Finance Bill

The Committee consisted of the following Members:

Chairs: †Mr David Amess  , Mr David Crausby 

† Ashworth, Jonathan (Leicester South) (Lab) 

† Baker, Steve (Wycombe) (Con) 

Cryer, John (Leyton and Wanstead) (Lab) 

† Doughty, Stephen (Cardiff South and Penarth) (Lab/Co-op) 

† Duddridge, James (Rochford and Southend East) (Con) 

† Evans, Chris (Islwyn) (Lab/Co-op) 

† Gauke, Mr David (Exchequer Secretary to the Treasury)  

† Gilmore, Sheila (Edinburgh East) (Lab) 

† Gummer, Ben (Ipswich) (Con) 

† Hands, Greg (Chelsea and Fulham) (Con) 

Jamieson, Cathy (Kilmarnock and Loudoun) (Lab/Co-op) 

† Javid, Sajid (Economic Secretary to the Treasury)  

† Jones, Mr Marcus (Nuneaton) (Con) 

† Kwarteng, Kwasi (Spelthorne) (Con) 

† Leslie, Chris (Nottingham East) (Lab/Co-op) 

† McKinnell, Catherine (Newcastle upon Tyne North) (Lab) 

† McDonald, Andy (Middlesbrough) (Lab) 

† Mearns, Ian (Gateshead) (Lab) 

† Menzies, Mark (Fylde) (Con) 

† Mills, Nigel (Amber Valley) (Con) 

† Mowat, David (Warrington South) (Con) 

† Murray, Sheryll (South East Cornwall) (Con) 

† Nash, Pamela (Airdrie and Shotts) (Lab) 

† Newmark, Mr Brooks (Braintree) (Con) 

† O'Donnell, Fiona (East Lothian) (Lab) 

Offord, Dr Matthew (Hendon) (Con) 

† Pearce, Teresa (Erith and Thamesmead) (Lab) 

† Pugh, John (Southport) (LD) 

Qureshi, Yasmin (Bolton South East) (Lab) 

Shannon, Jim (Strangford) (DUP) 

† Stephenson, Andrew (Pendle) (Con) 

† Stewart, Rory (Penrith and The Border) (Con) 

† Thornton, Mike (Eastleigh) (LD) 

† Uppal, Paul (Wolverhampton South West) (Con) 

† Williams, Stephen (Bristol West) (LD) 

Simon Patrick, Committee Clerk

† attended the Committee

Public Bill Committee 

Tuesday 18 June 2013  

(Morning)  

[Mr David Amess in the Chair] 

Finance Bill

(Except clauses 1, 3, 16, 183, 184 and 200 to 212, schedules 3 and 41 and certain new clauses and new schedules)

9.10 am 

Clause 179 

Rates of tobacco products duty 

Question proposed, That the clause stand part of the Bill. 

The Chair:  With this it will be convenient to discuss clause 180 stand part. 

Chris Leslie (Nottingham East) (Lab/Co-op):  What a pleasure it is, Mr Amess, to be back in this Committee. I have missed it so much that I shall start with a cigarette—metaphorically speaking. I know that Government Members are keen on escalators, and what we are talking about today is the increase in duty by 2% above inflation on cigarettes, cigars, hand-rolled tobacco, other smoking tobacco and chewing tobacco. I do not know whether it is in order to chew tobacco during a Committee, although I sincerely hope that hon. Members would frown on that pretty unsavoury activity. In case anyone is tempted to take it up, let me say that it is bad for them. 

In Labour’s last Budget, the then Chancellor announced that tobacco duty would increase by 1% above inflation in 2010 and by 2% above inflation for the following four years. The clause proposed by the Minister maintains that 2% rise, increasing, together with the consequential VAT arrangements, the average price of a packet of 20 cigarettes by 26p, a pack of five small cigars by 9p, a 25g pack of hand-rolled tobacco by 26p and a 25g pack of pipe tobacco by 14p. 

As the explanatory note to the clause states, smoking kills half of all long-term users, and is the biggest single cause of inequalities in death rates between the richest and the poorest in the United Kingdom. That issue is very much to the fore in my own constituency; sadly, in Nottingham East, we have high death rates from smoking-related ailments. 

Over the years, a link has clearly been made between the price of tobacco products, the level of demand and issues around health. Successive Governments have chosen to maintain high tobacco duty rates to support health objectives. It is right that we continue to keep tobacco rates high for that very reason, especially as we want to discourage young people and children from taking up the habit. 

The Minister will be aware of the questions raised by the tobacco industry in recent years about the role of the sub-economy tobacco sector and trade in cheaper and illegal cigarettes. Indeed, the Government introduced legislation in the 2011 Budget to reduce tax differentials, to address the exploitation of the tax structure by those producing cheaper cigarettes and the revenue loss caused by the down-trading from more expensive brands to the cheaper cigarettes. 

