5. Dr. Godman : To ask the Chancellor of the Exchequer what recent representations he has received regarding the proposed imposition of 17.5 per cent. VAT on domestic fuel ; and if he will make a statement.
Mr. Barron : Is the Chancellor aware that a survey published today shows that many Conservative-controlled councils and their councillors have refused to support the Government's imposition of VAT on fuel, because, like many people, they believe that it does not recognise the ability to pay and therefore is grossly unfair? Will the Chancellor review that tax, withdraw it and take notice of what the country is saying--that millions of people believe that it should be stopped now?
Since the Act was passed, there has been--[ Hon. Members :-- "We cannot hear."] The reason why people cannot hear me is that the microphones are not working.
Since the Finance Act was passed, there has been a large campaign. I accept that many people, particularly the elderly, have been made quite fearful of the tax before it has been imposed. However, there was such a fall in gas and electricity prices during the 1980s that, even with the tax imposed in full, fuel bills will be no higher than they were 10 years ago. Moreover, the Government will come forward with a package of measures to help those who have difficulty paying the new tax. In my opinion, the sensible
Column 500approach for a House of Commons that passed the tax some months ago is to wait to see the package of help that will be forthcoming.
I have received many representations on the imposition of the tax. It is frightening many elderly people everywhere. Will the Chancellor give an assurance that he will fully protect those on low incomes, especially those on incomes that are just slightly above income support? It is a lousy rotten tax and it has caused a lot of fear among elderly people, particularly those on small occupational pensions.
Mr. Clarke : As I have said, we are all receiving a lot of representations. I hope that the hon. Gentleman will not join those who are arousing the real fears felt by people throughout the country. When my right hon. Friend announced the introduction of the tax we said that before it was introduced we would create a package of measures to give help to that section of the population who would have difficulty paying. That package will be announced at the usual time--my Budget statement.
Sir Terence Higgins : In framing his Budget will my right hon. and learned Friend bear in mind the principles that guided Iain Macleod and myself when we steered the original legislation on value added tax through the House? We believed that there should be only one positive rate of VAT, with relief through zero rating for those items of greatest importance to those on low incomes. If my right hon. and learned Friend decides that there should be a tax increase in the Budget--although at this stage of the economic cycle I think that that would be a mistake--before considering anything else will he introduce VAT on fuel at 17.5 per cent. immediately, with an adequate compensation package?
Mr. Clarke : I well remember my right hon. Friend steering VAT through the House of Commons--it was a controversial tax, although the replacement of purchase tax was popular. The measure did not enjoy a smooth passage then ; I remember voting unsuccessfully with my right hon. Friend to try to exclude at least one of the zero-rated items. Although the initial measure was good, it was not perfect, and, since its introduction, successive Governments have, from time to time, extended its scope. In the climate of our commitment to the Rio targets and a need for more revenue in the spring of this year, it seemed logical and sensible to raise part of the revenue in the March Budget from that measure, with a promise of a package of help. Between now and 30 November, I will bear in mind my right hon. Friend's other representations about the Budget.
Mr. Cormack : Does my right hon. and learned Friend accept that the people who are most worried about VAT on fuel are those who do not qualify for benefit? Will he give a complete and categorical assurance that those people's
Column 501interests will be taken into account? Will he promise that we will never again be given an announcement, then have to wait almost a year for the package?
Mr. Clarke : As to the assurance, I shall bear in mind what my hon. Friend says. While we wait for the package of measures, may I repeat that people should not arouse fears, but should explain to today's pensioners that the level of bills that they will pay will be no greater than those previously faced by pensioners. Some pensioners will receive help before the measure is introduced. As to introducing tax measures that do not take effect until 12 months or two years hence, my hon. Friend's political message is right. If we had immediately introduced the tax earlier this year, we would not be debating it in the autumn. It is the campaigning which has aroused feeling. The downside of that process is that it means that many hon. Members' long-standing hope that there should be more consultation about the details of complicated tax measures which Chancellors believe that they should introduce becomes ever less likely. The moment that one gives advance warning of anything in the British system one merely arouses noisy campaigns to try to stop the measure.
