Sir Christopher Chope debates with HM Treasury

There have been 7 exchanges between Sir Christopher Chope and HM Treasury

Fri 11th September 2020 Co-operative and Community Benefit Societies (Environmentally Sustainable Investment) Bill 9 interactions (2,274 words)
Wed 8th July 2020 Economic Update 3 interactions (108 words)
Wed 1st July 2020 Finance Bill 3 interactions (37 words)
Fri 13th March 2020 Public Sector Exit Payments (Limitation) Bill 16 interactions (1,466 words)
Fri 8th February 2019 Value Added Tax Bill 46 interactions (5,568 words)
Tue 6th November 2018 Oral Answers to Questions 3 interactions (67 words)
Wed 5th July 2017 Public Sector Pay Cap 3 interactions (60 words)

Co-operative and Community Benefit Societies (Environmentally Sustainable Investment) Bill

(2nd reading: House of Commons)
Sir Christopher Chope Excerpts
Friday 11th September 2020

(1 month, 1 week ago)

Commons Chamber
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HM Treasury
Gareth Davies Portrait Gareth Davies - Hansard

I am grateful again for the intervention. I am not sure how the hon. Lady can make the comment, “Does he understand the definition of sustainability?” and then go on to say, “Obviously, we need to define what sustainability means.” That is exactly my point. The Bill is well-intentioned but not clear enough in its definition of sustainability—[Interruption.] She can protest all she likes but it is there in black and white, and I urge every colleague in this place to read the text.

The second issue I have is that the Bill allows green shares to be issued to external investors but not to co-operative members, as I mentioned in an earlier intervention. By limiting the issuance of green shares to non-members, it would limit the co-operative’s ability to raise capital for green causes. If green causes are so important, why not make the ability to buy green shares available to all members? The hon. Lady intervened earlier to say that members could do so, but that is not true. She says that because when an external investor buys a green share, they become a member. That is the only way in which members can buy a green share.

Thirdly, the new powers for co-operatives apply only if they issue green shares. If the new powers are so beneficial, why not provide them for all co-operatives without the requirement to issue green shares? The Bill says, if a co-operative issues a green share, it will get additional powers essentially to prevent it from becoming a company. If that is such a good idea, why limit it to green shares?

Fourthly, the power permanently to prevent a co-operative from becoming a business is against members’ interests. Currently, the decision to become a company is left with members. Why take that power away from them? Whether a firm is better run as a company or as a co-operative is beside the point. We should let members decide. It is unclear who in the co-operative gets to decide on such matters. Perhaps she will clarify that in her closing remarks. The real purpose of the Bill would be to sustain the co-operative model at the expense of members’ and workers’ interests.

Finally, the Bill lacks sufficient detail, as I have outlined before. The framework for deciding whether shares are green is vague and requires the Treasury to fill in the detail. Likewise, rules to ensure that the shares are not abused for tax avoidance are left out of the Bill again for the Treasury to decide the detail. I am getting déjà vu from Wednesday, when the Opposition called for an extension to the furlough but could not say what was to be extended, for how long, or how much it would cost.

I can only conclude that this idea is nice in principle and right in spirit, but it is merely an idea and not a substantive, workable piece of legislation. For that reason, I cannot support it.

Sir Christopher Chope Portrait Sir Christopher Chope (Christchurch) (Con) - Hansard
11 Sep 2020, 12:05 a.m.

It is a pleasure to follow my hon. Friend the Member for Grantham and Stamford (Gareth Davies). I lack his knowledge about capital markets as indeed I lack the knowledge exemplified by my hon. Friend the Member for Clwyd South (Simon Baynes) on financial instruments, of which this might be one. I will nevertheless try to contribute to the debate by encouraging the hon. Member for Cardiff North (Anna McMorrin) to have another go next Session. The Bill has a lot in it that is worthwhile, but, as many of my hon. Friends have pointed out, it is not there quite yet.

I have been a regular attender on Fridays for many years and participated in the debates around the 2014 Act, steered through with a lot of skill by the hon. Member for Harrow West (Gareth Thomas). My recollection is that that Bill was an iterative process: it did not get through in the first Session in which it was put forward because there were difficulties in definition and all the rest of it. The hon. Member for Cardiff North should recognise that, for example, one the most famous private Members’ Bills ever, the Abortion Act 1967, was on its fifth or sixth iteration before it actually got on to the statute book because it was gradually amended and lobbied about so that, when it came to a final decision, everybody felt confident that they were doing the right thing. I congratulate the hon. Lady on bringing forward the Bill and on the way in which she opened the debate.

One of the things I looked up in preparation was what James Wright, the policy officer at Co-operatives UK, said in a press release—I think in February—soon after the hon. Lady announced her intention of bringing forward a private Member’s Bill with this subject matter. Speaking for the co-operatives, he said:

“When it comes to legal reform, our top priority is for co-operative societies to have the option of legally guaranteeing that their ‘common capital’ will remain ‘indivisible’, over the life of the business and after. Right now, they can’t do this and it’s becoming a problem.”

He goes on to say that

“having some kind of statutory ‘asset lock’ which commits capital surplus to mutual and social purpose is increasingly a must in many parts of our social economy. So it’s a damaging anomaly that co-operative societies can’t give their common capital statutory status.”

Nowhere in those remarks did Mr Wright say anything about limiting this problem to environmentally sustainable investment issues. I suspect that the hon. Lady, because of her passion for environmental issues, has decided that it would be better to work the two ideas together. I suggest to her that the case put at that early stage by the Co-operatives UK policy officer was obviously a very strong case for one thing—she referred earlier to the limit on being able to raise capital of more than £100,000 and the way this was inhibiting the expansion of the co-operative movement—but if the main aim of the Bill is to remedy the problem identified by Mr Wright in the quote I have just used, there is no need for the Bill to go into issues of environmentally sustainable investment.

I would ask the hon. Lady to think about why she has narrowed the Bill in such a way. She said in answer to an intervention that the Bill was wide enough to cover the whole co-operative movement, but that is not what it says in the long title of the Bill, which, to remind her, says:

“A Bill to enable co-operative and community benefit societies to raise external share capital for the purpose of making environmentally sustainable investment”.

Anna McMorrin Portrait Anna McMorrin - Hansard

The hon. Member is making some important points that we have discussed throughout the development of the Bill. Environmentally sustainable projects are just that—it needs that definition—but can he point to any projects within the co-operative movement that do not meet a sustainable objective? It is in the very values of the co-operative movement. Also, does he not see that we are facing a climate emergency and that unless we take drastic action now, on the ground, and radically transform our economies, we will not succeed?

Sir Christopher Chope Portrait Sir Christopher Chope - Hansard

I will not engage with the hon. Lady on the climate crisis, because I think there is far too much scaremongering going on in relation to that and a lack of realism about the ability of our country, individually, to change the course of the global climate. That is apparent now. We have heard this week that despite the substantial reduction in the global economy the global CO2 emissions continue to increase and climate change is not being remedied as a result.

Anthony Mangnall Portrait Anthony Mangnall - Parliament Live - Hansard

The hon. Member for Cardiff North (Anna McMorrin) does not need me to come to her rescue, but the Bill does clearly refer to sustainable development goals, which covers a broad spectrum of issues that could be addressed on this point.

Sir Christopher Chope Portrait Sir Christopher Chope - Hansard
11 Sep 2020, 11:54 a.m.

I accept that. Interestingly, proposed new section 27A(5)(b) talks about

“the capacity to adapt to change”.

That is where I am very much with the hon. Member for Cardiff North, because I think we should be concentrating our resources in this country on adapting to climate change, rather than trying to put our heads in the sand and say, “We’re going to make it go away.”

On the issue of the definition, if environmentally sustainable investment is basically the be-all and end-all of everything that the co-operative movement is involved in, why do we need to use language about green shares? Why do we not make it much more general? If the hon. Lady is so confident about her definition of “environmentally sustainable investment”, why has she included a Henry VIII clause in proposed new section 27A(6)? It states that

“The Treasury may by regulations revise subsections (4) and (5)”,

which contain the definitions. Why do we need to do that? Surely, if it is so obvious, it should be on the face of the Bill and we do not need to give the Treasury even more power than it already has. I am sure that when my hon. Friend the Economic Secretary replies, he will say how eagerly he looks forward to being able to exercise these additional powers.

I ask that as a slightly rhetorical question. However, sometimes Members are tempted to make their Bills complicated, and whenever they encounter a bit of difficulty with the Government, they say, “We’ll appease the Government by giving them a power to amend the Bill”—thereby, in a sense, negating the whole purpose of the Bill. If the hon. Lady ever redrafts the Bill in a way that gets the support of the House on Second Reading, I suggest that she leaves out the Henry VIII clause and has the confidence to say, “That’s what I’m putting in the Bill. That’s what we’re going to keep in the Bill, and that’s what it means.”

I looked at the explanatory notes. I am grateful to the hon. Lady for producing explanatory notes on the Bill, which often does not happen with private Members’ Bills. She says in those explanatory notes that the environmental goals in the Bill are based upon those in the Well-being of Future Generations (Wales) Act 2015, to which she referred earlier. In that case, why do the environmental sustainability goals set out in proposed new section 27A(5)(a) not include the whole wording of those in the 2015 Act? It states that the goals are:

“to create an innovative, productive and low carbon society which recognises the limits of the global environment and therefore uses resources efficiently and proportionately (including acting on climate change)”.

If she looks at the relevant section of the 2015 Act, she will find that it goes on to say:

“and which develops a skilled and well-educated population in an economy which generates wealth and provides employment opportunities”.

She is nodding, but why is that not included? Why was that excluded? Why did the explanatory notes imply that everything set out in this Bill came word for word from the 2015 Act?

I think that the whole issue about the greenness of this may have been included in order to seduce members of co-ops into signing up to changes in their rules that they would not otherwise wish to do, were they aware of the full implications of so doing. This echoes one of the points that some of my hon. Friends have made. A non-green co-op—the hon. Lady seems to say that all co-ops are green—can only become a green co-op under the Bill, and thereby issue green shares, if authorised to do so by its rules. It is obviously possible for a co-operative to change its rules. One can see how easy it would be for a co-operative to say to its members, “Look, we are planning to change our rules so we can issue green shares and do all these wonderful environmental things.” Who would be bold enough to cause a problem in that co-operative society, I don’t know, but would the people who were being seduced into supporting that be aware of the fact that by enabling the society to have a green share, it was then triggering clause 29A(1), which requires that

“The Treasury must by regulations make provision—

enabling the rules of a society with a green share to permanently prohibit the distribution of a capital surplus”?