In a previous Finance Bill debate, my hon. Friend the Member for Kilmarnock and Loudoun (Cathy Jamieson) asked the previous Economic Secretary and the Minister’s predecessor, the hon. Member for Norwich North (Miss Smith), whether she believed the changes had been successful. At the time, when the Budget 2012 decisions were taken, she said that the 12 months’ data were not yet available to her. She said: 

“I would like to be able to assess the impact of the Budget 2011 measures prudently before committing to further changes in the structure of cigarette duty…we will have to wait for official data to be released, because information is vital in this area.”––[Official Report, Finance Public Bill Committee, 19 June 2012; c. 520.] 

That was fair enough; at the time, the hon. Lady was seeking 12 months. However, we now have this further year lapse. Is the current Economic Secretary in a position to give us an update on this change in terms of the differentials? Clearly, cracking down on illegal grey market or black market tobacco products is incredibly important, especially if we are to ensure that the duty framework is effective. That is something that charities such as Action on Smoking and Health and researchers at the university of Bath have been trying to solve. 

For clarity’s sake, now that we have had this further year since the new duty structure began, will the Minister tell us when the most recent assessment was made regarding the impact of changes to tobacco duty on the sub-economy tobacco sector and what its finding was? Will he consider undertaking some further work to try to understand the impact of the changes in the duty structure, looking ahead to the next Budget in terms of how best to ensure that the policy is successful? 

9.15 am 

Many hon. Members have sought to grapple with this issue, and we are all sadly familiar with the amount of evasion of cigarette duty. When people are picking up cigarettes, it is sometimes difficult to tell which are duty-paid packs. Some interesting ideas about how to tackle that problem have been floated in recent years. I am not sure how some could be implemented, but one suggestion was printing a mark that indicated whether duty had been paid on the side of each cigarette, to make that visible to the outside world. That might have a beneficial side effect: the cigarette would look less cool as a product if it had all sorts of writing and marks along its side. I do not know how feasible that idea is, but has the Treasury thought about alternative ways of marking products, including the cigarette itself? 

Fiona O'Donnell (East Lothian) (Lab):  Does my hon. Friend agree that plain packaging might give an opportunity to highlight whether or not duty has been paid more dramatically on the packet? 

Chris Leslie:  That is exactly what I am looking for from the Minister. We now have innovations in printing technology and in the ways that many marks and excise duties can be displayed. I absolutely agree that the pack

is a feasible option for that; that is why I also wanted the Minister to consider whether the individual cigarette could be marked in some way. I am not sure about the feasibility of that idea, but it would help if he looked into it. 

Other ideas floated include a minimum excise tax. Will the Minister consider those issues? We need to step up our efforts now to make it clear not just to those engaged directly in sub-economy sales but to the public at large that it is important that such products are bona fide. 

Clause 180 is interesting. It narrows the general exemptions granted to herbal smoking products so that the exemption is granted only to products used exclusively for medical purposes—although I am not quite sure what those would be. There has been an anomaly on herbal smoking products, including herbal cigarettes, herbal rolling mixtures and herbal shisha, which have apparently been exempt from tobacco duty until now. 

We support the clause. Although some might view herbal products as less harmful than tobacco products, many in the health sector have long argued against that view. In its response to the Government’s consultation, ASH stated that herbal smoking is no safer than tobacco, and the Royal College of Physicians has supported the change, saying that herbal smoking products are distinctly unhealthy. Now seems the right time to end the anomaly; indeed, there are European directives driving this question forward—I hope Government Members will not be put off by that. 

It is important that we take notice of the health issues relating to such products. Will the Minister tell us what consideration has been given to the possibility that some herbal product smokers will switch to tobacco products if the price differentials between the two decrease? What will be the health implications for those smokers? Some people might worry that that could be a by-product of the measures. If both herbal and tobacco products are equally bad, it is not a massive issue, but we do not know what assessment has been made of the relative health impact of herbal smoking products as opposed to conventional tobacco. 

Certain retail establishments promote shisha and other such products. What guidance have the Minister and the Treasury provided to retailers and others so that everybody is clear about how the rules will apply under the new arrangements set out in clause 180? 

Stephen Williams (Bristol West) (LD):  Good morning, Mr Amess. It is a pleasure to follow the hon. Member for Nottingham East. I agree with everything he said and with what he asked. There is a broad cross-party consensus on the need to halt the smoking of tobacco. It is in that cross-party vein that I speak on the clause today, in my role as chair of the all-party group on smoking and health. 

APPGs have had some bad publicity recently and we do not need to go into why. However, it is important to put on the record that the vast majority of APPGs—certainly the one I chair—do a very good job in the House of raising awareness of issues. There cannot be a more important aspect of public health than reducing the rate of smoking. As the shadow Minister said, smoking is the biggest contributor to early death. 

