House of Commons
|Session 2008 - 09
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General Committee Debates
The Committee consisted of the following Members:
Liam Laurence Smyth, Committee Clerk
attended the Committee
Public Bill Committee
Thursday 21 May 2009
[Mr. Peter Atkinson in the Chair]
(Except clauses 7, 8, 9, 11, 14, 16, 20 and 92)
VAT: supplementary charge and orders changing rate
Amendment moved (this day): 5, in schedule 3, page 75, line 7, at end insert
(10) Paragraphs 2(3) and (4) shall not apply where the supplier can demonstrate that the terms of its contract does not permit additional VAT to be charged (i.e. if the contract provides otherwise for the purposes of paragraph 21(2) of this Schedule) and that at the time the contract was entered into the supplier had no intention or knowledge that it would become connected with the person to whom the supply is made..(Mr. Gauke.)
The Chairman: I remind the Committee that with this we are taking the following: amendment 6, in schedule 3, page 77, line 8, after persons), insert save for section 839(5)(b).
Amendment 7, in schedule 3, page 77, line 19, at end insert
(c) may only apply to supplies made after the date of such order or where supplies have been contracted to be made prior to such order and the contract allows for additional consideration to be paid.
Mr. David Gauke (South-West Hertfordshire) (Con): It is a pleasure to welcome you back to the Chair, Mr. Atkinson. As I am sure you would expect, Sir Nicholas Winterton kept us in order this morning in his inimitable way, but we are delighted to see you back.
As I stated this morning, and as Sir Nicholas pointed out, we debated clause 9, which deals with the temporary cut in VAT from 17.5 per cent. to 15 per cent., on the Floor of the House, and I have no intention of running through all those arguments again. I will merely add that those of us who were concerned about the state of the public finances take no reassurance from this mornings news that public sector net borrowing has increased substantially for April and is at record levels, and that the ratings agency Standard and Poors has revised its outlook for the UK to negative, due to borrowing concerns. The agency has said that Britains triple A rating for its Government bonds was at risk if the next Government did not produce a credible plan to put Government debt on a secure downward trajectory. Our concerns about a discretionary fiscal stimulus appear to be further vindicated.
The Financial Secretary to the Treasury (Mr. Stephen Timms): The hon. Gentleman will know that Standard and Poors has reaffirmed the triple A rating for the UK, but has he also seen that, since the publication of the Standard and Poors view, both Moodys and Fitch Ratings have also reaffirmed their view of a stable outlook for their triple A rating? Standard and Poors is on its own on that.
Mr. Gauke: I am grateful for that intervention; none the less, the announcement from Standard and Poors this morning is a timely warning that the public finances are in a perilous state and that the current level of borrowing is clearly unsustainable. I know that you do not want me to dwell on whether the VAT cut was wise, Mr. Atkinson, so I will turn to schedule 3.
Given the changes in VAT and the fact that it will return to 17.5 per cent. on 1 January, we accept that the Governments concern about potential forestalling and their desire to prevent the advancing of the time of supply on standard rated supplies are legitimate. Consequently, and given where we are, we have no objections to the measures in schedule 3, as they are perfectly reasonable.
However, the Law Society has brought a couple of concerns to our attention, and it might help the Committee if I outline them. We have sought to bring the Committees attention to those concerns by tabling amendments 5, 6 and 7. If the anti-forestalling provisions in schedule 3 are to apply, certain conditions that need to be fulfilled, which are set out in paragraph 2. The first condition is that
the supplier and the person to whom the supply is made are connected.
The second condition is that the relevant considerations come to more than £100,000. The third condition is that
a prepayment in respect of the supply is financed by the supplier or a person connected with the supplier
I am simplifying the matter a little, but that probably serves the purposes of the Committee. The Law Societys concern relates to condition A. It says that the test of connection, already wide, has been extended by a recent case, Kellock Brown. Indeed, the society has raised the possibility that some banks in partial public ownership and indeed, the state may be connected for the purposes of the test. I will be grateful if the Minister can respond to that point.