Mr. Gordon Brown : Will the Chancellor confirm the report in the Financial Times that £600 million was wrongly paid in tax refund to the Kuwaiti Government--more than enough money to prevent any pensioner from having to pay VAT next year? Will he also confirm that if the loopholes, about which everyone knows, in the business expansion scheme, executive share options and advance corporation tax were closed, no family would have to pay VAT next year? He could announce the closure of those loopholes this afternoon. Is it incompetence that prevents the Government from acting, or is it that too many people who benefit from abusing the system are too close to the Conservative party?
Mr. Clarke : When we investigate the matter closely, to discover whether closing the hon. Gentleman's so-called loopholes would raise any revenue, it becomes obvious that that would be about as much use as brass washers. Individual tax issues are looked at in the ordinary way by the Inland Revenue, but the rules on sovereign immunity are partly determined by international law which cannot be repudiated. The hon. Gentleman's list of other so-called loopholes does not stand up to the slightest examination. He claimed that £1 billion could be raised by not abolishing stamp duty ; we have not abolished stamp duty, so that is not relevant. The difficulty is that the Labour party, which was committed to high taxation, no longer knows whether it is. It tries to pretend to the country that it can get away with everything it promises by making claims about illusory loopholes being abused by millionaires. Examination shows that those loopholes do not exist.
Mr. Forman : Returning to the original question, may I ask my right hon. and learned Friend whether he realises that many Conservative Members would be pleased if he were to adopt a robust and reforming approach to VAT? In that context, is he aware that the broader the base of that tax, the lower can be the rates--other things being equal--and the simpler can be the structure?
Column 502the years. One improvement that the Government made when they first came in was to get rid of the separate bands which were much complained about after the Government's predecessors introduced them.
The important thing about the taxation burden is that it should be fair and should be bearable by the less well-off. The VAT on fuel provision in the March Budget was only one measure in a Budget where most of the revenue was to be gained from those in work, including the better off. Understandably, the campaign has focused on VAT on fuel, but it has been an exaggerated campaign which has aroused groundless fears among many people who are now feeling vulnerable about paying their heating bills.
The Economic Secretary to the Treasury (Mr. Anthony Nelson) : The Government's role is to create the best climate for industry and to ensure that economic recovery is sustained through low inflation and sound public finances.
Mr. Michie : It is a pity that we have not yet seen the evidence of their success. When the Chancellor draws up the Budget, will he take note of the British shipping taxation proposals and create a level playing field for our merchant fleet, bearing in mind the terrible crisis in our shipbuilding at the moment?
Mr. Nelson : I hear what the hon. Gentleman says and I know that my right hon. and learned Friend the Chancellor met representatives of the shipping industry this week. I assure the hon. Gentleman that his representations will be taken carefully into account.
Mr. Nigel Evans : Will my hon. Friend confirm that during the past three years interest rates have gone down from 15 to 6 per cent. and that that has wiped £11 billion off interest charges for British industry? Is not that particularly helpful to manufacturing industry?
Mr. Nelson : My hon. Friend is right. That is £11 billion of cash flow going through businesses which otherwise would not have done. That must be added to the facts that unit wage costs have declined and that we have low inflation and a more competitive exchange rate. Our manufacturing industries, as well as other businesses, have the edge in competition at home and abroad.
Ms Eagle : Does the Minister realise with what cynicism the workers of Cammell Laird, who are listening to his reassurances about the future of British shipbuilding, treat his remarks? Despite assurances and pleas of sympathy from the Government, Cammell Laird has now closed and the rest of our once-great shipbuilding industry is under constant threat. It looks as though the legacy of the Government will be that Britain, as an island nation, will have no shipbuilding industry left. What value are the Minister's reassurances when the industry is being devastated?
Column 503nationally, as well as the importance of other manufacturing industries which employ some 4.2 million people.
In the previous Budget, we introduced a number of measures, not the least of which was the time-limited enhancement on capital allowance. That was specifically to assist those industries and to enhance the export credit facilities that are available to them. We still have a shipbuilding capability, which admittedly is much smaller, but specialist. Some areas have benefited from orders from the defence and other spheres, and I hope that that will continue to be the case.