The clause maintains the tobacco duty escalator. On Thursday last week, we talked about getting rid of the fuel duty and the beer duty escalators, and segued into whisky. I am disappointed that the hon. Member for Islwyn is not here, but I will say, as I was not able to last week, that in that segue on whisky he should have said that the superior whisky of Wales is made in the superior valley of Wales: the Cynon Valley. He can have the pleasure of reading that in Hansard this afternoon or on Thursday. 

The clause raises the duty by 26p per pack. That means that most standard brands of cigarettes will cost between £7 and £8, or roughly 40p a cigarette. I want to focus on an area that I thought the shadow Minister described too gently as “the sub-economy”. I would describe as criminal activity the selling of cigarettes that are either counterfeit, faking well-known brands, or are completely fictitious brands—the so-called “illicit whites” as they are known in the trade, particularly in respect of handrolled tobacco. A large amount of handrolled tobacco consumed is bought and sold illegally in this country. 

I want to ask the Minister about the resources the Treasury has allocated to HMRC to tackle tobacco smuggling. I was quite disappointed by the Minister’s written answer to me on 5 June, when I had asked about the resources given to advertising the reasons why tobacco smuggling was wrong. I was surprised to learn that in 2011-12 and 2012-13, HMRC spent nothing on advertising about tobacco. I have put similar questions to the Home Office and am awaiting answers. 

I asked about those issues because the most recent inquiry and report of the all-party group on smoking and health looked at tobacco smuggling and at good practice from around the country. In the north-east of England, collaboration between the police, HMRC, the UKBA, council trading standards and NHS-funded bodies showed that advertising can play a role in persuading people that it is a bad idea to turn up at a car boot sale or public houses and buy under-the-counter, illegally sourced cigarettes. The people behind such activity are not terribly nice; they tend to be involved in other activities such as fencing stolen goods or smuggling drugs or other illegal products. 

Our inquiry found that the most effective advertising in the north-east of England was showing a child smoking, and persuading parents that illegally sold cigarettes would be sold to under-age people. That was the most effective message in persuading people that it was a sinister activity. 

Mike Thornton (Eastleigh) (LD):  As a quick aside, I congratulate my hon. Friend on his medal and the recognition recently given him by the World Health Organisation on his fight against such a pernicious and addictive drug. [Hon. Members: “Hear, hear.”] 

Does my hon. Friend agree that, while historical evidence has shown that sharp increases in tax rates have resulted in a sharp decrease in smoking rates, perhaps the time has come to treat the illegal smuggling of tobacco in the same way and with the same fierceness that we treat illegal drug smuggling in this country? 

Stephen Williams:  I thank my hon. Friend for his intervention. A fiver or a legally sourced drink may well go his way later for mentioning the UN medal from the World Health Organisation that was presented to me last week. 

Chris Leslie:  Why aren’t you wearing it? 

Stephen Williams:  It does not come with a ribbon; it comes in a box so, unfortunately, I cannot wear it—[ Interruption. ] I have not brought it with me either. 

As for what my hon. Friend said about treating the issue with seriousness, that is what I am talking about. I want to express caution about treating it the same as other narcotics. Tobacco is a legal product. I have no desire to make tobacco an illegal product, but I am worried about those who sell it illegally. I urge the Minister to consider increasing the resources available to either HMRC or other agencies within the Treasury to spend on advertising in such areas because, as we all know, it can have an effect. 

As well as the report from the all-party group, members of the Committee are probably aware that the National Audit Office published a report on 6 June on progress in tackling tobacco smuggling. The report stated that HMRC had collected £9.9 billion worth of tobacco duties, making a significant contribution to the funding of public services and bridging the deficit. However, we have lost an estimated £1.9 billion in revenue that has not been collected, and that is the estimated size of the illegal market. It is said that approximately just below 10% of boxed cigarettes are sold on the illicit market, but 38% of hand-rolled tobacco is sold that way and that is where much of the revenue is lost. 

The National Audit Office draws attention to the fact that each £1 that HMRC and the Treasury spend on tackling the illegal trade is effective; £69 million was spent in the year under study, and it is thought that that led to a recovery value of £919 million in illegally sourced goods that were intercepted. I am sure that most members of the Committee agree that that is a pretty big return. In the first comprehensive spending review of the coalition Government in 2010, an extra £25 million was allocated for the next few years to source extra intelligence officers, particularly in eastern Europe from where much of the illegally sourced tobacco comes, and that is starting to make a significant impact on the destruction of the activities of criminal gangs. 

The coalition Government are undertaking a mini expenditure review for their final year and the first month or so of 2015-16. We know that the Treasury has essentially settled its spending review, so I urge the Minister, within whatever spending envelope the Treasury has settled with itself, to regard the resources that it gives to the HMRC on tobacco smuggling as a value-for-money exercise. The first report under my chairmanship in 2010 showed—and it informed the comprehensive spending review that year—that each £1 spent on such matters is incredibly effective and is likely to lead to a huge increase in the tax revenue going into the Treasury. 