That would mean that people who had invested in a co-operative society in which the normal investment rules applied—where they would be able to withdraw their investment, but not trade it—would find themselves in a completely different regime where the shares would be transferable but not withdrawable; not only that, they would also find they were prohibited from being able to benefit from the success of that co-op by perhaps wanting to make it into a corporate body, thereby redeeming the additional value which had accrued to their shares as a result of its activities, going back to the point about the 2015 Act in Wales, so that people in the co-op could generate wealth and prosperity, and with it employment opportunities.

So why, as soon as the co-op became green in name as well as in substance, should it result in those restrictions on members of the co-op? They might perhaps, by definition, be in a minority in opposing the change in the rules of the co-op, but why should they be penalised by that change in the rules so that a completely different regime applies retrospectively? Is the hon. Lady not concerned about minority rights being ridden over? I suspect that that is one of the problems that has come to light in the co-operative movement and that is why it has turned out to be a lot more controversial than she thought it would be at the beginning.

As will be apparent, I have some quite serious issues with the Bill. I would like to see a much more concise Bill, without all this stuff about green shares, which is a distraction from the core. What the hon. Lady really wants is to change the fundamental structure of co-ops so that they can attract investments greater than £100,000, and so that members of those co-ops cannot de-mutualise. Those are very serious issues. If that is what she thinks the whole of the co-operative movement should be doing, so be it.

I suspect that what the hon. Lady really wants to do is to enable a different sort of co-op with those objectives to be established. In so doing, however, instead of saying, “From now on you can start a completely new green co-op,” she is enabling existing co-ops to be changed, against the wishes of a minority of their members, into a different vehicle from that in which they made their original investment, thereby preventing them from withdrawing that investment, as they can at present. That is a very serious issue that goes to the root of it. It may be an attractive notion, and we heard that there are precedents for it elsewhere in the world, but because of the importance of the co-operative and community benefit movement, it is absolutely imperative that, if we are to change the rules, we do so in a clear, unambiguous way, and certainly do not allow the spectre of further changes by stealth through Government regulations that are not subject to proper consultation.

I fear that, when the hon. Member for Cardiff North responded to an intervention on the fact that the objectives could be changed but already covered all co-operatives, she was showing the lack of—how can I put it?—intellectual rigour applied to these principles.

Anna McMorrin Portrait Anna McMorrin - Hansard

indicated dissent.

Sir Christopher Chope Portrait Sir Christopher Chope - Hansard

Clearly, the hon. Lady disagrees that there is a lack of intellectual rigour. Although we may disagree, it is incumbent upon Members to ensure that this is subject to rigorous scrutiny.

In this extraordinary world in which somebody can have 150 proxy votes in their back pocket, anything could happen if it came to a vote. Perhaps the hon. Lady has a very large number of proxy votes in her back pocket, in which case I congratulate her in advance on her preparedness. Who knows what will happen and whether the Bill will get a Second Reading. It is clear from the debate that, were the Bill to get a Second Reading and go into Committee, it would have to be completely rewritten, taking up hours of valuable and scarce Committee time. As the hon. Lady will know, normally, unless the Government say otherwise, there can be only one private Member’s Bill in Committee at a time, so a Committee that went on for a very long time would deprive other Bills of the opportunity of being subject to scrutiny. That is another reason why a more tightly worded Bill is the solution, rather than struggling on with this one. The hon. Member for Stockton North (Alex Cunningham), who is sitting behind the hon. Lady, said that the Bill may not be fit for purpose currently but that it will be after it has come out of Committee. Frankly, Bills need to be fit for purpose before they go into Committee.

I will not say much more now, because I have other business on the Order Paper that I hope we will be able to reach. I congratulate the hon. Member for Cardiff North on having excited such interest in her Bill among Government Members, even if relatively few Opposition Members seem to be that interested.

Ruth Edwards Portrait Ruth Edwards (Rushcliffe) (Con) - Parliament Live - Hansard
11 Sep 2020, 12:04 a.m.

It is a pleasure to follow my hon. Friend the Member for Christchurch (Sir Christopher Chope)—a veteran, as he says, of sitting Fridays—on this, my first sitting Friday. I congratulate the hon. Member for Cardiff North (Anna McMorrin) on securing this Bill and on choosing this issue. Her clear concern for the environment and for strengthening the UK’s economy after the coronavirus pandemic is truly commendable.

As I have mentioned to the House before, now is the time for promoting green investments. Their performance, quality and potential are widely documented. The environment is an issue that the whole House and indeed both Houses stand firmly behind, and I am grateful to be a part of the debate on the Bill. As colleagues have said, Members will be aware of the benefits that co-operatives bring to productivity, innovation and entrepreneurialism across the economy. The Government are in no doubt about the added value they bring. Indeed, I know that previous Governments have legislated to make the setting up and running of our co-operatives simpler, cutting red tape and promoting parity between co-operatives and companies when it comes to areas such as registration and audit.

Across the UK, membership of co-operatives has remained firm in recent years, with more than 7,000 independent co-operatives employing nearly a quarter of a million people and serving more than 14 million members. Clearly, co-operative values are popular among a significant cross-section of society: values of democratic ownership; autonomy; independence; promoting common economic, social and cultural interests of their members; and concern for the community. Without this shared ownership, many people may feel that they have less of a stake in society, in their community and in the economy.

Co-operatives have historically proven their mettle. This year’s annual assessment of the sector by the industry network, Co-operatives UK, indicates that a staggering 76% of co-operative start-ups are still running after the first five years, compared with less than half of all new companies. At a time when we are embracing innovation and entrepreneurship, co-operatives have demonstrated that they remain a productive part of the UK’s competitive spirit going forward.

Economic Update

Sir Christopher Chope Excerpts
Wednesday 8th July 2020

(3 months, 2 weeks ago)

Commons Chamber
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HM Treasury
Rishi Sunak - Hansard

I join my colleagues in paying enormous tribute to those on the frontline during this crisis, who have done an extraordinary job under incredibly difficult circumstances. They deserve not just our thanks, but our praise, and they have it. In terms of public sector pay we are in the midst of the second year of inflation-busting pay rises for almost a million people, and we have got social care who are funded from local authorities. As I said, local government has enjoyed two years of record increases in core spending power, which hopefully will help find its way to the frontline.

Sir Christopher Chope Portrait Sir Christopher Chope (Christchurch) (Con) - Hansard

May I make a suggestion to my right hon. Friend of one way in which he could help fund some of today’s expenditure commitments? That is to implement without further delay the cap on public sector exit payments. My right hon. Friend the Chief Secretary to the Treasury promised on 13 March that that would be done by bringing forward secondary legislation before the summer recess. That has not happened. Can my right hon. Friend therefore allay concerns that the process is being sabotaged by Treasury mandarins—the Sir Humphreys—who have for five years successfully resisted this proposal, which was supported by the House in legislation five years ago?

Rishi Sunak - Hansard

I remember that when I had the Chief Secretary’s job we discussed this very topic, and my hon. Friend is right to keep highlighting it. What I can tell him is that, as the Chief Secretary said, I believe, very recently, we are well on the way to implementing the measure and will bring forward appropriate legislation in due course.

Finance Bill

(Report stage: House of Commons)
(Report: 1st sitting: House of Commons)
Sir Christopher Chope Excerpts
Wednesday 1st July 2020

(3 months, 3 weeks ago)

Commons Chamber
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HM Treasury
Sir Edward Leigh Portrait Sir Edward Leigh - Hansard

I absolutely agree with my right hon. Friend, and he puts it far more clearly than I have done. I was trying to make the point that he has just made, which is that, ultimately, HMRC and the Treasury are responsible for this in not giving proper advice and in creating an over-complex tax system, and that has created this kind of behaviour. It is natural behaviour and we should not blame the people who have tried to take advantage of these sort of schemes. This complexity kills the economy.

Sir Christopher Chope Portrait Sir Christopher Chope (Christchurch) (Con) - Hansard

One of my constituents says that because he put in freedom of information requests to HMRC, on two occasions last summer, HMRC paid him a visit at his home. Is that the behaviour we expect from HMRC?

Sir Edward Leigh Portrait Sir Edward Leigh - Hansard

We have learned to expect that sort of behaviour. As Ronald Reagan said—we have heard about Roosevelt, so why can we not hear from Ronald Reagan, who was a better sort of Conservative as far as I am concerned?—when we tax something, we get less of it, and when we subsidise something, we get more of it. Research from the European Central Bank shows that when the tax burden is raised by 1%, economic growth is reduced by 0.13%. We have heard a lot about job creation, but that change means many fewer jobs. Every time we create taxes, we destroy jobs.

The Office for Budget Responsibility forecasts that the UK tax burden will grow to 34.6% of GDP by 2024, which is the highest tax burden for this country in more than half a century. We think of ourselves as a seafaring, deal-doing, trading nation, but how can we compete when the trend of tax burden is going the wrong way? That is how we will stifle job creation. We must look at a comprehensive reform of our economy, not the usual tinkering under the hood, and we can do some of that through regulatory reform. That is not aiming for deregulation—instead, the Government should ensure that the UK’s regulatory structure is simple, clear, and appropriate. That is the genesis of this entire debate: our tax system is not simple, not clear, and not straightforward.

If we radically simplify the tax system we will spur more activity, so it is a virtuous circle of benefit to the whole of our society. Imagine if all the money spent on corporate or personal tax avoidance—tax avoidance is perfectly legal, I say to the Minister—could be invested in productive activity instead. Imagine all those thousands of accountants going off and taking up machine tools—I know it is unlikely, but at least it is a thought. That would also be fairer, as it would no longer mean that the richer someone is, or the bigger their company, the more they are capable of exploiting complicated tax loopholes.

We know it is simplistic to base our economy on Singapore or Hong Kong—we are a larger country with more complex needs—but on tax policy, the example they have set is applicable. Let us consider per capita GDP of the UK, Singapore and Hong Kong. They were all more or less at a parity in 1989, about five years after I came to this House, with each at around $25,000 a year. All three countries have improved their GDP per capita, but the scale of the difference is notable. By 2016, six years into a Conservative Government, the UK, with its complex tax code, had a per capita GDP of $37,000. Low tax, simple tax Hong Kong was at more than $48,000, and Singapore at $65,000 to our $37,000. We neglect at our peril that opportunity for a huge growth in numbers of jobs, for our per capita GDP and for income for the Treasury. My simple point to the Minister is this: when he sums up, will he say something about tax simplification and tax reduction?

Public Sector Exit Payments (Limitation) Bill

Sir Christopher Chope Excerpts
Friday 13th March 2020

(7 months, 2 weeks ago)

Commons Chamber
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HM Treasury
Sir Christopher Chope Portrait Sir Christopher Chope (Christchurch) (Con) - Hansard
13 Mar 2020, 2:02 p.m.

I beg to move, That the Bill be now read a Second time.

