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canvassing--may we have a little more fairness in the answering of questions, for which the Lord President has some responsibility? Is it fair in the run-up to the election for the Prime Minister for only one answer to be given to every question, when there are two key contestants for the job? In the interests of balance and political impartiality, it would make sense for the House to hear the views of Ministers representing the Prime Minister and--Mr. Speaker : Order. The hon. Gentleman's question is in the same category as that of the hon. Member for Coventry, South-West (Mr. Butcher). Questions should be about next week's business.
Mr. Skinner : I want a statement as early as possible next week, before Tuesday's election, or afterwards if it runs on, so that, instead of the right hon. Member for Henley (Mr. Heseltine) telling people in the Tea Room about his policies on education, the poll tax, housing, cardboard city, and taxation, they can be explained in this Chamber. Will the Leader of the House arrange that for next week? We are all waiting.
Mr. MacGregor : As always, the hon. Gentleman has raised many points, but I shall respond to only one. The shadow Cabinet seated on the Front Bench opposite me will be waiting for a very long time.
Mr. Bob Cryer (Bradford, South) : May we have a statement on the proposed Nevada desert test explosion, which was stopped by four gallent and courageous people yesterday? Will a Minister explain how the Government pick and choose their support for the United Nations? They support the United Nations when it comes to the Gulf, but sling out its nuclear non- proliferation treaty when it comes to spending £10 billion on Trident nuclear weapons and the testing of nuclear weapons to keep them in potential operational use. Clause 6 of that treaty places an obligation on the Government to get rid of nuclear weapons. When will the Government do something about that, realise that the cold war is over and that the warmonger who has been leading the Conservative party for 11 years is under severe criticism and may be sacked in any case, and get rid of nuclear weapons and testing?
Mr. MacGregor : I said in response to an earlier request that I do not see an opportunity for a debate on that subject next week. However, in relation to disarmament generally, the hon. Gentleman will be aware that my right hon. Friend the Prime Minister will be signing the
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important CSCE treaty next week, and will report to the House on that matter. That is a clear indication of the effectiveness of the Government's action.Mr. James Hill (Southampton, Test) : My right hon. Friend will be aware that this is merchant navy shipping year. He will also be aware of the concern of the General Council of British Shipping that that service may not be able in future to provide ancillary vessels to support any military operation. Will it be possible to debate next week that very serious matter?
Mr. MacGregor : I do not think that it will be possible next week. However, the House will be debating a European Community document on aid to shipbuilding. Although it may be narrowly focused, it may give my hon. Friend an opportunity to make one or two points.
BILLS PRESENTED
School Teachers' Pay and Conditions
Mr. Secretary Clarke, supported by Mr. Secretary Patten, Mr. Norman Lamont, Mr. Secretary Howard, Mr. Secretary Hunt, Mr. Tim Eggar, Mr. Alan Howarth and Mr. Michael Fallon, presented a Bill to make provision with respect to the remuneration and other conditions of employment of school teachers ; and for connected purposes : And the same was read the First time ; and ordered to be read a Second time tomorrow and to be printed. [Bill 11.]
Atomic Weapons Establishment
Mr. Secretary King, supported by the Prime Minister, Mr. Chancellor of the Exchequer, Mr. Secretary Patten, Mr. Secretary Howard, Mr. Secretary Hunt, Mr. Francis Maude, Mr. Alan Clark and Mr. Kenneth Carlisle, presented a Bill to make provision in connection with any arrangements that may be made by the Secretary of State with respect to the undertaking carried on by him and known as the Atomic Weapons Establishment : And the same was read the First time ; and ordered to be read a Second time tomorrow and to be printed. [Bill 13.]
Import and Export Control
Mr. Secretary Lilley, supported by Mr. Secretary Hurd, Mr. Chancellor of the Exchequer, Mr. Secretary King, Mr. Secretary Wakeham and Mr. Tim Sainsbury, presented a Bill to repeal section 9(3) of the Import, Export and Customs Powers (Defence) Act 1939 : And the same was read the First time ; and ordered to be read a Second time tomorrow and to be printed. [Bill 12.]