I have gone somewhat wider than the narrow parameters of the clause, but this is an important topic. It is an opportunity to raise our legitimate tax base and, more importantly, to lead to a healthier and longer living population, which has both societal and economic benefits. 

9.30 am 

Ian Mearns (Gateshead) (Lab):  It is a pleasure to serve under your chairmanship again, Mr Amess. 

I concur entirely with what the hon. Member for Bristol West has just said. I want to thank the Treasury officials who penned the explanatory notes on the clause, which are worth relaying and putting into the public record. They state: 

“Smoking kills half of all long-term users and is the biggest single cause of inequalities in death rates between the richest and poorest in the UK.” 

We need to emphasise that point. 

As a former chair of the Gateshead Smokefree Alliance and a colleague of the hon. Member for Bristol West in the all-party group on smoking and health, I think that it is our duty to try to control tobacco as much as we can. It is a massive detriment to public health, the health of the individual and the prospects of prosperity for an awful lot of people. 

Every time a football match from Wembley stadium is broadcast on television, or if we have the luck to attend a match there, we should look at the crowd. The crowd at Wembley, when it is full, is about 90,000. That is roughly how many people die young from the impact of smoking every year. Just think about all the individual bums on seats at Wembley stadium; that is how many people are dying prematurely as a result of smoking in this country annually. We forget that at our peril. 

There have long been debates in this country about the efficacy of smoking and how much smoking contributes to the public purse. However, I think we all now know that its contribution is far outweighed by its impact on the health service bill of this country and on people’s ability to carry on working into later life, and by the fact that so many people die prematurely. 

The hon. Member for Bristol West talked about the north-east of England. We have had significant success through campaigns such as Fresh in the north-east of England. In my constituency, the Smokefree Alliance has been part of a partnership project to reduce overall levels of smoking in the general population. We have been so successful that smoking in the general population in Gateshead has fallen from over 30% to the national average of about 21% or 22% in less than a decade. That is vital work. 

Even within a community such as Gateshead, we see significantly different levels of smoking in the general population from neighbourhood to neighbourhood and from electoral ward to electoral ward. It is quite clear that the size of family or household income has a significant bearing on whether an individual is likely to smoke. The prevalence of smoking among the poorest communities is still far too high. Anything we can do, through price and taxation, to try to deter people from smoking has to be seen as a positive. 

Behind the whole matter is an organisation called the Tobacco Manufacturers Alliance, which has for decades peddled the myths, first, that smoking is not dangerous, and then that it is not as dangerous as it is cracked up to be. However, we know for a fact—this is on the record—that while executives of large companies involved in the tobacco trade peddle the substances that kill so many people and damage families, they would not dream of taking up the habit themselves. I call it a habit: it is actually a serious addiction. Both the British Lung Foundation and the British Heart Foundation have to be congratulated on their stance on the matter. 

I have a number of suggestions, which are not part of the clause, that I wonder whether the Government would consider. With my own eyes I have seen how illegal, counterfeit and contraband cigarettes and tobacco reach the streets. Living in a place such as Gateshead, I do see that going on—cigarettes being sold from a holdall from the back of a car. An awful lot of that is not systematic, large-scale smuggling; it is done when people return from their holidays. 

As a football supporter, on a number of occasions I have had the opportunity to follow Newcastle into Europe—[ Interruption. ]. There is no accounting for taste. I have seen groups of football fans—some are friends of mine—bringing back the maximum allowance through customs for personal use. Would colleagues believe that that allowance is 3,000 cigarettes? Three thousand cigarettes are being brought back through customs in holdalls, plastic bags or bin bags on a large scale. People say to each other, “You don’t smoke, but bring back your allowance”, and then they get sold on. 

What is 3,000 cigarettes for personal use? For those who are unfortunate enough to have the addiction and need to smoke 60 cigarettes a day, that is 50 days’ worth of tobacco and, for those who smoke 40 a day, that is 75 days’ worth of tobacco. We are not part of the Schengen agreement, we do not have open borders and, frankly, I am glad about that in many respects. So, when people come through customs, they can be asked by customs officials, “Three thousand cigarettes—that is your personal allowance. Will you be smoking them?” A bit of investigation goes a long way. Customs officials should ask themselves whether the person looks like a smoker: does the person have tar stains on their fingers, or do they smell like they smoke? 

Mr Brooks Newmark (Braintree) (Con):  I am a non-smoker as well as a non-drinker. Notwithstanding that, if the allowance is 3,000 cigarettes, that is what the rules are, so those people are not breaking the rules. Frankly, it would be wrong of customs officers to ask people whether that is for their personal use. Either the law should be changed, or the question should not be asked. 