The Bill is simple: it imposes upon the Treasury a duty to make regulations under section 153A of the Small Business, Enterprise and Employment Act 2015. You might think it extraordinary, Madam Deputy Speaker, that we have to legislate to require the Treasury to implement legislation that we in the House approved in 2015 and that I have been promised by numerous Ministers since is on the cusp of being brought into law. It has not yet been brought into law, and the consequence is that the taxpayer is probably about £1 billion worse off—the benefit to the Exchequer of the provisions in the Act was about £200 million each year.

It is against that background that I was very pleased to have a meeting with the new Chief Secretary to the Treasury. He has some background knowledge of this that dates back to before even I took an interest, because he was on the Public Accounts Committee when it looked at this issue in the early 2010s. The beginning, after the Committee had looked at it, came in January 2015, when the current Home Secretary, who was then a Treasury Minister, announced that it was intolerable that there were so many exit payments of such large sums. She called it a long-overdue reform and said:

“It’s not right that hard-working taxpayers, many on low salaries, have to fund huge payouts.”

As a result, after the Conservative election win in May 2015 the then Chancellor confirmed the commitment to legislate that was in our 2015 manifesto, saying:

“We will end taxpayer-funded six-figure payoffs for the best paid public sector workers.”

Then, in 2017, when nothing had happened, I had the temerity to ask the Chancellor of the Exchequer on 27 June

“when the Government plans to bring forward secondary legislation to implement the policy”,

and the answer I got on 6 July from the then new Chief Secretary, now the Secretary of State for International Trade, was:

“The Government announced in 2015 that it intended to end six figure exit payments for public sector workers. We legislated for a £95,000 cap in the Enterprise Act 2016 and are currently in the process of drafting the necessary regulations.

In the interim, the government expects every part of the public sector to demonstrate that it is using public money efficiently and responsibly and to ensure that pay and terms are always proportionate, justifiable and deliver value for money for taxpayers.”

Having received that non-committal reply, I asked more questions and then introduced a private Member’s Bill in the 2017-19 Session that was exactly the same as this one, except with different dates.

Nickie Aiken (Cities of London and Westminster) (Con) - Hansard
13 Mar 2020, 2:07 p.m.

As a former local government leader, I was involved in many cases in which we had to ensure that the person leaving had received the correct money and final settlement, but does my hon. Friend agree that some of these people have often been working for a local authority —I can only speak for local authorities—for decades? Their salaries will have increased over time, and there should, whatever the legislation, be flexibility in such cases. If a case is sensitive, the local authority should be given powers to ensure that that person is given the amount of money that they are due, but not too much for the public purse.

Sir Christopher Chope Portrait Sir Christopher Chope - Hansard

That was a very long intervention, Madam Deputy Speaker, and I am afraid that I do not really agree with the tenor of it, which excuses some of the appalling behaviour that is taking place in local government. A recent article in The Times revealed that Steven Mason, a former Northumberland County Council chief executive, was given a £370,000 pay-off, but took up a job four months later at South Tees Hospitals NHS Foundation Trust on £180,000 a year, despite Ministers having pledged to take back exit payments if the recipient returned to the public sector.

One reason why I got interested in this subject was that I was concerned that proposed local government reorganisation in Dorset would be an excuse for a whole lot of public officials employed by local councils to look after each other’s interests at the expense of the local taxpayer and give themselves big handouts. I am afraid that my worst fears proved to be well founded, and some unconscionably high payments were made as a result.

I take the view, unlike my hon. Friend, that this issue is urgent and overdue for action. Indeed, I think an alternative a title to my Bill might be the Overcoming Sir Humphrey’s Resistance Bill, because the resistance of the civil service to what is proposed in this Bill is a textbook example of how the civil service can conspire to frustrate the will of Parliament and, indeed, of the elected Government. How is it, all this time later, that we do not even have the regulations? We have not even had a response to the latest consultation, which was originally promised to be delivered in 2018. I went to see the then Chief Secretary back in 2017 and said to her, “Has it occurred to you that this measure is supported by almost everybody in politics and in public life? Has it occurred to you that the resistance to it is coming from the civil service, because they are going to be losing out as a result of the implementation of the Bill?”

John Lamont Portrait John Lamont (Berwickshire, Roxburgh and Selkirk) (Con) - Hansard
13 Mar 2020, 2:10 p.m.

My hon. Friend is highlighting an important point. Is he aware that the same issue arises in Scotland, where we have police chiefs, university bosses and other public sector servants getting paid huge six-figure sums as they leave their taxpayer-funded jobs?

Sir Christopher Chope Portrait Sir Christopher Chope - Hansard
13 Mar 2020, 2:11 p.m.

I am sure that the issue does happen in Scotland, and I hope the measures will apply across the whole country, although the latest consultation document that the Government issued indicated that there might be different treatment in different parts of the United Kingdom.

The matter has reached the stage of being a public scandal, because money is tight and the Bill is a means of recovering £200 million a year for the taxpayer, both locally and nationally. It is unfortunate that, as a result of answering questions from me, successive Ministers have had words put into their mouths or put on the record that have now proven to be completely untrue, I am afraid. What more can one say? The current Chief Secretary has assured me that he will not fall in the same trap as his predecessors.

The regulations could be issued pronto. Why have they not been? We were told that there needed to be a consultation. After a lot of pressure, the consultation was issued in April 2019, and the responses had to be in very quickly by July 2019. Have the Government yet issued their response to those responses? No, they have not, because it is all so complex.

John Spellar Portrait John Spellar (Warley) (Lab) - Hansard
13 Mar 2020, 2:12 p.m.

The hon. Gentleman is rightly drawing attention to a significant problem. Is there not another aspect to it, which is that many of these individuals, quite frankly, should not be being given any payments, because they should actually be being sacked for failure to perform their jobs? They are taking sums of money and then transferring to other parts of the public sector, where they will have a repeated pattern of failure. Is there not a need for a real change in culture inside the public sector, particularly, I regret to say, inside management levels of the national health service?

Sir Christopher Chope Portrait Sir Christopher Chope - Hansard
13 Mar 2020, 2:12 p.m.

The right hon. Gentleman is absolutely right about that. That is why organisations such as the TaxPayers Alliance are trying to work with the general public to raise the profile of these subjects. What is happening is a concerted fraud upon the taxpayer by these officials, who are cosying up to each other and ensuring that they are the only people who do not suffer as a result of their own incompetence.

Kevin Hollinrake Portrait Kevin Hollinrake (Thirsk and Malton) (Con) - Hansard
13 Mar 2020, 1:13 p.m.

In one of my small local councils, Hambleton District Council, two officials have had pay-offs in excess of £300,000 over the past three years. One of them was only earning £100,000—“only”, he says. The local authority says that it wants the measures brought forward so that it can cap future payments. Does my hon. Friend not agree that it is high time that we did that?

Sir Christopher Chope Portrait Sir Christopher Chope - Hansard
13 Mar 2020, 2:13 p.m.

Absolutely, I agree with that. Of course, the Government said that pending the implementation of the regulations, they would ask the public sector to comply with the spirit of them and the primary legislation that had been passed, but I am afraid that is almost impossible for local councillors and, indeed, the Government to do in practice, because we need to have the law in place. That is why I hope we will hear from the Chief Secretary that we will get the law on the statute book later this year so that public sector exit payments are limited to £95,000.

Clause 2 of my Bill suggests that we should give notice to all people who might be thinking of getting ahead of the game that they would be subject to the provisions of the Bill in respect of any public sector exit payments agreed after 1 April 2020. I do not know whether the Chief Secretary thinks that to be a sensible safeguard, but I hope it will find favour.

It is ridiculous that we should have to legislate to force the Government to introduce regulations. Many new colleagues are here today. I should tell them that on Fridays the Government often promise the earth and never deliver. My right hon. Friend the Member for East Yorkshire (Sir Greg Knight) introduced a Bill to deal with rogue parking operators last year. It got on to the statute book and everyone thought that the Parking (Code of Practice) Act 2019 meant that we would get rid of rogue parking operators. It may be months or years before anything effective is done in regulations.

John Lamont Portrait John Lamont - Hansard
13 Mar 2020, 2:15 p.m.

Does my hon. Friend accept that the Government have been rather distracted in the past few years getting Brexit done?

Sir Christopher Chope Portrait Sir Christopher Chope - Hansard
13 Mar 2020, 2:15 p.m.

I am not sure that that is an adequate excuse. It could be a justification for everything, but in the Treasury it is an issue of priorities. There is no reason why, if hon. Members are given a promise that something is going to be done on a particular date, that promise should not be honoured.

John Spellar Portrait John Spellar - Hansard
13 Mar 2020, 2:16 p.m.

The hon. Gentleman should come down a bit harder on that explanation from his hon. Friend, who is fundamentally saying that the Government are incapable of chewing gum and walking at the same time.

Sir Christopher Chope Portrait Sir Christopher Chope - Hansard
13 Mar 2020, 2:16 p.m.

I am not sure that my hon. Friend would have put it quite that way. The House needs to have a mood of intolerance of serial incompetence, if not a conspiracy of silence and inaction among people in the civil service.

Laura Trott Portrait Laura Trott (Sevenoaks) (Con) - Hansard
13 Mar 2020, 2:16 p.m.

Will my hon. Friend give way?

Sir Christopher Chope Portrait Sir Christopher Chope - Hansard
13 Mar 2020, 2:16 p.m.

No. I am going to bring my remarks to a close in the hope that we will be able to hear something from my right hon. Friend the Chief Secretary to the Treasury before we reach 2.30 pm.

Joy Morrissey Portrait Joy Morrissey (Beaconsfield) (Con) - Hansard
13 Mar 2020, 2:18 p.m.

The problem of high public sector exit payments is not only the amount—sometimes £100,000 or £200,000; truly shocking amounts—but the acceptance of such payments by public sector workers when they seamlessly take up employment with another public sector body. For example, a council officer I knew received a £200,000 exit payment from one council and started at a new local authority the following week. There is no statutory obligation to post a declaration of interest in the way we do as Members of Parliament. We would have to declare that payment and it would be on public record. We do not have any sort of mechanism for, say, the chief executive of a council who moves to another council to do that. There is no way to see how much money they have received from the public sector for—we are not sure what. I see this happen again and again in the public sector. I welcome the transparency that we now have for Members of Parliament. We are held to account.

Value Added Tax Bill

Sir Christopher Chope Excerpts
Friday 8th February 2019

(1 year, 8 months ago)

Commons Chamber
Read Full debate Read Hansard Text
HM Treasury
Sir Christopher Chope Portrait Sir Christopher Chope (Christchurch) (Con) - Parliament Live - Hansard

I beg to move, That the Bill be now read a Second time.

I presented the Bill on 5 September 2017, and it is with a wry smile that I rise to speak to it today, with some four hours ahead of us—perhaps not all of that time will be needed to consider it. I put it down on the Order Paper for consideration very late in the Session because I anticipated that it would be a topical matter on the eve of our departure from the European Union. We are now just seven weeks away from the UK’s independence day, on 29 March, when UK citizens will end their enslavement by the European Union.