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Indirect Tax Harmonisation and Statistics
4.8 pm
The Paymaster General (Mr. Richard Ryder) : I beg to move, That this House takes note of European Community Documents Nos. 6762/89 on approximation of indirect taxes, 9775/89 on excise duty rates, 9776/89 on taxes on cigarettes and manufactured tobacco, 9777/89 on excise duties on mineral oils, 9778/89 on excise duties on alcoholic beverages, 6641/90 and the Supplementary Explanatory Memorandum submitted by Her Majesty's Customs and Excise on 12th November 1990 on supplementing the common system of value-added tax, 6642/90 on administrative co-operation in the field of indirect taxation, 6725/90 and 8801/90 on statistics relating to trading of goods between Member States, COM(90) 430 on the general excise regime, COM(90) 431 on general arrangements for the movement of products subject to excise duty, COM(90) 432 on harmonisation of the structures of excise duties on alcoholic beverages, COM(90) 433 on taxes other than turnover taxes levied on manufactured tobacco and COM(90) 434 on structures of excise duties on mineral oils ; and supports the Government's view that the technical proposals can form the basis of a single market without fiscal frontiers that is effective against fraud and provides the statistics needed by Government to control its economic policies while minimising the burdens on business, particularly for the smaller traders ; and recognises the need for early progress on these proposals, separate from those on indirect tax rates on which decisions need not be reached before 31st December 1991.
At the Economic and Finance Council next week, Finance Ministers will be asked to consider a package which has been drawn up during many months-- indeed years. My purpose this afternoon is to explain these technical proposals as concisely as I can and to listen to some of the views expressed by hon. Members on both sides of the House which could influence the line that the British Government take at next week's Council meeting and subsequent ECOFINs. First, I should explain that in the normal course of events this debate would have been opened by my hon. Friend the Member for Warwickshire, North (Mr. Maude), the Financial Secretary to the Treasury, who is responsible for negotiating on Britain's behalf in Europe. The reason for his absence today is that he is negotiating for us at a Budget Council in Brussels, and I am acting as a stand-in.
Mr. Barry Field (Isle of Wight) : Even if my hon. Friend is a stand- in for the Financial Secretary, can he confirm that he will resist with equal zeal the European Commission's demands for value added tax on passenger transport, especially on ferry transport, as that would have a disastrous effect on offshore islands in the United Kingdom? When discussing harmonisation of taxation, will my hon. Friend be able to consider concessions on duty-free sales being phased out under EC regulations, as that is a matter of considerable concern to British shipowners and would have a considerable effect on increases in the price of cross-Channel travel?
Mr. Ryder : The existence or abolition of duty-free sales will not be tackled in earnest at ECOFIN on Monday. As my hon. Friend says, however, it is an issue which will be considered at ECOFIN during the next few months. The British Government have yet to make a decision on the line that we shall take on duty-free sales. I am in the process of meeting several delegations of people who wish to maintain the existing duty-free procedures, as I suspect my hon. Friend does. Only yesterday, I met my noble Friend
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Lord Rees--a former Chief Secretary to the Treasury--who led a delegation of people representing the industry, who want to maintain the status quo. I shall meet other deputations during the next few weeks, before the Government take a final decision.My hon. Friend the Member for the Isle of Wight (Mr. Field) will recall that I wrote him a letter on 24 October about passenger transport.
Mr. Barry Field : An excellent letter.
Mr. Ryder : I thank my hon. Friend for that kind remark. I hope that the arguments that I expressed were helpful to him. That is the present Government position and at this stage I have nothing further to add.
Abolition of fiscal frontiers has been one of the most contentious areas of the entire single market programme. There is no argument about the objective--indeed, abolition of fiscal frontiers is firm Government policy- -but there has been considerable discussion about what needed to be done to achieve that objective. The United Kingdom's approach to the package of measures that we are discussing this afternoon has been an excellent example of the Europe that the Government are committed to--a practical Europe which offers benefits for people and businesses.
European Finance Ministers meet next Monday to consider progress of the official working groups on the Commission's VAT and excise technical proposals. The proposals follow agreement by the Finance Ministers' Council last year that, for the time being, the present, familiar system, whereby goods are exported untaxed and subjected to VAT and excise duties in the country of destination, should continue to apply, but without fiscal frontier controls. It is proper that the House should have the opportunity to debate these proposals first, and that the information available to the House should be as up to date as possible. I therefore submitted a supplementary explanatory memorandum on Monday to inform the House of developments on the Commission's proposals for control of the VAT system, once fiscal frontiers for intra-EC trade have gone.
As the House knows, the United Kingdom Government have spearheaded efforts to work out the practical fiscal arrangements for the creation of a single market, so as to provide a better environment for wealth creation through increased competition and unrestricted trade. During the negotiations on the technical systems to replace the existing customs formalities, the Government have kept it in mind that the new systems should be deregulatory, simple, as close to domestic arrangements as possible and as strong as possible against fraud without involving an unacceptable level of additional bureaucracy. Moreover, the new systems must be capable of implementation by 1 January 1993. Our intention is that traders should be left free to concentrate on what they are supposed to be doing--trading.