Ian Mearns:  The law is 3,000 cigarettes for personal use. So, if it is only for personal use, it is worth while for officials to ask the question sometimes, because I have seen that regulation flouted on numerous occasions, I am afraid to say. 

Stephen Williams:  Does the hon. Gentleman—my hon. Friend in this context—agree that one of the big problems in this area is that the tobacco companies over-export, to certain small European countries, a volume of cigarettes that it would be completely impossible for the smoking population of those countries to smoke themselves, specifically to facilitate this market back into the United Kingdom with the duty not paid? 

Ian Mearns:  I concur with that entirely. Believe it or not, that happens in places such as Andorra. There is a huge trade in people going from the south of France to Andorra on a day trip to get huge amounts of cigarettes. They take them back into France, which they can do that without any problem, and then they transport

them into the UK at the end of a holiday or whatever. The problem is that that tobacco is then sold on through contraband markets on the streets of the United Kingdom at a knock-down price, avoiding the duty that should be paid to the Treasury. 

What my hon. Friend—in this context—says is absolutely true: the tobacco manufacturers are behind much of that trade. Despite the crocodile tears that they often cry, they are behind it, and that needs to be said out loud in the context of this discussion. 

I will not go on any longer, but I want to leave Members from all parties with this vision: think of Wembley stadium, full of people. If those people were all smokers, next season half of them might not be there. The year after that, half of those people might not be there. That is because half of all smokers will die at a much younger age than would otherwise be the case. Anything that we can do to alleviate that problem, we should engage in, because that is our business. 

Steve Baker (Wycombe) (Con):  I am astonished that anyone still smokes. Anyone who, like me, has seen a loved one destroyed by a smoking-related illness knows what it can do, and anyone who can read can see the warnings on the packet. It must represent a profound challenge to those who believe in nudge that people still smoke at all. With all that in mind, will the Minister explain how the figures in the table in clause 179 were reached? We see figures such as “£176.22 per thousand cigarettes”, cigars at “£219.82 per kilogram”, and so on—why not a round number? Why not £175 per thousand cigarettes? Or £180, or £200? How do we get to these odd numbers if we are believers in nudge and want to take the issue seriously? 

The Economic Secretary to the Treasury (Sajid Javid):  It is a pleasure to see you in the Chair again, Mr Amess. We have had a good, robust debate. It is fair to say that, unsurprisingly, all members of the Committee agree that cigarette smoking—tobacco consumption—is bad for one’s health, and that the Government are right to have a strategy, as did the previous Government, to try to reduce people’s tobacco consumption for precisely the health reasons that we have just heard about. 

I thank the hon. Member for Nottingham East for his comments and what I take to be his broad support for the changes that we are discussing relating to clauses 179 and 180. I also thank the hon. Member for Gateshead and my hon. Friends the Members for Wycombe and for Bristol West for their comments. May I also take the opportunity to congratulate my hon. Friend the Member for Bristol West on what he has achieved? It may have been understated. On 31 May, World No Tobacco Day, the World Health Organisation handed out six awards to people in Europe who have made an outstanding contribution to fighting tobacco consumption. He was the recipient of one of those awards, which I think was awarded to him on 5 June. [Hon. Members: “Hear, hear!”] I congratulate him on that; it shows the passion that he has put into his work on this issue, which he holds very dear. 

I will now address my comments to clause 179. Increasing tobacco duty rates reduces the affordability of smoking, which is widely acknowledged to be effective in encouraging smokers to give up smoking. It also deters young people

from taking up the habit. The previous Government announced plans to increase tobacco duty rates by 2% above inflation until 2014-15. Such duty increases were incorporated into forecasts of the public finances, so failure to implement them would have led to a revenue shortfall. 

Smoking causes almost 100,000 deaths in the UK every year, and is still the single largest cause of preventable illness and premature death. Treating smoking-related illnesses has been estimated to cost the NHS almost £2.7 billion a year. Maintaining high levels of tobacco duties is a key part of the Government’s strategy to reduce smoking. 

Clause 179 will increase smoking duties by 2% above the retail prices index, as was pre-announced by the previous Government. The new rates took effect from 6 pm on 20 March 2013. The duty increases added 26p to the price of a typical packet of 20 cigarettes or a 25 gram packet of hand-rolling tobacco. 

Research has consistently shown that the price of tobacco products affects demand. By increasing the duty on tobacco, we hope to reduce smoking prevalence, which would bring significant positive health impacts. It will help to reduce health inequalities and reduce the cost to the NHS of smoking-related illness. 

John Pugh (Southport) (LD):  The Minister has to be clear that not all counterfeit or smuggled tobacco is sold from the back of a white van; some is found in shops and looks very similar to tobacco that is legally imported or not counterfeit. On packaging, there is now technology that enables people to be able to tell through track and scan whether tobacco has had duty paid on it. However, it is questionable to what extent that is available to either trading standards or Customs and Excise. Would the Minister care to comment on that, because it is crucial to getting the money into the Revenue? 

