Standing Committee H
Tuesday 27 June 2000
[Mr. Frank Cook in the Chair]
(Except clauses 1, 12, 30, 31, 59, 102 and 113)
Clause 131 ordered to stand part of the Bill.
Value added tax: charge at reduced rate
Question proposed, That this schedule be the Thirty-fifth schedule to the Bill.
Mr. David Heathcoat-Amory (Wells): The schedule is about the reduced rate of value added tax to be charged on certain energy efficient materials, and the grants under which they can be installed. It is worth discussing the subject to ascertain what the benefits are, especially in environmental terms. Also, we ought to find out what compliance costs may be involved in making an already complex part of the law even more complex.
My first general question is whether the Government have calculated the possible environmental gain in terms of reduced CO2 emissions. We know that the domestic sector is a large contributor to global warming, especially as regards CO2 emissions. The Government are bringing into the commercial sector what we consider to be a misguided and unnecessary tax, which is the climate change levy. We have debated that at length already. In commercial circles, there are complaints that the Government appear to concentrate almost entirely on the transport and commercial sectors to the exclusion of the domestic market, in which CO2 emissions continue to rise.
Although there are good social reasons for a cut in VAT on domestic fuel and power, it cannot be disputed that its unfortunate environmental effect is to encourage the wasteful use of energy. If the price of a commodity is cut, all things being equal, more of it will be used. With powerful forces reducing the price of energy, especially electricity and gas following the liberalisation of the markets from the previous Government's privatisation programmes, there is a danger that domestic sector CO2 emissions will rise even faster than in other sectors.
The encouragement to install energy-efficient materials-heating controls, solar panels, better boilers-is undoubtedly right. The previous Government set up the home energy efficiency scheme, which will always be associated with the late Peter Morrison, and we did much to launch the grants schemes, which are valuable. The Government are adding a reduced value added tax rate on some pieces of equipment and types of material. I would like them to give more details about the environmental gains that they think will arise from that move, which is elaborated in schedule 35.
My second question is about compliance cost. It is regrettable that the Government have not used the opportunity to overhaul the relevant parts of the Value Added Tax Act 1994, an area of tax law that is beginning to creak. The area is complex and the provisions will make it even more impenetrable. An opportunity has been missed to rewrite that aspect of VAT law. Will the Minister consider taking that opportunity, perhaps in quieter times and possibly by giving the task to the tax law rewrite committee? We could have a more transparent system with fewer compliance costs.
What assessment have the Government made of the costs to business of complying with the reduced rates? The industry might not be complaining too loudly because of the opportunity to sell more products, but the whole economy and not only industry will bear an increase in clients' costs due to greater complexity. Customs and Excise might have to employ more people to help business to comply and to conduct the necessary checks and so that it can take enforcement action when there are abuses. Given that the lower rates have had effect since April, the Minister might be able to tell us about the experience of that.
On the details of the schedule, the explanatory notes stated that the measure would not apply to do-it-yourself goods because that would conflict with EU law. That is unfortunate. Has the Minister tried to modify that position? Change can be made only with unanimity but, in my experience, when the case is clear and when interests in other countries are not radically affected, such things can often be done by consensus. I would be grateful for information about that.
Solar panels are referred to as qualifying but there is no information about whether the associated costs of installation, pipework and wiring are also covered. It is not adequate that only panels will attract a lower VAT rate because the installation of such equipment does not consist of simply purchasing panels-that often forms only a minority of the overall cost. I should be grateful for information about that.
Where the lower rate applies to equipment, would it not have been better and simpler to have increased the rate of grant and to have left the VAT rate the same? All that will happen otherwise is that one part of the public sector will give money to another. The reduced VAT rate will only affect the rate of grant necessary to achieve the same output. There is an element of circularity about the schedule. Did the Government, in the interests of simplicity, consider increasing the rate of grant rather than reducing the VAT rate, which is paid by the public sector in any case?