There has been a lot of discussion about trade, but leaving the EU is about much more than that; it includes control over our own taxes. Reducing VAT, as the Bill proposes, will reduce the cost of living for consumers and the burdens on business, and it will reduce significantly the cost of living for people living in fuel poverty, which is also topical, bearing in mind yesterday’s announcement that what we all thought would be a cap on fuel prices has turned out to be more like an opera hat—it can go up very significantly at short notice. The Bill is therefore particularly relevance at this time.

When the Prime Minister made her Lancaster House speech some two years ago, she talked about the UK being able to develop an alternative economic model in the event that the European Union tried to impose what are effectively punishment terms as part of the withdrawal agreement. I think that we are now in that situation. The deal that the European Union is offering is not satisfactory. We are moving towards leaving without a deal, but in circumstances in which it will be open to the Government to take back control over important parts of the economy, and VAT is an important part of that.

The history of VAT goes back to 1 January 1973, when the United Kingdom joined the European Economic Community and, as a consequence, purchase tax had to be replaced by value added tax, which came in on 1 April that year. The then Conservative Chancellor, Lord Barber, set a single VAT rate of 10% on most goods and services. That standard rate is now 20%, which indicates the increasing burden of taxation upon ordinary people up and down the country.

James Cartlidge Portrait James Cartlidge (South Suffolk) (Con) - Parliament Live - Hansard
8 Feb 2019, 10:39 a.m.

I congratulate my hon. Friend on introducing the Bill. It is certainly very timely, but the increase in the tax rate and in taxes generally is due to the increase in our outgoings on the national health service, the state pension and so on. Although I welcome the principle, I am concerned that to fund any significant changes in VAT will be expensive to the Treasury at a time when we face increasing costs in the health service and so on.

Sir Christopher Chope Portrait Sir Christopher Chope - Hansard
8 Feb 2019, 10:40 a.m.

I disagree with my hon. Friend; he is taking a conservative view rather than looking at the dynamic effect on the economy of making tax reductions. My hon. Friend is not yet a Parliamentary Private Secretary in the Treasury and that is why he is able to participate in this debate, but I know that he would very much like to be a Treasury Minister in due course. When we were in opposition and I was a shadow Minister, my hon. Friend was an important adviser in that Ministry. I know that he has a keen interest in the Bill. One of my concerns is that the Treasury is not always on the side of the dear British consumer, and I am putting the case on behalf of the consumer today.

Let us remind ourselves of the history of VAT. When the Labour Government came into office in 1974 they attempted to introduce extra rates of VAT. One way and another, things were changed around, but eventually Denis Healey reduced the higher rate to 12.5% in April 1976. Geoffrey Howe organised an increase in VAT when he was the Conservative Chancellor. He raised the standard rate from 8% to 15% in June 1979, but in so doing abolished the higher rate.

After that, the rate stayed the same until 1991, but was then raised from 15% to 17.5% by Norman Lamont, now Lord Lamont, when he was Chancellor. At the 1992 general election, the Conservatives were elected—unfortunately, I was not among them; I was defeated in that election—on a promise not to extend the scope of VAT. In March 1993 Norman Lamont announced that domestic fuel and power, which had previously been zero-rated, would have VAT levied at 8% from April 1994. My Bill would take us back to the time before 1994 when there was no VAT on domestic fuel and power. That is one the most important parts of my Bill.

This issue is close to my heart, not least because I was present during the by-election campaign in Christchurch in July 1993, when the biggest issue on the doorsteps was the Government’s imposing VAT on fuel, reneging on their manifesto commitments. That by-election saw the largest ever swing against the Conservatives, and a Conservative majority of more than 20,000 was converted into a Liberal Democrat majority of more than 17,000. That was my inheritance when I became the prospective parliamentary candidate. I know that my constituents feel strongly about VAT on domestic fuel and power, and I hope that the Government regret the decision that was taken then, over which they were subsequently not able to have any control. Although the Labour Government eventually reduced the rate to 5%, under European Union rules it is not possible for this sovereign Parliament to reduce VAT below 5% when it has already been set in train. That opportunity will be available to us as soon as we leave the EU.

Another criticism of VAT is that it is regressive because it is paid by all consumers whether they be rich or poor, young or old. The poorest spend a larger proportion of their disposable income on VAT than those who are financially much better off. The Office for National Statistics report has shown that in 2009-10 the poorest 20% spent 8.7% of their gross income on VAT while the richest 20% spent only 4%. That is another reason why reducing or eliminating VAT on various goods and services would be an effective way of creating a dynamic effect in the economy, and would be fair and equitable at the same time.

I have outlined some of the general issues relating to the Bill. It paves the way for sharing and securing for consumers and businesses one of the key benefits of leaving the EU on 29 March, taking back control over indirect tax policy on goods and services.

The first key element of the Bill is to enable the Government to raise the maximum turnover thresholds for exemption from the requirement to register for VAT. That is set out in clause 1. We in the United Kingdom have a registration threshold of £85,000, the highest in the EU. In my submission, it is not high enough. That is why I have put in clause 1 a suggestion that there be a modest initial increase in the threshold to £104,000 and that the threshold for deregistration should be £100,000. The consequence would be that many small businesses would be taken out of VAT and consumers would be saved the cost of VAT on the services provided by them.

I am delighted that my hon. Friend the Exchequer Secretary to the Treasury is on the Front Bench to answer this debate. I have been perplexed about Government policy on VAT thresholds. Currently the threshold is £85,000 and that was due to be the situation until March 2020, but under EU law it is open to the Government to increase the thresholds every year in real terms. That has traditionally been what has happened. However, the present Government, for reasons that I hope my hon. Friend will be able to explain, have decided to freeze the threshold until the end of March 2022. The consequence, apart from giving some extra money to the Treasury through what is effectively a stealth tax, is that many more small businesses will be caught up in VAT registration.

The current threshold means that 3.5 million businesses do not have to account for VAT, which is half of all businesses in the United Kingdom. We know how important small business is. It provides half of all the private sector jobs and accounts for more than a third of our national income. Why would it not be sensible for the Government’s policy to be to increase the VAT threshold to the maximum that is allowable under EU law rather than freeze the threshold, thereby making it difficult to increase it in the future by a significant amount?

The Government issued a consultation paper on the VAT threshold and called for evidence following a paper the Chancellor commissioned from the Office of Tax Simplification, and that consultation made it clear that the threshold cost the Exchequer £2.1 billion in 2017-18—the cost has not risen since because the threshold has not been increasing as it was before that date.

Following the OTS paper, the Government consulted on whether to increase or reduce the threshold. A table annexed to the call for evidence showed that the £81,000 threshold in 2014-15 had deterred 50% of sole proprietor and partnership businesses from increasing their economic activity for fear of passing the threshold. What a ridiculous artificial constraint on enterprise! Surely, we should be encouraging businesses to expand, not introducing measures that deter that activity.

The consultation concentrated on the large number of businesses just below the threshold and on what could be done to reduce the cliff edge and smooth the transition for businesses registering for VAT. Following the consultation, the Government concluded that nothing had been decided—in that respect, it was not an unusual process of public consultation. Paragraph 4.35 of the paper that summarised the responses reads:

“Many responses committed to the view that an increase to the threshold would make it much easier for newly-registered businesses to cope with the administrative and financial implications of registration. For example, if the threshold were to be raised to £100,000, businesses would likely be able to afford the cost of professional advice to cope with the administrative burden, while also being more able to absorb the cost of VAT. One representative body felt that the administrative burden would only be taken out of the equation if the threshold was much higher. The UK is currently unable to increase the level of its VAT registration threshold in real terms, under EU law, but there may be scope to review this in the future.”

It will come as no surprise to the Minister to learn that I took the figure of £100,000 in my Bill from that paragraph. I have not gone as far as the OTS suggested in its original paper, but I could see the merit, if the Bill ever gets into Committee, of raising the threshold to something like £500,000. Then we would be talking only about really substantial businesses having to pay VAT, which would significantly reduce the burden on business and encourage entrepreneurial activity in our enterprise society.

Neil O'Brien Portrait Neil O’Brien (Harborough) (Con) - Parliament Live - Hansard
8 Feb 2019, 10:54 a.m.

What estimate has my hon. Friend made of the cost to the Exchequer of increasing the threshold to that level?

Sir Christopher Chope Portrait Sir Christopher Chope - Hansard
8 Feb 2019, 10:55 a.m.

The estimate made is not mine but comes from the OTS paper:

“Raising the threshold significantly, for example to £500,000, would potentially impact around 800,000 businesses. Of those, between 400,000 and 600,000 businesses might choose to deregister, while 200,000–400,000 might choose to remain…registered. This would simplify the tax obligations for businesses that chose to deregister, reduce VAT-related competitive distortions between registered and unregistered small businesses, and reduce the administrative burden on those businesses. However, raising the threshold to such a high level would cut the funds available for public services by between £3bn and £6bn a year.”

My hon. Friend will be conscious, however, that those figures are much lower than the £39 billion figure that is on the lips of most members of the public, if not Members of this House, as we prepare to leave the EU on 29 March, when we will have the opportunity to save ourselves £39 billion.

Neil O'Brien Portrait Neil O’Brien - Parliament Live - Hansard
8 Feb 2019, 10:56 a.m.

I congratulate my hon. Friend on introducing the Bill to discuss this important issue and this potentially big simplification, but am I right that the £6 billion price tag is roughly equivalent to half the budget for the entire police force of England? This is a substantial sum. Beyond the £39 billion, does he have an suggestions for how to raise enough money to make good the hole?

Sir Christopher Chope Portrait Sir Christopher Chope - Hansard
8 Feb 2019, 10:58 a.m.

I do. It is a mistake to look at these issues without considering the dynamic behavioural effects flowing from changes in the regulatory environment. We are all agreed—certainly the Treasury and the Chancellor have expressed concern about it—that the country is suffering from a crisis in productivity, and it is clear from the OTS reports and the consultation that people in the engine room of our economy find VAT to be very burdensome and that it adversely affects their productivity. The problem of productivity centres around this bunching issue. Why are we inhibiting businesses from expanding and becoming more economically productive by imposing an artificial threshold? To an extent, it has been imposed on us by the EU, but we can break free on 29 March. I hope my hon. Friend will take a dynamic perspective and not just look at the straight line figures produced by the Treasury.

Anne-Marie Trevelyan Portrait Anne-Marie Trevelyan (Berwick-upon-Tweed) (Con) - Hansard
8 Feb 2019, 10:58 a.m.