Mr. Kenneth Clarke : Unemployment has fallen by 84,000 since January of this year. This may in part reflect the improvements that we have made to labour market flexibility as part of our supply-side reforms and our continuing efforts to keep the level of non-wage costs on employers down to levels lower than those in other European economies. Our opt-out from the social chapter is an important element in encouraging the growth of employment in the United Kingdom.
Dr. Fox : Does my right hon. and learned Friend accept that as the economy gathers pace, it will do so not only because of the labour reforms of the 1980s but because of a whole range of supply-side reforms? Does he further accept that those reforms were totally opposed by the Opposition and have been possible only because we have had consistent and consecutive Conservative Governments?
Mr. Clarke : I quite agree with my hon. Friend. Not only have we improved the labour market, but we have created a much better climate for investment, for small businesses and for business start-ups and we were much more successful than most of our competitors in creating new jobs before the recession from which we are now emerging first struck us. Almost all the relevant measures were opposed by the Labour party, which still seeks to impose on us the costs of the social chapter. Labour still harks back to a regulated labour market and, as we saw only last night, its vision of the future is to keep in nationalisation the great traditional industries of this country.
Mr. Beith : Does the Chancellor realise that the rosy picture that he has painted is not true of the construction industry, in which the recovery is still very fragile? Has he noted the representations of construction employers, to the effect that as many as 100,000 jobs could be lost in the industry if there are cuts in capital expenditure in the Budget? Does he realise that this is the right stage in the cycle to ensure, if possible, higher capital expenditure in construction-- expenditure that will bring rewards in terms of taxes paid by employees, fewer benefits paid out and assets obtained for the future at a good price?
Mr. Clarke : I am well aware of the troubled state of the construction industry. I agree with the right hon. Gentleman that that is a matter for great concern. The Government sustained the level of public sector capital
Column 504investment in the last Budget and we are making great progress in delivering private sector investment in capital projects in the public services. We must certainly build on that. The recent placing of contracts for the Jubilee line shows what can be achieved and there are a number of other projects across the country in which private sector management skills and finance could boost capital investment and help the construction industry.
Mr. Anthony Coombs : Does my right hon. and learned Friend agree that the best way to protect and promote employment is to ensure that our industry is competitive by reducing unit costs and by precisely the sort of productivity improvements that have been and are being achieved by manufacturing industry? Is he aware that companies in my constituency are bringing over from Germany capital equipment that can be used profitably here to re-export goods? Because Germany is weighed down by the costs of the social chapter and other social costs, that is not possible there. Should not we therefore avoid the social chapter as far as possible, to enable our industry to be competitive? Do not the Opposition fail to recognise that?
Mr. Clarke : British industry's achievement--of continuing to improve productivity throughout 1993--is an extremely important basis for our strengthening recovery. Productivity increased by 4 per cent. That is an extremely good record which I am sure underlies our good performance in non-EC export markets. We will do better in our EC markets once our European competitors and their markets start to show the sort of recovery that is beginning here in Britain. My hon. Friend's other message is one that we need to reiterate over and over again. German employers are envious of the conditions that we have created, which are more attractive for inward investment and the creation of new jobs.
The Paymaster General (Sir John Cope) : Treasury Ministers have recently met representatives from all sectors of the publishing industry and their views are being carefully considered in the preparations for the Budget.
Mr. Bennett : What income would the Government obtain if they imposed VAT on newspapers, books and magazines? Does the right hon. Gentleman have any estimate of the number of local newspapers that might close as a result of its imposition? What would happen to minority authors? How many books might not be published as a result and how many magazines would close? If the Minister addes up the figures perhaps he will agree that such a move would do far more damage to the spread of information and knowledge than benefit to the Treasury's revenues.
Sir John Cope : We have had suggestions of a large number of figures in answer to the points that the hon. Gentleman has made, but I will not anticipate anything that my right hon. and learned Friend may want to say later.
