Tourism Industry and VAT

Debate between David Gauke and Albert Owen

Tuesday 17th March 2015 Westminster Hall

[Mr Gauke]

The hon. Gentleman leads me to a different debate on the VAT treatment of golf clubs, which I am sure he will understand is a matter of some complexity and indeed of some litigation, too. So, Ms Dorries, I hope you will forgive me, but I will not be too diverted by the particular point that he has put on the record.

In the UK, we apply a zero rate of VAT to food, newspapers and books, and passenger transport. The UK also refunds VAT incurred by many world-famous museums and galleries, making them free to visit for all. In addition to the sector-specific reliefs, the UK’s VAT registration threshold is the highest in the EU, meaning that much tourist accommodation and many attractions do not have to charge any VAT to their customers.

As I have said, Ministers from both the Treasury and DCMS have discussed the Cut Tourism VAT campaign, and recently I have both met and engaged in correspondence with campaigners. VAT raises more than £100 billion a year, which has been critical in enabling us to manage the UK economy through tough economic times, and the latest figures from the Office for National Statistics suggest that reducing the rate of VAT to 5% for catering services, such as the supply of meals, snacks and drinks sold by restaurants, pubs, cafés and canteens, would cost the Exchequer £10 billion per year. Similarly, a cut in VAT to 5% for accommodation would have an estimated cost of around £2 billion a year to the Exchequer. I do not have to remind hon. Members that those costs would have to be met either by increasing other taxes, which may well have an adverse effect on growth and jobs elsewhere in the economy, or by increasing borrowing. That would risk raising interest rates, which would undermine our hard-won recovery and would have an adverse impact on families and small businesses.

[Albert Owen]

The Minister made the comparison with the Republic of Ireland, saying that we have had a comparable increase in the number of people visiting this country. Does he have any comparable figures from the Republic of Ireland that show the boost to the tourism sector there, and if so, is he taking them into account when he talks about the extra revenue that has come into the Irish Exchequer?

[Mr Gauke]

The point that I am making is that the number of tourists in both countries has increased at largely the same rate, at a time when one of them has reduced VAT and the other has not. Of course, these matters can be somewhat complex and there are many factors to consider, and when it comes to tourism matters, and particularly matters affecting in-bound tourists, we should not forget the importance of the exchange rate. It is very significant and, of course, recently the exchange rate has gone in different directions.

Finance (No. 2) Bill

Debate between David Gauke and Albert Owen

Thursday 18th April 2013 Commons Chamber

[Albert Owen]

That argument is completely wrong. It might be Conservative central office’s take on it. The previous Chancellor suggested a VAT rise, but was outvoted by the Cabinet. He was just one individual. The current Prime Minister, however, was clear that he would not put it up, but then did. The hon. Gentleman cannot accuse the previous Chancellor of making an argument and then blame the last Government for not listening to him. It was the leader of the Conservative party, now the Prime Minister, who turned circles on this issue.

This regressive taxation hits the most vulnerable in our society. According to the Office for National Statistics, 9.7% of the money the poorest 20% spend goes on VAT, and they spend more on VATable goods than the richest 20%, for whom that figure is 5.8%. It is an unfair tax, as well as one that takes money out of the economy.

The Conservatives have been consistent in shifting from direct to indirect personal taxation. It was Anthony Barber who introduced VAT, at 10% I think, and a later Chancellor, in 1979, who raised it from 8% to 15%, which had a negative effect for many years. In 1984, it went up to 17.5%. As I said, in opposition, the Conservatives said that they would not do this, yet it was one of the first things they did. They are not getting the revenue yield they expected, because the economy is in such dire straits—it is stagnating, in many ways. My hon. Friend the Member for Kilmarnock and Loudoun (Cathy Jamieson) talked about wage freezes and other impacts of Government policy. With a policy of reducing VAT, the Government could actually do something, instead of blaming the previous Government, the European Union or other external factors. Here is an opportunity for them to use one of the levers of power at their disposal.

I hope that the Liberal Democrats will support us. They have made such a big issue of it in the past. There is only one Liberal Democrat here today, the hon. Member for Eastleigh (Mike Thornton), but I would be happy to take an intervention from him, if he feels as strongly as his party did—not him personally—before the general election. It is a big issue. I talk to small businesses, and they tell me that the rate of VAT is having a negative impact on their businesses. Everyone in the House wants to stimulate the economy, and here is a way of doing it relatively quickly.

There is evidence that along with other measures—it cannot be seen in isolation—the previous Government’s VAT reduction from 17.5% to 15% actually helped the economy at a difficult time. The car scrappage and other short-term schemes were also introduced to boost the economy. The Government should be considering those sorts of things, rather than just blaming others. The economy is at a difficult juncture. Unemployment is rising again, after temporarily falling: 2.54 million people are on the dole—that is mass unemployment—and are not spending. Helping them, with their small incomes, by reducing VAT would have a big impact on the economy. The way forward is to create more jobs and get them back to work.

