, there are clearly questions that need to be answered about what happened at HSBC between 2005 and 2007. HMRC has been taking action against about 1,000 people who were involved in this matter, where there is evidence that they have broken the UK law. HMRC will continue to take action in the event of any further evidence arising; I make that point about our approach. On Lord Green, what I would say is that he was a successful trade Minister. There is no suggestion, and no regulator has suggested, that he was at fault with regard to what happened with the Swiss subsidiary.

Oral Answers to Questions

Debate between Diana Johnson and David Gauke

Tuesday 12th March 2013 Commons Chamber

[Mr Gauke]

The costing for the cutting of the additional rate, according to Her Majesty’s Revenue and Customs and signed off by the Office for Budget Responsibility, was £100 million. The cost of raising the personal allowance is about £9 billion, and that is where our priorities lie.

[Diana Johnson (Kingston upon Hull North) (Lab)]

17. Instead of spending £3 billion on cutting the 50p rate for the richest, why not put the money towards 100,000 social rented homes of one and two bedrooms to make the coalition Government’s bedroom tax work?

[Mr Gauke]

This figure of £3 billion that is repeated time and again is simply inaccurate. It makes no assumption for behavioural effects whatsoever, and this was never the position of the Labour party. The fact is that the cost is £100 million, recouped several times over by other measures contained in the last Budget that are getting more money out of the wealthy.

Finance Bill

Debate between Diana Johnson and David Gauke

Tuesday 3rd July 2012 Commons Chamber

[Mr Gauke]

I certainly will, although at this point I am just setting out what we set out at the Budget. I will turn to each individual measure in more detail in a moment and happily give way to my hon. Friend at that point.

We propose to remove the anomaly whereby approved alterations to certain listed buildings are zero-rated while alterations to other buildings and repairs to and maintenance on all buildings are standard-rated. We included transitional arrangements for alteration works to listed buildings which had been contracted before the Budget, and we wanted to put beyond doubt the fact that VAT applies to the rental of hairdressers’ chairs.

Finally, we proposed to ensure that holiday caravans are taxed consistently at the standard rate of VAT. The proposal, as set out in the consultation document, was that all the changes would take effect from 1 October via secondary legislation, supported by anti-forestalling provisions in this Bill. The consultation was opened on 21 March, and overall HMRC received some 1,500 responses. Owing to the volume of interest in the consultation, we decided to extend it, and since it has closed we have reflected fully on the points made during the process.

As the House will be aware, in two areas—hot food that is cooling down naturally and static holiday caravans—the Budget proposals created a high degree of business uncertainty, so the Government wanted to let people know our preferred course of action as soon as possible; we did that on 28 May. Last Thursday, we published a consultation response document and tabled the new schedule setting out our approach to all the measures on which we consulted. We stand by the rationale for removing anomalies, but have made several refinements, including those we announced on 28 May. They are intended to improve the policy and reflect the practical concerns raised in the consultation.

[Diana Johnson (Kingston upon Hull North) (Lab)]

HMRC produced a document on the impact of the caravan tax, but can the Minister provide enlightenment on the impact of the 5% VAT imposition? There are no figures now on how many jobs will be lost and by how much demand for static caravans will decrease, and I was hoping that the Treasury had worked that out.

[Mr Gauke]

Clearly there is a substantial difference between 20% VAT and 5% VAT. We set out our estimates in relation to the 20% rate, and some of the concerns that people took from what HMRC set out were, I think, somewhat greater than the reality warranted, because the impact set out and the assumption regarding the reduction in demand related solely to that element to which the change from zero-rated to standard-rated applied. On many caravans that are sold, the VAT is recovered—VAT already applies to an element of the price of a static caravan: that of the fixtures and fittings.

We do not think the impact of the 5% rate is likely to be substantial. In the usual course of business there are tax changes—national insurance contributions and rates are the subject of regular fluctuations—and in many cases the VAT change may well be absorbed. In addition, we have given industry much more time by deciding not to implement the change until April next year. Caravan manufacturers will have the opportunity to sell more caravans in advance of next year’s summer season—the information we have is that spring tends to be the busiest period. The overall impact on the industry is therefore unlikely to be significant.

