For listed buildings, the borderline between alteration and repair or maintenance is a major source of confusion. The Budget announcement has no impact on the repair and maintenance of listed buildings, which have always
3 July 2012 : Column 779
been liable to VAT, so there will be no change to the VAT treatment of repairs to thatched roofs or steeples, contrary to what has been reported in the press. The Budget decision also reflects our view that grants can provide a more flexible mechanism than VAT for providing specific financial support for the heritage sector. We have increased the funding for the listed places of worship scheme and broadened its scope so that churches and other listed places of worship can claim grants to offset the impact of VAT on their alterations, repairs and maintenance.
The Budget proposal for alterations to listed buildings includes transitional arrangements, and, following the consultation, we have decided to make these more generous. As with the Budget proposal, the transitional arrangements will cover cases where written contracts had been entered into before Budget day 2012 or, in the case of the first grant of buildings that have been substantially reconstructed, where 10% of the work had been completed before Budget day. We have now agreed that they should also apply where listed building consent had been applied for before the Budget, and the transitional arrangements will be extended so that, where a project qualifies, zero rating can apply until 30 September 2015. These extensions will mean that the zero rate will continue to apply for most alteration projects where work was close to starting at the time of the Budget announcement.
Let me turn to the Budget proposal for self-storage.
Catherine McKinnell: I apologise for interrupting the Minister’s flow, but I want to take him back to listed buildings. He spoke about grants being available to churches for alterations and repairs. However, my understanding is that there is concern that what is proposed is more of a rebate or reclaim of tax spent, rather than a grant that would be available before the alterations and repairs are undertaken. Will he clarify what the position will be?
Mr Gauke: The first point to make is that the increased funding for the listed places of worship scheme was entered into after consultation with the Church of England, which led for other religious groups in this matter, and I understand that they are satisfied with the arrangements that have been reached. The listed places of worship scheme, which the previous Government set up, has been extended to allow recovery costs relating to VAT for both repairs and alterations. It offers church groups, for example, an opportunity to recover the costs they would otherwise incur, but is now much more generously funded, and a much greater proportion of VAT costs will be able to be reclaimed. Indeed, VAT costs should be able to be reclaimed in full for the time being, such is the scale of the support we have made available for the listed places of worship scheme.
It is perhaps worth pointing out that we always made it clear that we would increase the listed places of worship scheme, because of the increased costs that were going to be placed on churches, but after further discussions, with the Church of England in particular, we realised that the amount we had initially said would be adequate was not adequate, and we increased it. However, to deal with the hon. Lady’s specific question,
3 July 2012 : Column 780
what is proposed is indeed a reclaim arrangement. That is how it will work, and that is how it worked in the last Parliament as well.
Catherine McKinnell: Will the Minister clarify, therefore, whether he has received any expressions of concern about churches, which often rely on fundraising to undertake works, having to raise additional money, which they will then have to reclaim from Her Majesty’s Revenue and Customs, or about the additional burden that this will place on what are already quite stretched resources?
Mr Gauke: I understand the point the hon. Lady raises. The Church is satisfied with the arrangements. She is suggesting that in order to fund a project, a church group would need to fund the cost, plus 20%. That is not how it should work, because the scheme will be sufficiently flexible to ensure that a church group will have the funding in time, so that it does not have to raise an additional 20% or so. I have had considerable conversations with Church representatives on this issue, and I am not getting representations that they are concerned about that point.
Catherine McKinnell: I have just one last question about this issue. Has HMRC undertaken any assessment of the additional bureaucracy and administrative costs that will result from all churches having to engage in the process?
4.45 pm
Mr Gauke: The advantage of the way in which we have introduced this measure—through the listed places of worship scheme—is that there is already a mechanism in place for providing grants for repairs. That is something we inherited, and although I cannot say this about everything we inherited, it is quite helpful. We anticipate that there will be a monthly repayment process through the listed places of worship scheme. With regard to the hon. Lady’s concern about cash flow, the main point to make is that the Church is content with the arrangements.
Jim Shannon (Strangford) (DUP): I thank the Minister for his clarification on that matter. I understand that if churches want to reclaim VAT in such circumstances, such a claim will have to apply to work on the footprint of the original construction. When work is done not only to the old part of the church but also to the new, will it be possible to differentiate a claim so that the work done on the old part and that carried out on the new extension can be treated differently?
Mr Gauke:
The arrangements that will be in place following the legislation will mean that repairs and alterations will be chargeable for VAT. However, the listed places of worship scheme will apply to both types of work. It has been the case for some time that repairs involved the payment of VAT. The listed places of worship scheme will enable people to reclaim the VAT costs relating to those repairs. An extension—which is an alteration, rather than a repair—will now have VAT charged to it, but it will be possible to reclaim it through that same scheme. The scheme is now more generously funded than it was before the Budget, which means that a higher proportion of the costs that the churches
3 July 2012 : Column 781
would have incurred will now be able to be reclaimed. We have taken steps that the churches have widely welcomed.
Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op): I am sorry to have missed the beginning of the Minister’s remarks on this subject. I was actually checking up on certain aspects of a similar issue in my constituency. He said that the Church of England was content with the arrangements, but I hope that he will accept that it is not just the Church of England that is involved. I have a lot of churches, places of worship and listed buildings in my constituency, and I have been contacted by a church that was in the advanced stages of preparing to carry out work that could be seriously affected by the proposals. Will the Minister guarantee that, if the funding for the scheme does not meet the requirements, he will look again at the level of funding provided? Will he also monitor the scheme closely to ensure that no extra bureaucracy is introduced that could delay projects that would otherwise go ahead?
Mr Gauke: The hon. Gentleman is absolutely right to say that not just the Church of England is involved. I said earlier, however, that the Church of England had led on behalf of all the churches on this matter. On his second point, we have made the transitional rules more generous for churches that were close to commencing work at the time of the Budget. I obviously cannot comment on the specific case in his constituency without knowing all the details, but I think that he will find that many cases in which plans had reached an advanced stage will benefit from the transitional rules. He mentioned the funding for the scheme. We believe that this is a generous settlement, but we will of course keep such matters under review. He also mentioned bureaucracy. The scheme is organised by the Department for Culture, Media and Sport, but the Treasury will also take a close interest in it. The two Departments have worked together very effectively on this matter, and we are keen to ensure that the scheme works in an adequate way. I would underline the point that the representations that we have received from the churches suggest that they are happy with the arrangements.
Mr Frank Field (Birkenhead) (Lab): The Minister says that the two Departments are now working closely together on the scheme. Was there a similarly close working relationship when the Treasury was thinking up the proposal? Did the DCMS know about the proposal and approve it—before it was modified, of course?
Mr Gauke: The right hon. Gentleman is attempting to draw me into dangerous, and perhaps more interesting, territory. All I would say to him is that all decisions are for the Chancellor, although of course the Department for Culture, Media and Sport was involved at an appropriate level.
The Budget proposal for self-storage changed the liability of supplies of facilities for self-storage from exempt to taxable. Following consultation, we planned to avoid creating a competitive advantage for those larger operators with more expensive facilities. These businesses can partially mitigate the impact of the change by using the capital goods scheme to claim back some of the VAT they had previously paid on the purchase of these facilities, whereas smaller businesses with less expensive
3 July 2012 : Column 782
facilities cannot. We will therefore make a separate provision by statutory instrument to amend the capital goods scheme so that self-storage providers affected by the measure whose individual capital items are worth less than a £250,000 threshold for the scheme can opt into it and have the same input tax recovery benefits as larger providers with capital items that would already qualify for the scheme.
We also propose to ensure that the storage of live animals will remain exempt, as the original proposal might inadvertently have applied VAT to stabling, and we propose to introduce an anti-avoidance provision so that if the storage is used by a third party with the permission of the person who contracts for the storage, it is taxed in the same way as if it were self-storage. This will prevent someone from avoiding taxation by getting a third party to contract with the supplier. We have revised the exclusion for storage facilities provided to persons connected with the supplier so that it is more directly targeted on facilities that are subject to the capital goods scheme. This fine-tuning reflects the benefit of consulting and listening to what respondents say, but it does not undermine the rationale for the measure.
For hairdressers’ chairs, the schedule provides a clearer description of the services typically provided under a chair rental agreement and excludes services that could legitimately be provided with a simple supply of a right over land. The schedule also reflects a change to make it clear that the supply of a whole building to a hairdresser will not become taxable unless it is supplied along with other goods or services.
Finally, regarding the measure to apply VAT to all sports drinks and to clarify the definition of premises for the purposes of determining whether food is consumed on or off the suppliers’ premises, we are proceeding as planned in the Budget.
Nigel Mills: I am grateful to the Minister for giving way to me again. On the sports drink issue, I am sure he will remember the old milk advert suggesting that if children did not drink their milk, they would end up playing for Accrington Stanley rather than Liverpool. The gap between those two teams might be a bit less nowadays, but the idea was that milk improves physical performance. Will my hon. Friend confirm that an ordinary pint of milk will not be caught within these provisions?
Mr Gauke: I confirm that I remember the adverts and that milk will not be standard rated for these purposes. I refer my hon. Friend to the remarks the Chancellor made in respect, I think, of the 2010 Budget—that everyday essentials will not become standard rated. However great the advance of Accrington Stanley and the decline of Liverpool, that will remain the case.
Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op): Will the Minister provide a bit more clarity, as I believe the industry has been extremely concerned about the definition of a sports drink as opposed to sports nutrition products? I understand that some drinks would not be caught within the definition, but that some products legitimately used by athletes—by weight-lifting participants, for example—would be. Given the concern about it, further clarification from the Minister would help.
3 July 2012 : Column 783
Mr Gauke: The broad point is that sports drinks—such as Lucozade and others—are standard rated and have been for some time, and that sports nutrition drinks marketed as such will now become standard rated. We believe that that is fair. These products can be distinguished from a pint of milk or a milk drink not designed or marketed for sports nutrition purposes. Nothing in the consultation responses calls us to query the rationale for the measures or to amend the draft legislation other than through a minor amendment to tidy up the wording.
Catherine McKinnell: Can the Minister reassure me that his proposal will not lead to the same riddles and illogicalities that arose from the original pasty tax proposal, meaning that the same product marketed or packaged in a different way could end up attracting a different rate of VAT? Will he also tell us what consultations he has had with the industry?
Mr Gauke: We have completed a period of consultation and received a number of representations. In recent days, I have met representatives of GlaxoSmithKline and listened to their concerns. As for the hon. Lady’s first question, when products are aimed at different markets but clearly targeted at particular consumer groups, I think it reasonable to view them in the light of some of the competing products that are aimed at exactly the same market. Our research suggests that most sports drinks are clearly targeted at particular markets, and their VAT treatment will follow from that.
Catherine McKinnell: The Minister has not really explained why the Government should want to target a sports industry or sports-related products for tax purposes when much more unhealthy products might remain tax-free. Will he clarify that?
Mr Gauke: If the Opposition are setting out the principle that whether or not VAT applies should depend on the healthiness or otherwise of the products involved—which brings us back to hot food—we may have to engage in a slightly different debate, and I am not sure that either of us wants to go in that direction.
Mr Gauke: To be fair, I will let the hon. Lady clarify her position.
Catherine McKinnell: I am happy to clarify the fact that I am not setting out any particular policy position on whether sports goods or health products should be targeted for tax. However, the Minister appears to be saying that although the milk that is marketed for general consumption is VAT-free, if it is marketed for sports-related consumption it will be subject to VAT. Will he explain that policy?
Mr Gauke:
VAT is charged on all beverages. Typical sports drinks which are consumed primarily to rehydrate or quench thirst are already taxed accordingly at the standard rate, but some sports drinks companies have won court rulings that their products are not beverages because of their nutritional content and because they are not designed to quench thirst. The changes that we are introducing will ensure that all sports drinks are subject to the same VAT treatment whether they are consumed
3 July 2012 : Column 784
for rehydration or for nutritional purposes, because they are targeted at much the same group, and we think it only right to apply the same approach to consumers. The argument for the zero-rating of food is that it should apply to everyday essentials, but it is difficult to apply that argument to sports and nutritional drinks.
Julie Hilling (Bolton West) (Lab): I am desperately trying to understand what the Minister is saying will happen to sports and nutrition products. Is he saying that all drinks will now be subject to 20% VAT? What about other nutritional products that are not sold in liquid form?
