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6.10 pm
Dawn Primarolo: I hope that I shall be able to reassure the House on this modest and sensible measure. There is no extension to foodstuffs that are currently zero-rated. The hon. Member for Lichfield (Mr. Fabricant) can have his Marmite soldiers and drink his Bovril this evening in the sure knowledge that there is no challenge.
While legal issues arising from an appeal to the VAT and duties tribunal earlier this year--but after the Budget--were being examined, it was discovered that a transcription error had been made in the Value Added Tax Act 1994. Throughout the relevant time, VAT has been raised on those products. No new VAT is being imposed and there is no extension. The manufacturers, the Government of the day and their officials believed that VAT on pet foods could be charged and collected, as it
had been since 1973. We collected the tax because that was the position before the transcription error was made in 1994. We now have to correct the law.
Mr. Luff:
Is the hon. Lady saying that the Government have collected tax revenues illegally and are now seeking retrospective sanction for having done so?
Dawn Primarolo:
No. The items had never been zero-rated. The previous Government supervised the changing of the 1994 Act, when the transcription error occurred. They were fulfilling their legal obligations under the requirements to impose VAT. We are committed to maintaining zero rates on food. They are not affected in any way.
Dawn Primarolo:
I should like to make this point first. The explanatory notes make it clear that the zero-rating of foodstuffs is not affected.
The grouping covers pet foods primarily, but there are certain other preparations--
Dawn Primarolo:
I should just like to deal with this point. The other preparations are extracts of meat, yeast or egg, such as advocaat and yeast products intended for use in home brewing. That was the law as we had all understood it.
I have also been asked whether there is a precedent.
Dawn Primarolo:
I should like to deal with this point and get all the facts on the table before hon. Members work themselves up into a lather again about the problems.
I was asked whether there had been errors before. Unfortunately, there have. The previous Government had to make a correction to the Finance Bill in 1995, because the starting date for earlier changes to bad debt relief was omitted when the provisions for consolidation into the Value Added Tax Act 1994 were made. The measures are not retrospective because--
Dawn Primarolo:
I will give way in a minute. Hon. Members should be patient. It will help to have the facts.
This is not retrospective taxation because the legal liability to tax has not been changed contrary to the expectation of the taxpayer. The taxpayer had been paying the tax.
If the House voted against the motion, it would cause chaos. Manufacturers and the Government believed that the law gave cover. I am sure that a test court case would show the intention of the legislation before 1994, but it is better to correct legislation when an error is found.
Mr. Letwin:
I am grateful to the Paymaster General for giving way. That is the point on which I have been
Dawn Primarolo:
That is my point. There is no change. If we did not make the alteration, the Government could be left open to a loss of revenue, which would be unwise. Any prudent Government would act.
This is a simple proposition. An error was made; taxpayers and the Government have behaved in good faith. The law will now be corrected. There will be no refunds, no additional charge and no increase in food prices for pet lovers. I am sorry that the hon. Member for Rochford and Southend, East (Sir T. Taylor) feels that his time may have been wasted. There is no extension on foods; those are the simple facts.
Question put and agreed to.
Resolved,
Mr. St. Aubyn:
I rise to point out that, yet again, we have a motion with retrospective effect. In Standing Committee, we raised several objections to the phrasing of clause 61 and others. There was a great deal of consternation among Ministers, and they had to go away and think again. The Government new clauses on Report propose significant changes to the way in which they hope to address the highly technical problem of tax leakage resulting from the current legislation. I should be grateful if the Minister would confirm that.
Before we pass the measure, will the Minister confirm that the retrospective effect will not mean that companies that have honestly, but ingeniously found a way to minimise their tax liability will see an increase in their tax bill? I have no truck with tax evasion, but it is right that businesses should be able to plan their tax affairs with some certainty. Clauses should not be sprung into Finance Bills, retrospectively changing the law, to deny companies exemptions or advantages in the tax system that they legitimately believed that they could make use of. If we breached that principle, we would undermine the rule of law on which the whole tax system is based. If taxpayers feel that the Government will introduce retrospective legislation every time that they find a legal way to use the tax system to their advantage, they will eventually feel that they are unable to challenge the Government through the court of law on the tax system. The costs of doing so
may be great, but we could lose an important constitutional test and a brake on the power of the Executive to raise tax at their whim. That is what is at stake.
Mrs. Roche:
I am surprised by the remarks of the hon. Member for Guildford (Mr. St. Aubyn), who gave his version of what happened in Committee. It was an interesting version, and there are always many different historical interpretations of what has happened.
In Committee, I said that when we had consulted on this complex proposal, we received representations from the financial sector. It appeared that the way in which the clause had been drawn went too wide and was taking in some matters that we did not wish to be included. Therefore, in consultation with the industry, we made some new proposals and we have had a favourable reception. That is another example of how this Government listen--unlike the previous Government.
I remind the hon. Member for Guildford that the Tory Government tried to introduce this measure, and that this Government, once again, have had to deal with some unfinished business that the Conservative Government were unable to get through.
The hon. Gentleman asked why the resolution was retrospective. Clause 61 was founded on retrospective resolutions, and operates from 15 February 1999, when it was announced--a few weeks before the Budget. In that sense, it is technically retrospective. The Conservative Government did this on many occasions to stop tax avoidance, which was the right thing to do.
If the hon. Member for Guildford wants to honour the pledge of the shadow Chancellor on public spending, making sure that proper tax avoidance measures are in place is the right thing to do. I had hoped that he would give us some credit because we propose to make the clause--which takes effect from 15 February--less wide ranging. As to the other matters that he raised--yes, I can assure him on both those points.
Question put and agreed to.
That provision (including provision having retrospective effect) may be made in the Finance Bill amending the provisions of Schedule 8 to the Value Added Tax Act 1994 by virtue of which supplies of preparations and extracts of meat, yeast or egg are zero-rated.
Motion made, and Question proposed, pursuant to Standing Order No. 52(1)(b),
That provision (including provision having retrospective effect) may be made in the Finance Bill amending paragraphs 10 and 13 of Schedule 13 to the Finance Act 1996 and section 92 of that Act.--[Mrs. Roche.]
6.17 pm
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