Value Added Tax Bill

Debate between Lyn Brown and Stephen Pound

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.