Mr Gauke: Let me try to be helpful to the hon. Lady—not for the first time during our deliberations, I hope. We propose that drinks aimed at the sports nutrition market will be standard rated. We are not applying the same approach to meal-replacement drinks. There is a clear distinction between them, as one is more closely aligned to food than to sports drinks.
5 pm
New schedule 1 will remove some of the anomalies in our VAT system. It will raise revenue and reduce the administrative burden on HMRC and businesses. It shows that the Government are willing to listen to practical concerns and to amend the proposal accordingly, without undermining the rationale for the measures. It will help to remove the means by which some businesses secure for themselves an unfair advantage over others. I commend the new schedule to the House.
Turning briefly to amendments 18, 19 and 20, as I have explained, the consultation period was extended because we wanted to ensure that we fully reflected on the points raised before finalising our decisions. We have decided to introduce these changes through the Finance Bill. As a consequence, schedule 26, introducing the anti-forestalling provisions for self-storage and approved alterations to listed buildings, needs to be amended by amendments 18 to 20 so that it refers to the changes being made in the new schedule. I commend these consequential amendments to the House.
I have spoken for over an hour—doesn’t time fly when one’s having fun, Mr Speaker! I hope I have given a helpful introduction to the debate, setting out some of the details to the House, and I hope these proposed provisions will be added to the Bill.
Mr Speaker: I am sure we are all indebted to the Minister for the informative character of his contribution —and, of course, for his oratory.
Catherine McKinnell: I will speak to new clauses 10 and 12, as well as the Government amendments that the Minister has already set out for us in quite some detail today.
The Opposition’s new clause 10 seeks to put a stop to the chaotic farce of ill-thought-through VAT changes being slapped on items from the pasty to the caravan, from haircuts to church alterations—imposed, defended, downgraded and then, in some cases, eventually quietly removed by Ministers during the parliamentary recess, once they realised quite how ridiculous the changes were to begin with, particularly given the current economic climate. We simply ask the Government not to meddle
3 July 2012 : Column 785
with VAT exemptions until they have carried out a proper assessment and worked out exactly what the impact of any change would be on jobs, living standards and businesses.
We assume that, before imposing a 20% tax, the Government will do their sums, work out who would be affected, consult them and think long and hard about whether such a change was a good idea. Our new clause 12 seeks to reverse the VAT bombshell, which, as I am sure many Members will recall, the Liberal Democrats shouted so loudly about before the election, and before they all subsequently discovered that they actually supported raising the 20% rate after all. That was a surprise all around, even to themselves, I think. In fact, everyone’s surprise about that was surpassed only by the discovery that the Liberal Democrats had also been in favour of £9,000 tuition fees all along.
Labour is clear that higher VAT hits the poor harder than the rich. It drives up the cost of living at a time when people are already feeling the squeeze, and it takes money out of people’s pockets and off the high street at a time when businesses are crying out for spending to drive growth. Our five-point plan for jobs and growth calls for VAT to return to 17.5% on a temporary basis until the economy is strong enough to cope with a rise. That would give £450 a year back to couples with children, to give the economy a boost and to drive growth.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC): The hon. Lady will of course recall that we had this exact same debate during last year’s Finance Bill, and when the House divided on a Plaid Cymru-Scottish National party motion her party abstained. Can she explain her party’s damascene conversion in tabling the same amendment to this year’s Finance Bill?
Catherine McKinnell: Can the hon. Gentleman clarify whether he is talking about the debate that we had on raising VAT from 17.5 to 20%, because that is what we are addressing today?
Jonathan Edwards: An amendment last year sought to do exactly what the measure she is arguing in favour of would do. That was presented to the House by Plaid Cymru and the SNP, and the Labour party abstained.
Catherine McKinnell: I thank the hon. Gentleman for that clarification. I do not have the full details of the intricacies of that particular debate, but I know that what I am proposing is our policy and we support it. We are going to vote today for this measure to reduce VAT to 17.5%.
Mr Gauke: Can the hon. Lady explain to the House how much her policy would cost and how she intends to pay for it? Or will it be paid for through additional borrowing?
Catherine McKinnell:
That is an interesting question, coming from a Minister who has just justified a temporary delay of the rise in fuel tax that is apparently to be paid for by underspends that are not quantified by the Government, who are in a much better position to provide detailed costings to the House but cannot for their own tax reductions. We have said all along that the Government’s current policies are costing the taxpayer
3 July 2012 : Column 786
more. Borrowing is increasing, not reducing—the Government are borrowing £150 billion more over the spending period—and the benefits bill is sending the economy backwards, not forwards.
Mr Gauke: The hon. Lady said it was an interesting question. Would she care to answer it?
Catherine McKinnell: I have just answered it. I would be grateful if the Minister could similarly provide detailed costings as to where the Government’s tax reduction for the fuel relief is going to come from. If he were able to do that, we could certainly provide detailed costings of our tax proposal. The point is that the reduction to 17.5% will put money back into people’s pockets, get the economy moving and get growth back into the economy. That will help to bring down borrowing, which is increasing at the moment.
Gavin Williamson (South Staffordshire) (Con): Can the hon. Lady quantify, for the benefit of those in the Chamber, how much that 2.5% reduction would cost?
Catherine McKinnell: I repeat what I said before: the Government’s current policy of increasing VAT to 20% is taking money out of people’s pockets and is causing a slump in demand. It is very strange that these questions are coming from a Government who are borrowing more than they intended over the spending period, not less.
Stephen Gilbert: The hon. Lady mentioned a figure of about £400 a year. What I missed, and what I am hoping she will be able to clarify, is whether that is per person or per family. If we knew that, we might all be able to do the maths as to how much this measure would cost the Exchequer.
Catherine McKinnell: The figure that the hon. Gentleman is looking for is £450 for a couple with children. It would put money back into their pockets, boost the economy and drive growth. Let us not forget that the Institute for Fiscal Studies has predicted that the Government’s tax credit changes will mean that families will be £511 worse off this year and £1,250 a year worse off by 2015.
Andrew Percy: Who would benefit more from a VAT cut, a family earning just above the minimum wage or a millionaire?
Catherine McKinnell: Clearly, a family would gain more from a VAT cut because they spend much more on VAT as a proportion of their household income. The hon. Gentleman’s indignation at that response demonstrates just how much the Government are out of touch with the reality of the effect of their spending plans on households and household incomes. That would explain why this economy is going backwards rather than forwards under the Government’s plans.
Julie Hilling: Does my hon. Friend find the interventions of Government Members bizarre? The Government inherited a growing economy and we now have a double-dip recession created totally in Downing street by their efforts to have no other aim than driving down the deficit. They are stifling growth and making ordinary families pay the cost of their economic failure.
3 July 2012 : Column 787
Catherine McKinnell: I thank my hon. Friend for that intervention and think that the response from Government Members is deeply worrying, as it shows worrying complacency about the direction in which they are taking this country and about the decisions they are making on the economy, which are making things worse, not better.
Our new clause 12 would reverse the VAT rise immediately and prevent it from rising again—I emphasise this point—until the Government can show that our economy is growing strongly again. That is the right move to get our economy back into growth and out of this double-dip recession. I also want to put on the record that we will oppose the Government’s new schedule 1, which would bring in ill-thought-through and unwelcome VAT changes that, despite the concessions, are still wholly unsatisfactory.
Diana Johnson: Does my hon. Friend share my concern that the proposals in schedule 1, especially those on the caravan tax, seem to have taken no account of job losses or of the effect on demand when we are in a double-dip recession and will cost the Exchequer more than it would gain in revenue?
Catherine McKinnell: I thank my hon. Friend for that intervention and her focus on the subject of the debate—that is, these deeply worrying and shambolic VAT changes. We have discussed at some length the new proposals that followed the Government’s concessions and we have had the opportunity to question the Minister on them. I share my hon. Friend’s concern at the failure to provide costings for some of the changes and the lack of consideration of the concern about jobs and growth that our new clauses aim to deal with. Those factors need to be given proper consideration and the Government do not appear to have done their homework.
Nigel Mills: New clause 12 would delay the rise to 20% in VAT until there was strong growth in the economy. Can she help us by defining what strong growth would be? What percentage growth might it be? Or would it be growth based on a properly balanced economy rather than a financial services-led boom?
5.15 pm
Catherine McKinnell: I could probably answer the hon. Gentleman’s question with just four words: “out of double-dip recession.”
The Government’s economic credibility, not to mention any reputation for competence they might have had, has taken a massive hit over the VAT changes. They put VAT on pasties and took it away. They put VAT on caravans, then they reduced it to 5%. They put VAT on churches and kept it. Then they invited payment of the charge up front. Churches could claim it back by submitting forms to the Treasury for access to a special fund, which essentially is a big pot of all the money that they paid up front in the first place. What a shambles. Do the Government even know what they are doing any more? They say that their U-turns show that they are listening. When they got it so horrendously wrong, it is good that campaigners were able to get through to them.
I know that hon. Members on both sides of the House have worked hard to get the Government to listen on the subject of the VAT changes, but is it not all
3 July 2012 : Column 788
too serious to be left to second chances? Do not the people of this country deserve a Government who can get it right first time? People saw in the Budget a true reflection of a Chancellor who tried to sneak through thoughtless changes and got found out.
Let us look at some of the Government’s tax changes. The selection speaks volumes about this Government. They gave a tax cut to banks and to millionaires, but showed no mercy to people who eat pasties. The pasty tax will go down in history as one of the most incompetent Government debacles ever. The attempt to raise the price of pasties and sausage rolls by 20% was claimed to be necessary to close an anomaly, but was universally seen as evidence of an out-of-touch Government trying their luck and grabbing tax on a food that Ministers never eat. The Save Our Savouries campaign run by The Sun pointed out that caviar is still VAT-exempt. Perhaps we can learn something from that. Perhaps the Minister will comment on that in his concluding remarks.
“I’m a pasty eater myself. . . I love a hot pasty”,
but he gave himself away when he said that his last pasty was from a shop that turned out not to exist. It was just one gaffe after another. The Chancellor ended up giving evidence to the Treasury Committee on how to tell whether a pasty was hot or cold. Members pointed out that because products would be subject to VAT if they were above ambient temperature when bought, pasties could cost different amounts on summer and winter days.
Stephen Gilbert: Notwithstanding some of the flaky accusations the hon. Lady is making against the Government, can she explain why Labour Members will not join in supporting the Government on new schedule 1, which addresses the concerns that were expressed during the consultation process?
Catherine McKinnell: Our position is that we would like none of the VAT changes to be introduced so by voting against new schedule 1 today, as I have already explained, we vote against all the VAT changes.
As was pointed out, if the pasty counter was near the oven, the ambient temperature would be higher. If it was near the chiller, the ambient temperature may be lower. Greggs’ official consultation document asked whether servers would ultimately have to take the temperature of both the pasty and the surrounding air to determine whether a 20% surcharge should be applied. The proposal was universally and rightly rounded on as ridiculous. Ken McMeikan, the chief executive of Greggs the bakers, which I am proud to say is based in my part of the world, Tyne and Wear, deserves a mention for his excellent campaign against the pasty tax. A massive £30 million was wiped off the value of the company in the week after the Budget as orders were threatened and jobs put at risk. Along with several hundred other bakers, Mr McMeikan delivered a petition to 10 Downing street. He told Ministers:
“we are the voice of half a million people. We embody their resentment at what this Government is trying to impose against the people’s will. . . ordinary hard working people simply do not want this pasty tax.”
I visited a local school breakfast club with Mr McMeikan and I know just how committed Greggs is to local schools and community projects. It did not deserve to
3 July 2012 : Column 789
have its business torpedoed by Ministers who are too out of touch ever to have eaten one of its products. Eventually the Government backed down on the pasty tax—they had to because that was the only move they could make—but they left behind them a legacy of arrogant disregard for ordinary people that will not quickly be forgotten. My only hope now is that the U-turn that has been made will be made properly. Representatives of Greggs are still raising concerns that the new wording of the regulations on hot food now state that VAT should be charged if it
“is provided…in packaging that retains heat (whether or not the packaging was primarily designed for that purpose)”.
The hon. Member for St Austell and Newquay (Stephen Gilbert) raised the matter with the Minister, but his answer did not provide certainty, so I would be grateful if he would clarify in his reply exactly how the Government will ensure certainty for this slightly battered production market.