I want to highlight the point my hon. Friend is making. When the income tax rate went up to 50%, I had small businessmen come to me saying, “I’m not going to work any harder if I have to hand over 50%. I’ll work four days a week and play golf on Fridays. I’m not going to invest my capital in a business if the Treasury doesn’t understand the pressures of running a small business”, and they stepped away from increasing their productivity—indeed, went backwards—until we started to reduce the rate. Too often, we fail to understand the consequences of tax policy on behavioural patterns.

Sir Christopher Chope Portrait Sir Christopher Chope - Hansard

My hon. Friend makes a brilliant point. This used to be at the heart of Conservative thinking and policy making on the Treasury Bench. It was that dynamic thinking that was behind past decisions to significantly reduce the top rates of tax. I hope we can rediscover that much more dynamic approach to the behavioural consequences of high taxes and artificial thresholds.

Neil O'Brien Portrait Neil O’Brien - Parliament Live - Hansard
8 Feb 2019, 10:59 a.m.

I thank my hon. Friend for being so generous in giving way again. I think he is wrong to say that it is not the approach of the Front Bench to think in dynamic terms: the Treasury has produced a wonderful paper showing that a third of the cuts in corporation tax are made up for by dynamic gains. Active work is being done on this; it is a Conservative belief. However, I would only ask my hon. Friend what proportion of the £4 billion or £6 billion loss to the Exchequer that he is talking about does he think might be made up for by dynamic effects? I agree that there are dynamic effects and I agree that this is a wonderful simplification; I just caution him that another Conservative principle is sound money and not running a huge £150 billion a year deficit like Labour did.

Sir Christopher Chope Portrait Sir Christopher Chope - Hansard
8 Feb 2019, 11 a.m.

Obviously, we are all united in wanting to be fiscally and financially prudent, and, going back to the intervention of my hon. Friend the Member for Berwick-upon-Tweed (Anne-Marie Trevelyan), having looked at the evidence that came forward on this issue I was horrified to see that, for example, if some cafés in tourist resorts think they are going to exceed the VAT threshold in a particular quarter they will close down for a week or two. What contribution does that make to the UK economy? How ridiculous is that, with the consequence that people are not being employed in those cafés and so on? I agree it is desirable that more work be done on this, and that in a sense is the purpose of today’s debate: to try to get people to think about the radical ways in which we could change VAT now that we are going to have the freedom to do it. VAT is the third largest tax in this country; it generates £120 billion or thereabouts. Surely we should now be looking at our ability to examine the best way in which that tax on goods and services can be applied so that it delivers the best productivity results and does not lead to the distortions we have been speaking about.

There is a problem with the Treasury approach to a lot of this. It produces a document setting out the cost of reliefs. It says that not having VAT on food—having zero rating on food—costs the Exchequer some £18 billion a year. We should look at that not in the context of saying “We can’t afford to lose £18 billion,” but in the context of saying “Why should we be charging people who want to go off and buy some food £18 billion?” The mere fact that the Treasury continues to draw up estimated costs of principal tax reliefs shows that it is looking at this from the wrong end of the telescope. The Treasury also says the reduced rate for domestic fuel and power is costing the Exchequer £4.85 billion. What an extraordinary approach that is, as it implies that the Treasury might be minded to put domestic fuel and power VAT back up to 20%. This gives me the feeling that the mindset in the Treasury needs a lot of alteration and that at the moment it is far too negative and unimaginative on a lot of these issues.

Our inability to increase the threshold or meaningfully alter the design of VAT without the unanimous agreement of all other member states is a big problem. It has not stopped the EU Commission of course publishing proposals to cap the thresholds at €85,000 from July 2022 and establishing a new EU-wide threshold of €100,000. That is another example of the statist expansionist agenda of the European Union about which the British people spoke so strongly in the referendum just over two years ago.

The EU Commission is proposing changes that will affect tourism, construction, accommodation, food, traders, professional and scientific and IT service providers and so on, and we could still be faced with an €85,000 VAT threshold if we do not leave the EU on 29 March. If we stay in the EU under some transitional arrangements without knowing what the final outcome will be, throughout that period we will be subject to EU laws relating to VAT. Bearing in mind that the VAT thresholds across the rest of the EU are often only about €20,000 rather than €85,000, we could find the law being changed against us because we would not have a veto. We would be outside the EU so we would not be able to veto this, but we could find that our VAT law was made even more restrictive than at present, although many of our constituents will have thought that we had actually left the EU and got rid of this gross interference in our lives.

I mentioned earlier the compliance costs for VAT. One survey cited by the Treasury found that for UK small and medium-sized enterprises over 40% of all financial costs of tax compliance and 50% of time costs are due to VAT, and that statistic has been confirmed by the Federation of Small Businesses. VAT is particularly unattractive to businesses providing business-to-consumer activities, because they tend to be more labour-intensive, and labour of course is not subject to VAT. We must also think about the impact of VAT on consumers and the cost of living.

I hope I have been able to make a strong case in relation to clause 1 and shall now turn to clause 2. It sets out the second element of the Bill which is to make provision for the exemption of certain goods and services from liability to VAT and for connected purposes. The goods and services that are subject to VAT are set out in the Value Added Tax Act 1994 and clause 2 would ensure that domestic fuel or power in group 17, fitness items in group 18, goods subject to excise duties in group 19, insulating materials for home improvement in group 20, repairs and improvements to historic buildings in group 21 and women’s sanitary products in group 22 would all be exempt from VAT, rather than being subject to VAT as they are at present.

James Cartlidge Portrait James Cartlidge - Hansard

I hate to sound like a stuck record but want to repeat a point. My hon. Friend gave a basic estimate of the cost of raising the threshold, but it seems to me that this would bring a separate cost to the Exchequer; has he a cost for these exemptions in terms of potential lost revenue?

Sir Christopher Chope Portrait Sir Christopher Chope - Hansard
8 Feb 2019, 11:09 a.m.

Yes, of course I do. I have an estimate—not quite done on the back of an envelope, but on a rough piece of paper. The Government’s figures say that the reduced rate—5% instead of 20%—for domestic fuel and power, which is by far the largest item here, currently costs the Exchequer £4.8 billion. That implies, based on my maths, a yield of some £1.6 billion from having the rate at 5%. Therefore, of all the measures in clause 2, that is by far the largest cost. On the other hand, I would have thought that that cost was more than justified by the social and economic benefit of introducing such a policy.

The Government told domestic consumers of electricity and gas that they were on their side and that they wanted to cap their costs, so they introduced, with the sounding of trumpets, a cap on energy costs. We then found out yesterday that the cap is being increased by some 10%, the consequence of which will be an increase of £100 on an average household bill of about £1,200 a year. If we add VAT, that is another additional cost. If we removed VAT from a £1,200 bill, that would be a saving of about £60 per household on average. I would have thought that that would be worthwhile, and it would be one way of mitigating the effects of rising energy prices across the world and rising prices of the raw materials. Why not go for that? If we look at all this like an accountant—although I am not an accountant, I did once work for a large firm of accountants, so I know the mindset that can be associated with such activity—why are we not considering the political benefits that will flow from eliminating VAT on domestic fuel and power?

James Cartlidge Portrait James Cartlidge - Hansard

Many households in my constituency, including my own, use heating oil, and I am sure that people would be very grateful. However, it is not an accountancy view to ask about the impact on the Treasury given the cost of vital public services, such as health and education, which we all want to see better funded. That is my angle, and it not about accountancy.

Sir Christopher Chope Portrait Sir Christopher Chope - Hansard
8 Feb 2019, 11:15 a.m.

If we look at things in a dynamic way, what is the extent of the burden on the health service and social services of having people who are unnecessarily cold in their own homes because they cannot afford the cost of heating? I give that as an example of why we need to consider the wider picture, rather than just focusing on the accountants and the numbers. I do not know whether my hon. Friend is an accountant, but if he is, I had not intended any criticism of him specifically. As the public’s representatives, we should be examining such things on the basis of what is in their interest. If there ever was a demonstration of how hostile people are to the idea of being taxed on domestic fuel or power, it was apparent during the Christchurch by-election to which I referred earlier.

I presume that the only reason why my hon. Friend would be in favour of some of the items in clause 2(2) is that there would hardly be any significant cost associated with them. However, if one thinks about repairs and improvements to historic buildings, for example, is it not important that there should be an incentive? There certainly should not be a disincentive for people to repair and improve historic buildings—the heritage of our of our great nation. As for insulating materials for home improvement, surely it is sensible that if people are to improve the energy efficiency of their homes, they should not be subject to a disincentive tax.

I shall now turn to clause 2(2)(b). Fitness is something of which we speak frequently in in this House, and it is directly linked with the health service, the obesity agenda and so on. Why are we charging VAT on a whole range of fitness services? How can that be consistent with the public policy objective of encouraging people to get fit and thereby not only improve their quality of life, but relieve the burden on the health service?

Kevin Foster Portrait Kevin Foster (Torbay) (Con) - Parliament Live - Hansard
8 Feb 2019, 11:15 a.m.

As always, my hon. Friend is giving a detailed explanation of his proposals. On the topic of fitness, how would he deal with the fact that while a computer console can run fitness games that allow for physical movement, people may just buy one to sit in front of TV and play games? How would that be defined under this Bill?

Sir Christopher Chope Portrait Sir Christopher Chope - Parliament Live - Hansard
8 Feb 2019, 11:16 a.m.

I am glad that my hon. Friend made that intervention, because if he looks at clause 4, he will see that I am saying that the Treasury may by regulations define “fitness equipment”. If and when the Bill gets on the statute book, he should engage in discussions with the Treasury about what he believes to be the best definition of fitness equipment, so that the measure achieves the objective that I just articulated and does not enable people to avoid paying VAT.

Neil O'Brien Portrait Neil O’Brien - Parliament Live - Hansard
8 Feb 2019, 11:16 a.m.

Given that lawyers spent several decades arguing over whether a teacake was a type of biscuit, I caution my hon. Friend that allowing the Treasury to define “fitness equipment” and other general terms has the potential to be a bean feast for lawyers.

Sir Christopher Chope Portrait Sir Christopher Chope - Hansard
8 Feb 2019, 11:16 a.m.

The problem with the teacake or the Jaffa Cake case—

Neil O'Brien Portrait Neil O’Brien - Hansard
8 Feb 2019, 11:17 a.m.

That is a separate case.

Sir Christopher Chope Portrait Sir Christopher Chope - Hansard
8 Feb 2019, 11:19 a.m.

Yes, but the problem is that all that was subject to decisions by the European Court of Justice. Can my hon. Friend think of anything more ridiculous? If the matter had been under the control of our domestic laws set by Parliament, we would have been able to amend a finance Bill to redefine something, and the situation could have been changed overnight. However, because this all comes under the complex regime in the European Union, all of which is subject to the European Court of Justice, lawyers who specialise in this area can have a field day. The volume of law on VAT is vast, and surely there is a case for keeping it much simpler and well defined.