Sajid Javid:  Of course I will comment on that—I was moving on to the broader topic of the illicit trade in tobacco, which was raised by a number of Members. In terms of providing more information on the Government strategy, we are fully committed to tackling the illicit trade in tobacco and ensuring that smuggling does not undermine the health and revenue benefits of real increases in tobacco duties. 

9.45 am 

Following the 2010 spending review—the issue of resources was raised by my hon. Friend the Member for Bristol West—HMRC has invested £25 million to further strengthen the strategy and maintain downward pressure on the illicit market. Hon. Members have talked about new technologies that can potentially be used, such as packaging and tracking. HMRC keeps such things under constant review and looks at best practice and what other countries might be doing. At this point I cannot commit to any particular new method that we might adopt, but I can assure my hon. Friend that we are constantly looking at new methods to try to tackle the illicit trade. 

On the results of HMRC’s activities, the illicit market for cigarettes has reduced from 21% to 9%, and for hand-rolled tobacco from 61% to 38%, since the launch

of the first tobacco anti-fraud strategy in 2000. The latest industry estimate suggests that non-UK duty-paid consumption is beginning to increase. However, the data do not disaggregate illicit consumption from legitimate cross-border duty-free shopping. 

The hon. Member for Gateshead talked passionately about the number of cigarettes that individuals are allowed to bring into the country for personal consumption. He mentioned 3,000, but the number was 3,200. However —I am sure he will support this—that number was drastically reduced to 800 by the Government at the end of 2011, so it is currently 800. That is the lowest that we thought we could go to and at the same time stay within EU rules. We have taken the toughest stance that we could on that allowance. I hope that that helps to allay the hon. Gentleman’s concerns. 

James Duddridge (Rochford and Southend East) (Con):  Can the Minister confirm whether it is a personal allowance only for personal use? I can draw an example from Irish whiskey, but it could apply equally to smoking. I am not sure whether Mrs Duddridge or I—perhaps both—have committed a criminal act. She recently went to Ireland and brought back a bottle of Irish whiskey. Mrs Duddridge has never consumed whisky and it was never intended that she would consume it. What if I consumed it? It could very much apply to cigarettes. Has she committed a criminal act? Or, if I had brought back cigarettes and offered one to my hon. Friend in the Strangers Bar this evening after a pint of Sajid’s beer, would we both be committing a criminal offence? 

Sajid Javid:  I thank my hon. Friend for his question. He is right to assume that it is for personal consumption. That is the intention of the rules. I am sure he understands why such a restriction is in place. I cannot comment on an individual case without knowing the details. I hesitate to do so. However, if it is a gift for someone, without charge, that is acceptable. I hope that that helps to allay his concerns. 

On prosecution rates, as the illicit cigarette market has steadily declined over the past two years, nearly 3.6 billion cigarettes and more than 1,000 tonnes of hand-rolling tobacco have been seized. There have been 431 prosecutions and more than 1,600 assessments and penalties issued. 

My hon. Friend the Member for Bristol West raised the issue of media and advertising. HMRC has a national media and communications strategy that optimises the use of free media opportunities to amplify its impact. It works in collaboration on joint communications programmes with other parts of government and other non-government entities, such as the Work for England programme, to try to change behaviour and attitudes towards the purchase of tobacco and the tobacco trade in general. My hon. Friend mentioned that there might be some room for improvement, and I am more than happy to sit down with him and discuss in more detail any fresh ideas he has on this important subject, if he would find that useful. 

Finally, my hon. Friend the Member for Wycombe raised the issue of the numbers, how they are reached and whether they are rounded. They are simply calculated by uprating last year’s figures. We try to be as accurate as we can be in the presentation of those numbers. 

Sorry, I have noticed one more question, which was about packaging and was asked by the hon. Member for East Lothian. The Government still have an open mind on standardised packaging and any decisions will be made after full consideration of all the consultation responses and evidence we received. Her Majesty’s Treasury and HMRC will work closely with Department of Health colleagues in reaching that decision, but that is rightly a Department of Health process. 

Fiona O'Donnell:  I wonder whether the Minister will take this opportunity to correct the statement made by the Prime Minister during his speech on the Queen’s Speech about the absence of a Bill. He said that consultation was still open when it in fact closed last year. 

Sajid Javid:  I hope that I have already addressed that point. I am happy to state that the consultation responses have been received and that consultation is closed. We are now considering evidence and any other relevant information we have to make the decision. 