Any sort of paper bag or wrapping could inadvertently help to retain heat, so there is a danger that pasties could still be caught in the regulations and that this whole incompetent mess of U-turns and retractions will all have been for nothing. I hope that the Government will take the opportunity to clarify that point and reassure Greggs and other bakers up and down the country that supplying customers with paper napkins, for example, which could inadvertently slow down the cooling process, will not result in an extra 20% charge for their customers.
Greggs would like confirmation, as I am sure would other bakers across the country, on whether taking trays of baked products from the oven and stacking them in counters that have no other means of heating or heat retention would be considered to be slowing down the cooling process. The practice is used by bakers to minimise food handling and the number of trays in use, but there are genuine concerns in the industry that it could constitute slowing down the cooling process and so incur a VAT charge.
The Government’s second U-turn was on their attempt to charge 20% VAT on static caravans—[Interruption.] I am asked from a sedentary position “Are you only on the second U-turn?” Yes, I am. I venture to guess that caravan holidays, like pasties, are not familiar to most members of the Cabinet. They saw an opportunity to take some extra tax and went ahead without considering the impact on individuals, jobs, growth or tourism. Because of the huge campaign mounted against the policy—I pay tribute to Members on both sides of the House for that, particularly hon. Members who represent the Hull constituencies, who are particularly concerned about the impact on jobs in their area—the Government backed down, but they are still trying to impose the 5% charge, as the Minister set out in more detail earlier.
The Treasury’s own figures show that 20% VAT on static caravans would result in a 30% fall in demand. The industry estimates that it would result in 1,000 job losses in manufacturing, excluding the supply chain. We know that at least one factory in the supply chain, Willerby Holiday Homes, put all 700 of its staff on a 90-day consultation as a direct result of the Government’s announcement that it would levy 20% VAT on its product. The National Caravan Council states that 4,300 jobs might be lost in holiday parks, plus another 1,500 jobs from associated suppliers.
3 July 2012 : Column 790
I appreciate that the Minister has sought to give some reassurances on the change and indicated that the Government are listening, to the extent of reducing the VAT rate to 5%. However, he has made it clear today that no actual calculation has been made on the potential impact of the 5% charge, which is of great concern. Even the reduced charge of 5% will mean either that caravan holidays will become more expensive for holidaymakers or that holiday parks will be forced to absorb losses and job cuts. At a time when consumers are already severely squeezed, many people will simply have to go elsewhere. In turn, the whole economy of holiday towns would be hit, with shops, pubs and attractions losing their main business. Is that really what the Government intended?
Mr Graham Stuart (Beverley and Holderness) (Con) rose—
Catherine McKinnell: I would be delighted if the hon. Gentleman would answer.
Mr Stuart: I am grateful to the hon. Lady, who is being most generous in giving way. I ask her to note that the National Caravan Council, the industry body, and the British Holiday and Home Parks Association have welcomed the 5% rate. They feel that the Government did listen and that the industry can take on that burden as part of the whole national effort to tackle the vast deficit her party left behind when it left government.
Catherine McKinnell: I am pleased that the industry is “delighted” with a 5% increase in VAT on its products. That is surprising in the circumstances.
Brandon Lewis (Great Yarmouth) (Con) rose—
Catherine McKinnell: I give way to my hon. Friend the Member for Kingston upon Hull North (Diana Johnson), who wanted to intervene earlier.
Diana Johnson: I would not say that the industry is “delighted.” I think that it accepts the measure, on the basis that it was very concerned about the 20% figure. My concern as a constituency MP, with 90% of static caravans being built in Hull and the surrounding area, is that there are 43.6 people chasing every vacancy in my constituency. That is the highest figure in the UK, and any job losses are going to be very difficult for my constituents, so that is why I am pressing the Minister to be very clear about the number of job losses that the 5% imposition will bring about. Will the shadow Minister comment on my concerns?
Catherine McKinnell:
I thank my hon. Friend for that rational and considered intervention and appreciate that the industry is willing to accept the change, as it is much easier to bear than the original suggestion of 20%, but that is the point I seek to make. The Minister in his opening remarks confirmed that no assessment has been made of the impact of the 5% increase on the industry, and that is gravely concerning, because, as the hon. Member for Brigg and Goole (Andrew Percy)
3 July 2012 : Column 791
suggested, the industry needs certainty, security and stability to create the jobs that my hon. Friend is so concerned about.
The fact that the proposal is being put in place without a proper assessment of what is a lesser impact but still one of 5% is deeply concerning, because the last thing the industry needs is for the measure to be reviewed 12 months down the line, be seen to have had a detrimental impact, and for it to have to go through the whole process all over again.
Brandon Lewis: I thank the hon. Lady for her generosity in giving way. In Great Yarmouth, I represent a £500-million-a-year tourism industry, with about 50% of our bed space in static caravans. Our industry was concerned, but its message to me is that it thinks the 5% rate is not only fair, but better than it had hoped for.
The industry understands the arguments that everyone has to do their bit and that there has been an anomaly for a long time, and feels that the measure is manageable, will not have an impact on its business and is fair. We are very pleased, in fact, that we finally have a Government who say that they will consult and listen, do so and come back with exactly what the industry wants.
Catherine McKinnell: The only point I can make is that the industry suffered the serious blow of having a 20% tax announced. That has been reduced to 5%, which it will obviously welcome, but we propose to remove the VAT changes altogether, because at this particular time the last thing that any industry needs, but particularly the holiday, static caravan and manufacturing industries, is a VAT hike. We need to invest in jobs and growth to get the economy moving, to get out of the double-dip recession that we are in and to get back into growth.
Sheila Gilmore (Edinburgh East) (Lab): Does my hon. Friend share my astonishment at the previous intervention? If the proposal to impose that VAT rate had never been made, there would have been no need for consultation or listening—and it would have been far better to have consulted first. What happened to the notion of a proper pre-Budget report, where suggestions could have been made in general terms and then we could have had a consultation? We all sat here listening to a very strong defence of the original proposals only a few months ago.
Catherine McKinnell: My hon. Friend speaks a lot of sense and makes her point very forcefully. The Government seem to have tax-grabbed first and consulted later. They have sneaked through changes—the ones they have got away with, they have pocketed and the ones they have been seriously challenged on, particularly by their own Back Benchers, they have had to relent on. But that is no way to conduct tax policy or business.
Julie Hilling: Is my hon. Friend as confused as I am by Government Members saying that their local manufacturers were asking for a 5% increase and demanding to be charged VAT? That is what it sounds like.
3 July 2012 : Column 792
5.30 pm
Catherine McKinnell: I made that very point when I expressed surprise at the impression being given that the static caravan industry warmly embraces and welcomes the change. A more rational description is that the industry accepts it as a much better deal than the one they were originally given by the Government—a slapped-on VAT increase to 20%, which would certainly have had an impact on jobs and compounded the lack of growth in the economy.
Once again, the change was announced during a parliamentary recess, the same day as the U-turn on the dreaded pasty tax. As Parliament was not sitting, there was no opportunity for the House to scrutinise the details of the Government’s plan—details such as where the money to pay for the change of heart would come from. The Government have yet to provide an answer to that question. We know the money will come from “underspends” in unidentified Departments, but we do not know where those underspends have occurred, whether they were planned, or why the coalition’s No. 1 priority of deficit reduction is no longer the default destination. The two measures—pasties and caravans—were supposed to raise £70 million, which is now unaccounted for. I hope that someone somewhere knows how to make up those sums. Many ordinary people consider £70 million quite a big hole to fill. How do Government plan to deal with it?
The third U-turn is the Government’s partial reversal on the so-called church tax. Ministers claimed that, in future, VAT would be payable on alterations to listed buildings, which are currently exempt. Of course, as the Government acknowledged today, half the listed buildings in this country are owned by the Church of England, which pointed out immediately that the change would cost it at least £20 million. Many churches collect donations from their congregation to pay for necessary alterations—often basic alterations, such as to provide a toilet and to ensure that the whole community can access the building. Without greater reassurances, the Church told the Government, the extra 20% payable would result in projects already scheduled having to be cancelled, and many of those projects were part of initiatives that churches had been encouraged to undertake through the big society.
The Government did not agree to a U-turn as such. I imagine they felt a bit embarrassed by that point, although that did not stop them performing another U-turn just days later—again, when Parliament was not sitting—on the charity tax. Instead, when they realised how hard churches would be hit, they agreed to give an extra £30 million to the listed places of worship scheme, so that churches could claim the money back in grants.
It is welcome that churches will no longer be hit with the huge extra cost of VAT, but my understanding of the Exchequer Secretary’s comments today is that churches will be asked to pay the VAT up front, then claim it back. They will have to raise the money to pay for the work they need to carry out, then wait for months to—hopefully—get it back. The hon. Gentleman says that measures have been put in place to make sure that churches do not suffer cash-flow problems, but I am not clear how much reassurance that provides. If he gives more detail when he winds up the debate, I am sure the House will be grateful. For a Government who say that they are waging war against red tape, it seems a bureaucratic
3 July 2012 : Column 793
process to put in place. My hon. Friend the Member for Edinburgh North and Leith (Mark Lazarowicz) raised concerns not just about the bureaucracy for HMRC and the Treasury in processing the payments and rebates, but the bureaucracy for the churches, which could well do without it.
I also understand that, contrary to what the Minister said about the Church of England’s being entirely happy with the proposal, many churches have expressed concern that the uncertainty would put them off accessing the scheme and relying on the VAT rebate. Churches could be deterred from undertaking necessary alterations and repairs. The other concern is that the measure does not help non-religious listed buildings, which still have to pay the 20% tax. Many people will choose not to go ahead with their projects. Among other things, that will hit jobs in the construction industry, and we all know how hard that has been hit by the downturn and the double-dip recession. It is an extra setback for that industry that listed building projects will not go ahead because of the 20% increase in cost.
We have seen at least partial U-turns on the pasty, the caravan and the church, but the Government have refused to budge on two issues. Sports nutrition drinks are still being subjected to a 20% price hike while sugary milkshakes will still be VAT exempt. The Government want to put VAT on sports drinks that are advertised or marketed
“as products designed to enhance physical performance”
or “accelerate recovery after exercise”.
The Minister sought to provide clarification for the Opposition, but I, for one, am none the wiser about the rationale behind the policy. No rationale has been offered for why a sports drink designed to provide and facilitate exercise and fitness should be targeted for VAT while drinks laden with refined sugars and fats are still exempt. Moreover, as my hon. Friend the Member for Kilmarnock and Loudoun (Cathy Jamieson) said earlier, the industry has raised serious concerns about whether milk and milk products will unintentionally be caught up in the ruling. From the Minister’s comments today, I wonder whether that is unintentional at all.
We all remember the “Make mine milk” ads in which well known sportspeople such as Denise Lewis promoted the benefits of milk for sport. If milk has been marketed as something that enhances physical performance and sporting prowess, will the Government levy VAT on it? My understanding from the Government’s comments today is that they would. There is no indication about how the anomaly would be resolved by the Government or whether they even have an issue. For that reason, we will vote against this shambolic VAT reform.
The final issue on which we have concerns is the VAT levied on hairdressers’ chairs. The Chancellor wants self-employed hairdressers to pay 20% VAT on hiring a chair in a salon. With the cost of chair hire up, hairdressers will have to choose between passing the cost on to their customers or absorbing it themselves. Industry data show that that will disproportionately hit small businesses and their customers, especially women between 16 and 44 years old. Why do the Government think that a good idea?
If the measure is just another routine closing of an anomaly, have the Government considered who they are hitting with it and why? I am truly concerned that
3 July 2012 : Column 794
the measure looks as if it was worked out on the back of an envelope, without any consideration of how many jobs it might cost. Our amendment would force the Government to consider carefully the impact on jobs and growth before imposing VAT on any previously exempt products. It is not clear that they have given any thought to the change that I have mentioned.
Steve Rotheram (Liverpool, Walton) (Lab): On haircuts, I wonder whether the increase in VAT in the case of hairdressers will precipitate a return to hairstyles such as the one that I currently sport.
Catherine McKinnell: My hon. Friend read my mind as I gazed across the Chamber.