It would also be useful to have more transparency over what is subject to VAT. Supermarkets do not currently provide VAT receipts, so people do not know whether the digestive biscuits or the Jaffa Cakes that they just bought were or were not subject to VAT. However, there are various blogs that enable people to discover the best value items to purchase that are not subject to VAT but are quite similar to other products that are subject to VAT.

Speaking of transparency, clause 2(2)(c) would exempt from VAT goods that are already subject to excise duties, because I strongly believe that we should not have double taxation. Why should somebody who is paying duty on petrol then also have to pay VAT on that duty?

James Cartlidge Portrait James Cartlidge - Parliament Live - Hansard
8 Feb 2019, 11:19 a.m.

It raises a lot of money.

Sir Christopher Chope Portrait Sir Christopher Chope - Hansard
8 Feb 2019, 11:20 a.m.

But would it not be much more transparent if excise duty was raised and petrol was not then subject to VAT, which is a hidden tax? When my hon. Friend campaigns so actively to ensure that fuel duty is frozen, I hope he will extend his campaign to ensure that fuel duty is not subject to VAT. Clause 2(2)(c) would achieve exactly that objective.

James Cartlidge Portrait James Cartlidge - Hansard
8 Feb 2019, 11:20 a.m.

My hon. Friend knows what I am going to ask. How much?

Sir Christopher Chope Portrait Sir Christopher Chope - Hansard
8 Feb 2019, 11:20 a.m.

Nothing. It need not be anything. In order to be transparent, whether it be on cigarettes, fuel or any other item subject to excise duty, it should just be excise duty, which could be set at whatever level the Chancellor or Parliament chooses. It should not be distorted and disguised by adding extra VAT. When the Chancellor increases the excise duty on a bottle of whisky, he never says, “By the way, it is also going to be subject to 20% VAT.” He puts VAT on the increase in excise duty. Why do we not make it simpler and more transparent? That is what clause 2 would achieve. I am glad that my hon. Friend has been softened up, and I hope he sees the benefits.

Clause 2(3) properly defines domestic fuel or power in some detail, which I hope will meet with the approval of interested colleagues. As I said earlier, items under groups 18 to 22 are less well defined in the Bill, although the items in group 22 are specifically defined.

We were told by the EU that women’s sanitary products would be, or could be, exempted from VAT. We were told there would be an EU consultation. That was all the talk when the former Prime Minister David Cameron was trying to negotiate a better deal for the United Kingdom in the European Union. Women’s sanitary products being subject to VAT is a controversial issue, but nobody seemed to be prepared to stand up and defend such a policy. In the end, the European Union promised that it would consult and look at it with a view to amending the policy, but it never did. That has resulted in the Government having to continue charging VAT, and they have used the revenue generated therefrom for other purposes. What a ridiculous distortion. What a waste of energy. Why cannot we just change the law and do what we think suits us best as an individual Parliament, and not be subject to the ghastly laws of the European Union?

I have explained some of the Bill’s content, but it only touches the surface—a starter for 10—because I see the opportunities opening up beyond 29 March. We will have the opportunity to change our laws on VAT much more imaginatively than we could with this Bill, and I will give just one example.

In order to protect and encourage British manufacturing after 29 March, why could we not remove VAT on all cars, or any other product, manufactured 100% in the United Kingdom? Obviously we cannot do that at the moment because of the VAT rules and the European Union state aid rules. If we want to generate a dynamic offshore economy in which taxes are low but with strong incentives for manufacturing, why not do something like that? It might be a step too far for this Bill, but I put it down as a marker. It will be interesting to see whether my hon. Friend the Minister has a briefing on such a proposal. When the Prime Minister said that no deal is better than a bad deal, she said that no deal would be really good because it could enable us, as a United Kingdom, to develop a dynamic alternative economic model.

There is a lot of food for thought in this Bill, and I remind my hon. Friends that it is not within its scope to increase VAT or to remove any exemptions. Before they get on their hobby horses and say that we need more money from VAT and from consumers, I remind them that that is outside the Bill’s scope.

Anne-Marie Trevelyan Portrait Anne-Marie Trevelyan (Berwick-upon-Tweed) (Con) - Parliament Live - Hansard
8 Feb 2019, 11:27 a.m.

It is a pleasure to follow my hon. Friend the Member for Christchurch (Sir Christopher Chope), although I would highlight that I am a chartered account—and proud to be so. My training perhaps gives me a different perspective on politics, and I often from myself thinking in a different way from Members who are lawyers—not in a good or a bad way, but simply in a different way. Such training offers a breadth of policy, planning and thinking that we need to bring together. I am thrilled to speak on my hon. Friend’s important Value Added Tax Bill, and about how we might start to make significant improvements to this regressive and most punitive of taxes on the poorest, and on small businesses’ growth and productivity, after we leave the EU—very shortly, I hope—and are free to make such improvements once again.

I will address three areas of policy change proposed by the Bill, although there is much more I could discuss: VAT thresholds for small businesses; the flexibility of VAT rates on energy; and the big, thorny question of the sanitary products challenge that we have to solve. The first area on which this Bill offers an excellent improvement to our present VAT rules is the threshold for paying VAT. A small business whose main activity is one of human endeavour—the “services” part of goods and services—must monitor its monthly sales on a rolling 12-month basis these days, and must register to pay VAT as soon as the cumulative total reaches £85,000. Most small businesses that have many VAT-charged goods, such as plumbing businesses, are more likely to be VAT registered from the beginning, so such monitoring does not have to happen—those businesses are already in the VAT system because they want to reclaim the VAT on goods they have to use.

The threshold means that, overnight, a business suddenly goes from not being VAT registered to being VAT registered, and having to charge an extra 20% on its bills. Imagine going in for a monthly haircut that used to cost £20 and suddenly finding that it costs £24. That business will then find that a smaller, non-VAT registered business down the road is more competitive, and it will immediately risk losing customers, so what does it do? Does it hold down prices by employing another staff member, at great speed, to increase business and grow the volume of sales, or does it stop accepting custom in order not to hit the threshold in the first place? My hon. Friend gave the example of cafés, but in Northumberland, there are tourism businesses that see the threshold coming and therefore slow down or close their doors early in order to not make further sales. This arrangement is simply anti-competitive and surely it is not the sort of business driver that any Conservative Government would mean to be encouraging.

A real-life example that highlights the problem is that of a young businesswoman with exactly this dilemma in my constituency. This young woman owns a small hairdressing business in a small town, and employs two stylists full time and one part time. Her turnover is about £100,000—above the £85,000 threshold—and she is therefore VAT registered. Her VAT payments to the Treasury are in the region of £16,000, leaving her with net sales of £84,000. A number of competitors have set up business in the area and purposely kept their audited income below the £85,000 threshold to avoid paying VAT, while still charging prices comparable to VAT-registered retailers. Of course, the clients do not know whether a business is VAT-registered in that small business environment, but there is a 20% advantage in favour of that non-VAT-registered business—20% more for doing less work. This young woman does not make any profit worth mentioning, but she pays herself a wage and keeps three trainees employed, and she enjoys her work. Her father, who is also a constituent, has advised her to close the business and save all the hassle that goes along with self-employment and running a business. Is it not a tragedy that a father feels he has to say that to his energetic and business-focused daughter?

Let us look at this woman’s options and the consequences. She could follow her father’s advice and close her business, putting four people out of work. That would involve vacating the premises and creating an empty shop on one of the small high streets in my constituency. She could lay off a member of staff to reduce the income to below the threshold and de-register for VAT, although perhaps still charge the VAT-hiked prices and seeing whether clients will pay. This is a simple but brutal example of the anti-business growth of our present VAT rules. I have been frustrated by this for a long time—as an accountant and in politics—because we have been trapped in this position. We have no control over it because we are operating under the EU VAT directive.

I would go further than my hon. Friend has proposed in his Bill so far. It is wonderful to have a Treasury Minister in the Chamber, because I have written a number of times to a number of Chancellors on this subject, and I have the opportunity to make my argument again verbally today. Where other thresholds exist, such as for income tax, national insurance and stamp duty, there is an exemption on charges for amounts up to the threshold, with payments made only against the remaining amount over the threshold limit. If, in the case of any small business, we made VAT payable only on income above the threshold, we would offer a sliding scale of price increases or sales volume that would support the business and encourage the employment of more staff, unlike with the disincentive of the dramatic cliff edge at £85,000. Whether we are talking about £100,000 or £20,000, the effect is the same: there is a cliff edge from paying no VAT to entering the VAT world, with all the commensurate costs, stress and extra time spent dealing with it. It seems odd that there is no threshold step for VAT, just a cliff edge.

In the context of small business as a whole, the threshold is very low, despite the fact that it is one of the higher ones in the EU. It is an excellent start to see the Bill’s proposal of, in the first instance, raising the threshold to £104,000. Should this excellent Bill gain Government support and make progress, however, I would propose to go further and call on the Treasury to make all income below the threshold exempt from VAT, with further turnover up to a certain point—for example, £150,000—having VAT charged only on that marginal trading activity. Businesses could then carry the sales tax burden across all sales without having to force it on the customer in the hard way that happens now. This is important for the small business cohort; we are not talking about businesses whose turnover has reached £1 million and are employing 10, 15, 20 or more people. We are talking about the small business that suddenly falls under the complex and heavy burden of VAT, which is genuinely having an anti-competitive effect on them. We are doing ourselves and our businesses no favours at all.

The approach I am setting out would give small businesses a window of growth and investment opportunity, and the chance to take on more staff, before being hit with a 20% surcharge on all sales. Such a fairer, graduated system would level the playing field between small below-the-threshold firms and those growing businesses. It would stimulate growth in the small independent retail sector and might even be a policy that could help to revitalise our empty high street shops.

The Bill offers much more besides increasing the threshold for VAT for small businesses, as it takes up the long-overdue opportunity to exempt some critical goods from VAT altogether once we have left the EU and the limitations that the EU’s VAT directive forced upon us in 2006. The directive aimed to harmonise VAT across the European Union. Although it makes cross-border sales activity easier and has some merit for the simplification of sales taxes, it has limited any individual country’s ability to determine whether or not to exempt goods from VAT. VAT on fuel has been a matter of contention for years. To his credit—everyone take note, because I am not going to say that very often—the then Chancellor, Gordon Brown, brought that tax levy down to 5%, which was a very creditable decision, but under the EU directive, he had no independent authority to scrap it completely.