Stephen Williams:  In the context of the Minister’s ideas of where a small amount of expenditure may go a long way, I refer him to the intervention made by my hon. Friend the Member for Southport on the equipment for assessing whether duty has been paid on a box of cigarettes. My understanding from talking to some trading standards officers is that this equipment, which is a small handheld device—it is not big—is not widely available to trading standards officers in local government. The tobacco companies have their own, because it is in their interest to ensure that duty is paid and that counterfeit brands are not being sold. A small allocation of additional resource within the agreed budget may make a big difference for trading standards officers. 

Sajid Javid:  My hon. Friend refers to the tracking equipment and its possible use, and I can confirm that we are discussing the matter at EU level with partner nations. We are looking at the matter as part of our review of the tobacco directive. I hope that that reassures him that we are taking the matter seriously and that we are looking at adopting the equipment and taking it further. 

Clause 180 makes changes to the tax treatment of herbal smoking products to align UK legislation with the European directive on the structure and rates of excise duty on manufactured tobacco. The change was announced at Budget 2012 and will come into effect from January 2014. It will ensure that herbal smoking products no longer enjoy an unfair advantage over tobacco smoking products. Herbal smoking products will be treated as if they contain tobacco and will be liable to tobacco products duty. Herbal smoking products that are used exclusively for medical purposes and licensed as such will remain exempt from tobacco duty. 

Herbal smoking products include herbal cigarettes, herbal pipe tobacco and herbal water pipe tobacco. Herbal smoking products do not contain nicotine, but there is no evidence that they are any less harmful than tobacco products. Herbal smoking products are exempt from excise duty. That provides an unfair advantage over tobacco-based smoking products and contravenes the European directive on tobacco taxation. The directive

states that products consisting of substances other than tobacco that conform to the criteria of cigarette and smoking tobacco shall be treated as such for duty purposes. It also states that herbal smoking products that are used exclusively for medical purposes shall be exempt from excise duty. 

The changes made by clause 180 will create a level playing field by imposing a duty liability on herbal smoking products at the same rate and in the same way as their tobacco equivalents. The Government are committed to encouraging smokers to quit and discouraging young people from taking up tobacco. 

A couple of questions were raised on the matter, and I hope I have answered the first one. The hon. Member for Nottingham East asked about switching from herbal tobacco to regular tobacco. Evidence shows that herbal tobacco is no less harmful than other tobacco products. There will be an exemption for where herbal tobacco is consumed solely for medicinal purposes. That will be through a marketing licence granted by the Medicines and Healthcare products Regulatory Agency, an independent regulatory body that is responsible for ensuring that medicines work and are acceptably safe. 

Stephen Williams:  I apologise for making so many interventions. This will be the last one, and it is about the effect of smoking a shisha pipe, or hookah as some call it. Many people think it is a relatively harmless activity, but one session on a hookah pipe is the equivalent of smoking about 80 to 100 cigarettes. It is incredibly harmful. 

Sajid Javid:  My hon. Friend makes a good point. He is right to emphasise that it is not well understood how damaging some herbal tobaccos can be to one’s health. 

The hon. Member for Nottingham East also asked about guidance and the impact on manufacturers and importers. First, a very small number of manufacturers and importers deal with herbal tobacco in the UK. They will face one-off costs that will apply under the Bill. HMRC is working closely with the businesses that are affected to help to ensure that the changes are well understood and comply with the new legislation. One reason why the provision will come into effect on 1 January 2014 is to give businesses time to adjust. 

Question put and agreed to.  

Clause 179 accordingly ordered to stand part of the Bill.  

Clause 180 ordered to stand part of the Bill.  

Clause 181 

Rates of gaming duty 

Question proposed, That the clause stand part of the Bill. 

Catherine McKinnell (Newcastle upon Tyne North) (Lab):  Clause 181 is a fairly small and technical clause, so I will not detain the Committee long. As I am sure hon. Members know, gaming duty is the duty charged on premises in the UK where dutiable gaming takes place, which includes casino roulette, baccarat and blackjack. I do not suggest that any members of the Committee are fully au fait with those forms

of entertainment, but we are focusing here on their taxable nature. The duty is calculated by reference to balance. As with last year’s Finance Bill, this measure increases the bands in line with inflation, in this case RPI, which is calculated at 3.1%. I have just a small question of clarification for the Minister: how much extra revenue will the Exchequer receive as a result of the rise, and has the Exchequer assessed the possible impact of the rise on the industry? 

Sajid Javid:  Clause 181 increases the threshold for the gross gaming yield bands for gaming duty in line with inflation. Gaming duty is a banded tax and paid by casinos in the UK with marginal tax rates varying between 15% and 50%. The public finances assume that the bands are revalorised in line with inflation each year to prevent fiscal drag. Without annual revalorisation, casinos would pay gaming duty at higher rates over time. The change revalorises the banded gaming duty in line with inflation. It is expected by the industry and assumed in the public finances. The rates of gaming duty will remain unchanged. The change will take effect for the accounting period on or after 1 April 2013. 