Giving a tax cut to millionaires and the banks but making it harder for self-employed women and their customers reveals a Government who are, once again, truly out of touch with ordinary people’s lives. New clause 12 seeks to go further on VAT and create a temporary reduction in the rate from 20% to 17.5%. The Liberal Democrats ran for election on a manifesto that warned of the dangers of a VAT rise with their pledge to protect constituents from the “VAT bombshell” threatened by the Conservatives. The Deputy Prime Minister pledged:
“We will not have to raise VAT to deliver our promises…Let me repeat that: Our plans do not require a rise in VAT.”
Why were they so against VAT? Perhaps it is because the evidence clearly shows that people on lower incomes are hit proportionately much harder than the rich by VAT because they tend to spend more of their income rather than save and invest it. Government Members will claim that, looking at different measures, more VAT is paid by the rich—the hon. Member for Brigg and Goole (Andrew Percy) fell into that trap—but there is absolutely no doubt about the fact that VAT is regressive and that those on lower incomes spend a higher proportion of their income on it than those on higher incomes. Even the Prime Minister agrees. In 2001, he said:
“If you look at the effect...as compared with people’s income then, yes, it’s regressive”.
Jake Berry (Rossendale and Darwen) (Con): Does the hon. Lady concur that those on lower incomes pay a higher proportion of their income on fuel, and will she therefore welcome the postponement of the 3p increase in fuel duty?
Catherine McKinnell: I not only welcome it but point out that we proposed it, and the Chancellor shortly followed us on the same day. Our proposal to bring about an immediate reduction in VAT to 17.5% would deliver that 3p fuel duty reduction for drivers and put money in their pockets not only in respect of fuel but right across the board. It is a measure that is absolutely required to turn our economy round from the double-dip recession we are in.
Stephen Gilbert: Is not the real VAT bombshell the fact that the hon. Lady does not know how much this policy would cost Her Majesty’s Treasury? In the hour or so for which she has been talking, has she had any inspiration from colleagues?
3 July 2012 : Column 795
Catherine McKinnell: As I said, it is the Government’s job to work out the cost of any tax changes or spending commitments, and they have not even been able to provide answers as regards their own fuel duty reduction.
Mr Gauke: As the hon. Lady says that it is the Government’s job, let me tell her—I do not want to keep her in suspense —that her policy of reducing VAT to 17.5% would cost £12 billion to £13 billion a year. Does she dispute that number, and can she explain how she is going to pay for it?
Catherine McKinnell: If our policy turns the trajectory of the economy around from one of recession to one of growth, then clearly it will pay for itself and bring down the benefits bill, which is currently going up.
John Mann (Bassetlaw) (Lab): I would like clarity on what the Opposition’s policy is. [Interruption.] I can hardly hear myself think. Is it our policy that VAT will be permanently reduced to 17.5% or that the reduction will last for 12 months and then it will go back up to 20%?
5.45 pm
Catherine McKinnell: We are suggesting—we hope that the Government will jump on our way of thinking, as they did with the delay in the rise in fuel duty—an immediate reduction to 17.5% until we get the economy back into growth.
Dan Byles (North Warwickshire) (Con): Temporary, but open-ended.
Catherine McKinnell: It all depends on how long the Government take to get the economy back into growth. The reaction of Government Members seems strange, when they are driving the economy into recession rather than into growth.
Andrew Percy: The hon. Lady will be aware that the temporary reduction under the last Government had a significant cost impact on a number of businesses. If the economy suddenly went into growth in the quarter following the reduction, would she expect businesses to take the burden of the costs of implementing the reduction and then unimplementing it in two successive quarters?
Catherine McKinnell: The hon. Gentleman is getting ahead of himself, given that we are in a double-dip recession, that growth has stalled, that all the predictions of the Office for Budget Responsibility are being revised down day on day, and that borrowing is going up. Everybody agrees that we need demand in the economy. The way of generating demand in the economy is to put money back into people’s pockets. I remind hon. Members that before the increase in VAT, the economy was on a trajectory of growth. That was before this Government took over and brought in their disastrous austerity policies.
Sheila Gilmore:
Does my hon. Friend agree that the Minister’s figures assume that when VAT rises or falls, it has no impact on people’s expenditure? The thrust of what we have been saying, not just in response to the Budget, but for several months, is that the rise in VAT
3 July 2012 : Column 796
has dampened demand. The tax-take in May, for example, was down by 7%. Far from a static amount of money being drawn in, a VAT reduction would increase demand and, ultimately, increase the tax-take.
Catherine McKinnell: I thank my hon. Friend for her characteristically rational contribution. I would add that the recent Institute for Fiscal Studies report estimated that the Government’s tax and benefit reforms will make a couple with children £511 worse off in this financial year and £1,250 a year worse off by 2015. It does not take an economic genius to work out what that does to demand in the economy.
The Prime Minister admits that a 2.5% increase in VAT hits the poorest hardest, so what happened to, “We’re all in this together”? I would like to hear an answer on that. As well as hitting poor people the hardest, higher VAT is hitting the economy at a time when we can least afford it. As we have discussed, the Chancellor unveiled a fuel duty cut last week, using mystery funding sources. Dropping VAT could have taken 3p a litre off petrol immediately. Across the board, a temporary cut in VAT would stimulate growth and get the economy moving again. Putting money back into people’s pockets is the only way to support businesses and create jobs—the very things that the Chancellor left out of his mangled Budget. That is why a temporary return to 17.5% is part of Labour’s five-point plan for jobs and growth.
John Mann: Is not another way to stimulate the economy to spend the money on employing the police officers who have been sacked and on reversing the ambulance cuts, the fire service cuts, the Army cuts and other cuts? We could use the £50 billion that a VAT cut would equate to over a Parliament to employ public servants, rather than to cut taxes.
Catherine McKinnell: My hon. Friend makes a valid point. Since June 2011 we have lost more than 100,000 public sector jobs, which means that there have been redundancies at a rate of one a minute since the Government took office. Yet the private sector, which the Prime Minister anticipated would flood in to create jobs, has simply not delivered. It has created only half that number of jobs, leaving the other half of those people on the dole and claiming benefits. That is pushing Government borrowing up, not down.
The measures that we suggest would boost the economy and people’s spending power and ensure that we are not saddled with taxes that no one can afford. We want to see the economy moving into growth again.
Sarah Newton (Truro and Falmouth) (Con): When I came into the Chamber to listen to the opening part of this debate, I did not anticipate speaking. However, I am very pleased to have caught your eye, Mr Deputy Speaker, because I felt utterly compelled to join in, notwithstanding my current incapacity. It has been an illuminating debate.
I listened to the shadow Minister’s speech and the interventions of her colleagues, and I find it staggering that they are not going to listen to the submissions of my constituents on the pasty tax, caravans or fundraising for places of worship, on which many people work so hard. Oh no—their opinions do not count for anything to the Opposition. They are not going to listen to all the
3 July 2012 : Column 797
representations that have led to the Government’s sensible proposals. The listening exercise to improve and amend the Budget has led to proposals that respond directly to all the concerns expressed by my constituents, and I dare say by the constituents of a great number of colleagues.
Julie Hilling: I am really very confused. My constituents have been saying exactly the same thing, which is why Labour Members have been arguing against this dreadful Budget in the Chamber, the Public Bill Committee and wherever we can. We have said that the Government should not put VAT on pasties, caravans, hairdressers’ chairs and so on. I agree with the hon. Lady about that. Thank heavens, the Government listened to us a bit in the end, but sadly not enough.
Sarah Newton: It is surprising to me that, as far as we are aware from the comments of the shadow Minister, the Opposition will be voting against the very improvements that the hon. Lady says they have been working so hard to achieve. I do not doubt her good intentions or that she has been working very hard to represent her constituents, but if she was truly doing so, she would walk through the Lobby with the Government this evening, because they have listened thoroughly.
Let us take the pasty tax, for example. It will not surprise Members that I am keen to talk about pasties, because not only am I a big fan and regular consumer of them, but I represent Cornwall, where they are an incredibly important industry. When I listened to the Budget some months ago, it was clear to me that the Government were doing exactly the right thing. They had seen some dreadful anomalies in VAT on food that had led to huge unfairness. Independent owners of fish and chip shops in my constituency had to pay VAT, but other outlets selling hot takeaway foods did not. The Government’s attempt to sort out VAT struck me as perfectly reasonable.
We all know that what is really holding back growth in our economy is that for too long, small businesses have been massively overburdened by a dreadfully confused and muddled-up tax code. Under the last Government, the tax code multiplied and multiplied. We would probably have to use a wheelbarrow to carry all its volumes into the Chamber. The current Government are making a very reasonable effort to simplify some of the taxes that are such a burden on businesses in my constituency. They have listened carefully to the representations that have been made and are now going to create a level playing field for all people producing and selling takeaway food. That will benefit independent bakers in small businesses throughout Cornwall who bake pasties.
Mr Graham Stuart: As my hon. Friend is aware, the Government inherited the largest overspend and deficit in the developed world, so it was right for them to probe every possible area of tax revenue. It was also right for them to listen to people when representations were made and to respect parliamentary democracy. Does she agree that if the Labour party had listened to Back Benchers when it was in power, we would not have got into the mess that we are in and we would not have the vast deficit that the Government are having so valiantly to fight to reduce?
Sarah Newton: My hon. Friend makes his point as passionately and persuasively as always, and he is absolutely right.
3 July 2012 : Column 798
To return to pasties—one of my favourite subjects—when I listened to the Budget, it was clear to me that there was a problem with the proposals as they stood. Some of the architects of those proposals clearly did not understand how pasties are baked in Cornwall. Within hours I spoke to my hon. Friend the Exchequer Secretary, who clearly understood the problem that I described to him. He said the Government realised that there could be some complications and unforeseen consequences, hence the reason for their consultation. Colleagues from around the country responded positively to that consultation, and their concerns have now been met.
I am staggered by what the Opposition wish to inflict on our country by not supporting the Government tonight. In the nightmarish scenario that they won the Division, we would return to the situation in which the Treasury wastes hundreds of thousands of pounds of taxpayers’ money every year having to fight litigation cases against multi-million-pound companies that are trying to avoid paying VAT. The extremely complicated tax code that was developed under Labour over its 13 years was a lawyers charter. I have nothing against lawyers—I am married to a very good lawyer—but that ever-increasing and complicated tax code means that, not unreasonably, companies try to avoid paying tax. That causes Her Majesty’s Revenue and Customs to be tied up in court, spending hundreds of thousands of pounds on lawyers fees that it could be spending in a far better way.
It beggars belief, but what the Labour party is saying tonight is, “We are on the side of companies trying to avoid tax. We are on the side of lawyers who are constantly taking HMRC to court.” What a dreadful waste of taxpayers’ money. The Government are trying to have a fair and simple tax system that everybody in the country can understand, so that we are not caught out by those who avoid taxation.
Sheila Gilmore: I wonder whether the hon. Lady has noticed the size of the Bill. It is apparently one of the biggest Finance Bills ever, which suggests that the tax code is being added to all the time. Would it not have been easier for the Government never to have made their VAT proposal in the first place?
Sarah Newton: No. As I have said—very clearly, I hope—the Government’s change will bring about a lot of clarity and be beneficial. For example, new schedule 1 clarifies what constitutes takeaway food and hot food. I accept the point that my hon. Friend the Exchequer Secretary made that we can never be 100% certain that companies will not litigate to try to wriggle their way out of paying their taxes, but the added clarity will be welcome to pasty makers. They will understand the situation that applies to pasties that are made and consumed in the way that they are in Cornwall.
For the benefit of Opposition Members who do not seem to understand what master bakers do in pasty shops in Cornwall, I will explain that each day they get up very early to make high-quality bread, cakes and buns as well as pasties. They cook them on their premises so that they are beautiful and freshly made. Throughout the course of the day, anybody can buy freshly made bread, cakes, buns, scones or pasties. Thanks to the clarification in the new schedule, we can continue doing that in the certain knowledge that we will not pay VAT.
3 July 2012 : Column 799
Labour Members, however, who, feeling peckish on their way home tonight, decide to pop into the West Cornwall Pasty store, perhaps at the station, will, as in every other takeaway food outlet at the station, quite rightly pay VAT, because those pasties are deliberately kept warm all day long alongside other takeaway food. It is only right and proper, therefore, that they pay VAT.