There may be a danger of condition A applying more broadly than is intended. Our amendments are intended to solve the potential problem of the provision applying where the supplier had no intention or knowledge that they would become connected to the person to whom the supply is madepeople may find themselves caught up in the provisions when that was not the intention. We tabled amendments 5 and 6 to highlight that issue and obtain the Governments response.
Our second concern relates to paragraph 10 of the schedule. Our first point is that we are back in the era of Henry VIII clauses, in that it will be possible to amend primary legislation by order. That is something about which, traditionally, the House as a whole has always been concerned. Those of us who served on the Committee on the Banking Bill will remember similar concerns being expressed, and the Economic Secretary and I debated Henry VIII clauses at some length. There is
The second element of concern about paragraph 10 is that there is nothing in the paragraph that would prevent the Treasury from making an order that is, to some extent, retrospectivenothing that would prevent an order from applying to a supply that occurred before the date of the order. That concern was also raised by the Law Society, which we attempt to address in amendment 7, which provides that any order made under paragraph 10 should apply only to supplies made after the date of the order, or where there is a contractual provision enabling it to be varied subsequently. We think that that answers the concern. It may well be that the Government would not, in any circumstances, use the order in a retrospective manner, and we would welcome an assurance to that effect. Otherwise, I would be grateful if the Minister outlined the circumstances in which the Government would make an order that was not in compliance with amendment 7. That would be helpful to the Committee.
Subject to those technical points, we have no particular objections to schedule 3, for the reasons that I outlined earlier. However, we think that we have expressed legitimate concerns that we hope the Minister will be able to answer, perhaps by accepting the amendments.
Mr. Jeremy Browne (Taunton) (LD): I shall not speak at length, Mr. Atkinson, because the points that I had wished to make were either made in detail in the main Chamber of the House, or made a few moments ago by the hon. Member for South-West Hertfordshire.
My party also did not approve of the temporary VAT cut. We did approve of a fiscal stimulus, but we thought that the money could be better spent than on a reduction in sales tax. That reduction is worth approximately £1 billion a month, depending on what people choose to buy. That is a substantial amount of money, which, as I have said, we felt could have been spent more constructively. Having said that, we are where we are. The Government have implemented that policy of a reduction in sales tax and it seems reasonable to us that the anti-forestalling measures outlined in schedule 3 be put into effect to ensure that people pay the tax that they are expected to pay.
The Conservative amendments strike me as reasonable, but I would be interested to hear the Ministers response to them. He may feel that there are practical difficulties and that the amendments are too loosely defined in their scope. If that is the case, they may not be appropriate. I look forward to hearing what the Minister has to say on those amendments, but my party supports the schedule as a whole.
John Howell (Henley) (Con): I only have a couple of questions for the Minister. My hon. Friend the Member for South-West Hertfordshire mentioned the concerns
Some of the institutes concerns overlap with those of the Law Society, such as the wide definition of connected persons. However, the ICAEW raised another question that is valid to ask here. What is the basis of the assumptions underlying the schedule about the potential scale of abuse? The ICAEW makes a very good point that, without that type of evidence, the nine pages of anti-avoidance legislation that are before us seem a disproportionate response to what is only a 2.5 per cent. adjustment.
I am grateful to all the hon. Members who have spoken today to express general support for the measures in the schedule. As we have discussed, the reason for the temporary reduction in VAT was to deliver a fiscal stimulus to the economy in a timely, targeted and temporary way, and that stimulus is working. The hon. Member for South-West Hertfordshire drew attention to some economic news this morning. He may also have noticed the Office for National Statistics retail sales figures published this morning showing continuingindeed, I would say remarkablestrength. Retail sales volume is up 2.6 per cent. on the year. In very stark contrast to what happened to retail sales figures in the last recession, over the past six months retail sales volume has grown by almost 2 per cent. In the last half of 1991, which is a comparable period to now, that figure fell by 2 per cent. So that 4 per cent. difference in retail sales volume over a six-month period is the difference.
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