Mr. James Hill : I am sure that my right hon. Friend has taken into consideration the fact that there is only one local paper in some areas and that, if they have to pay VAT, such papers are likely to go out of business. But they serve a community purpose. I am sure that my right hon. Friend will sympathetically consider single-paper areas such as Southampton.
Mr. Nicholas Brown : Was not it an election pledge by the Conservative party that no VAT would be imposed on magazines, newspapers or books? Will the Minister confirm that the imposition of VAT on these items would be regressive, would fuel inflation and would lead to the direct loss of well over 20,000 jobs? Will he also confirm that the same sum of money could be raised without any of these consequences if the Government blocked the inheritance tax loopholes that are abused by the very wealthy?
Sir John Cope : Once again the hon. Gentleman is trying to say that everything can be done by stopping-up tax avoidance in some way. He knows perfectly well, as I do, that every Finance Bill that has ever been introduced has involved closing loopholes. He is chasing a mirage. Of course the figures that he mentioned have been brought to our attention in the various representations to which I referred.
Mr. Congdon : Does my right hon. Friend agree that the publishing community's campaign against VAT on books would be a jolly sight more convincing if it were prepared to scrap the net book agreement that has pushed up and keeps up book prices?
The Financial Secretary to the Treasury (Mr. Stephen Dorrell) : A couple with two children on average earnings paid VAT of £12.95 per week at today's prices in 1979-80 and an estimated £19.30 per week in 1993-94.
Mr. Mullin : Is not it clear that the public have been conned and that for four general elections the Conservative party has posed as the party of low taxation that cuts taxation, but has been quietly transferring the burden of tax from income tax to VAT? Is not it the truth that taxation has gone up under the Conservatives and is not that because it is expensive to maintain 3 million people who are permanently out of work? Is not the best way to cut tax to cut unemployment?
Mr. Dorrell : To take up the hon. Gentleman's phrase, the truth is that since 1979, we have been improving living standards for British people, which is what matters. Since 1979, take-home pay measured in today's terms for the same family to which the hon. Gentleman referred has risen by £81.50 a week. The hon. Gentleman is right that £6.35 of that increase has gone to pay VAT, but the other £75 a week has gone to improve living standards.
Column 506if we did not have the income from VAT we would not be able to meet the spending programmes, especially those in which the Opposition are constantly demanding increases?
Mr. Dorrell : My hon. Friend is right that VAT is, under this Government, and was under our predecessors, an important part of the total revenue-raising package. I ask the House to reflect on the significance of the fact that in Labour's Britain the standard rate of tax on a wage-earner involved in wealth creation was 33 per cent., while the standard rate of VAT on spending was 8 per cent. I should have thought that in a society where wealth creation was regarded as important, we would want--as the Government have--to cut the rate of tax on wealth creation even if that means an increase in the rate of tax on spending.
Mr. Marlow : Would my hon. Friend be kind enough to give an assurance that there is no way in which the Government will consider imposing more VAT on families in Britain if, later in the next Session, the Government intend to bring forward a Bill to re-route more taxpayers' money through Brussels to corrupt regimes in southern Europe so that hands may be greased and money can find its way into the pockets of some people's cronies?
Mr. Dorrell : My hon. Friend has introduced a general all-purpose question on taxation. I do not propose to get involved in speculation about our future tax policy. As for our obligations to our European partners, I am sure that my hon. Friend would want us to honour obligations entered into by the Government of the United Kingdom.
Ms Harman : Does the hon. Gentleman still refuse to recognise that VAT on gas and electricity is even more unpopular than the poll tax? Does he realise that it is dreaded by the public and that now 1,000 Tory councillors are backing Labour's demand that the Government should drop it? The Chancellor has a choice : either he can ditch it in his 30 November Budget or see it go down in the Finance Bill. Which is it to be?
Mr. Dorrell : The hon. Lady is scraping the bottom of the barrel in suggesting that our tax policy should be determined by the views of individual councillors. The one thing that all sides should agree about is that tax policy should be decided by the House. The Government's proposals for VAT on fuel and power have been repeatedly endorsed by the House. It is the House which makes that decision, not councils.