Under the VAT technical and administrative co-operation proposals--Council document Nos. 6641/90 and 6642/90--the great majority of intra-Community supplies, those between VAT registered businesses, will continue to be zero -rated. However the conceptual basis will change, since the idea of "import" and "export" will have no place in the internal market. Instead, tax will become due on the acquisition of goods by a business from another member state and the business will show this
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liability on the normal periodic VAT return used for domestic transactions, with the concurrent right to deduct tax as appropriate. In this way, VAT will still accrue to the member state where the goods are consumed.For example, a United Kingdom business purchasing furniture from Italy is currently liable to pay VAT at the time the furniture actually enters the United Kingdom, with the inevitable costs and delays of formalities at frontiers. Under the concept of "acquisition", VAT would become due on transfer of the legal ownership of the furniture and would be accounted for through the United Kingdom's purchaser's normal records, without any need to endure frontier formalities.
To avoid significant trade and fiscal distortion, special arrangements will be introduced for private purchases of new motor vehicles and mail order sales, and cross-border purchases by exempt businesses and non-taxable organisations in excess of 35,000 ecu per year.
Mr. Alex Carlile (Montgomery) : May I put to the hon. Gentleman a point that arises from what he has just said? If liability is to arise on transfer, that raises serious problems about when title to goods passes. The law on when title to goods passes is very different in the various Community countries. Indeed, there are differences between the laws of England and Scotland on that subject. Those differences are but small compared with the differences between the law of England and, let us say, the law of Greece. Is an effort being made to harmonise the law on when title to goods passes?
Mr. Ryder : The hon. and learned Gentleman highlights an important point. I know that that point was made when these matters were discussed at official level in Brussels. Efforts will be made to ensure that his point is taken on board. My view, although it may be proved wrong, is that there is little chance of the Economic and Finance Council reaching agreement on Monday next. An agreement in principle will, I believe, be reached at a later stage. I shall certainly ensure that my hon. Friend the Member for Warwickshire, North, who will represent the Government next Monday and who will read Hansard before he departs for Brussels, is made aware of the hon. and learned Gentleman's points.
Inevitably, removal of customs fiscal frontier controls will risk creating new fraud opportunities. To counter this, the Commission has proposed an enhanced system for mutual assistance between national tax authorities after 1992. That would provide the means for much greater exchange of information to ensure that the benefits for legitimate traders of removing those frontiers are not also a benefit for the fraudulent. This information will be supplied by one Administration only for the use of another. It will thus be confidential and, save as allowed by the providing member state, will be used only for taxation purposes or in connection with judicial or administrative proceedings connected with tax assessment. Other member states, for reasons of their own, have gone for much heavier controls which we have consistently opposed. They have argued for controls such as mandatory listings of all intra-EC trade, transaction by transaction. This would impose major new burdens on business. The domestic system of audit of traders' ordinary commercial records is already well proven by Customs and
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Excise ; we shall therefore continue to argue that, in providing information for this cross-border verification, only the minimum additional requirements for business to provide information necessary should be considered. To this end, we are considering a less burdensome compromise proposal, that traders shall periodically provide a summary of customers and aggregate sales to each. In revising the sixth VAT directive, the basis of the Community VAT system, to provide for the post-1992 technical arrangements, the Commission's text neglects to carry forward a number of derogations, including that for our zero rates. The Commission already accepts the continuation of zero rates and its objective is, therefore, certainly not to eliminate them. It may, however, be an attempt to obtain more leverage to press for early agreement on the precise scope of the zero rate category.Of course, the Government have pledged to protect the United Kingdom's zero rates--not only in the specific pledges given in respect of food, domestic fuel and power and children's clothing and footwear, but as a general defence of the indirect tax structure which we believe suits this country. The United Kingdom's position is ultimately protected by the need for unanimity on fiscal proposals. However, other member states with important derogations to protect also cannot give final agreement to the technical proposals. Conscious of this, we are seeking to reach agreement in principle on the technical system, without becoming sidetracked once more in the rates harmonisation argument. Once agreement in principle on the technical system has been reached, we shall return to this question and the important details of the proposals where existing arrangements need to be protected.
The Commission's technical proposals provide a clear basis on which fiscal frontiers can be removed, and the economic benefits of the single market obtained without the straitjacket of centrally determined tax approximation. Our priority this year is therefore to reach agreement at Community level on the technical systems to apply after 1992. This is an imperitive if we, and businesses, are to be ready for 1993. We do not intend to become sidetracked by fruitless discussion about rates. Indeed, Finance Ministers have agreed that decisions on this issue need not be reached until the end of 1991. The Commission finally presented to EC Finance Ministers at the Economic and Finance Council proposals for controlling cross-border commercial consignments of excise goods.
Mr. Hugh Dykes (Harrow, East) : My hon. Friend has confirmed that one of the features of the complicated negotiations has been a willingness on all sides to compromise and accept an emerging package that will be beneficial to all. I apologise for having missed the initial part of my hon. Friend's speech.