The Government have said—I am sure that the Minister will clarify this matter—that it is not possible to reduce VAT, but that is not the case. I have heard them mention on numerous occasions a mechanism by which Europe can prevent them from reducing VAT, but it could be done as a temporary measure. There are also many variations, zero-rating exemptions and concessions that could be applied to VAT.

[Mr Gauke]

I want to help the hon. Gentleman on this point. There is flexibility when it comes to reducing the rate, but the difficulty is that if one plucks a particular item, such as petrol, and reduces VAT on that alone, as his party advocated, it would need to be consistent with the VAT directives and that would require a derogation, which would take some years. The concerns we raised related to the ill-thought-out specific proposal that those on his party’s Front Bench put forward a year or so ago.

[Albert Owen]

I am grateful for that clarification. I recall that Labour Front Benchers said at the time that the proposal was specific to one thing, but this is a flexible measure. We can exempt certain goods from it. Yes, there are the European directives, but we could do this immediately and in doing so send out a positive message to the country and the business community and increase footfall in our shops and high streets.

The argument about reducing tax and increasing yields is perfectly legitimate. Some say that reducing corporation tax automatically boosts business, but it also results in a drop-off in the money that the Treasury takes. Nevertheless, it seems to be a favourite of the Conservatives, and I, too, support it. I support having a low-tax economy and reducing many of these taxes, but we should be consistent and do the same with VAT. The increase in it was supposed to raise several billions of pounds, but it has failed to do so because spending has fallen.

I support the proposal to reduce VAT. Action is need and needed now. The Chancellor could do it, and if he wanted to, he could do it straightaway. I accept that the poorest in the country, on the lowest wages, will benefit from the change to income tax thresholds, but they will lose out overall. The TUC is not alone in making this point. The Institute for Fiscal Studies has said that the combined tax increases, of which there have been several, both direct and indirect, will make the average family £900 worse off. If families are worse off in this country, spending is reduced and the economy is bound to contract. That is basic economics. We need to stimulate the economy, and one way of doing it correctly is to reduce VAT temporarily from 20% to 17.5%. Let us get the economy moving. The Chancellor has the power to do it, and he should support the new clause.

--- Later in debate ---

[Mr Gauke]

It is a great pleasure to serve under your chairmanship, Sir Roger.

I will deal with new clause 2 in a moment, but what has driven this debate, initiated by the Opposition, is the cost of living. That is an important matter for our constituents and the Government recognise the pressures that households face. We are taking action to support households with the cost of living, within the fiscal constraints that exist.

A key part of that has been to increase the personal allowance. Clause 3 will ensure that the benefits of that increase are shared fairly. In 2010, when the coalition was formed, individuals could earn just £6,475 before they began to pay income tax. Thanks to the actions of this Government, from April next year, the figure will be £10,000. That is an increase of £3,525, which means that the personal allowance will have risen by more than 50% in just four years, thereby helping our constituents with the cost of living. Our priority has been to help those on low and middle incomes, and we have. The changes in clause 2 mean that a typical basic rate taxpayer is already nearly £600 better off in cash terms under this Government. From next year, that figure will rise to more than £700.

That is not the only action that we are taking to help households with the cost of living. The fuel duty increase that was planned for September will be cancelled. The Finance Bill keeps fuel duty frozen at current levels, maintaining the longest freeze in fuel duty for 20 years. That is helping households and businesses with the cost of motoring. Fuel duty is 13p per litre lower than it would have been had we implemented the Labour party’s planned increases. We have also taken action to help local authorities in England to freeze their council tax for the third year in a row and to cap rail fares for commuters.

[Albert Owen]

The Minister and his Front-Bench colleagues are always talking about the freeze in fuel duty, which I welcome and for which I campaigned. However, has the Treasury made any calculations on the extra 2.5p in each pound that ordinary hard-working families spend on their petrol at the pump because of their measures?

[Mr Gauke]

Of course, that has been far outweighed by the steps that we have taken to reduce fuel duty. The net effect has been a substantial reduction in the amount of tax collected for every litre of petrol.

New clause 2 returns us to the big, fundamental economic argument that we have been having for some years on deficit reduction. I could deliver the standard speech that we give in such circumstances about how it is a strange way to deal with a debt crisis to try to increase borrowing. However, this is one of those rare occasions when the Opposition have put forward a policy and we have an opportunity to ask questions about it. I know that the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) will be keen to enlighten the House on the policy she has set out in new clause 2, and if I may, I will ask a number of questions—[Interruption.] I am sorry; there seems to be some objection from the Labour party. New clause 2 is being proposed by the Labour party. I want to ask questions about the policy behind it, so let me ask those questions.

First—this is the point raised by my right hon. Friend the Member for Wokingham (Mr Redwood)—new clause 2 states that VAT will be reduced until “strong growth” is achieved. What is strong growth?