Mr. Sheldon : Is not the important aspect of value added tax the fact that until the recent decision to impose it on fuel and power, it was broadly neutral? That was because of zero rating. All other taxes except income tax are regressive, which means that VAT hurts most those who are least well off. As I have said, income tax is our only progressive tax, and the Government are determined to reduce that to help the most well off.
Mr. Dorrell : I remind the right hon. Gentleman and the House that it was the Liberal Deomcrats and not the Government who described the exemption of fuel and power from VAT as an anomaly. The hon. Member for Islington, South and Finsbury (Mr. Smith) proposed the introduction of an energy tax and asked the public to write to him with their reactions. Perhaps some of the letters that The Sun suggests should be written to my right hon. and learned Friend the Chancellor should be addressed to that
Column 507hon. Gentleman. The right hon. Gentleman will acknowledge, I think, that it was not the Government but the Institute for Fiscal Studies which analysed the income distribution effect of the last Budget, and concluded that it was broadly neutral across all income groups.
Mr. Duncan Smith : Does my hon. Friend agree that the Opposition are missing the key point, which is that as we changed the structure of direct and indirect tax we lowered the indirect taxation level, leaving most people with money to spend? That is one of the key reasons why we shall move faster as we come out of recession than our European counterparts who have failed to learn that lesson.
Mr. Dorrell : My hon. Friend is precisely right : not for the first time, the Opposition are missing the point. He is also right to draw attention to the fact that the prime objective of tax policy must surely be to encourage wealth creation. We cut the marginal rate of tax on wealth creation because we want to make people better off. That is why the man on average earnings with two children now enjoys take-home pay that is £81.50 a week higher than it was in 1979.
Mr. Enright : Are not those figures deeply depressing, especially in view of the huge sums of taxpayers' money that were poured down the drain last year to devalue the pound and make us more competitive? Does not the Chief Secretary agree that it is crucial for us to sell more if we are to have a cat in hell's chance of a sustained non-inflationary recovery?
Mr. Portillo : The hon. Gentleman shows unusual enlightenment for an Opposition Member when he says that the crux of the matter is that we should sell more. The Government are concerned to make Britain more competitive. That is why we have kept Britain out of the social chapter. The hon. Gentleman's party is concerned to make Britain as uncompetitive as possible. I hope that, like me, he takes pleasure from the fact that during the past year our exports to areas outside the European Community rose by 11 per cent. and that Britain is more competitive. I hope that he will join me in saying that those are good achievements.
Mr. John Greenway : Is my right hon. Friend aware of yesterday's Touche Ross report on business prospects in Yorkshire and Humberside which points to clear signs of economic recovery in that region? As the economic recovery gathers pace, enabling us to make an impact on our trade balance, does he agree that the Government's policy must be to continue to bear down on inflation and encourage greater productivity and competitiveness in British industry?
Column 508falling while they have continued to rise in Japan and Germany. Our productivity is at record levels. Manufacturing productivity growth in Britain has been the strongest of all the G7 countries during the past year. Those are great achievements, and they offer good prospects for British industry.
Dr. Berry : Is the Chief Secretary aware that we have never had such a large trade deficit at this point in the business cycle, and that, for the first time ever, we have a record trade deficit in the midst of a recession? Who does he believe to be responsible for that?
Mr. Portillo : I would prefer the deficit to be less than it is. However, I notice that foreign investors are showing great confidence in our country. They are investing more in Britain through inward investment than they are in any other European country. We are benefiting from one third of all the inward investment coming into the European Community, and foreign investors are also willing to buy our stocks and gilts. That shows that the trade deficit is fundable and I believe that the Government 1 Public Spending
Mr. Portillo : The Cabinet agreed in June to stick within existing ceilings for the new control total for the next two years, and to allow a maximum growth of 1 per cent. in 1996-97. Our spending plans will be set out in the Budget on 30 November.
Mr. Riddick : Does my right hon. Friend agree that every function of Government should be examined for possible savings? Is he aware that millions of pounds could be saved by reducing the size of the civil service bureaucracy, that £5 million could be saved by abolishing the unnecessary Equal Opportunities Commission and that further savings could be made by putting a stop to the absurd inquiry by British policemen into alleged war crimes in the Falklands? Many people are outraged by that inquiry, and feel that it should be ceased forthwith.
