Value Added Tax Bill

Debate between Christopher Chope and James Cartlidge

Friday 8th February 2019 Commons Chamber

[Sir Christopher Chope (Christchurch) (Con)]

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 (South Suffolk) (Con)]

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]

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.

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[James Cartlidge]

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]

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. However, 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 worth while, 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]

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]

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 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?

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[Sir Christopher Chope]

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]

It raises a lot of money.

[Sir Christopher Chope]

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]

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

[Sir Christopher Chope]

Nothing. It need not be anything. To be transparent, whether 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.

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.

No Confidence in Her Majesty’s Government

Debate between Christopher Chope and James Cartlidge

Wednesday 16th January 2019 Commons Chamber

[Sir Christopher Chope]

No, I am not. Two years ago, we were told by the Prime Minister that nothing was agreed until everything was agreed and that everything was going to be agreed within two years. We now know that effectively nothing has been agreed, certainly as far as the future relationship is concerned. Just trying to buy more time will not solve the problem; we need to leave the European Union on 29 March and then we can have negotiations following on from that where we will be standing on a level playing field and able to stand up for our own interests. We will have called the European Union’s bluff. It is trying to undermine our ability to be able to do what we want.

If someone is unsuccessful in a conflict, we expect the victor to impose conditions on the vanquished. What is happening here is that the European Union is seeking to impose conditions on us because we have the temerity to want to leave the European Union. That is wholly unacceptable and the Government’s negotiating position has been supine throughout.

[James Cartlidge (South Suffolk) (Con)]

In terms of imposing conditions, if we go to no deal, we will go immediately to default WTO terms, including tariffs on lamb exporters, for example, of 40%, and we will not have a Trade Bill—it will not pass at the moment—to enable us even to do anything about it. Does my hon. Friend not see that there are serious risks in going down that route?

[Sir Christopher Chope]

No, I will not engage in trying to respond to all the scaremongering. My hon. Friend is good at the scaremongering. Let us recall the fact that our Prime Minister has said that no deal is better than a bad deal. The House of Commons has said that this is a bad deal, so why do we not have no deal and get on with it, thereby delivering for the people the result they wanted in the referendum? Certainly, my constituents are looking eagerly towards the prospect of having no deal on 29 March.

Parking (Code of Practice) Bill

Debate between Christopher Chope and James Cartlidge

3rd reading: House of Commons & Report stage: House of Commons
Friday 23rd November 2018 Commons Chamber

[Sir Christopher Chope]

That very challenging question is not dissimilar to the questions that I asked the Government and Prime Minister about what enforcement mechanism there will be to ensure that “best endeavours” as referred to in the withdrawal agreement will be implemented. In answer to a parliamentary question from me, the Minister replied on 22 November:

“The reference to best endeavours in Article 184 of the Withdrawal Agreement is a legally binding commitment that requires the United Kingdom and the EU to conduct themselves so that the negotiations on the future relationship are meaningful. It prohibits inflexible or obstructive behaviour and obliges the parties to pay reasonable regard to the interests of the other party.”

So in answer to the hon. Gentleman, that is the precedent that would be established. If he thinks that that is full of clarity, then I am sure he will be eager to support my amendment.

[James Cartlidge (South Suffolk) (Con)]

Presumably, whether best endeavours have been followed in the Brexit negotiations is likely to capture slightly more media coverage than whether best endeavours have been used in the introduction of the civil car parking code of practice.

[Sir Christopher Chope]

With the greatest respect, I do not understand why my hon. Friend says that. According to the Government, “best endeavours” is a legal term, so why can we not incorporate it in the Bill in the same way that it has been proposed that it should be incorporated in the EU withdrawal legislation?

Five-year Land Supply

Debate between Christopher Chope and James Cartlidge

Wednesday 4th July 2018 Westminster Hall

[James Cartlidge]

On a point of order, Sir Christopher. In the great excitement of commencing my speech, I failed to draw the House’s attention to my entry in the Register of Members’ Financial Interests.

[Sir Christopher Chope (in the Chair)]

That is noted; thank you.