6 pm
We did not have that clarity before. There were all sorts of loopholes that companies sought to exploit at huge cost to the Exchequer and, ultimately, to us taxpayers, because we pay the bills. I find it astonishing, therefore, that the Labour party is on the side of wealthy companies, with their deep pockets, and the lobby in favour of tax avoidance. I find that absolutely extraordinary.
Jake Berry: Of course, it was not just a pasty tax; it would also have affected the fantastic Cissy Greens pie shop in Haslingden. We are dancing from the River Ogden to the River Irwell in celebration of the fact that we can enjoy our Cissy Greens pies without VAT.
Sarah Newton: My hon. Friend makes a good point. This affects master bakers, whether of pork pies, sausage rolls, steak pies or chicken pies, the length and breadth of the country. Those self-employed, highly skilled master craftsmen can carry on producing their much-loved regional foods, which we enjoy all over the country and which make our country so distinct, as we celebrate our rich and varied food heritage. I hope that that addresses any misapprehensions among Labour Members about the benefits of the pasty tax.
Much has been made of the Government’s U-turns. I welcome having a Government who, when they launch a consultation, as they did after the Budget, actually listen to representations on a range of measures, and I am pleased that the Chancellor is driving our economy in the right direction. We have to reduce our deficit and get our expenditure under control. The hard-working families and small businesses in my constituency understand that, and frankly will feel let down by this retread idea of a 2.5% reduction in VAT—the only proposal we hear from Opposition Members. But, of course, we do not know whether that will be their proposal tomorrow, next week or next month, because the shadow Minister could only say that it was the proposal today. If that is their only proposal and if it is only for today, how can families in my constituency have any confidence that they would drive the economy in a better direction? I am confident that the Chancellor is on the right road, and I am certain that focusing on the Budget, making sensible changes along the way, is the right way to go.
John Mann: Does the hon. Lady agree that it is good news that the Chancellor listened to me on pasties, on caravans—after I invited him on holiday with the Prime Minister and me in a caravan—and on petrol? Does she also agree that it would be even better news if he also listened to me on churches and VAT on listed buildings?
Sarah Newton:
I am glad that the hon. Gentleman makes that intervention, because I was going to talk about that issue. First, however, I would like to make a
3 July 2012 : Column 800
little more progress on the analogy I was drawing to the House’s attention. We all get behind the wheel of a car from time to time—sadly, at the moment, I cannot, but I hope to be back there before too long—and when on a journey we are often certain of our destination, but sometimes we are not as good navigators as we would like and have to put on our sat-nav to help us, and sometimes we get an instruction from that irritating person on the sat-nav saying, “As soon as the road ahead is safe and permits, please do a U-turn.” At that point, do we throw up our hands in horror and say, “Oh, it’s just appalling to have to make a U-turn”, or do we think, sensibly, that to reach our destination in a safe and timely way it is appropriate to make the occasional U-turn? I have no problem with the Government making U-turns if it gets us to our destination in a timely and safe way.
The hon. Gentleman asked me about the changes to listed buildings. Having the beautiful Truro cathedral in my constituency, I was concerned about the proposals and immediately consulted the diocese and a wide range of churches in my constituency about their implications. I brought all that information to the Chancellor’s attention, as, I am sure, did Members across the House, and I was satisfied with his response. The Second Church Estates Commissioner, my hon. Friend the hon. Member for Banbury (Sir Tony Baldry), is to be congratulated on how he co-ordinated all our efforts and on the work he has done with the Church Commissioners and the Treasury. Their solution is both practical and actionable, and has met with the perfect satisfaction of churches in my constituency.
I know that many Members wish to join in the debate, so I shall conclude. It is immensely important that we have a Government who listen, who consult on proposals and who then act on them. Whether on fuel duty, pasty taxes, caravan taxes or fuel taxes, my constituents are immensely pleased and relieved that the Government have listened and helped hard-working people and small businesses during these difficult times.
Mr Frank Field: I want to speak to new clause 3, although it might first be appropriate to pick up on one theme from the speech by the hon. Member for Truro and Falmouth (Sarah Newton). She said she was pleased that the Chancellor was creating a level playing field. Well, if there is any area of the country where it would be difficult to create level playing fields, it would be in Truro. But anyway, I am pleased that she is satisfied.
I wish to make a plea for a level playing field for young people in my constituency and other constituencies who go to sixth-form colleges, and I wish to compare their tax position with that of young people undertaking sixth-form studies in school. In a recent Westminster Hall debate, led by my right hon. Friend the Member for Sheffield, Brightside and Hillsborough (Mr Blunkett), we discussed how poorer young people in sixth-form colleges or similar establishments were discriminated against in respect of free school dinners compared with young people in school. Here is yet another example of discrimination against young people, depending on the institution they attend.
I plead again with the Government, in respect of VAT, to treat sixth-form colleges as we treat schools with sixth forms. In Birkenhead, most pupils have no option but to attend sixth-form college if they want to
3 July 2012 : Column 801
undertake post-16 studies because the sixth forms of most of the schools were pooled together in that one enterprise. The VAT on services that the college purchases, but which schools do not pay, adds £300,000 to the college budget—a reduction of 4% in that budget.
My plea to the Chancellor will be brief and simple;I will not go up and down the country lanes, visiting various constituents, bakers and so on. He hoped to create a level playing field for taxation for sixth-form colleges and sixth forms in schools by the end of the Parliament. That was a noble objective, but the 2015 election, as it draws ever nearer, will certainly concentrate Government Members’ minds not only on small U-turns but perhaps on more major ones.
The Institute for Fiscal Studies undertook an analysis of the Government’s public expenditure changes which showed that the part of the education system that will be most handicapped and suffer the largest cuts by 2015 will be colleges of further education. Indeed, they will experience a 20% real-terms cut in their budgets by 2015. I know that it would not be in order to ask the Minister to respond to that, but given that the Government’s policies are making the playing field even more unequal for sixth-form colleges, compared with the treatment of sixth forms in schools, let me make a plea for him to concede that point and exempt sixth-form colleges, whose students are of an age that if they were not at college, they would be in school.
Bob Stewart (Beckenham) (Con): I do not understand why this has ever occurred. How come a sixth-form college is not treated exactly the same as a sixth form in a normal school? They may be in different areas, but they are essentially the same kids. I do not understand it, so perhaps the right hon. Gentleman—my friend, because I have known him a very long time—can tell me the answer.
Mr Field: I am grateful for the intervention. Unfortunately I cannot give an answer, but I will redirect the question to the Minister. This time, I hope that he will give us an answer and—I hope even more—say that the Government intend to take action.
Andrew Percy: It is a pleasure to follow the right hon. Member for Birkenhead (Mr Field), who made an interesting contribution, on an issue that I was not planning to speak about, but which I hope will be pursued if his new clause is not accepted this evening.
This has been an interesting debate. I am only sorry that the Minister’s attempt to take us through every VAT change since 1973 was cut somewhat short. We got to about 1983, which was probably as far as most of us needed to get, but it was interesting none the less. The debate has also been interesting because of the number of food products that have been mentioned. At one point, when we were talking about rotisserie chickens, pasties and sausage rolls, I thought it was lunchtime at the Percy house, but apparently not. I am proud to say that I eat pasties: I ate my last one from Fuller’s bakery on the precinct in Goole just the other day. I cannot say that I partake of sports drinks, so I will not take much of an interest in that part of the debate, but I am certainly pleased that the Government have seen sense on pasties. I am not sure that I necessarily share the full analysis offered by my hon. Friend the Member for
3 July 2012 : Column 802
Truro and Falmouth (Sarah Newton) about the seamless transition of policy. I do not think it has necessarily been the Government’s finest hour, but at least at the end of the process we have a system with which we can all live.
I want to make a few brief comments about the caravan tax. It is a pleasure to see my hon. Friend the Member for Beverley and Holderness (Mr Stuart), who assisted with—[Interruption]—sorry, who led the campaign. I chide him with an in-joke. He led the campaign very ably and got us all together. He deserves credit for that, and I am pleased to see him here for this debate. The impact that the measure would have had is well documented in the various debates we have had. The Minister knows from the meetings we had with him that we were very concerned, particularly in our part of the world, where the vast majority of the relevant manufacturing is and where a lot of the supply chain is based, including, in my constituency in Brigg, a number of companies that were affected. I also have some of the parks that would have been affected in my constituency. I am pleased to see my hon. Friend the Member for Cleethorpes (Martin Vickers), who would have similarly been greatly affected, from the point of view of the park owners, had the measure gone forward. It is therefore incredibly important that we have reached the position we have.
Some genuine points have been made about the consultation. One needs only to do a Google search to find headline after headline, in both local and national papers, about the state in which the industry has found itself in recent years. Indeed, it had to go to the previous Government looking for support, although I am not sure that a great deal was forthcoming. We are talking about an industry that has struggled considerably over the past few years, so quite who came up with the idea of slapping on 20% VAT, thereby affecting sales by up to 30%, I do not know, and I hope that some lessons will be learned. I prefer to see what the Government have done not as a U-turn, however. There was a US politician who used to describe a U-turn as a recalibration of policy, so I welcome this recalibration of policy. It is a shame that the previous Government did not do that on more occasions, as my hon. Friend the Member for Beverley and Holderness mentioned.
6.15 pm
There are two issues that I want to go into in detail. First, the question of whether the previous position was an anomaly is still up for debate. I do not think we necessarily want to cede the principle that the previous regime of not subjecting holiday statics to VAT was indeed an anomaly. There is an argument to be had about that. The second thing I want to pursue is the assurances we have heard, which I am pleased the Minister gave at the Dispatch Box, in so far as he is able when it comes to future tax policy. We have been assured that it is unlikely that the Government will seek to look at the issue again. I am sure that we would all welcome that and that the Minister will welcome not having colleagues from all parts of the country banging on his door, as we did.
Andrew Percy: I give way to my hon. Friend, who led the campaign.
3 July 2012 : Column 803
Mr Stuart: I am grateful to my hon. Friend. Now that a 5% VAT rate has been introduced, does he agree that any Government, whether the coalition or a future Labour Government, would be ill-advised to return to this issue with any form of increase? The level of 5% can be accepted. People do not pay council tax on these caravans. We are talking about a compromise, but one that can last, that the industry can live with and that the political establishment should live with. Indeed, no Government should ever think of returning to the issue at any time while even someone as young as my hon. Friend is in this House.
Andrew Percy: I am being abolished at the next election anyway, so there are only three years in which the Government might have to worry about me. However, they would frankly be stupid—if that is not unparliamentary language—to look at the issue again. I think any Government will take note of the campaign.
The final assurance I seek from the Minister is that we will continue to be conscious that there will still be a potential impact, as was mentioned in interventions by the hon. Member for Kingston upon Hull North (Diana Johnson), who also fought valiantly. I hope that the Treasury will continue to monitor that.
In the final minute, I want quickly to say something about the Opposition’s VAT cut for millionaires, which I think is what they are proposing. Whereas we on this side of the House have decided to target tax changes at those struggling the most—for example, by raising the personal allowance and taking some of the poorest out of tax altogether—the Opposition policy is to issue a massive VAT cut for high earners and millionaires, and just to pepper money around. The Opposition are not quite sure how much—they have not told us, although we think the figure might be £12 billion—and they do not know for how long the measure would be in place. What a policy! The interesting thing we have learnt is that we now know that the Opposition’s official policy is to support, ultimately, VAT at 20%, because they have said that the measure would be temporary, meaning that they have therefore definitely agreed the 20% rate.
Julie Hilling: Will the hon. Gentleman give way?
Andrew Percy: No, I am not going to give way, because other people want to speak.
The shadow Minister talked a lot about VAT consultation and the Government’s failure, she said, to consult on the changes. I just wonder whether she has consulted very widely on her proposal to reduce the rate temporarily to 17.5%, because I suspect not.
Diana Johnson: It is a real pleasure to follow the hon. Member for Brigg and Goole (Andrew Percy), who, with characteristic humility, accepted that bringing forward these VAT proposals was not the Government’s finest hour, unlike the hon. Member for Truro and Falmouth (Sarah Newton), who unfortunately is no longer in her place. She has a rose-tinted view of the shambles of this Budget and the proposals that have been put forward, which caused consternation, upset and distress to many individuals and businesses around the country. However, she now seems to think that we should be celebrating the fact that the Government have had to cobble together this compromise.