Mr. Portillo : As is his wont, my hon. Friend chooses some controversial topics to raise and, as one who likes to avoid controversy as much as possible, I shall not follow him down those lines of inquiry. However, I entirely agree with my hon. Friend's basic point, which is that we need carefully to scrutinise what Government do to ensure that the Government do only what is necessary and that they pass to the private sector that which they do not need to do. That is the basis of the fundamental reviews being conducted into a number of Departments at the moment, which will be extended to other Departments in the new year.
Mr. Skinner : Is the Minister aware that if we are to rid ourselves of the scourge of mass unemployment, rather than reducing public expenditure, the Government should be increasing it and introducing exchange and import controls to stop 20 million tonnes of coal coming into Britain? We should be exporting coal. In case the Minister is going to ask me how we bridge the gap on the public
Column 509sector borrowing requirement, I shall tell him now. We should be taxing the rich, the richest 5 per cent. of whom have had more than £50 billion in the past 14 Tory Government years. That is the way to resolve the problem, not by imposing VAT on fuel and light for the elderly and others in Britain.
Mr. Portillo : I am extremely grateful to the hon. Member. His is the authentic voice of the Labour party and I am pleased that, at this Question Time, he has reaffirmed that the policy of the Labour party is to raise taxes and increase public spending and controls. I am sure that he will join me in the pleasure that I feel that the hon. Member for Peckham (Ms Harman) has retained her place in the shadow Cabinet because I believe that she, too, is sympathetic to all those policies.
9. Mr. Dunn : To ask the Chancellor of the Exchequer by how much retail sales rose in the last three months for which figures are available against the same three months in the previous year ; and if he will make a statement.
Mr. Dunn : Do not the encouraging sales figures underline the current EC forecast that Britain's economy will grow faster than any other EC country, both this year and next year, and that this, taken alongside other positive economic indicators, means that we are now facing a sustained economic recovery?
Mr. Clarke : Yes, we are the only major European country that seems likely to record growth this year. There has now been growth for six successive quarters. Most forecasters expect that it will strengthen somewhat next year. That steadily rising level of consumer demand is reasonably encouraging. I therefore reinforce my hon. Friend's message and point out to him that this morning's figures for new car registrations--15 per cent. up on 12 months ago--are a further encouraging feature. We have a long way to go, but the recovery is very much there and shows every prospect of strengthening ahead of our European partners next year.
Mr. Andrew Smith : Now that the Chancellor of the Exchequer is literally taxing consumers until the pips squeak, by imposing VAT on fresh orange juice, will not retail sales be depressed and jobs destroyed in that rapidly growing industry? Is it not the case that the Government extend VAT in a knee-jerk reaction to their financial incompetence? Will not the public fear that that orange juice VAT is just the first course in a whole menu of Government VAT on food? Should not the Chancellor tell us now that there will be no imposition of VAT on any further food products?
Mr. Clarke : The hon. Gentleman knows that the measure that we passed last night, in the middle of a number of another type of votes that attracted more attention at the time, was a minor technical change. We have always taxed manufactured fruit juice in this country. There was a dispute and there have been tribunal cases about whether orange juice produced in factories was a manufactured fruit juice. When the matter was scrutinised
Column 510in Committee it took about half an hour and the vote last night was eminently sensible and fair to apple juice producers.
The Labour party has abandoned its previous economic policies and its previous proposals because they proved to be unpopular, but it cannot substitute for that all the nonsense about paying for everything out of non -existent loopholes and scratching around trying to build cases against technical amendments taken late at night.
Sir Peter Tapsell : While I fully support my right hon. and learned Friend's declared determination to reduce the fiscal deficit, I urge him to compensate for the deflationary effects that that is likely to have on retail sales by reducing our interest rates to nearer the much lower levels of Japan and the United States. There, real interest rates are less than half those in this country, even allowing for the somewhat pessimistic recent forecasts of the Bank of England about future inflationary trends here.