Finance Bill

John Bercow Excerpts

Tuesday 3rd July 2012 Commons Chamber

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

I beg to move, That the clause be read a Second time.

[Mr Speaker]

With this it will be convenient to discuss the following:

New clause 3—Sixth form colleges (exemption from VAT)—

‘In Schedule 9 to the Value Added Tax Act 1994 (Exemptions), in Group 6 (Education), the following shall be added at the end of Note (1) (description of eligible body)—

“(g) a sixth form college”.’.

New clause 10—VAT: review—

‘No new Order shall be made under section 30(4) or 31(2) of the Value Added Tax Act 1994 unless the Chancellor of the Exchequer has fully reviewed the impact of any such Order on jobs, living standards and businesses, making reference to the HMRC Consultation “VAT: Addressing Borderline Anomalies”, and placed a copy of the review in the Library of the House of Commons.’.

New clause 12—Rate of VAT—

‘(1) In section 2(1) of the Value Added Tax Act 1994 (Rate of VAT) for “20 per cent.” substitute “17.5 per cent.”.

(2) Subsection (1) shall have effect from Royal Assent and shall expire at such time as the Government presents to Parliament a report stating that the UK economy has returned to strong growth.’.

Government amendment 17.

Government new schedule 1—‘Categorisation of supplies.

Government amendments 18 to 20.

--- Later in debate ---

[Mr Gauke]

Clearly there is a substantial difference between 20% VAT and 5% VAT. We set out our estimates in relation to the 20% rate, and some of the concerns that people took from what HMRC set out were, I think, somewhat greater than the reality warranted, because the impact set out and the assumption regarding the reduction in demand related solely to that element to which the change from zero-rated to standard-rated applied. On many caravans that are sold, the VAT is recovered—VAT already applies to an element of the price of a static caravan: that of the fixtures and fittings.

We do not think the impact of the 5% rate is likely to be substantial. In the usual course of business there are tax changes—national insurance contributions and rates are the subject of regular fluctuations—and in many cases the VAT change may well be absorbed. In addition, we have given industry much more time by deciding not to implement the change until April next year. Caravan manufacturers will have the opportunity to sell more caravans in advance of next year’s summer season—the information we have is that spring tends to be the busiest period. The overall impact on the industry is therefore unlikely to be significant.

Before discussing each of the anomalies and saying more about static caravans, I would like to give the House a little bit of history about the VAT system. As I am sure all hon. Members know, the VAT system was introduced in 1973 and amendments and adjustments were being made as early as 1974. The then Labour Government added confectionary, soft drinks, ice cream, potato crisps and certain other savoury snacks—

[Mr Speaker]

Order. My ears pricked up when the Minister suggested he might furnish the House with what he gently described as “a little bit” of information about VAT. In offering to the House—in a public-spirited fashion, I am sure—a potted history of the value added tax system, I am sure that he will have regard to the new clause that he is presenting.

[Mr Gauke]

I certainly will, Mr Speaker. I did say I would give a little history and, following your guidance, I will focus on the little.

I hope it helps the House if I explain that, in the almost 40 years in which we have had VAT, there have been changes from time to time. There were changes in the VAT on building alterations in 1982 and 1984, on hot takeaway food in 1984 and on newspaper and magazine advertising in 1985—I could go on, Mr Speaker, but let me move on.

--- Later in debate ---

I have spoken for over an hour—doesn’t time fly when one’s having fun, Mr Speaker! I hope I have given a helpful introduction to the debate, setting out some of the details to the House, and I hope these proposed provisions will be added to the Bill.

[Mr Speaker]

I am sure we are all indebted to the Minister for the informative character of his contribution —and, of course, for his oratory.

[Catherine McKinnell]

I will speak to new clauses 10 and 12, as well as the Government amendments that the Minister has already set out for us in quite some detail today.

The Opposition’s new clause 10 seeks to put a stop to the chaotic farce of ill-thought-through VAT changes being slapped on items from the pasty to the caravan, from haircuts to church alterations—imposed, defended, downgraded and then, in some cases, eventually quietly removed by Ministers during the parliamentary recess, once they realised quite how ridiculous the changes were to begin with, particularly given the current economic climate. We simply ask the Government not to meddle with VAT exemptions until they have carried out a proper assessment and worked out exactly what the impact of any change would be on jobs, living standards and businesses.

We assume that, before imposing a 20% tax, the Government will do their sums, work out who would be affected, consult them and think long and hard about whether such a change was a good idea. Our new clause 12 seeks to reverse the VAT bombshell, which, as I am sure many Members will recall, the Liberal Democrats shouted so loudly about before the election, and before they all subsequently discovered that they actually supported raising the 20% rate after all. That was a surprise all around, even to themselves, I think. In fact, everyone’s surprise about that was surpassed only by the discovery that the Liberal Democrats had also been in favour of £9,000 tuition fees all along.

Labour is clear that higher VAT hits the poor harder than the rich. It drives up the cost of living at a time when people are already feeling the squeeze, and it takes money out of people’s pockets and off the high street at a time when businesses are crying out for spending to drive growth. Our five-point plan for jobs and growth calls for VAT to return to 17.5% on a temporary basis until the economy is strong enough to cope with a rise. That would give £450 a year back to couples with children, to give the economy a boost and to drive growth.