Let us consider the position for my poorest constituents in rural Northumberland—“deepest, darkest rural Northumberland”, as my mother refers to some of my more wonderful and hard-to-reach communities. In these areas, the choice in heating solutions is limited to wood, coal, expensive electric heating, which often does not work when the weather is really bad, or oil tanks, assuming the snow does not prevent the tanker from getting to a farm in the first place. There is no mains gas, so people do not have the opportunity of consumers in more urban areas of choosing a supplier from a competitive range of offers. The 5% VAT levy adds to their already higher than average heating cost burden, because all those other products are just more expensive. It would be a wise Government, after Brexit, who at last agreed that rural poverty—it has been ignored for far too long by Whitehall, in my humble opinion—could be alleviated in the first instance by removing this tax. As my hon. Friend identified, there might be an initial cost to the Exchequer of up to £1.6 billion, but the policy would have a broad range of principled and practical social and health benefits. The Government’s commitment to those is clear by their words, but such a change would make that clear by their actions, too.

If my rural constituents are disadvantaged by VAT on fuel supplies to keep their families warm, how much worse is it that our own Government could not unilaterally determine—nor indeed manage to persuade the EU while we have still been within its laws—that a 5% tax on sanitary products is a direct discriminatory charge against all women of menstruating age? A friend said to me on learning that I was going to speaking in support of my hon. Friend’s Bill today that

“women really ought to have tax deductions for being female—what with tampons and tights that ladder, being expected to wear makeup and have changes of wardrobe, you all should get a discount from the Government”

I concur wholeheartedly, as I am sure you do, Madam Deputy Speaker, although that might be a step too far for the Treasury. A small and immediately helpful step in that direction would be to scrap VAT on all sanitary products, and indeed on incontinence products, which are also listed in the Bill. This outrageous tax puts these things into the “luxury items” category of products and reminds me that we have far to go to make sure that policy making has common sense at its heart.

It is wonderful that, as in the battles for women’s voting rights 100 years ago, there are men like my hon. Friend leading the charge to change the law in support of women’s rights and fairness. There have been excellent campaigns from across this House in recent years to push the Government to effect change, and the Bill is the next step to get this VAT discrimination sorted out. By scrapping VAT on sanitary products and making them exempt, as is the case for food and children’s clothes, this Government would be sending a clear message that they understand that the tax system can be an incentiviser or a punisher. For too long, I have been shocked that the EU has chosen to continue to ignore this call for fairness, allowing—no, forcing—women to have to pay more for sanitary products, which are an indispensable part of our daily lives, in order to boost Treasury coffers across Europe. I look forward to hearing from the Treasury in the Budget that follows our departure from the EU that it has understood and will immediately remedy this discriminatory tax.

Sir Christopher Chope Portrait Sir Christopher Chope - Hansard

Does my hon. Friend share my concern that if we do not leave on 29 March without a deal, people will have had their expectations raised that we will have left the EU, but will be frustrated by knowing that such issues cannot be resolved by this Parliament?

Anne-Marie Trevelyan Portrait Anne-Marie Trevelyan - Parliament Live - Hansard
8 Feb 2019, 11:39 a.m.

My hon. Friend is absolutely right. Personally, I would rather leave with a deal that ensures that the bucket of issues that have to be sorted out are dealt with as we move forward from our legacy relationship into a new relationship, because that would make things easier for everybody, but the approach has to be right. The reality is that until we have left the EU, we have to follow the VAT directive, which means that we are not able to control that part of our tax law. I am grateful that we are leaving and that we will not move into the whole area of tax that the EU is looking to take control of across the board, which is a terrifying issue of taxation without representation. I am very glad that the British people have decided to step off the EU train before we move into that part of its policy making.

It would be a shocking failure not to remedy the discriminatory tax on sanitary products, so I hope that, in the most visible and practical of senses, the Government appreciate that constituents feel we have lost the ability to make good choices. We must take the opportunity, as soon as possible, to set the train in the right direction on this issue.

The VAT directive may not sound sexy or dramatic, but it has long been one of my most hated of all the directives under which we have had to work as members of the EU, as it emasculates Chancellors of whatever political colour in critical policy areas and disenfranchises us from being able to support small business, our poorest and, indeed, the female 52% of our population. It has meant that in a major area of tax policy, we have had to suffer taxation without representation for far too long. We will be able to send the clear message to the senior people in the EU Commission who determine, without oversight, what EU laws should be, that as in so many policy areas, the UK will lead the way in improving our citizens’ lives. I commend the Bill to the House and wish it every success in reaching deep into the Treasury’s conscience, which I know is there, so that we can make these proposals a reality after 29 March.

Maggie Throup Portrait Maggie Throup (Erewash) (Con) - Parliament Live - Hansard
8 Feb 2019, 11:41 a.m.

It is a pleasure to speak in the debate, and I congratulate my hon. Friend the Member for Christchurch (Sir Christopher Chope) on getting one of his many private Members’ Bills to Second Reading. I thank him for giving such a comprehensive history of VAT in the early part of his speech and for his forensic analysis of each part of the Bill.

At first, I thought that the subject of the Bill seemed rather dry, but the more I looked into it, the more interesting it became. Prior to my entering this place, I ran my own marketing business, which was registered for VAT. I did not see being registered for VAT as a hindrance; I saw it as a sign of success, as it meant that my turnover was growing and quite substantial. Some business owners I spoke to were concerned that splitting VAT on a quarterly basis was quite onerous. I always found that the quarterly returns helped me to focus on the financial side of my business and provided an opportunity for a regular review. They helped me to review my business costs and the charging structure for my marketing services. In effect, I was carrying out a quarterly audit that helped me to keep my business on the straight and narrow over the 19 years for which I ran it. Some businesses may have criticised me for carrying out such a check only every three months, but it worked for me.

We are debating whether the £85,000 VAT threshold is the right one and if we should make provisions to exempt certain goods and services from VAT liability. In November 2017, the Office of Tax Simplification produced an excellent report. I must declare that I could be slightly biased, because the chair of the office is Angela Knight CBE. For those Members who are not fully aware of the political history of the Erewash constituency, Angela Knight was its Member of Parliament from 1992 to 1997. One of her claims to fame—among many, of course—was that she was the Treasury Minister responsible for the introduction of the £2 coin. She has had a varied and at times much-publicised career since leaving this place, and she was the perfect person to be appointed chair of the Office of Tax Simplification.

The views of my hon. Friend the Member for Christchurch on the EU are well known, and he has expressed them today. His Bill is timely, because Conservative Members want to take back control on 29 March. We need to make sure that the VAT threshold will encourage businesses to grow while at the same time maintaining the tax take for Government, because that pays for our vital public services. Members from all parties want to make sure that we have the right investment for our wonderful public services. The current £85,000 threshold is the highest general threshold in the OECD, so some may argue that we should consider lowering the threshold rather than looking to increase it.

Some anomalies have already been mentioned. The Bill proposes exemptions, including for domestic fuel and power and for repairs to historic buildings. We have also already discussed fitness equipment and the difference between cakes and biscuits. The prime example of the latter is Jaffa Cakes: if it is a cake, it is zero rateable, but if it is a biscuit, it is taxable. It has been deemed to be a cake, so it is zero rated. Closer to my heart are the gingerbread men made by Stacey’s bakery in my Erewash constituency. In my opinion, they are the best gingerbread men a person could buy in the whole country. If the gingerbread men have chocolate trousers, they are subject to VAT. If they just have chocolate eyes but no chocolate trousers, there is no VAT. In the interests of equality, why do we not have gingerbread ladies? If we did and they had chocolate dresses, would they be subject to VAT? I am sure that we could all highlight many more anomalies, but the ones I have mentioned help to illustrate just how important it is to ensure that any changes to VAT legislation are well thought through and appropriate.

I could spend a lot more time talking about whether higher or lower threshold levels encourage more or less entrepreneurship, or about the optimal threshold to maximise the tax take without stifling business, but I am sure all that will be thrashed out in Committee. VAT is the third largest source of tax revenue collected by HMRC, after income tax and national insurance contributions, so I am sure it is above my pay grade to recommend a new threshold to the Treasury. It is clear to me that we should not jeopardise the £120 billion collected in 2016-17—I am not sure of the figures for the following year—which represented 22.5% of all taxes. I fear that the removal of one tax would only result in the increase of another tax to balance the nation’s books.

Sir Christopher Chope Portrait Sir Christopher Chope - Hansard

Will my hon. Friend give way?

Maggie Throup Portrait Maggie Throup - Parliament Live - Hansard
8 Feb 2019, 11:47 a.m.

I was just about to finish, but I will give way.

Sir Christopher Chope Portrait Sir Christopher Chope - Hansard
8 Feb 2019, 11:47 a.m.

In her zeal to leave the European Union, surely my hon. Friend has not forgotten that we will be able to keep a big dividend in the form of the £10 billion to £20 billion a year that we currently pay to the European Union. Why can we not spend that on our own priorities?

Maggie Throup Portrait Maggie Throup - Hansard
8 Feb 2019, 11:47 a.m.

My hon. Friend makes an important point; this is about priorities, and our priority may not actually be changing the level of VAT.

I look forward to hearing the Minister’s response and analysis of the proposed changes in this Bill.

Break in Debate

Lyn Brown - Hansard
8 Feb 2019, 12:10 p.m.

I hear that.

We are told that the Chancellor was forced into ditching the policy only because Conservative Members were up in arms. It seems quite clear, therefore, that there are political rather than technical reasons for what we choose to exempt and not to exempt from VAT.

We should also understand that fraud continues to be a serious issue for the Exchequer in relation to the collection of VAT. On Government estimates, VAT fraud currently costs the UK about half a billion pounds a year, with an extra £1.5 billion of uncollected debts and around £100 million of avoidance. VAT fraud was discussed at length during the Committee stage of the Finance Bill in October 2017, when the Government introduced a new clause to place new obligations on fulfilment houses to help tackle VAT fraud, which has worsened with the rise of online sellers who obtain goods through third-party vendors based abroad.

The Opposition believe that small businesses need more support in getting to grips with the tax if we are ever to close the VAT gap. The situation has been worsened by the Government’s disaster-struck attempts to transition to making tax digital, which have thankfully been delayed until next year to give businesses the chance to adapt.

Many of us spend a large proportion of our lives online, so it is unsurprising that more UK consumers than ever buy a larger proportion of their goods through online marketplaces such as Amazon, eBay and others. In 2016, 14.5% of UK retail sites were online—up from 2% in 2006. Just over 50% of these sales were through online marketplaces, rather than directly from the seller.

The Campaign Against VAT Fraud on eBay & Amazon in the UK—a snappy title, which was possibly created by accountants—estimated that online VAT fraud

“equates to £27 billion in lost sales revenue”


“additional taxes to UK businesses and the public purse in the last 3 years.”

Her Majesty’s Revenue and Customs has stated that it does not have data on online fraud and other losses before 2015-16.

Sadly, the slowness of HMRC in responding to growing fraud online has been criticised by the Public Accounts Committee, which first raised concerns in April 2013. It found that HMRC had only recently begun to tackle the problem seriously, despite the fact that such fraud leads to significant loss of revenue to the Exchequer. It found that HMRC, rather than trying to use its existing powers, waited until the introduction of new measures under the Finance Act 2016 before even attempting to hold online marketplaces responsible for the VAT fraudulently evaded by traders. HMRC has been too cautious in using these powers, and the Government have refused to name and shame complacent traders. To my knowledge, they have not prosecuted a single one for committing online VAT fraud.