3 July 2012 : Column 804
I shall be supporting new clause 10, which was tabled by those on our Front Bench, and I want to speak against the Government’s new schedule 1. Our opposition to new schedule 1 underlines Labour’s commitment to having low taxes, because it would implement a tax increase, including the 5% VAT on caravans, which I want to address.
Dan Byles: I am interested to hear about that commitment, because I had understood that it was Labour policy to do more of the heavy lifting on deficit reduction through raising taxes than through cutting public spending. Is her party now the party of low taxes?
Diana Johnson: This section of the debate is about VAT. When we are in a double-dip recession, the imposition of VAT on items such as caravans is not going to help us to grow out of that economic position. That is what I will concentrate on.
The proposal for 20% VAT to be levied on static caravans came out of the blue in the Budget. There had been no consultation with the industry, and no warning that the Government were planning that measure. The impact assessment published alongside the Budget stated that the 20% VAT would result in a 30% reduction in the market for static caravans. The Government’s U-turn involved a 75% reduction in the amount of VAT involved, and 5% will now be levied from April 2103, as opposed to 20% from October 2012.
I can go some way towards welcoming the fact that the Government have listened and put forward a response to the widespread view that the imposition of 20% VAT would have been a disaster. There was cross-party work on the issue, with a number of debates, early-day motions and petitions. I will give the Minister his due; he did take the time to listen to what people had to say, especially those from my part of the world. However, serious concerns remain about the effect that the 5% VAT will have, and I want to run through them tonight.
I want to talk first about jobs and demand, which are at the heart of the issue. As I said, the Treasury’s own figures showed that the imposition of 20% VAT would have resulted in a 30% reduction in demand for static caravans. It worries me that the Treasury seems incapable of using figures appropriately. When I looked at the impact assessment, I realised that it had got the figures for businesses and manufacturers in the caravan industry wrong. It worries me that it cannot even get such basic information correct when it sets out to consult on a proposal. I want to see much better research into the impact of the 5% VAT on caravan manufacturers.
I have not been reassured by what the Minister has told me today, even though I have pressed him to tell me what will happen to manufacturers in the caravan industry. I did not feel that he really had a grasp of what the numbers might be. It worries me that there has been no proper assessment of this policy. Does he think that levying 5% VAT will put at risk roughly a quarter of the demand that the 20% VAT would have put at risk? Does he also think that the number of job losses in the caravan manufacturing industry will be reduced from the 6,000 mentioned in KPMG’s report to about 1,500 as a result of the change in VAT? Will he also comment on the knock-on effects for the wider UK tourism and domestic holiday industry?
3 July 2012 : Column 805
I want to draw the Minister’s attention to the HMRC document, “VAT: Taxing Holiday Caravans”, which was published at the end of last week. On the economic impact of the 5%, it states:
“This measure is likely to lead to an increase in the price of static and larger touring caravans which could lead to a fall in demand.”
I take the view that the Treasury civil servants are among the brightest and best that the civil service has to offer, and it seems odd that they have been able to come up with nothing more definitive than that the measure “could” lead to a fall in demand. The document goes on to state:
“Although the overall impact on the macro economy is expected to be negligible, the measure will impact local manufacturing in Yorkshire and the Humber where the bulk of static holiday caravans are manufactured.”
Most people in Hull and East Yorkshire would agree with that, but surely the Treasury can come up with something better. The section of the document entitled “Impact on businesses including civil society organisations” states:
“The vast majority of static holiday caravans are manufactured in Yorkshire and the Humber and a small number of manufacturers account for the vast majority of all UK sales. Although some manufacturers produce other types of caravans, static caravans are the main source of income for most of these manufacturers.”
Again, it worries me that the document uses such general terms. Where is the meat in all this? Where are the figures? Where does it tell us what the actual economic impact of the policy will be?
Let us bear in mind that we are in a double-dip recession and we are all desperate to get growth back into the economy. I mentioned in an intervention that 46.3 people in my constituency chase every job vacancy going, so any loss of jobs in the caravan manufacturing industry is a disaster for my constituents. I think that the hon. Member for Brigg and Goole mentioned that the caravan industry suffered very badly in 2008-09, and it is only just getting back on its feet. If the Treasury thinks that the imposition of 5% VAT will be fine for an industry that is struggling in a double-dip recession when people are not spending, it really needs to look again at its figures and ensure that they all add up.
The Minister said that the goods within a caravan were already taxed, in that VAT had already been levied on such items. My understanding is that the figure involved is about 5%. Will he tell us whether the 5% proposed in the Bill will be an additional 5%, making a total of about 10% VAT payable? I am confused by that, and the Minister has not made it clear.
One of the strongest arguments against the initial proposal for 20% VAT was that it would raise very little revenue for the Treasury. When taking that into account, we also need to consider the welfare costs that would be incurred from people in the industry losing their jobs. Has the Minister looked at the figures involved? Does he think that the sums add up?
HMRC now estimates that the 5% VAT will first raise revenue in 2013-14, when it will bring in £5 million a year, rising to £10 million a year from 2013-14. That is a relatively small amount of money, given the Government’s overall spending, especially in the light of the millions that they have found in the Budget for tax cuts for
3 July 2012 : Column 806
millionaires. Let us put this into perspective: £10 million is perhaps a third or half of what Mr Diamond’s severance payment might be.
This measure will have an impact from next year onwards, while raising £5 million to £10 million. When we take into account the fall in demand in the industry and the resulting job losses, I do not think that the Treasury will end up in credit. Introducing the measure could result in more money being spent, through welfare benefits. Will the Minister set out for me the sums that he is using to ensure that the measure will bring a net benefit to the Treasury? In my view, this is an ill thought-through policy, and these are crazy economics.
The Minister referred to the manufacturing standard, BS 3632. As I said in my intervention, using a manufacturing standard to dictate tax policy is silly.
Mr Graham Stuart: I want to return to the hon. Lady’s point about the overall costs. A significant percentage of the cost of a new caravan is found in the chattels inside, which already have VAT on them. So the additional overall cost will not be higher than 5%; it will be more like 3% or 4% on the overall average retail cost of a caravan. The manufacturers are telling me that they think that that can broadly be absorbed within their business model. It will have some negative impact, but a fairly minimal one. We are certainly not talking about 10% costs, but about rather less than 5%.
Diana Johnson: I am grateful for that intervention, and I pay tribute to the hon. Gentleman for the work he did on this matter. However, I would really like to hear from the Minister what the VAT level is going to be, because my understanding is that it is 5% plus the additional VAT already levied. The hon. Gentleman says that it is 3% or 4% and not 5%, but is that 3% or 4% on top of the 5%, which would mean it was 8% or 9%, not 5%?
6.30 pm
Diana Johnson: I am happy to give way again.
Mr Stuart: Basically, VAT has already been paid on those chattels, so if 25% of the cost of the caravan were for the chattels, that already includes VAT, so we are looking at 5% on 75% of the overall cost of the caravan. That is why it is significantly less than 5% as an addition to the actual cost when someone goes to a park to try to buy a caravan. The additional costs as a result of this change will be significantly less than 5%—I say that clearly and categorically.
Diana Johnson:
I am grateful to the hon. Gentleman again, but I would still like to hear from the Minister exactly what the figure will be. My understanding—I was at the same meeting with the caravan manufacturers in Beverley as the hon. Member for Beverley and Holderness (Mr Stuart)—was that a figure was levied across the whole price of the caravan, including the chattels in the caravan at around 3% or 4% of the overall cost. Will the Minister clarify that? Are there two figures that we need to be aware of, or is it just 5% overall of the total amount of the purchase? I have to tell the Government that if this
3 July 2012 : Column 807
were intended to make things clearer, the truth is that it is making things even more complicated and less transparent.
Let me return to the BS 3632 specification. I was saying that I thought that that was not a sensible way to make tax policy. I know that the distinction between static caravans and those used for residential purposes 365 days of the year is based on the reference to BS 3632. If we look at the responses to HMRC’s consultation, we see that while many respondents felt it would be relatively straightforward to upgrade static caravans to meet the BS 3632 standard so that they could benefit from zero-rated standing, many others said that the costs of doing so would be prohibitive. There is a confusion there, which is why I would like the Minister to be very clear about it.
With certified British standards changing all the time because manufacturing gets better and better, how often does the Minister think he would need to return to this tax provision to update it? I doubt whether it will be set in stone for years to come; it will have to be looked at and changed in the future. I heard the Minister’s reassurance that we would not see changes to the standard in the future, but he is opening the door to potential changes. The system that the Minister has devised, based on the British standard and keeping the distinction between static, residential and touring caravans, does not make things clearer and more transparent; rather, I think it extends the anomalies in the tax system.
An even bigger issue for me is the lack of clear evidence of what the change to VAT policy will do for my constituents and for jobs in my city. That is what really concerns and worries me. I know that the Minister has listened carefully to my pleas about employment and jobs. I hope he will think again and will instruct his officials to do a proper piece of work, so that when MPs scrutinise Government policy, they will have accurate figures to look at in order to assess whether the Government’s policies will result in what they say they are trying to achieve. In this case, I do not think the Government will see additional revenue in the Exchequer. If they bring forward this ill thought-through proposal, which will disproportionately affect my constituents, there will be a loss to the Government.
Stephen Gilbert: I feel as if I have fallen into a parallel universe in this debate. It is interesting, is it not, that although Labour crashed the economy so totally, Labour Members today want to provide a £12 billion giveaway by reducing VAT—something that would presumably have to be paid for by further cuts in the public services that they say they want to protect, or indeed by an increase in borrowing. It seems inconceivable to me that this measure is on the amendment paper in the name of Labour Members. I recall that when I was growing up there was television programme called “Jamie and the Magic Torch”. I used to enjoy it considerably, but it seems that we have a show on the other side of the Chamber tonight called “Ed and the Magic Money Tree”, with the Opposition unable to be clear or consistent about their VAT policy.
Another bizarre aspect of the debate is that when the Government are forced into what my hon. Friend the Member for Brigg and Goole (Andrew Percy) refers
3 July 2012 : Column 808
to as a “recalibration” on a number of issues, which my constituents certainly welcome, the Opposition oppose the measures that the Government are taking to address the problems that they initially highlighted. It strikes me as utterly bizarre that, a few months ago, the hon. Member for Newcastle upon Tyne North (Catherine McKinnell)and her hon. Friends raised concerns, as did I and other hon. Members, about the pasty tax, the caravan tax, the problems affecting static caravans and other issues, yet tonight the same hon. Lady and her colleagues are going to vote against the U-turn that the Government have made. It may well be the case that the Government have made a U-turn, but it is clear from the positioning going on tonight that Labour has taken a wrong turn.
Labour Members cannot have it both ways. They cannot criticise a Government for being cavalier when they do not listen, and then criticise them as chaotic when they do listen. As they well know, the reality is that on all these issues, particularly on tackling anomalies in the VAT system, the problems were set out in the consultation that my right hon. Friend the Chancellor rightly announced. That consultation was widely subscribed to by many interested parties, and the Government took the responses to it into account and changed their view on the back of the evidence they received. I for one recognise that none of us has a monopoly of wisdom. It is surely in the finest traditions of good government that the people likely to be affected by these rules are listened to and that a Government take advice if a deleterious effect is pointed out.
Labour Members talk about the need to consult, but when they abolished the 10p tax rate, plunging millions of the lowest paid into further tax, I do not think they consulted on that measure. That is why, as I say, the last few moments of the debate have been somewhat eye-opening, highlighting the sheer opportunism of the Opposition in opposing a U-turn. They call for consultation, then, in the very debate that shows that the Government are listening, they choose to ignore it. Frankly, as I said at the outset, that is bizarre.
My constituents would want me to welcome new schedule 1 and Government amendment 17. Those provisions will protect jobs in Cornwall, protect the Cornish high street and high streets across the country, protect the secondary spend in the wider economy and will ensure that Cornwall, which is already a disadvantaged part of the our United Kingdom, is not further disadvantaged by proposals that the Government have, thankfully, amended.
I would also like to thank the Minister. In all the discussions between him, me and my hon. Friends, he has always been entirely professional, courteous and constructive in his engagement. I would like to thank others, too. As the hon. Member for Newcastle upon Tyne North knows, Greggs is based in her constituency. Its effort to mobilise more than 500,000 signatures across the country for a petition that my hon. Friends in Cornwall and I were able to deliver to Downing street showed the level of grass-roots concern about proposals that could have been very damaging.
