Finance Bill

Steve Rotheram Excerpts

Tuesday 3rd July 2012 Commons Chamber

[Catherine McKinnell]

I made that very point when I expressed surprise at the impression being given that the static caravan industry warmly embraces and welcomes the change. A more rational description is that the industry accepts it as a much better deal than the one they were originally given by the Government—a slapped-on VAT increase to 20%, which would certainly have had an impact on jobs and compounded the lack of growth in the economy.

Once again, the change was announced during a parliamentary recess, the same day as the U-turn on the dreaded pasty tax. As Parliament was not sitting, there was no opportunity for the House to scrutinise the details of the Government’s plan—details such as where the money to pay for the change of heart would come from. The Government have yet to provide an answer to that question. We know the money will come from “underspends” in unidentified Departments, but we do not know where those underspends have occurred, whether they were planned, or why the coalition’s No. 1 priority of deficit reduction is no longer the default destination. The two measures—pasties and caravans—were supposed to raise £70 million, which is now unaccounted for. I hope that someone somewhere knows how to make up those sums. Many ordinary people consider £70 million quite a big hole to fill. How do Government plan to deal with it?

The third U-turn is the Government’s partial reversal on the so-called church tax. Ministers claimed that, in future, VAT would be payable on alterations to listed buildings, which are currently exempt. Of course, as the Government acknowledged today, half the listed buildings in this country are owned by the Church of England, which pointed out immediately that the change would cost it at least £20 million. Many churches collect donations from their congregation to pay for necessary alterations—often basic alterations, such as to provide a toilet and to ensure that the whole community can access the building. Without greater reassurances, the Church told the Government, the extra 20% payable would result in projects already scheduled having to be cancelled, and many of those projects were part of initiatives that churches had been encouraged to undertake through the big society.

The Government did not agree to a U-turn as such. I imagine they felt a bit embarrassed by that point, although that did not stop them performing another U-turn just days later—again, when Parliament was not sitting—on the charity tax. Instead, when they realised how hard churches would be hit, they agreed to give an extra £30 million to the listed places of worship scheme, so that churches could claim the money back in grants.

It is welcome that churches will no longer be hit with the huge extra cost of VAT, but my understanding of the Exchequer Secretary’s comments today is that churches will be asked to pay the VAT up front, then claim it back. They will have to raise the money to pay for the work they need to carry out, then wait for months to—hopefully—get it back. The hon. Gentleman says that measures have been put in place to make sure that churches do not suffer cash-flow problems, but I am not clear how much reassurance that provides. If he gives more detail when he winds up the debate, I am sure the House will be grateful. For a Government who say that they are waging war against red tape, it seems a bureaucratic process to put in place. My hon. Friend the Member for Edinburgh North and Leith (Mark Lazarowicz) raised concerns not just about the bureaucracy for HMRC and the Treasury in processing the payments and rebates, but the bureaucracy for the churches, which could well do without it.

I also understand that, contrary to what the Minister said about the Church of England’s being entirely happy with the proposal, many churches have expressed concern that the uncertainty would put them off accessing the scheme and relying on the VAT rebate. Churches could be deterred from undertaking necessary alterations and repairs. The other concern is that the measure does not help non-religious listed buildings, which still have to pay the 20% tax. Many people will choose not to go ahead with their projects. Among other things, that will hit jobs in the construction industry, and we all know how hard that has been hit by the downturn and the double-dip recession. It is an extra setback for that industry that listed building projects will not go ahead because of the 20% increase in cost.

We have seen at least partial U-turns on the pasty, the caravan and the church, but the Government have refused to budge on two issues. Sports nutrition drinks are still being subjected to a 20% price hike while sugary milkshakes will still be VAT exempt. The Government want to put VAT on sports drinks that are advertised or marketed

“as products designed to enhance physical performance”

or “accelerate recovery after exercise”.

The Minister sought to provide clarification for the Opposition, but I, for one, am none the wiser about the rationale behind the policy. No rationale has been offered for why a sports drink designed to provide and facilitate exercise and fitness should be targeted for VAT while drinks laden with refined sugars and fats are still exempt. Moreover, as my hon. Friend the Member for Kilmarnock and Loudoun (Cathy Jamieson) said earlier, the industry has raised serious concerns about whether milk and milk products will unintentionally be caught up in the ruling. From the Minister’s comments today, I wonder whether that is unintentional at all.

We all remember the “Make mine milk” ads in which well known sportspeople such as Denise Lewis promoted the benefits of milk for sport. If milk has been marketed as something that enhances physical performance and sporting prowess, will the Government levy VAT on it? My understanding from the Government’s comments today is that they would. There is no indication about how the anomaly would be resolved by the Government or whether they even have an issue. For that reason, we will vote against this shambolic VAT reform.

The final issue on which we have concerns is the VAT levied on hairdressers’ chairs. The Chancellor wants self-employed hairdressers to pay 20% VAT on hiring a chair in a salon. With the cost of chair hire up, hairdressers will have to choose between passing the cost on to their customers or absorbing it themselves. Industry data show that that will disproportionately hit small businesses and their customers, especially women between 16 and 44 years old. Why do the Government think that a good idea?

If the measure is just another routine closing of an anomaly, have the Government considered who they are hitting with it and why? I am truly concerned that the measure looks as if it was worked out on the back of an envelope, without any consideration of how many jobs it might cost. Our amendment would force the Government to consider carefully the impact on jobs and growth before imposing VAT on any previously exempt products. It is not clear that they have given any thought to the change that I have mentioned.

[Steve Rotheram (Liverpool, Walton) (Lab)]

On haircuts, I wonder whether the increase in VAT in the case of hairdressers will precipitate a return to hairstyles such as the one that I currently sport.

[Catherine McKinnell]

My hon. Friend read my mind as I gazed across the Chamber.

Giving a tax cut to millionaires and the banks but making it harder for self-employed women and their customers reveals a Government who are, once again, truly out of touch with ordinary people’s lives. New clause 12 seeks to go further on VAT and create a temporary reduction in the rate from 20% to 17.5%. The Liberal Democrats ran for election on a manifesto that warned of the dangers of a VAT rise with their pledge to protect constituents from the “VAT bombshell” threatened by the Conservatives. The Deputy Prime Minister pledged:

“We will not have to raise VAT to deliver our promises…Let me repeat that: Our plans do not require a rise in VAT.”

Why were they so against VAT? Perhaps it is because the evidence clearly shows that people on lower incomes are hit proportionately much harder than the rich by VAT because they tend to spend more of their income rather than save and invest it. Government Members will claim that, looking at different measures, more VAT is paid by the rich—the hon. Member for Brigg and Goole (Andrew Percy) fell into that trap—but there is absolutely no doubt about the fact that VAT is regressive and that those on lower incomes spend a higher proportion of their income on it than those on higher incomes. Even the Prime Minister agrees. In 2001, he said:

“If you look at the effect...as compared with people’s income then, yes, it’s regressive”.