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New clause 13
'.--(1) The following section shall be inserted in the Taxes Act 1988 after section 265--
"Relief from tax on expenditure on energy saving materials
265A.--(1) Subject to the following provisions of this section, an individual who incurs expenditure of £25 or more in any year of assessment on energy saving materials shall be entitled to a deduction from his total income for that year of assessment equal in amount to one-half of that expenditure.
(2) In this section 'energy saving materials' means any goods manufactured solely for any one or more of the following purposes--
(a) cavity wall insulation;
(b) loft insulation;
(c) under-floor insulation;
(d) insulating hot water tanks;
(e) insulating pipes and other plumbing fittings;
(f) draft proofing;
(g) controlling domestic heating systems;
(h) external and internal wall cladding;
(i) providing low emissivity glazing.
(3) The Secretary of State may by order made by statutory instrument add to the purposes specified in subsection (2) above; and a statutory instrument under this subsection shall be subject to annulment by a resolution of the House of Commons.
(4) A person shall not be entitled to relief under this section in any year of assessment if--
(a) (disregarding this section) his total income for that year, after all deduction, exceeds the lower rate limit for that year; or
(b) he does not carry out the work for which the energy saving materials in question were purchased within 12 months of the date on which they were purchased.
All such assessment and adjustments of assessments shall be made as may be necessary to give effect to this subsection."
(2) This section shall apply in relation to expenditure incurred on or after 1st January 1998 providing that if before that date the Treasury has by Order made provision for giving relief of not less than nine and one half per cent. on the VAT that would otherwise be chargeable on energy saving materials as defined by section 265A of the Taxes Act 1988 then this section shall only apply if provided for by Order made at any time by the Treasury.'.--[Mr. Simpson.]
Brought up, and read the First time.
Mr. Alan Simpson (Nottingham, South): I beg to move, That the clause be read a Second time.
Mr. Deputy Speaker (Sir Geoffrey Lofthouse): With this, it will be convenient to discuss new clause 15--Report on VAT on energy saving materials (No. 2)--
'Within twelve months of this Act receiving Royal Assent the Treasury shall report to Parliament on the consequences to the Exchequer of reducing VAT on energy saving materials.'.
Mr. Simpson: Earlier today, I had the good fortune to be able to introduce a ten-minute Bill entitled Warm Homes and Energy Conservation (Fifteen Year Programme). It tried to set in context the scale of the fuel poverty that this country has to face. It is against the background of that Bill that I want to speak to the new clause this evening.
I hope that you, Mr. Deputy Speaker, will allow me to give some background to this issue. Hon. Members will recall that, last year, I moved a similar amendment to the then Finance Bill in an attempt to secure exactly the same outcome--the reduction of VAT on energy-saving materials to 8 per cent. I had to do that in a convoluted way through a rebate system, because it was one of the few mechanisms allowed under the terms of the amendment of the law resolution.
First, I want to take us back to the underlying tax principle. I am grateful to the former Chancellor of the Exchequer, the right hon. Member for Kingston upon Thames (Mr. Lamont), who said in his 1993 Budget statement:
I have had to go to considerable lengths, both this year and last year, to get amendments in order in the Finance Bill debate, so as to have the right to advance that principle. I want to put on record my gratitude to the Clerks for their considerable patience with my pursuit of a series of amendments that I had thought were in order but that all fell at one fence or another. The Clerks were unfailingly patient with my attempts and my determination to bring this matter before the House.
New clause 13 is an amendment to the Taxes Act 1988. The mechanism by which VAT would effectively be reduced would be through altering certain arrangements within the income tax system. It would allow relief to be claimed, by those who are only basic rate taxpayers, on the basis of 50 per cent. of the tax paid on energy conservation and home insulation products amounting to a sum of more than £25 in any tax year. The sums involved are the same as the relief that such claimants would receive were they to be given a direct reduction in the rate of VAT charged on energy-saving materials.
There is a proviso for those who would question whether going through the Inland Revenue collection, relief and rebate system is the most sensible way of pursuing the principle. That proviso is set out in
subsection (2) of the new clause. It gives the Treasury the option of saying, if that was too cumbersome a collection mechanism and it preferred a direct reduction in VAT, that it could achieve the same result simply by coming back to the House and informing it of that preference.
The underlying principle is the one set out by the former Chancellor in respect of fairness in taxation. That principle has been picked up by the Labour party and by other Opposition parties in the policies we pursue. I do not think that my new clause is at odds with new clause 15, which was tabled by Labour Front Benchers, but it does move matters on.