There are always special national interests in member states, even for Euro -enthusiasts to refer to legitimately so has my hon. Friend been able to clarify further the position of British sherry in respect of the proposal for higher duty rates on fortified alcoholic products, which would harm the position of British sherry? I declare a direct interest--it is on the public register--as the parliamentary representative of the British Wine Producers' Committee. Will the December meeting with Customs and Excise in Brussels, at which a representative of my hon. Friend's Department will be present look into that again carefully
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to ensure that the interests of British sherry are properly safeguarded, as are the many other national interests of member states in these complicated negotiations? Can he reassure me?Mr. Ryder : I thank my hon. Friend for that intervention. I explained just before he came into the Chamber that the negotiations at ECOFIN on Monday were being undertaken by my hon. Friend the Financial Secretary to the Treasury who is today at a Budget Council in Brussels. The negotiations are entirely in his hands. Nevertheless, I am aware of the problem about British sherry, though I did not know of my hon. Friend's interest in the subject until he mentioned it. I can assure him that we will continue to do our best to protect the interests of British sherry as long as those interests are consistent with our general approach to the negotiations which, as my hon. Friend knows, have been going on for the past few years. As my hon. Friend appreciates, the discussions are extremely technical and we have come a long way relatively quickly, bearing in mind the position from which we started.
The Government have played a constructive role in trying to reach compromises. Indeed, many of the compromises that I have set out are the direct result of ideas suggested in Brussels by the British Government. That is a further example of the positive way in which we negotiate on these technical matters. Such negotiations take place almost every week, but are little noticed in the House or by the press.
As I said, the Commission finally presented proposals for controlling cross -border commercial consignments of excise goods to ECOFIN in October. There are four proposals : one on controlling intra-EC movements without frontier checks, and three on excise duty structures for alcohol, oils and tobacco. The essential elements of the proposal on controls are that excise duties would continue to be charged in the member state of consumption, with the majority of commercial movements travelling under a duty-suspension scheme between authorised warehousekeepers and traders. We broadly welcome the new movement proposal, which, as I explained to my hon. Friend the Member for Harrow, East (Mr. Dykes), largely follows United Kingdom ideas.
Common excise duty structures facilitate cross-border trade by creating an understandable and recognisable common system of classification and an agreed basis for taxation. They are also essential for determining a common system of control. The Government therefore believe it sensible to enter into negotiations on the structure proposals. However, they are linked with the earlier Commission proposals for harmonised duty rates, to which I shall refer shortly. That is unacceptable and will be resisted, in accordance with our market forces beliefs.
A subsidiary point arising from these arrangements to ensure that commercial transactions in excise goods pay duty in the country of destination--but one of considerable public interest--is the implications for personal cross-border shopping. As one part of the fiscal preparations for the single market, in July 1989 the Commission proposed an increase in three annual stages in the travellers' allowances for goods acquired duty and tax-paid in another EC country. By 1992, these proposals would quadruple the value allowance for goods subject only to VAT to about £1,100 and double the allowances for wines, spirits and tobacco.
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The Government have consistently supported increases in those allowances. Indeed, we are willing to agree straight away to the levels proposed by the Commission for 1992, rather than to have annual rises. Increased allowances are an important signal that the single market is for people as well as businesses.So far, the proposals have been bogged down because some member states that are concerned about fiscal leakage are unwilling to adopt the proposed transitional increases. We are willing to consider all compromise proposals which may achieve movement on this key issue. After 1992, in general, limits on travellers' allowances should not be necessary, but we will need some means to distinguish excise goods--drink and tobacco--for personal use which can be bought at low duty rates in other member states from commercial importations which should pay United Kingdom duty. A high limit, beyond which larger quantities could reasonably be considered commercial in intent, may be a strong possibility. By gradually increasing travellers' allowances for cross-border shopping, the Government believe that market forces will be given the scope to bring about such convergence of tax rates as is necessary.
The Commission's revised excise duty rate proposals, published in January, are not very different from the previous 1987 proposals, and are therefore equally unacceptable. Essentially, it suggests, for tobacco and alcohol, differentiated minimum rates to be applied from 1 January 1993, coupled with target rates, for which no date is specified. For mineral oils, the proposal is for minimum rates, without target rates, for petrol, LPG, methane and kerosene used as engine fuel, and rate bands for diesel, heating oil and heavy fuel. We do not believe that such changes to United Kingdom excise duties are necessary for the single market or desirable, given the very different economic and social circumstances of the 12 member states. The United Kingdom's visible trade statistics are gathered mainly from customs documentation, which is completed when goods pass through frontier controls. With no fiscal frontier controls, those customs declarations for EC trade will join the bonfire of paperwork. Instead, the new statistics proposal creates a link between VAT returns and statistical systems. The majority of traders would simply provide aggregate details of EC imports and exports on their normal VAT return. Only larger traders would be required to provide a specific statistical return. Our objective is that this detailed return should be limited to about the largest 20 per cent. of traders, in terms of the value of intra-EC imports and exports. This would capture details of some 96 per cent. of United Kingdom trade with the EC.
