Value Added Tax Bill

Lyn Brown Excerpts

Friday 8th February 2019 Commons Chamber

[Lyn Brown (West Ham) (Lab)]

I am delighted to be here today to discuss this fascinating subject—what a lovely way to spend a Friday morning!

Unlike most other taxes, VAT is paid by us all, and we all have an interest in ensuring that it is applied in the fairest and most effective way possible. As Members know, 16.8% of tax collected in 2018-19 is forecast to come from VAT, according to the Office for Budget Responsibility. With that in mind, we must weigh our words carefully. As we have rehearsed, we have to consider both the rate and the tax base of VAT, as VAT revenue goes towards the public services that most of us rely on. The significance of VAT to the Exchequer has fluctuated over the years. The total amount raised from VAT has grown over time from £57 billion in 1999 to 2000 to £122 billion in 2012-13, with the only sustained dip being in the years of the financial crisis, when VAT revenue dropped from £81 billion in 2007-08 to £74 billion in 2009-10. However, as we know, as a proportion of GDP it has increased only slightly, from 5.5% in 1999-2000 to 6.1% in 2016-17.

As we have discussed today—I think that almost every speaker has alluded to it—VAT does not affect our constituents equally. The most recent data from the Office for National Statistics shows that the poorest fifth of households paid 13% of their disposable income in VAT compared with 7% paid by the richest fifth of households. To quote the ONS,

“indirect taxes increase inequality of income.”

As we all know, different Governments have taken different approaches. Members with long memories—I see that my hon. Friend the Member for Ealing North (Stephen Pound) is behind me, and I am sure that the hon. Member for Christchurch (Sir Christopher Chope) will be included in this group—may remember that it was a Conservative Government who first introduced VAT in 1973, another Conservative Government who raised it to 15%, and yet another Conservative Government who raised it to 17.5%. It was therefore a bit of a surprise when, ahead of the 2010 election, the Conservative party spokespeople said that they had

“absolutely no plans to increase VAT”

to 20%. I think I hardly need remind the House of what happened next, or of the fact that the headline rate of the VAT has remained at 20% since the coalition Government put it there. I always like to remember the Liberal Democrats at this point. They are not here today.

[Stephen Pound]

They are not anywhere.

[Lyn Brown]

They are not anywhere today.

After considering these matters of history, let me touch on the question of which goods and services VAT is applied to. The choice of which goods and services we apply reduced rates to is political, not just technical. It is an example of the priorities we have as a society. We see that in some of the items that are exempt from VAT, such as sports activities because we want to encourage physical and mental health, and admission charges to museums, art exhibitions and education services because we think that that sort of thing is good for the education and mental health of our nation. There has been much discussion—I thank hon. Members in all parts of the House for this—about the imposition of VAT on sanitary products. When the rate was reduced by the last Labour Government, it was the lowest rate permissible under European legislation. On the other hand, my party unveiled plans ahead of the 2017 general election to charge VAT on private school fees. The money we raised could have been used to pay for free school meals for all primary school children—a policy that has already been implemented at local level by some really insightful Labour councils, including my own in Newham.

The current Chancellor was reportedly considering copying the idea—if newspapers are ever to be believed.

[The Exchequer Secretary to the Treasury (Robert Jenrick)]

No.

[Lyn Brown]

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”

and

“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, I am 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]

Will the hon. Lady give way?

[Lyn Brown]

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]

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]

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.