My new clause allows for a period in which the calculations about how to implement the changes enshrined in the new clause could be worked out by the Treasury. The only difference between the new clauses is that that period of reflection and evaluation would be in pursuit not of a principle, but of the mechanism to implement a principle.
That is in no way inconsistent with many other points of principle that have been made by Labour Front Benchers when setting down our definition of fairness in taxation. In a speech on 20 January this year entitled "Responsibility in public finance", the shadow Chancellor, my right hon. Friend the Member for Dunfermline, East (Mr. Brown), made that principle clear when he said:
We also pointed out that the industry had made its own representations to the Secretary of State for the Environment, saying that it calculated that such a measure would result in a 10 per cent. increase in demand for energy-saving products, and that it could help to create and sustain some 10,000 job years in the installation, maintenance and delivery of home insulation products.
Last week, the energy policy committee of the Confederation of British Industry reinforced and repeated its message to the House, saying that it wished VAT to be equalised so that tax on energy conservation was no heavier than that on energy consumption. Eighty per cent. of the annual reports that have been presented to the House by local authorities under the Home Energy Conservation Act 1995 have asked the Secretary of State to reduce VAT to help them meet the targets that the 1995 Act set for them. To date, more than 300 local authorities have also passed motions in support of that tax principle.
Cost is an issue, and I can understand people wanting to know about cost before making a tax commitment, but I want to place this matter in context. Even the worst case scenario involves tax pittances--a minute fraction of the margin of error built into the annual accounts. That £10 million, even in terms of slippage in existing Government programmes, would effectively amount to no more than the time that the Chancellor takes out of delivering his Budget speech when he scratches his backside--a tiny sliver of total spending.
I say to my hon. Friends on both sides of the House that, instead of regarding this proposal as an uncosted spending commitment, if we were to pass the new clause tonight, it would constitute not a spending commitment of the Opposition parties but part of the Government's own commitments in this year's Finance Bill and this year's Budget. I suspect that we would then be arguing about who should take the credit for it, because there continues to be huge and growing support outside the House for that tax principle.
We are arguing tonight not about a delivery mechanism but about whether the principles of fairness in taxation are those that enshrine a belief that we must be fair to the environment and the planet as well as people. In that context, we must move in a direction in which we tax-penalise polluting processes and tax-reward acts of energy conservation.
I believe it was in 1852 that Victor Hugo said:
"For the first time, the rate of VAT on domestic fuel and power will be the same as that charged on goods like loft insulation material, which improve energy efficiency. This will bring an end to the current anomaly, which makes nonsense of any attempt to use the tax system to improve the environment."--[Official Report, 16 March 1993; Vol. 221, c. 183.]
At that time, the House in its wisdom decided to vote for the reduction of VAT on domestic fuel from 17.5 per cent. to the current 8 per cent. The motive behind my amendments has consistently been to pursue the logic set out by the former Chancellor, which is that it is absurd to have taxation policies that, in an environmental context, result in our taxing energy conservation more heavily than energy consumption. That is environmental nonsense.
"work is something to be rewarded through the tax system, whereas environmental pollution is something that should be discouraged."
In the same terms, the Labour party made its position clear in the Finance Bill debate last year, when my hon. Friend the Member for Bristol, South (Ms Primarolo) said:
"Instead of giving us bureaucratic and technical excuses, the Government should be agreeing to take the proposals forward in the 12-month period provided by the amendments, and should come back next year with clear proposals on how the will of the House can be enacted."
She added:
"The Minister must explain whether he is against the principle that VAT on energy-saving materials should be the same as VAT on fuel, or whether he is telling us that Brussels prevents us from making them the same. If Brussels if preventing us, he should clearly explain why. We believe that he has no reasons to offer and we shall vote against the Government."--[Official Report, 27 March 1996; Vol. 274, c. 1131.]
I was pleased to see in The Guardian today that the shadow Financial Secretary to the Treasury, my hon. Friend the Member for Edinburgh, Central (Mr. Darling) said:
"Although we support the principle of reducing VAT on this area, we cannot support any additional spending commitment unless it can be financed."
I now turn to the question of financing. When we carried out the original calculations of the impact of reducing VAT on energy-saving materials, clear costs were built into that assessment. At worst, the impact on the Treasury coffers would be a cost of £10 million; at best, it was calculated that it could be revenue-neutral or revenue-positive, depending on the assessments made of potential increase in demand for materials supplied, produced and distributed as part of an energy-saving programme.
"An invasion of armies can be resisted, but not an idea whose time has come."
I ask the House to take note of the fact that we may have before us an idea whose time has come, and a public who long for us to recognise that.
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