I have attempted to keep my opening remarks as clear and concise as possible, but a wide range of issues are encompassed by the motion and I have tried to cover the main issues. I believe that these proposals, while not perfect, reflect well on the Government's persistence and commitment to a practical, achievable system--an approach which has succeeded this year in persuading others in Brussels of the need to focus priorities on the practical requirements for removing fiscal frontiers by the end of 1992. Much remains to be negotiated, and I welcome the opportunity to hear hon. Members' views.
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4.30 pmDr. John Marek (Wrexham) : I am pleased that the House has been given the chance to debate these topics. As the Paymaster General pointed out, there are many different issues and papers before us. However, although some of the issues may be technical, they are nevertheless important as they will affect future indirect taxation in Britain and the future collection of statistics. Therefore, it is only right for the House to be able to debate them. I pay tribute to the Select Committee on European Legislation for its work before today's debate.
The hon. Member for Harrow, East (Mr. Dykes) may have missed the first few minutes of the debate, but he has been here ever since--unlike the hon. Member for Isle of Wight (Mr. Field), who came in and intervened before the Paymaster General had said anything of real substance, apart from his apology for the absence of the Financial Secretary, who is no doubt absent for some lobbying purpose. The hon. Gentleman then immediately disappeared, and has not been seen in the Chamber since. If he returns while I am speaking, I shall repeat what I have said and give him a chance to intervene if he wishes.
Mr. Nigel Spearing (Newham, South) : I am grateful for the encomium that my hon. Friend addressed to the Select Committee on European Legislation, of which I have the privilege to be Chairman. Will he also pay tribute to the staff of that Committee, the civil servants who write memoranda about complicated documents and the Vote Office staff? Is it not both notable and a scandal that the motion encompasses 37 documents, all of which were made available to hon. Members and the Vote Office but which constitute a very indigestible meal? I hope to catch your eye later, Mr. Deputy Speaker, so that I can say more about the matter.
Dr. Marek : I gladly join my hon. Friend in paying tribute to the work of staff from all parts of the House who have brought forward these documents, but their work has meant that we ought to have more time to consider them. I wonder whether last Thursday's business statement gives hon. Members enough time to consider all these matters--especially in view of the fact that the Vote Office has also been caught unawares, and cannot collate the documents until Thursday night or Friday morning.
I share some of the worries of the hon. Member for Harrow, East that some of the banding for duties on liquors and spirits is a little odd. The band should encompass different products within the whole range ; the duties should not perform arbitrary jumps, as they appear to do at present. That is a technical point, but I hope that the Paymaster General will look into it so that, for example, British sherry is not disadvantaged and still table wine is placed in a single category, regardless of its strength.
There are other little inconsistencies. For instance, the Commission's latest proposal seems to have abandoned the principle of levying duty on alcoholic beverages according to their alcoholic strength. There are now different proposals for wines, spirits and beer. Both sides of the House agree. We look to the Paymaster General and the Financial Secretary to put our case at ECOFIN and at the further meetings which will no doubt be necessary.
This big topic falls into four parts. Some papers deal with changes relating to excise duties, others with changes relating to value added tax and its collection, and others
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with co-operation between member states, principally for the purpose of protecting the Revenue. We must not forget that those papers are important. A further set of papers deals with the collection of intra-EC trade statistics. There seems to be general acceptance in this country that that should be continued. The discussions between the Government and our Common Market partners have been fairly co- operative. There have been no histrionics about these matters or the kind that occurred recently about a single currency. There has been no Minister shouting, "No, no, no," from the Dispatch Box about these proposals. Yet the proposals were clearly unacceptable to this country some years ago. There has been co-operation and they have been changed. The system for VAT will not be based on an origin system. There will be a transition period, and a destination system of taxation will be available until 1996. That can be compared with the difficulties that we had when the last European Council decided that stage 2 of the Delors plan should start in 1994. We must interpret these matters in a European way. If an agreement cannot be reached by then, the clock can be stopped. Whether one likes it or not, this simply means that discussions will continue until an agreement is reached. I far prefer negotiations to take place in a cool, calm and deliberate way, unlike the rather public discussions about a single currency and its effects on this country.Mr. Dykes : What about the planning for a single market development with the deadline of 31 December 1992 and matters such as European monetary union and the proposal for the deadline for the second stage? It was apparently all right to have a deadline for the single market and to work out the details after the deadline was agreed, but not all right for EMU. Why is there a difference?
