Finance Bill

Debate between Dan Byles and Diana Johnson

Tuesday 3rd July 2012 Commons Chamber

[Diana Johnson]

It is a real pleasure to follow the hon. Member for Brigg and Goole (Andrew Percy), who, with characteristic humility, accepted that bringing forward these VAT proposals was not the Government’s finest hour, unlike the hon. Member for Truro and Falmouth (Sarah Newton), who unfortunately is no longer in her place. She has a rose-tinted view of the shambles of this Budget and the proposals that have been put forward, which caused consternation, upset and distress to many individuals and businesses around the country. However, she now seems to think that we should be celebrating the fact that the Government have had to cobble together this compromise.

I shall be supporting new clause 10, which was tabled by those on our Front Bench, and I want to speak against the Government’s new schedule 1. Our opposition to new schedule 1 underlines Labour’s commitment to having low taxes, because it would implement a tax increase, including the 5% VAT on caravans, which I want to address.

[Dan Byles]

I am interested to hear about that commitment, because I had understood that it was Labour policy to do more of the heavy lifting on deficit reduction through raising taxes than through cutting public spending. Is her party now the party of low taxes?

[Diana Johnson]

This section of the debate is about VAT. When we are in a double-dip recession, the imposition of VAT on items such as caravans is not going to help us to grow out of that economic position. That is what I will concentrate on.

The proposal for 20% VAT to be levied on static caravans came out of the blue in the Budget. There had been no consultation with the industry, and no warning that the Government were planning that measure. The impact assessment published alongside the Budget stated that the 20% VAT would result in a 30% reduction in the market for static caravans. The Government’s U-turn involved a 75% reduction in the amount of VAT involved, and 5% will now be levied from April 2103, as opposed to 20% from October 2012.

I can go some way towards welcoming the fact that the Government have listened and put forward a response to the widespread view that the imposition of 20% VAT would have been a disaster. There was cross-party work on the issue, with a number of debates, early-day motions and petitions. I will give the Minister his due; he did take the time to listen to what people had to say, especially those from my part of the world. However, serious concerns remain about the effect that the 5% VAT will have, and I want to run through them tonight.

I want to talk first about jobs and demand, which are at the heart of the issue. As I said, the Treasury’s own figures showed that the imposition of 20% VAT would have resulted in a 30% reduction in demand for static caravans. It worries me that the Treasury seems incapable of using figures appropriately. When I looked at the impact assessment, I realised that it had got the figures for businesses and manufacturers in the caravan industry wrong. It worries me that it cannot even get such basic information correct when it sets out to consult on a proposal. I want to see much better research into the impact of the 5% VAT on caravan manufacturers.

I have not been reassured by what the Minister has told me today, even though I have pressed him to tell me what will happen to manufacturers in the caravan industry. I did not feel that he really had a grasp of what the numbers might be. It worries me that there has been no proper assessment of this policy. Does he think that levying 5% VAT will put at risk roughly a quarter of the demand that the 20% VAT would have put at risk? Does he also think that the number of job losses in the caravan manufacturing industry will be reduced from the 6,000 mentioned in KPMG’s report to about 1,500 as a result of the change in VAT? Will he also comment on the knock-on effects for the wider UK tourism and domestic holiday industry?

I want to draw the Minister’s attention to the HMRC document, “VAT: Taxing Holiday Caravans”, which was published at the end of last week. On the economic impact of the 5%, it states:

“This measure is likely to lead to an increase in the price of static and larger touring caravans which could lead to a fall in demand.”

I take the view that the Treasury civil servants are among the brightest and best that the civil service has to offer, and it seems odd that they have been able to come up with nothing more definitive than that the measure “could” lead to a fall in demand. The document goes on to state:

“Although the overall impact on the macro economy is expected to be negligible, the measure will impact local manufacturing in Yorkshire and the Humber where the bulk of static holiday caravans are manufactured.”

Most people in Hull and East Yorkshire would agree with that, but surely the Treasury can come up with something better. The section of the document entitled “Impact on businesses including civil society organisations” states:

“The vast majority of static holiday caravans are manufactured in Yorkshire and the Humber and a small number of manufacturers account for the vast majority of all UK sales. Although some manufacturers produce other types of caravans, static caravans are the main source of income for most of these manufacturers.”

Again, it worries me that the document uses such general terms. Where is the meat in all this? Where are the figures? Where does it tell us what the actual economic impact of the policy will be?

Let us bear in mind that we are in a double-dip recession and we are all desperate to get growth back into the economy. I mentioned in an intervention that 46.3 people in my constituency chase every job vacancy going, so any loss of jobs in the caravan manufacturing industry is a disaster for my constituents. I think that the hon. Member for Brigg and Goole mentioned that the caravan industry suffered very badly in 2008-09, and it is only just getting back on its feet. If the Treasury thinks that the imposition of 5% VAT will be fine for an industry that is struggling in a double-dip recession when people are not spending, it really needs to look again at its figures and ensure that they all add up.

The Minister said that the goods within a caravan were already taxed, in that VAT had already been levied on such items. My understanding is that the figure involved is about 5%. Will he tell us whether the 5% proposed in the Bill will be an additional 5%, making a total of about 10% VAT payable? I am confused by that, and the Minister has not made it clear.

One of the strongest arguments against the initial proposal for 20% VAT was that it would raise very little revenue for the Treasury. When taking that into account, we also need to consider the welfare costs that would be incurred from people in the industry losing their jobs. Has the Minister looked at the figures involved? Does he think that the sums add up?

HMRC now estimates that the 5% VAT will first raise revenue in 2013-14, when it will bring in £5 million a year, rising to £10 million a year from 2013-14. That is a relatively small amount of money, given the Government’s overall spending, especially in the light of the millions that they have found in the Budget for tax cuts for millionaires. Let us put this into perspective: £10 million is perhaps a third or half of what Mr Diamond’s severance payment might be.

This measure will have an impact from next year onwards, while raising £5 million to £10 million. When we take into account the fall in demand in the industry and the resulting job losses, I do not think that the Treasury will end up in credit. Introducing the measure could result in more money being spent, through welfare benefits. Will the Minister set out for me the sums that he is using to ensure that the measure will bring a net benefit to the Treasury? In my view, this is an ill thought-through policy, and these are crazy economics.

The Minister referred to the manufacturing standard, BS 3632. As I said in my intervention, using a manufacturing standard to dictate tax policy is silly.