Before discussing each of the anomalies and saying more about static caravans, I would like to give the House a little bit of history about the VAT system. As I am sure all hon. Members know, the VAT system was introduced in 1973 and amendments and adjustments were being made as early as 1974. The then Labour Government added confectionary, soft drinks, ice cream, potato crisps and certain other savoury snacks—

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[Mr Gauke]

One can never rule out the fact that some people will be litigious and try to take a creative view of any particular guidance. However, we believe that we have reached the right position after much consultation and discussion with the industry and with hon. Members, many of whom have been very engaged in the matter. I look around the House and see at least two Members who have been in my office to make representations on this point. We believe that we have reached a position that is sustainable and fair, and that is what we are putting to the House in the new schedule. The additional criteria will ensure that hot food will generally be taxed at the standard rate of VAT, but if food that would be zero-rated when cold is bought when it happens to be cooling down, but is not yet cold, it will still be zero-rated provided that it does not meet any of the criteria that I set out. These changes will add further tests to make the relief less open to abuse and provide a level playing field for all businesses supplying their customers with hot food.

Turning to the issue of holiday caravans, which we have touched on briefly, the VAT zero rate was originally intended to apply to the sale of caravans used only for residential purposes. To achieve that objective, the rules drawn up in the 1970s applied tax only to the sale of smaller caravans that could legally be towed on UK roads by a typical family car. However, over the years, an increasing number of large caravans have been used for holiday purposes. Those caravans inadvertently benefit from the VAT zero rate that was intended for residential caravans. That has led to widespread inconsistency in the VAT treatment of the sale of holiday caravans.

Under the current legislation, any caravan wider than 2.55 metres or longer than 7 metres is zero-rated as a residential caravan. The Government propose to replace the definition of a zero-rated caravan based on size with a new definition based on whether the caravan has been designed for residential use. To achieve that, we propose a new test that links the zero-rating with British Standard 3632, which indicates that the caravan has been designed and manufactured for continuous, all-year-round occupation and is therefore suitable for residential accommodation.

We consulted on whether the additional criteria should be added to ensure that the zero rate applies only to caravans intended for residential use. Given the reaction to the proposal, we decided that rather than having a single dividing line between a zero rate of VAT on residential caravans and a rate of 20% on static holiday caravans, static holiday caravans should be subject to VAT at the reduced rate of 5%. Static residential caravans—those that meet BS 3632, or early equivalents in the case of second-hand sales of older caravans—will remain zero-rated, as per the Budget proposal. We do not intend to restrict the zero rate further by adding additional criteria.

[Diana Johnson]

Will the Minister give way on that point?

[Mr Gauke]

There is a little more that I was going to say that may be helpful to the hon. Lady, but I will give way at this point.

[Diana Johnson]

I wonder whether it is sensible to make decisions on tax policy based on manufacturing standards. Manufacturing standards will change and no doubt get better, so is that a sensible way of operating tax policy?

[Mr Gauke]

In this particular circumstance, the manufacturing standard provides a better definition or borderline than the size criteria that I set out. It was put to us in the consultation that it would be very easy for manufacturers to do a bit more here and there, and that a static caravan that was once not BS 3632-compliant suddenly would be. When we investigated that, we concluded that it was quite expensive and difficult to meet BS 3632. Genuine residential caravans meet that standard, but non-residential, holiday vans do not. It seems to be an effective borderline. Of course these matters will be kept under review, but we think that this is a sensible conclusion and one that the industry recognises. The evidence that the industry has put to us is that BS 3632 adequately distinguishes between residential caravans and static caravans.

It is worth pointing out that BS 3632 caravans tend to be more expensive and are built to a higher specification. For those reasons, they tend to be used more in the residential market than in the holiday market. It is worth coming back to the intention of the 1970s definition for zero-rated caravans.