Dr. Marek : I entirely share the hon. Gentleman's point of view and I know what is behind his question, but it is not for me to answer. Perhaps he should address himself to the Minister when he replies or to those on the Government Front Bench in a subsequent debate. The hon. Gentleman has made a good point.
These matters can be dealt with co-operatively. The proposals are not all completely acceptable, but they are much better than those before us when we last debated this issue on 11 May 1988. At that time, the Opposition tabled an amendment and my view has not changed since then. The amendment stated that the House of Commons should be consulted in advance of Ministers of the Crown agreeing to taxation changes at European level. I say that on the basis not of sovereignty but of democratic accountability. The House should know in advance what Ministers propose to do about taxation. Our amendment did not find favour with the House two years ago, so we decided not to table it again because that would be an abuse of the House's time. We have come a long way. The proposal for the 14 per cent. to 20 per cent. band rate has been replaced by a minimum rate. The lower band, in which the rates of VAT could range from 4 per cent. to 9 per cent., is to be retained, but it is now recognised that certain goods can be zero- rated. I am sure that all hon. Members welcome that and the refreshing new attitude taken by the European Commissioner, Mrs. Scrivener, to this matter. Clearly, minimum rates for VAT are all that is required. We do not
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have to set a band rate for the top rate of VAT, because it is up to individual countries. If it were too high, citizens would be able to go to another Common Market country to purchase those goods at a lower rate. However, the matter is important and I am glad that the Paymaster General said that the Government are committed to zero- rating food, domestic fuel and children's clothes and footwear. I wish that the Paymaster General would add to that list books, periodicals and newspapers, because that is an important point. The Government have had plenty of time in which to do that and as discussions are proceeding within the Council of Ministers in a co-operative manner, I should have thought that the Government could make this pledge to the British people. I will not go through the arguments for retaining zero-rating on books, periodicals and newspapers, save to say that it is important for educational and for cultural purposes.When we have an agreement, it is also important that any zero-rating is not allowed simply as a derogation for a number of years or on sufferance. It should be clearly recognised that items such as food can and should continue to be zero-rated in this country as of right, if our Government so decide, and the Opposition would support that. Such zero-rating makes the VAT system a far more progressive taxation system and is to be welcomed.
Mr. Spearing : I am grateful to my hon. Friend for giving way on a point of substance which I feel that I must raise now, as well as later. Has my hon. Friend thought about the implications of a non-statement from the Government? I think that I did not hear a statement from the Treasury Bench about zero-rating on domestic fuel, on transport and on water services--the provision of clean water and the disposal of sewage. Does my hon. Friend recollect that there was some discussion on that? Is not it right for the Government to tell us distinctly at this stage if they have not already done so--whether they contemplate that those areas of taxation will be allowable for VAT or whether they will hold out and maintain zero- rating in those areas which, so far as I am aware, have never been taxed in the United Kingdom?
Dr. Marek : My hon. Friend makes a pertinent point and I should be delighted to give way if the Paymaster General wishes to intervene. If he cannot, I suggest that he consults his Prime Minister--whoever it is--next Wednesday and makes that point to him or to her. It is an important point and it would arouse great indignation in this country if some of those services--
Dr. Marek : --indeed, if any of them were to be subject to VAT in the future.
It would be very much to our benefit if all food taken away from shops were to be zero-rated. At present, there are difficult distinctions between--to use a well-known example--different types of chocolate biscuit. If a biscuit has chocolate in it, it is not liable to VAT, but if it is chocolate-covered, it is liable to be rated at 15 per cent. Hon. Members must wonder whether a jaffa cake will be liable to VAT. At present, it is not liable for VAT although 50 per cent. of it is covered by chocolate because it is not a biscuit, but a cake.
Mr. Alex Carlile : Tax the top half only.
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Dr. Marek : It depends which is the top half. We have a chance to introduce a new system of indirect taxation and legislation, so it is important that it should be simple and that it should cover large categories without the need for making many individual exceptions.
Mr. Peter Viggers (Gosport) : Is it Labour party policy that if a Labour Government ever came to power they would zero-rate those items, and how much would that cost?
Dr. Marek : I suspect that the costs are minimal for some of these matters. However, I am discussing this within the context of changing the system of indirect taxation, with which the discussions, the papers and the debate are concerned. Some of the changes may produce a revenue gain. Perhaps we should consider banding for VAT. Why should we have 15 per cent. or zero? It is a debating point--although not for this afternoon. Perhaps some items may be liable for 5 per cent., others for 15 per cent. and others for zero. All these matters form part of the whole. The general principle is that, when making these changes, we should make the system simpler--and perceived by the public to be so.