I thank the National Association of Master Bakers; that is not a sentence that one wants to rush through! Its engagement with this issue has been constructive and professional, and it has represented the views of its industry to the Government very effectively. For what
3 July 2012 : Column 809
will probably be the only time in my life, I also thank and pay tribute to
The Sun
, which ensured that the issue touched the popular zeitgeist and was able, ultimately, to deliver change. More locally, the
Western Morning News
, the voice of the south-west, played a useful role in keeping the issue in the public eye.
I can tell the Minister that people in Cornwall are relieved that this coalition Government took soundings, listened and, at the end of the day, delivered a result that will protect an iconic and important Cornish industry. It is estimated that the measure will safeguard about 13,000 jobs in Cornwall, put hundreds of millions of pounds into the local economy, and guarantee the production of the 180 million Cornish pasties that are made in the county every year.
Bob Stewart: Everyone has been saying how great it is that VAT will no longer be charged on pasties, but I should point out those who own fish and chip shops are at a slight disadvantage by comparison. I just want to balance the equation a bit, and that is one of the things that we were trying to put right.
Stephen Gilbert: I entirely agree with my hon. Friend. He will be pleased to know that new schedule 1 will deliver the level playing field to which he and my right hon. Friend the Prime Minister have referred, and on the subject of which I have received representations from fish and chip shops in my constituency.
If a product in a fish and chip shop is being kept artificially warm it is standard-rated, and new schedule 1 will ensure that the same applies in a pasty or pie shop. The simplicity for which the Government aimed has been delivered, as has the level playing field for suppliers of hot food. I hope that my hon. Friend will convey to the fish and chip shop proprietors in his constituency with some enthusiasm the message that, as a result of the constructive process of consultation and engagement undertaken by the Government, the special status of baked goods which are hot only as a product of their baking process has been recognised. The fact that a freshly baked hot pasty which is simply cooling down will remain VAT-free should be welcomed by one and all.
Sheila Gilmore: The hon. Member for St Austell and Newquay (Stephen Gilbert) seemed to think that he was living in a parallel universe, and, indeed, most of we Opposition Members thought that we were living in one as well. The process that has taken place is rather like the process that takes place when someone says “I want £10 from you”, and then, after a great deal of argument, says “I will make it just £2, so you should be happy”, and we find ourselves saying “Thank you so much for listening.”
Yes, it was good that the Government listened. I do not think that any Opposition Member has said otherwise, although we might have preferred them to listen from the outset. They had an opportunity to do so on Second Reading. One or two Conservative and Liberal Democrat Back Benchers voted against the Government even then in order to make their views known, but many others who had heard the Government say that the measures were necessary voted for them. Yes, it is good that the Government have listened, but it might have been better had they never embarked on this road. We must ask
3 July 2012 : Column 810
whether it was sensible for the Treasury—which, one assumes, is in charge of our economy to some extent—to spend the last four months dealing with matters which it had, after all, generated in the first place.
Roberta Blackman-Woods (City of Durham) (Lab): Does my hon. Friend agree that the Government listened only partially, especially when it came to the imposition of VAT on listed buildings? Churches will still have to undergo a bureaucratic process in order to claim it back, and other listed buildings will still be subject to VAT for repairs. That could really affect the country’s heritage.
6.45 pm
Sheila Gilmore: I shall say something about precisely that issue later.
The time and effort of officials and politicians was largely wasted by a process that, in some but not all instances, led us back to where we started at a time when the economy was tanking. Could not much of that energy have been expended on something far more worth while? It was said on Second Reading that this was not a Budget for jobs and growth but a Budget that tinkered at the edges of various issues, and the Government have themselves conceded that all that tinkering was probably a bad idea.
Diana Johnson: Does my hon. Friend agree that the VAT measures in the Budget had a major effect on business confidence in certain industries? For instance, when the caravan industry was threatened with the imposition of a 20% rate, some companies issued their work forces with 90-day potential redundancy notices.
Sheila Gilmore: Of course the stress and anxiety affected confidence and well-being. Indeed, it may have led to a further plunge in demand as people anticipated the impending redundancy which, thankfully, did not come about in many cases. That is an important consideration at a time when the economy is struggling so much.
I think that a great deal of time was wasted because the Government included measures in the Budget rather than dealing with the position earlier. If they believed that there were anomalies in the VAT system, why did they not consult? As I have suggested before, they could have said “We are minded to look at these things” at the time of the autumn statement, rather than at a time when they were putting together a Budget that, apparently, they wanted to balance. We heard a lot about that at the time.
Why did the Government not say “We want to look at these anomalies and review them in a general context”? One of our amendments proposes that that should happen in future. If there is to be consultation, it should be proper consultation. Saying, as the Chancellor did in March, “This is what we have to do and this is why we have to do it, but we will have a bit of consultation afterwards” is putting the cart before the horse. I hope that that lesson will be learned for the future.
Julie Hilling: One theory being put about is that the Chancellor was hijacked by civil servants whose pet projects had been turned down by the Labour Government, who had said “Don’t be silly”, and the Treasury was suckered into proposing a load of nonsensical changes.
3 July 2012 : Column 811
Sheila Gilmore: That may indeed may be the case. I recall that in 2007 a new council took charge in Edinburgh—it was a Liberal Democrat-SNP coalition—and it announced that it was planning to close some 22 schools. There was a very interesting cartoon in the local paper. It showed officials coming out of a meeting with the new administration and turning to each other and saying, “We never expected them to accept all that. That was a starter for 10, and we thought we’d get beaten back.” The officials had put forward this proposal and the new and inexperienced administration had said, “Yeah, we’ll go for that.” It did them some reputational damage. They proposed closing 22 schools, but then had to roll back very substantially because of the public outcry. The officials had expected to be told, “Actually, that’s not what we want to do. That’s not sensible. Let’s see the proper workings before we ever go public on this.” Perhaps the suggestion that this Budget measure was a consequence of our having a very inexperienced Government and Chancellor was right, therefore.
Roberta Blackman-Woods: Does my hon. Friend not agree that that view is much too kind to the Chancellor and the Government parties, as they clearly dreamt up these mad ideas themselves?
Sheila Gilmore: I will resist the temptation to take up my hon. Friend’s invitation to agree with that view, because we have to be tolerant, to a degree, of inexperience. There is currently a strong cult of youth and inexperience in our politics, but that might change, and it might at some point in the future be acknowledged that there is merit in looking to those who have had experience of life and living before entering politics, rather than to those who become as exalted as the Chancellor of the Exchequer before they have lived and experienced a great deal of ordinary life.
I shall spare Members having to listen to me list all the listed buildings in my constituency that are not churches. Those who want to know what those buildings are can read the relevant Committee report in Hansard. There is an important point, however. It has been assumed that because the Government made a concession—albeit not a full one, perhaps—to churches, the problem has been solved. There are other listed buildings that are not churches, however, which will now face the 20% rate with no financial assistance or concession made to them. These buildings are equally important. Churches are extremely important as historical monuments, even if some of them are no longer used as churches. In Edinburgh, there are examples of churches that have been converted to other uses, but there are other buildings that are at risk, too, and imaginative alterations might be made to some of them in order to put them into community use. This extra cost will put some such community projects at risk, however, and will put some buildings at risk, too. If those buildings cannot be put into community use, it is likely that they will deteriorate and end up having to be demolished on safety grounds.
Roberta Blackman-Woods: Does my hon. Friend agree that it is thoroughly irresponsible to bring in the increase on repairs on listed buildings without conducting a proper impact assessment, and that the Government should review this policy?
3 July 2012 : Column 812
Sheila Gilmore: I agree. The Government have pointed out that VAT falls on repairs but it did not previously fall on alterations, and they say we should equalise the situation. That misses the point. Alterations often enable buildings to have a different use from their previous one. They are made to be able to function again for business, residential or community-use purposes. Such alterations are generally bigger projects than simply repairing the roof and ensuring that the rain does not come in. The costs involved can be great, and this 20% addition to the cost will therefore be very considerable and will put many such projects at risk. Many people have made that point, and do not feel the Government concession in respect of churches goes nearly far enough. We must bear that in mind. We will find out in the future whether these concerns were right.
In respect of VAT at least, this Budget has been shambolic. It is not good enough for people to say, “Well, because there has been a change, the whole process is now a good one.” It has not been a good one reputationally for the Government—and perhaps we, as Opposition Members, should be pleased about that. We cannot be pleased, however, when we see the effects that a declining economy has on so many of our constituents, who feel they are faced with a Government who truly are not caring.
Let us think about the arguments made in defence of some of these changes. On listed buildings, we have heard all sorts of arguments, such as, “The previous situation allowed rich people to build swimming pools.” There was no particular evidence of that, but the Chancellor obviously thought it was a good argument to put up because he liked the idea of presenting himself as being on the side of the small person rather than the rich—despite the overall effect of his Budget policies.
Roberta Blackman-Woods: Does my hon. Friend agree that if the Government were indeed concerned that alterations were going to be made to create swimming pools, the measure could simply have exempted such alterations?
Sheila Gilmore: That is indeed the case. Conducting research and finding good evidence before making and changing policy is of paramount importance. We have seen that in respect of many aspects of this Budget. We saw it in the debate yesterday in respect of the 50p tax rate. There were a lot of hypotheticals—a lot of “maybes” and “perhapses”—but there was not a lot of solid evidence.
This has been a poor piece of policy making. I congratulate the Government on turning, but if they had thought things through first, they would never have had to turn.
Nigel Mills: It is a pleasure to follow the hon. Member for Edinburgh East (Sheila Gilmore). We have heard each other speak quite a lot over the last eight weeks or so. It is also a pleasure to have a chance to talk on VAT measures.
I will start by addressing the Opposition’s new clause 12. If we are talking about ill-thought-through measures that should not have been brought forward, this is a prime example. It would cost £12 billion if it were in place for a year, not that the Opposition know how much it would cost or how they would pay for it. It is
3 July 2012 : Column 813
intriguing to ponder how they can tick off the Government for announcing a U-turn that costs a few million pounds a year and accuse us of not having a balanced Budget because of it, while they have a proposal for a £12 billion hole in the Budget that would do untold damage to the public finances, probably completely wreck our country’s reputation for trying to sort out its deficit and lead us into a situation none of us would even want to dream about.
Charlie Elphicke (Dover) (Con): Does my hon. Friend agree that this £12 billion spending commitment is astonishing and irresponsible and proves how unfit Labour is for government?
Nigel Mills: My hon. Friend may be that cruel, but I probably would not go that far.
New clause 12 is not a highly principled statement that VAT should be 17.5% rather than 20%, as it would apparently be just a temporary reduction. Moreover, when Labour was in government, it had plans to raise VAT. These are the stances Labour has taken recently: before the election, it had a plan to raise VAT; later, when there was a proposal for a VAT rise, Labour abstained; and now it proposes a temporary cut, back down to 17.5%. The country can be forgiven for not knowing what on earth Labour’s view is. If Labour ever got back into power, would it reduce VAT from this 20% rate that it seems to so loathe?
This Labour new clause proposes a temporary cut that would apply from Royal Assent to the Bill until the UK economy returns to strong growth. No definition of “strong growth” has been provided. When I asked for one, we were not told that it was 2% or 3% a year. We did not get a sensible approach about it being when the economy is growing based on balanced growth and sustainable industries such as manufacturing, rather than on inflating a massive debt-filled boom. We were told that “strong growth” meant not being in a double-dip recession any more. We could end up in a bizarre situation whereby we reduce VAT on Royal Assent and then, when we get the last quarter’s financial data, which I am sure we all hope show the economy growing again, we have to reverse the temporary cut. It could be in place for only a matter of days, which would result in a huge administrative cost; the move would be utterly pointless. [Interruption.] I hear someone saying from a sedentary position that that is ridiculous, but that is what the new clause would mean. We are doing a serious thing here. We are legislating, not engaging in sixth-form school debate. If we were to pass this new clause tonight, it would be in the Finance Bill, it would become law and it would have to come into effect. This is not a little proposal that we can idly dismiss but an actual idea that the Opposition want us to legislate for. It is clearly nonsensical on all levels, and we need discuss it no further.
7 pm
Let me return to the various changes to VAT charging in new schedule 1, where, again, the Government have done exactly the right thing. They proposed some ideas, realised that they contained some mistakes and things that may be impossible to implement, and then changed them in order to get to a better policy. That is surely what we want Government consultations to end up with.