As the UK leaves the protection of the EU VAT area, the possibility of VAT fraud will, arguably, rise. It is therefore logical that any new legislation on VAT should consider additional measures to tackle online VAT fraud. I understand from the Treasury Committee that HMRC believes there is a £3.5 billion VAT gap resulting from mistakes made by businesses when they submit their VAT returns. The overall VAT gap in 2016-17 was £11.7 billion. I am sure we can all agree that that is a high number and therefore probably requires some fairly urgent, radical action.

The Chartered Institute of Taxation has six recommendations to help address this gap. I want to focus on just one of them today, in the interests of time and sanity, which is

“resisting the temptation to introduce widespread changes that are disruptive to the majority of compliant businesses”.

Possibly, this connects to a concern about the clause we are addressing.

I am aware that there is something of a live debate on registration thresholds. There were several briefings ahead of last year’s Budget that moves were afoot to reduce the threshold and force more small businesses to register for VAT. There are, I honestly believe, arguments both in favour and against such an approach. I have actually debated this over my breakfast table with my husband, who just happens to be a small business owner. A concern about the threshold is not an argument for a particular threshold, because I think the only way to address such a concern would be to reduce the threshold to zero, which is something we certainly do not support. Conservative Members may claim that by setting the threshold too low we are disincentivising businesses. There are some who claim that the existence of health and safety legislation or, indeed, employment law is a disincentive to business—I know that to be true because I have done many Friday mornings—so we should be very careful where that argument takes us.

There is much in this Bill that I am sure the hon. Member for Christchurch would agree needs further consultation. First, it is not sure how the shift in threshold for registering taxable supplies in this Bill, from £85,000 to £104,000, has been worked out. It would be great if the hon. Gentleman, in his summing up, could let me know. It would also be useful to know how much consultation has gone into the exemptions for the use of coal, oil and gas as domestic fuel or power, because it is not clear to me that, as we seek to reduce fossil fuel emissions, the use of such fuels should be subsidised. I am sure he would agree that, again, this needs a broader consultation and consideration of how such a measure sits alongside other measures being taken, including by this Government—

Sir Christopher Chope Portrait Sir Christopher Chope - Hansard
8 Feb 2019, 12:12 p.m.

Will the hon. Lady give way?

Lyn Brown - Hansard
8 Feb 2019, 12:12 p.m.

Let me finish my sentence. Such consultation should include how such a measure sits comfortably alongside other measures being taken by the Government—for example, through the Climate Change Act 2008. If I finish the next bit, just to wrap it all up, the hon. Gentleman may find that easier. I wonder how workable or sensible it is to propose exempting VAT from items already subject to excise duty, such as alcohol and tobacco, and whether this could be counterproductive as it could amount to two policy measures pulling in different directions, with excise duty increases to try to discourage consumption and a VAT exemption in effect reducing the price.

Sir Christopher Chope Portrait Sir Christopher Chope - Hansard
8 Feb 2019, 12:13 p.m.

Does the hon. Lady recall—perhaps she does not—the 1993 Christchurch by-election, after the Government had introduced VAT on fuel? In that by-election, the Government’s argument for introducing VAT on fuel was that it would promote fuel efficiency, and the electorate in Christchurch gave the Government’s argument a big raspberry.

Lyn Brown - Hansard
8 Feb 2019, 12:14 p.m.

Can I say that I am not at all surprised—not at all—by that? No, I do not remember the 1993 Christchurch by-election. However, I assure the hon. Gentleman that, after I have driven to my friends’ this evening, I will ask them to look it up for me so that as soon as I get my gin and tonic, I will have an opportunity to refresh my memory of the politics of that by-election.

I am genuinely delighted—I mean this sincerely, which is why I wanted to say this at the end—that the hon. Gentleman wants to exempt women’s sanitary products through this Bill. There has been ongoing work, driven by some of my Labour colleagues and, to be fair, by some Conservative Members as well, to allow lower VAT rates or even a zero rating for sanitary products. I wholeheartedly agree, and I genuinely believe that we should be striving massively to do it. There is real poverty in some sections of our communities and poverty in relation to sanitary products really should not be exacerbated by having VAT on them. In January last year the European Commission came back to us with revised proposals to allow countries in the EU to introduce lower rates for sanitary products, and in part that was in response to campaigns from this Chamber. As we know, the proposals still have to be agreed at EU level, and of course the UK has yet to finalise its relationship with the EU.

This has been a genuinely interesting debate, and I thank the hon. Member for Christchurch for entertaining me so thoroughly on a Friday morning. He will be unsurprised to hear that should the Bill be pressed to a vote, sadly I will not be able to support him in the Lobby.

Break in Debate

Robert Jenrick Portrait Robert Jenrick - Hansard
8 Feb 2019, 12:23 p.m.

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 Portrait Sir Christopher Chope - Hansard
8 Feb 2019, 12:24 p.m.

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 Portrait Robert Jenrick - Hansard
8 Feb 2019, 12:25 p.m.

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 it be 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 Portrait Sir Christopher Chope - Hansard
8 Feb 2019, 12:28 p.m.

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 Portrait Robert Jenrick - Hansard
8 Feb 2019, 12:29 p.m.

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.

Sir Christopher Chope Portrait Sir Christopher Chope - Hansard
8 Feb 2019, 12:34 p.m.

I thank everyone who has participated in the debate. We have raised a lot of issues that, once we have left the EU on 29 March, we can develop into important legislative proposals.

I am grateful to the Minister for reminding me of the time I spent in the Treasury as a PPS to the noble Lord Lawson, who did indeed understand the dynamic effect of tax reductions and who—incidentally—has since been a consistent critic of the ridiculous waste of public expenditure consequent on the Climate Change Act 2008 in his work for the Global Warming Policy Foundation, for which we should all pay him great tribute.

The Minister mentioned women’s sanitary products. He called the tampon tax ridiculous and unfair, saying we must abolish it as soon as possible, but he manifestly failed to say when. Does that not sum up the problem with the EU? It is always delaying and delaying while lacking the will to do anything. It duped us during the Cameron negotiations into thinking we could get our own way on this ridiculous tax, and yet it has failed to deliver since 2016, and my hon. Friend still does not know when it will deliver—we will, I hope, have left the EU before it happens.

I thank my hon. Friends the Members for Berwick-upon-Tweed (Anne-Marie Trevelyan), for South Suffolk (James Cartlidge) and for Erewash (Maggie Throup) for their contributions. I hope that they will participate in the ongoing debate that I hope will develop across the country as people realise that VAT is no longer in a closed category and can be debated openly. Perhaps we will get to see the £40 billion shopping list of costings, too, because the public should be debating these things. We are bringing back control to this House partly to have more control over this great area of taxation, so why not have a much more rational and transparent debate?

I am grateful to the hon. Member for West Ham (Lyn Brown), who identified important issues around online VAT fraud. My hon. Friend the Minister was not able to respond on those issues in his remarks, but we should not allow that to pass unremarked, because if there is an £11.7 billion gap, we should be putting a lot of resource into seeing what we might be able to do about it.

I could not agree with the hon. Member for West Ham about VAT on school fees, but I do agree that we in this country should have the right to decide such issues for ourselves. If there were a Labour Government—God forbid—who imposed VAT on school fees, would it not be ridiculous if an incoming Conservative Government were then not able to remove VAT on school fees completely because, under existing EU law, they would have to leave VAT on school fees at the level of 5%? How ridiculous and undemocratic is that?

I have two options: withdraw the Bill, or put it to a vote of the House. I am confident that were I to put it to a vote, it would get a Second Reading, but I do not think there would be sufficient time in Committee and on Report to do it justice in this Session and, as my hon. Friend the Minister said, there is still the problem that we have not yet got to 29 March, so there are some things up in the air. It is easy for the Government to defend themselves against policy changes by saying that there is uncertainty, but I hope that that uncertainty will be resolved on 29 March. In order to remove the uncertainty relating to this Bill, however, I beg to ask leave to withdraw the motion.

Motion, by leave, withdrawn.

Oral Answers to Questions

Sir Christopher Chope Excerpts
Tuesday 6th November 2018

(1 year, 11 months ago)

Commons Chamber
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HM Treasury
Mr Hammond - Parliament Live - Hansard
6 Nov 2018, 12:15 p.m.

The hon. Lady will have heard the Chief Secretary remind the House earlier that the Resolution Foundation has now identified that, with the additional money we have put into universal credit, the system is now more generous than the legacy system that it replaces. It has a clear incentivisation to work, and those of us on the Government Benches believe that the best way we support and help and families is to help them into work. That is the sustainable route out of poverty.

Sir Christopher Chope Portrait Sir Christopher Chope (Christchurch) (Con) - Parliament Live - Hansard
6 Nov 2018, 12:15 p.m.

Parliament passed legislation in 2016 to save hundreds of millions of pounds each year by limiting public sector exit payments to £95,000. As my right hon. Friend is so keen to improve public finances, why has he not yet implemented that legislation, which would have outlawed the £474,000 obscene exit payment recently announced for the chief executive of Dorset County Council, with many similar payouts to follow?

Mr Hammond - Parliament Live - Hansard
6 Nov 2018, 12:15 p.m.

My hon. Friend raises a perfectly legitimate question. This is a complicated area. We are making progress on it and we hope and expect to be able to make an announcement shortly.

Public Sector Pay Cap

Sir Christopher Chope Excerpts
Wednesday 5th July 2017

(3 years, 3 months ago)

Commons Chamber
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HM Treasury
Elizabeth Truss Portrait Elizabeth Truss - Hansard
5 Jul 2017, 1:11 p.m.

I would answer the hon. Gentleman by saying that my pay has gone both up and down since 2010, but my pay is set independently. The important point is that the pay of public sector workers is determined by the pay review bodies, whose recommendations I take very seriously, and that is how we should approach this issue. Rather than trying to politicise the issue and saying that we should have a blanket approach, we have set public sector pay review bodies the remit to make such decisions themselves.

Sir Christopher Chope Portrait Mr Christopher Chope (Christchurch) (Con) - Hansard
5 Jul 2017, 1:12 p.m.

When will the Government introduce the £95,000 cap on exit payments for public sector workers? The legislation is on the statute book, but it has not been implemented. Will it be implemented soon so that we do not have any more payments such as the £390,000 paid earlier this year to the chief executive of Bournemouth Borough Council to leave?

Elizabeth Truss Portrait Elizabeth Truss - Hansard
5 Jul 2017, 1:12 p.m.

I would be very happy to discuss that issue with my hon. Friend later.