Mr. Ryder : I want to point out some facts that may be helpful to the hon. Member for Wrexham (Dr. Marek( and to my hon. Friend the Member for Gosport (Mr. Viggers). The total tax raised on the items to which the hon.Gentleman referred is about £500 million a year. Zero-rating would mean the total loss of that revenue. Inclusions within a reduced rate band, to which the hon. Gentleman also referred, of between 4 per cent. and 9 per cent. would mean a loss to the Revenue of between £200 million and £350 million, so the answer to my hon. Friend is that it is the dickens of a lot of money.
Dr. Marek : The amount depends on which items the Paymaster General has included in that category. I am sure that £500 million of VAT does not currently escape on jaffa cakes. These matters are complicated and it may have been wrong of me to mention particular examples. However, no one would object if revenue was forgone in certain cases and increased in others but greater simplicity and fairness resulted. I am trying to get that point across, and I hope that the hon. Member for Gosport (Mr. Viggers) agrees with me on it. There has been considerable concern in the Royal National Lifeboat Institution recently. I suggest to the Paymaster General that it would be useful for him to intervene if he has figures on this. A number of hon. Members have had letters suggesting that the European Commission is about to start imposing VAT on lifeboats. I know that the hon. Member for Gosport is interested in this matter and that, in this case, he is rightly keen to decrease revenue to the Chancellor of the Exchequer. Can the Paymaster General help us on this?
Mr. Ryder : I hope that this information will be helpful to our deliberations. As the hon. Member for Wrexham may know, I have received dozens of letters from hon. Members of all parties on this issue, which concerns many people. The Government are very conscious of the valuable role played by the RNLI, and we are keen to secure the right conditions in the single market for this organisation and for other charitable bodies. The Government see no reason why the existing zero rate for charities, like other United Kingdom zero rates, should
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not remain after 1992. We welcome the greater flexibility shown by the Commission in its revised approach to indirect taxation in the single market. Although the Commission is still suggesting that future zero rates should be limited in scope and subject to certain conditions, we have not accepted that. That position, which was confirmed again by the Government at the meeting of ECOFIN last December, is true of all our zero rates, not just of those of particular interest to charities.Dr. Marek : I am grateful to the Paymaster General for that explanation. The position is much as I had hoped. There has recently been some new thinking in the European Commission and during the passage of various Finance Bills we have been able to secure concessions on matters relating to charitable work. For example, we had a good response from Europe on community halls.
Some of the documents deal with the collection of trade and VAT statistics- -the latter principally to prevent fraud. Business must realise that it is in its own interests and in the interests of the Revenue that there should be as little fraud as possible. That necessarily imposes a burden on business, but those speaking on behalf of business cannot simply say that we should do away with all barriers and all burdens. That is too glib, because if we did away with too many of the burdens, fraud would increase, which would be to the detriment of business.
Clearly, the statistics collected need to be kept to a minimum. The Government have to do their job. They have to be able to forecast and to plan and manage the economy, and to do that, they need statistics. Over and above that, the collection of statistics can rightly be regarded as a burden on business.
It is vital that smaller firms should only have to fill up statistics forms once. It would be quite wrong for a small business which had to fill up a VAT form and perhaps a form to allow authorities in other member states to access a database then to have to fill up yet more forms for the Department of Trade and Industry. I do not know whether the Paymaster General has addressed himself to that question but I hope that he accepts that small businesses should have to fill up forms only once in a given period. They should not have to fill up different forms for different purposes.
Mr. Chris Butler (Warrington, South) : Perhaps the hon. Gentleman is coming to this point, but it would help us to follow his argument if he explained which of the five systems that Ministers will be considering next week he thinks most closely fulfil the conditions that he has described.
Dr. Marek : I do not have direct experience of form-filling so I have to rely on expert advice, but if the hon. Gentleman will bear with me I shall be coming to that matter.
Large firms may have to supply more data when the checks and barriers to trade are moved inland from the ports of entry. That may be said to increase the burden on them but that will be more than compensated for by the lack of problems at the ports. I hope that the data required will be kept to a minimum, but they must be adequate to allow the Government to do their job and the VAT authorities to satisfy the public that fraud is being kept to a minimum.
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I was reasonably reassured by what the Select Committee on European Legislation said in its paper dated 14 November, which is available in the Vote Office today. Page 2 of the document says :"Under this proposal, each Member State would hold the listings on the data base to which member states could gain access directly, but only for details of sales to them."
If we adopt the listing proposal, perhaps listings will be confined to details of sales alone and not used for anything further. That will not be enough to ensure that fraud is kept to a minimum because two companies in different member states could collaborate to perpetrate a fraudulent act without its ever being detected. Inspectors must be able to follow audit trails, as they can in this country.