3 July 2012 : Column 814
We do not want the Government to announce something, consult on it and then blindly drive on without listening to any of the criticisms and details of any mistakes in it.
Diana Johnson: Does the hon. Gentleman feel that better decision making might come through consulting before putting a proposal to Parliament, and getting all the ducks lined up before coming before the House?
Nigel Mills: I agree with the hon. Lady, and I said yesterday that it would be better to consult before trying to legislate, but we did have a detailed consultation document that looked at this idea. I do not think that the legislation to implement this proposal was in the original draft of the Finance Bill, but it would have been brought forward by a statutory instrument later on; although it was announced as an idea, it was not in a legislative form at that point, so strictly speaking the Government have done what she calls for.
I wish to make one comment on the pasty tax, as an aside. It is clear that when making tax policy we have to avoid things that have a handy popular nickname. We have had big campaigns on the “pasty tax” and the “caravan tax”. It has been a bit harder to get the public behind a “sports drinks nutritional drink tax.” If it had been called a “Lucozade tax”, there might have been more publicity. The Government should be careful in making future tax policy to look out for what nicknames might be used. However, those who favour tax being understandable may feel that all taxes should have a simple nickname so that the public understand what they are for.
On the new “pasty tax” definitions, I am concerned that we might end up with some things that are unclear, such as the definitions of what is being “marketed” as “hot” and of what wrapping is allowed. We are told, “Don’t worry, it will be clear in HMRC guidance what is allowed.” However, we should be trying to legislate clearly: Parliament should be clear in what it says. I hope the Minister can put it on the record that bakeries on the high street that are trying to sell freshly baked products will not find those things subject to VAT unless they are kept hot or are wrapped in a heat-retaining bag, and that using ordinary, simple packaging or marketing those products as “freshly baked” will not be caught. That is absolutely the intention that Parliament has, and we should make it clear.
On sports drinks, I am concerned about going down the road of having a principle of deciding a tax treatment on the basis of how something is advertised or marketed, rather than on the fundamental underlying nature of the product. We can see that strange ways of how someone chooses to market something might change the tax treatment. I think I understand the aim of this proposal, which is to provide for high-sugar drinks sold as sports drinks when they are not much different from Coca-Cola or other fizzy products that we are trying to equalise the VAT treatment on. The wording in new schedule 1 leaves where the line is open to question.
We exchanged comments earlier about whether milk could strictly drift into being covered by the wording if it was marketed as something that aids physical performance and whether we risk a court, at some point, taking an utterly perverse and stupid view that milk is caught by the provision, given that we clearly do not intend it to be. We need to be careful what we mean. That line will
3 July 2012 : Column 815
be tested and people will ask, “What is a sports drink that is largely based on milk or some milk-derived product, and what is an ordinary pint of milk?” Where will we draw the line about what is VAT-able? A Mars drink is advertised with the slogan, “Unlike other sports drinks, this milk product actually tastes nice.” It is hard to understand why a Mars milk-flavoured drink is not going to attract VAT but a sports drink will. We need to be careful to avoid people not knowing what we actually mean.
If I market a whey-based product that is made up into a drink as a sports product, VAT will apply, but if I market it as a diet product or a nutritional supplement, perhaps for the elderly who are struggling to get enough calories in their diet, that will presumably not be VAT-able. All I have to do if I want to buy the thing to use it for sports purposes is choose the one marketed for an old person’s supplement, and although I would be able to use it in exactly the same way as the sports drink on the next shelf, I would be buying it for 20% less. I am not entirely sure that that is what we intend. Although I understand what is going on, we have to be careful if we start defining tax policy based on how something is sold and not on the underlying product.
With those few remarks, may I finally commend the Government on the position they have got these things into? It is vastly better than where we started, and I will certainly vote for new schedule 1.
Mr Deputy Speaker (Mr Lindsay Hoyle): Order. May I inform hon. Members that I want to bring the Minister in at twenty-past?
Julie Hilling: I took my car for a service last week at my local garage, which is a one-man band. He said, “For heaven’s sake, will you get rid of that lot? They are ruining my business.” When I asked him what he meant and what the Government were doing that was ruining his business, his reply was, “VAT—the 20% rate is destroying my business, and all the other small business owners I know think exactly the same.” Sadly, a reduction in VAT from 20% is not an option in this debate, but putting VAT on to so many other things just increases the problem for hard-pressed businesses and struggling people.
Bob Stewart: The hon. Lady tells us that she went to her garage and the man said, “Get rid of that lot”, but what would her lot do instead to give him much more business? That is what I would be delighted to hear, and I hope that she can give me an answer.
Julie Hilling: What Labour would have had is jobs and growth. We would not have been in a double-dip recession and we would not be in this stupid position of cutting too fast and too deep, which is ruining the British economy. Unfortunately, we are not in government.
It has been incredibly difficult to prepare this speech, because it is hard to work out, in this omnishambles of a Budget, what this disorganised Government have done a U-turn on. Perhaps I should not call them U-turns, because in many cases the Government have done them
3 July 2012 : Column 816
only partially; I am not sure whether these are L-turns or C-turns. I thought that they had done a full U-turn on the caravan tax, but I discovered this afternoon that they have not done a full U-turn at all, and the pasty tax is as clear as mud. I was having a discussion with colleagues before this debate as to what food is now VAT-able and what is not. It seems that a rotisserie chicken that will be cold when someone eats it is VAT-able, whereas a pasty that comes out of the oven will not be, unless it is put on a hot plate. But what happens if the oven is put on low so that the pasty is just kept warm? Will that pasty be VAT-able or not? The Minister needs to explain to me and the nation how this proposal is different from his first proposal, and how it is to be policed. Will taxmen regularly visit all the sandwich shops in the country to check on their ovens? That needs further explanation.
What about the mess of heritage tax? Again, we saw panic among Government Members and a little U-turn, perhaps to silence the bishops and return some money to places of worship for their alterations. However, £30 million will not go far, and the tax has been a huge blow to many communities.
Jim Shannon: Some 30,000 listed building consents were given last year, with some £120 million being spent on alterations. Does the hon. Lady feel that that £30 million will be adequate compensation ?
Julie Hilling: I thank the hon. Gentleman for that intervention. Clearly, I do not believe that £30 million is anywhere near the sum needed to compensate. Of course, the Government have also said that those people will get lottery and Government grants, but hang on a minute: is that not just taking with one hand and paying back with another? The change has been a huge blow to many communities that have been working for years and years to raise enough money to rescue old buildings and convert them for use by the whole community, only to now have to find another 20%.
The Government have tried to say that we should not worry too much about the heritage tax as it is really about charging millionaires who live in listed buildings and who get their indoor swimming pool tax-free, but there is no evidence for that. They conclude on the basis of a review of 105 applications that the majority of the work covered by the relief is
“not necessary for heritage purposes”,
but as nearly 30,000 listed building applications are made a year, that does not seem to me to be good evidence. From a sample of 12,049 applications, only 34 were for swimming pools. Perhaps we could deal with the problem in a slightly different way rather than imposing the heritage tax on all buildings. Indeed, 50% of those who live in listed buildings are in socio-economic groups C1, C2, D and E—supervisory, clerical, junior management, administrative, skilled workers, semi-skilled workers and unskilled workers. People in those groups are not usually millionaires.
That implementation of VAT will not raise a great deal of money in the scheme of things, but will be another blow to the construction industry and run the risk of more of our heritage buildings going to rack and ruin. Of course, once VAT is put on something it can never be returned to zero.
3 July 2012 : Column 817
Skip taxes seem to have been introduced and then withdrawn. I think they probably have been withdrawn—who would know? The Government seem to be introducing a self-storage tax, however. Self-storage is often used by people in transition, such as those who are selling or buying houses or those whose homes are undergoing renovation. It is also used by people who have downgraded or moved to a different community and therefore have to live in much smaller accommodation. It is usually in a prime location so that customers can come and go as they choose, changing their winter wardrobe for their summer wardrobe or taking goods in or out of storage. Removals and storage providers have storage facilities as an ancillary part of the business and are therefore frequently in more remote places, as the location of the property does not need to attract customers. One reason for putting VAT on self-storage was to level the playing field for removal companies, even though they have different purposes. The effect will be that ordinary people will be hit again. Businesses that use self-storage to store documents and so on will be able to reclaim the VAT, but the ordinary person will not.
I think we still have a hairdressers tax. That will mean that self-employed hairdressers who rent a chair in a small salon will have no choice other than to register for VAT and decide whether to charge their customers VAT at 20% or to absorb the cost themselves. Of course, that will particularly hit females aged between 16 and 46—the very people whom the Government say they want to encourage to be entrepreneurs, start up their own businesses and pay into society.
The situation with sports nutrition is another unholy mess. If I have got this right—I hope that the Minister will correct me if I have not—sports drinks will become VAT-able, but sports nutrition products will not. If the Minister wants to intervene, I am happy for him to do so.
Julie Hilling: Does that mean that it will be exempt if a liquid product is made into a solid and people are just advised to drink water with it? What about weight-management products? More than 20% of the products in the sports nutrition category are for weight management. If they are slimming products, they are zero-rated, but they could also be considered to be sports nutrition products. We could have a bizarre situation in which men and women who exercise hard, follow a balanced diet and use sports nutrition products to help them get into shape would pay VAT, whereas those who skip meals, sit on the sofa and take magic slimming products would not.
It seems odd that we are making that tax change in Olympic year, when we are encouraging people to get fit, but it is typical of this Budget. It is a shambles that will create more anomalies than it will resolve. With all the U-turns—even though we welcome some of them—it is still totally confusing. Even after listening to the Minister this afternoon and spending many weeks on the Bill Committee, I am still not clear what the Budget says.
Secondly, the Budget rewards millionaires and punishes ordinary people. It punishes the squeezed middle and the battered base, which my hon. Friend the Member for Gateshead (Ian Mearns) frequently mentions. The VAT changes all hurt people who lead ordinary lives. They
3 July 2012 : Column 818
all hit hard-pressed businesses and do absolutely nothing for jobs and growth. The millionaires still get their tax cut, but they are not paying the tax that is due. If the rest of us decided not to pay our taxes, could we have a tax cut too? Or does that apply only to the very rich, who can also avoid their tax by paying accountants a great deal of money?
7.15 pm
The Government forget that there was a global economic crash. They do not like to talk about it. They like to say that it was all the previous Government’s fault, but there was a global economic crash that affected all the countries in the world. They forget that they have created a double-dip recession—[Laughter.] They like to laugh, but they inherited an economy that was growing. In two years, they have managed to turn that into a double-dip recession made totally in Downing street. They believe that continuing to cut and cut will somehow magically bring change and growth. Government Members are prepared to accept compromises in their areas of interest but will let others face the full force of the VAT rises. They are prepared to vote for these provisions, even though it means that other businesses and other ordinary people will continue to suffer. The proposal is an omnishambles that will do nothing for jobs and growth and it is simply typical of this Government.
Charlie Elphicke: I want to speak briefly about new schedule 1. In my constituency is A and S Self Storage, run by Diana and George Pelly, which is a small family-run storage business. My concern is about how the new measure will work and I hope that Ministers will take on board some of my points.
The mischief that the new schedule seeks to attack is the business whereby big companies exercise the option to tax on a piece of land, build a storage facility and later disapply the option to tax, giving themselves a tax advantage. The Treasury have applied VAT on all self-storage and my concern is that some 250,000 people in the UK use self-storage and will find from September onwards that their bills will suddenly go up by 20%. I hope that the Government will consider this a little further and think whether there is a better way to deal with the real mischief, which is the abuse of the option to tax.
My other concern is that the revenue raised will disproportionately benefit larger businesses that can claim back costs under the capital goods scheme, rather than the smaller businesses, which cannot. Effectively, it will disproportionately benefit the four big players in the self-storage industry at the expense of smaller businesses such as A and S Self Storage. I hope that Ministers will consider that point.
The Exchequer impact is also in question. The Exchequer says that the measure will raise money, but the Self Storage Association’s brief states:
“In its calculations the Government has not taken into account the significant reclaim of VAT under the CGS rules, which Deloitte have calculated to be £43m based on the detailed results of their survey…According to Deloitte many operators, particularly the largest ones, could accelerate CGS recovery under existing VAT law.”