We recognise that static holiday caravans fall in a grey area between residential property and temporary holiday accommodation, which have different tax regimes. We have therefore produced the fair compromise of a 5% VAT rate. The argument was sometimes made to us that static holiday caravans should be treated like a second home, on which VAT is not paid. However, council tax is paid on a second home, which is not the case with static holiday caravans. Imposing the council tax regime on static caravan homes would have placed a significant burden on their owners and holiday parks, so we believe that we have made a fair compromise. As I said earlier, to give the industry more time to adjust, the measure will be delayed until 6 April 2013. All the other measures that we are discussing today will proceed as planned on 1 October this year.

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[Diana Johnson]

The National Caravan Council has said that the caravan industry is fragile after the problems that it experienced in 2008. Based on the figures in the KPMG report, there would have been 6,000 job losses if the imposition of the 20% rate had gone ahead. Am I right to assume that with the 5% rate, the Treasury is working on the assumption that the impact will be a quarter of that number, which means 1,500 job losses?

[Mr Gauke]

Perhaps it will help the hon. Lady if I run through the situation. We have to raise a certain number of taxes, and VAT probably does less harm to the economy than almost any other tax that one could mention, whether it be employers’ national insurance contributions, which reduce the number of jobs, or corporation tax, which reduces investment. There is an issue with any tax.

On this particular policy, however, we are talking about a 5% rate on 80% of the price of a caravan, the other 20% being standard rated already, and on 85% of sales, the other 15% being standard rated already—or rather the purchaser being able to recover input taxes on it. There is then an elasticity of demand, and the 5% rate might result in a 5% reduction in demand, but of course that involves various assumptions and some uncertainty. As my hon. Friend the Member for Brigg and Goole (Andrew Percy) said, however, much of the industry does not think it will have a significant impact.

Static Caravans (VAT)

Debate between Diana Johnson and David Gauke

Thursday 26th April 2012 Commons Chamber

[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.

Oral Answers to Questions

Debate between Diana Johnson and David Gauke

Tuesday 24th April 2012 Commons Chamber

[Mr Gauke]

I can assure my hon. Friend that we will listen carefully and sympathetically to the arguments that are put to us. He, indeed, has already made strong representations on this point, and we have of course extended the consultation period to 18 May, as the Chief Secretary to the Treasury pointed out earlier.

[Diana Johnson (Kingston upon Hull North) (Lab)]

Can the Minister explain to my constituents why VAT on ski lifts in the Chief Secretary to the Treasury’s constituency is being reduced, but in my constituency thousands of people are going to lose their jobs with the implementation of the Government’s plans to increase VAT on static caravans?

[Mr Gauke]

VAT is chargeable on mobile caravans, camper vans, narrowboats, beach huts and tents, and we are seeking greater consistency in the area.

With regard to ski lifts and other forms of cable-based transport, there is a reduced rate in France, Germany, Austria and Italy, and most areas of public transport are zero-rated.

Budget Leak Inquiry

Debate between Diana Johnson and David Gauke

Thursday 22nd March 2012 Commons Chamber

[Mr Gauke]

There is a lot of speculation, but one of the aspects of Budget policy making under this Government is that it is much more orderly and systematic and decisions are reached in a proper way, unlike the chaos that reigned under the previous Government.

[Diana Johnson (Kingston upon Hull North) (Lab)]

The Liberal Democrats were briefing extensively in the past few days, and I just wonder whether the Minister would like to investigate why they seem to have preferential access to information before Parliament does.

[Mr Gauke]

It is only to be expected that coalition parties will want to make their arguments and to set out their case, and we do have a Budget that is formed by a coalition, but it is a Budget that is good for the country.

Oral Answers to Questions

Debate between Diana Johnson and David Gauke

Tuesday 16th November 2010 Commons Chamber

[Mr Gauke]

My hon. Friend is perhaps getting a little ahead of himself. I think all we should say is that should that happy eventuality occur, I am sure he or she will get by without child benefit.

[Diana Johnson (Kingston upon Hull North) (Lab)]

16. What estimate he has made of the cost to the Exchequer of redundancy and retraining requirements arising from implementation of proposals contained in the comprehensive spending review.