The Select Committee's paper continues :
"United Kingdom trade bodies who have been consulted as the negotiations progressed are not enthused by the proposed requirement for the supply of further information, but they agree that periodic aggregate sales listings would be preferable to the far more onerous proposals for detailed monthly transactions sales listings, strongly pressed earlier by some member states."
Perhaps the Financial Secretary could pursue that at ECOFIN next week. Such a new system may well be acceptable so long as it is part and parcel of fraud detection mechanism which allows audit trails to be followed in certain circumstances.
I welcome the proposal to extend the arrangements whereby VAT can be charged on the destination principle at least until 1996, although I wonder whether the eventual results of the negotiations will be satisfactory and whether the system will work. I have yet to be convinced that we should adopt a system based on the origin principle and I hope that the Government will press the Commission to justify its proposals in that regard.
Clearly, it could not do so in time for the introduction of a new system in 1992-93, and I think that it is now beginning to realise that the matter is irrelevant to the single market. On the other hand, it would be useful to have a degree of harmonisation. If the Commission badly wants to apply the principle of tax being paid at origin, it must persuade us. I have yet to be persuaded and I do not think that the Commission has gone out of its way to persuade either the Parliament or the Parliaments of the other member states. I am very much in favour of the argument for co-operation with other member states in the exchange of information. The document produced by Customs and Excise, dated June 1990 and entitled "The Control of Intra- Community Excisable Goods after Completion of the Single Market" is useful and many of its provisions seem to have been accepted by the Commission and reproduced in the various documents before us. In some of its aspects, however, the Commission could perhaps go further. Fraudulent traders should not only be caught ; they should be banned from trading again for five or 10 years or perhaps for life.
I do not necessarily agree that dutiable goods that have come out of a bonded warehouse should be allowed to go back into bond for transfer from one member state to another. We do not do that in this country, although this is not necessarily a sticking point on which the agreement will stand or fall. We should get round the problem. If dutiable goods leaving a bonded warehouse do so permanently, there will be less fraud.
I welcome the fact that the Commission has abandoned its earlier plans simply to average exise duties across the
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Community and insist that the new levels are observed by each member state. That would have had serious repercussions for our policies on health and would have had a disastrous effect on the Revenue. We are talking not about £230 million but about £3 billion or £4 billion. The Commission's proposals are such that there could be quite a loss of revenue.The Commission has stated that it will insist on a minimum duty with target duties above that minimum. The Opposition can travel along that road. Clearly, we must consider health. The problem is difficult because southern European countries which produce wine or tobacco tend to have much lower duties than northern members of the Community. Agreement or duties in that regard will be reached only after many years.
I believe that some of the minimum duties are welcome, but I have a reservation. As I understand it, under the proposals, if our ad valorem tobacco duty is higher than the target price, is that target price to be preserved? Is it to be inflation-proofed? I hope that the Paymaster General can help me on that point.
As I read the documents, any movement in the difference between what particular countries in the Community levy as duties on tobacco cannot go in any direction other than towards the target price. Would that preclude our increasing our duty to take account not only of inflation, but from keeping our duty at the same percentage in real terms--or at the same fraction--higher than the target duty on an annual basis? I am not sure what the answer to that is.
However, if that does not happen as inflation is higher in this country than in most of the other European countries, any duty that we levy that is higher than the target rate would simply disappear very quickly. That would be completely unacceptable. If the Paymaster General understands my point, and if he has read the documents, I would welcome an answer to my question. If he cannot answer me now, I hope that he will consider the matter and perhaps write to me. I hope that he will ensure that the ECOFIN Council produces an answer. I can also be persuaded about the banding of mineral oils, but we must be careful about introducing changes which might significantly alter consumption. If the proposals are accepted, there will be an increase in diesel consumption in this country. There are health risks with diesel and I would prefer legislation in that area to be preceded by an environmental and health assessment so that legislation could back up such an assessment. I cannot see that happening at the moment.
There is an atmosphere and a feeling within Europe that we should get our policies unified and harmonised where that would help trade and an understanding between the different peoples. We could refuse to take part in such a harmonisation. For example, our Government refuse to have anything to do with the social charter. We could make ourselves extremely unpopular in Europe, as our Prime Minister has. As a result of that, anything we propose tends to be pooh-poohed immediately by our European partners simply because the British produced it. That is very regrettable. We must change that because we can and should play our part in Europe certainly on such things as a single currency and possibly on such things as the harmonisation of indirect taxation and the collection of statistics.
With regard to a single currency, if all members of the European Common Market united and said that they
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would have a single currency, it is inconceivable that business and the City would allow a Conservative Government in this country to opt out, because that would be the death knell of the City and would cause enormous problems for British business. That fact needs to sink in to certain Members in this Chamber.
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