A number of other artificial boundaries are listed in paragraph 9 of the schedule. My last question is whether that list is exhaustive and specific, or whether the Financial Secretary envisages an element of discretion at the margins, where grey areas might arise. Energy efficiencies change as new products come on to the market. Certain types of equipment may be found not to be particularly energy efficient or their efficiency could be overtaken by other technology or other techniques of achieving the same output. Although the schedule can be amended, I wonder what research has been conducted to ensure that the list is the right one and that it has been tested by experience.
Mr. Andrew Stunell (Hazel Grove): I want to raise a few questions. Although we welcome the concessions made by the schedule, I remind the Financial Secretary that the changes have been campaigned for long and hard over many years, not only by pressure groups but by hon. Members and those in the building industry and elsewhere who could see the obvious benefits that would flow from them. I have parliamentary answers and letters from Ministers in my files explaining precisely why it would be impossible to make those changes, so I am grateful that at least one Treasury sinner has come to repent.
I wish to coax the Financial Secretary a little on some of the implications of the changes made by the schedule, and where they might take us. The hon. Lady will be aware that the schedule is directly connected to fuel poverty, that many homes are poorly insulated and expensive to heat and that that contributes significantly to the greenhouse gas emissions that the Government, in another arm of their policy, are keen to control.
Following the Treasury's conversion, I wonder whether the Government will now lend more direct support to the Warm Homes and Energy Conservation Bill when it returns to the House on 21 July, to ensure that it, too, finds its way on to the statute book during this Session. Both those issues are long-running and a resolution is long outstanding. Although we broadly welcome the provisions of schedule 35, we want the whole cake, not only part of it.
The right hon. Member for Wells (Mr. Heathcoat-Amory) mentioned the interaction between the current grant-giving facility and the reduction in VAT. It is understood that the amount of grant that needs to be paid will be reduced by the amount of the rebate in VAT payments, but will the Financial Secretary give an undertaking that the total quantum of grants allocated will not be reduced? In other words, the Government have the opportunity to make additional grants, so it need not simply be a trade-off between grants and VAT with no net benefit to those at the receiving end.
The right hon. Member for Wells also mentioned ancillary installation costs. ``Ancillary'' is a by-and-large word. In my former existence in the building industry, I specified many systems and supervised their installation. The installation costs often exceed the cost of the equipment and the plant. I would like reassurance from the Paymaster General on how those installations cost will be accounted for in the calculations.
We welcome the provision and shall support it. However, there are issues at the margins on which we seek reassurance; will additional money be available for the vital job of ensuring that we have efficient low-energy homes in this country over the coming decades?
Mr. Richard Ottaway (Croydon, South): While the hon. Member for Hazel Grove (Mr. Stunell) wants the whole cake, I would not go as far as that-I would not be so profligate with the nation's finances. However, I put in a further bid for one or two more crumbs.
Mr. Stunell: I shall be delighted to join the hon. Gentleman in his search for crumbs and hope that we are successful.
Mr. Ottaway: I shall not go down that road-but we will peck away at this issue.
Amendment No. 468, tabled by my hon. Friend the Member for Guildford (Mr. St. Aubyn), has not been selected but deals with the important point, which my hon. Friend may cover now that he is present, of supplies of services and materials for churches. Religion is important in this country and people take it seriously; indeed, the Financial Secretary and I will probably lock horns on the issue during the Committee stage of the Census (Amendment) Bill, which deals with whether a question on religion should be included in the next census. The Government consider that religion has an important role in terms of planning public life and of good government.
The Paymaster General may tell me-I hope that she will-that the issue is covered by the definition of ``relevant charitable purpose'' in proposed paragraphs aa) and ab). Religion is a charitable objective and it qualifies for charitable relief. None the less, there are some wonderful churches in Britain that need to be maintained to the standards that we all appreciate. Religion is part of the nation's heritage, but it is also at the heart of the community. Whatever the religion, worship is important to many people and they want to be able to do so in a building that is dry, warm, watertight and in good condition. To find that they are being taxed on maintenance of their place of worship would stick in the throat of many people-indeed, many people do not know about it. So I put in a plea to the Minister that she look at that issue, which is so important to many people.