Whitsun Recess

Alan Reid Excerpts

Thursday 24th May 2012 Commons Chamber

[Mr Alan Reid (Argyll and Bute) (LD)]

I want to talk about the Government’s proposal, announced in the Budget, to extend VAT to static holiday caravans. There was a short debate on this matter during the Committee of the Finance Bill. However, that debate included proposals to put VAT on many other things, so there was no time properly to debate static caravans. I was pleased, however, when the Government announced during the debate that the consultation period would be extended to allow the industry to make representations. I am glad that the Government are in listening mode, and I want to use this opportunity to make representations to them.

My constituency interest arises from the large number of caravan parks scattered throughout Argyll and Bute. I represent a beautiful constituency stretching from Loch Lomond in the east to Loch Linnhe in the north and the Mull of Kintyre in the south. It also contains the Cowal and Rosneath peninsulas, the Isle of Bute and many other beautiful islands—there is far too much beautiful scenery to mention, including the miles of coastline on the west coast and the Firth of Clyde. The scenery is beautiful, but the economy is fragile. “You can’t eat the scenery”, as the old saying goes, but we can sell the views to the visitors, and that is where static caravans play an important role.

A large proportion of people who visit Argyll and Bute own static caravans on the many holiday parks, and these caravans provide many jobs in rural areas. There are the people who work on the parks and a whole host of small businesses that make their livelihoods from selling food and other goods to the static caravan owners. As a result, these holiday parks underpin many small businesses, and we should be encouraging such small businesses in these difficult times, not imposing a further tax on them. Many local shops tell me that a large proportion of their sales are to static caravan owners and that they could not survive without this business. Neither is this just a business for the short summer season; many owners regularly come to their caravans at weekends throughout the year.

The Treasury’s own impact assessment suggested that imposing VAT on static caravans would cut demand by 30%. That is a huge fall in demand for any business to cope with, never mind those already struggling because of the recession. It should be noted, however, that the industry regards the 30% figure as an underestimate and believes that the actual drop in sales could be much bigger. Fewer caravan sales means fewer owners, which obviously means fewer people visiting rural constituencies such as mine and spending their money in the rural economy. People living in remote areas with fragile economies who will lose their jobs if this VAT measure goes ahead will find it difficult to get another job where they live. The Treasury estimates that the measure will bring in an extra £35 million in 2013-14, but I urge the Government to consider the wider picture. The proposal might bring in £35 million, but a lot more will be lost to the economy if the extra tax goes ahead.

The proposal appears to have arisen because the Government wanted to correct a supposed anomaly—that caravans towed on the road by cars are subject to VAT but static caravans are not. By proceeding in this way, however, the Government will simply create other anomalies that will be just as difficult to resolve. For example, let us compare buying a static caravan to buying a holiday cottage. Static caravans sell from about £24,000. VAT on a £24,000 static caravan would be £4,800. Let us compare that with somebody who buys a holiday cottage for £240,000. The tax paid—in this case stamp duty—will be 1%; that is, £2,400. Therefore, the cost of the holiday cottage is ten times as much as the cost of the caravan, but the tax is only half. That is hardly fair. We should also remember that the person buying the holiday cottage could be depriving a local family of a chance to buy a home. That is not fair taxation, nor does it make any sense as far as supporting fragile economies is concerned.

The Government realise that if they impose VAT on static holiday caravans, they will have to draw a line somewhere. They have proposed that static caravans that are manufactured to BS 3632 will not be liable to VAT. Only caravans built to a lesser standard would be subject to VAT. However, that would simply create another anomaly. British standards change all the time, so they are an unsuitable measure for determining eligibility for taxation. It is also important to consider how such a rule could be enforced. Will VAT inspectors be trained in how to determine whether a British standard has been met for a particular caravan? If so, will they have to inspect all static caravans that are sold, to determine whether they meet the standard—which, we should remember, constantly changes? Another new anomaly that would be created is that houseboats would still be zero-rated, whereas static caravans would not. Both are tied to a fixed point, yet they would be treated differently for tax purposes. Far from ironing out an anomaly, we would just be creating a series of other anomalies.

The proposal appears to have arisen because somebody found a loophole in the present legislation. They worked out that large hybrid touring caravans would not be subject to VAT. Hybrid touring caravans are large caravans that are too big to be towed by cars, although they can be towed behind lorries. Under the present rules, they are zero-rated because of their large size. However, rather than trying to block the loophole by taking static caravans into taxation, why not block it by making caravans that are designed to be towed by a large lorry on public roads subject to VAT? Surely it would be fairly straightforward to create a definition in legislation to provide that caravans that could be towed on the road would be subject to VAT. Static caravans cannot be considered to be road-going, as they do not have a chassis with brakes or a handbrake, nor do they have brake lights and indicators to comply with road traffic legislation. It should surely be straightforward to ensure that if, under road traffic legislation, the caravan can be towed on the road, it should be subject to VAT. To summarise: if it moves, tax it; if it doesn’t, don’t. Static caravans do not move—yes, the clue is in the word “static”. My suggestion for the Government would be fairly straightforward. The tax treatment of static caravans should be compared with the treatment of other static accommodation, such as houses and houseboats, not caravans that can be towed on our roads.

Although announced in the Budget, the measure is not part of the Finance Bill. I hope that, following the consultation, the Government have listened and will decide not to go ahead. I even hope that my hon. Friend the Deputy Leader of the House will be able to make that announcement in his summing up today. [Laughter.] However, I suspect from his reaction that I am perhaps being a bit optimistic. The consultation closed only on Friday, so we ought to be prepared to give the Government a bit more time to respond. I hope that they will decide not to proceed. However, I would like my hon. Friend to tell the House today what procedures will be followed to introduce the measure, should the Government decide to do so.

Argyll and Bute’s main asset is our beautiful scenery. This VAT proposal will make it far harder to sell that scenery to visitors. Many other Government policies are supportive of small businesses. I urge the Government to think again. On this policy, I hope that they will think of small businesses. I appeal to them not to go ahead with this proposal. The cost in lost jobs, in fragile rural economies throughout the country, will be far greater than any VAT income from the proposed new tax.