The hon. Lady asked about additional revenues. The gaming duty system is designed progressively to ensure that the most profitable casinos pay the highest rates, with the top rate currently set at 50%. The system ensures that casinos pay their fair share of overall gambling tax receipts. The will have no impact. There is some nominal extra revenue, but there is no change in real terms. 

Question put and agreed to.  

Clause 181 accordingly ordered to stand part of the Bill.  

Clause 182 

Combined bingo 

10 am 

Question proposed, That the clause stand part of the Bill. 

The Chair:  With this it will be convenient to discuss new clause 5—Rate of bingo duty—  

‘The Chancellor of the Exchequer shall within six months of the passing of this Act provide a report to Parliament on the impact of bingo duty on—

(a) the level of employment in the bingo industry, and

(b) the competitiveness of the bingo industry relative to other gambling industries.’.

Catherine McKinnell:  As the Committee will no doubt be aware, bingo duty is charged at 20% of a person’s bingo profits and is calculated by reference to receipts and expenditure on winnings. Combined bingo, however, is where a game is played simultaneously in more than one place and promoted by more than one person, such as the national bingo game, which allows players in different bingo clubs to share in the chance of winning a prize from a prize pool generated by the moneys contributed by all participating clubs. 

To prevent double counting of payments transferred between promoters as contributions to prize funds, special accounting provisions apply to combined bingo. As the legislation currently stands, a qualifying condition of the accounting provisions is that all participants must play from within the UK. At Budget 2012, the Chancellor announced his intention to remove the qualifying condition and, following an informal consultation in the summer of 2012, the clause legislates for that removal. 

As a result of the consultation, the measure will not come as a surprise to the industry, but I want to touch on a couple of points. The impact note for clause 182 states that the current law prevents the 

“double-counting of receipts but, as an anti-avoidance measure, this provision only applies where the combined bingo is played entirely in the United Kingdom.” 

I want clarification on that, because it suggests that at present the restrictions are in place to ensure that tax avoidance cannot take place when games are run. Will the Minister confirm what anti-avoidance measures will be put in place once the restrictions are removed? Will the Minister also give us some information regarding his assessment of the risk of tax avoidance once the restrictions are removed? Can he comment on HMRC’s assessment that 

“by removing this restriction larger jackpot prizes may be offered for games of combined bingo which may indirectly benefit those individuals who participate”? 

Can the Minister give us an indication of the numbers involved, such as the number of businesses likely to be affected by the clause? What is his assessment of the number of new combined bingo games that might become available to players in this country as a result of the changes? What will be the regulatory impact of the measure? Will, for example, non-UK operators be required to apply for a licence in this country in order to link up with UK-based bingo operators to engage in combined bingo? 

In addition to those questions for the Minister on combined bingo, I want to propose a few questions on new clause 5, which we tabled to shine a light on the issues facing the bingo industry and to probe the Minister on what consideration the Government have given to the impact of those issues. The bingo industry is important to our country and our economy. Provisional 2012 data show there are approximately 400 bingo clubs providing direct employment for more than 12,500 people. In 2012 there were approximately 45 million player admissions to bingo clubs, generating more than £200 million a year in tax revenue for HMRC. Despite the contribution bingo clubs make to the economy, which was recognised in the Mary Portas review last year and the ResPublica study, many in the bingo industry continue to feel they are getting a poor deal compared with the rest of the gambling sector. 

I am sure the Minister is aware of the recent history of bingo taxation in this country. In 2009, the then taxation regime—15% plus VAT—was replaced by an increase in gross profits tax from 15% to 22%, with bingo clubs becoming partially exempt for VAT reclaim purposes. GPT was then reduced to 20% in 2010. However, the industry remains concerned about its inability to reclaim all its VAT, which has led to investment and refurbishment costs remaining high. 

The industry further criticised the Government’s introduction of the machine games duty in February 2013, which, according to industry figures, hit bingo clubs with an additional £9.25 million in tax each year. The industry has made clear that it is concerned about the impact of the taxation rise on the sector, which has resulted in bingo having one of the highest starting rates of all gaming activity in Britain. Bingo clubs play an important role, not just in the economy but in the lives of the many people who enjoy and take part in it, and for whom it is a social event in their calendar. Bingo clubs are currently closing at a rate of one a month. 

Rory Stewart (Penrith and The Border) (Con):  Does the hon. Lady agree that that is particularly true for rural populations and the elderly, for whom bingo is an important contribution to life? There is a big demographic issue here. There is a portion of the population for whom bingo is particularly important at the moment. 

Catherine McKinnell:  I thank the hon. Gentleman for his intervention. He speaks for a rural constituency, so he is very conscious of these issues. I have to say, I know an awful lot of young people who play bingo; it is surprisingly popular among my friends and colleagues. However, I agree that we need to take into consideration the demographics of those who take part in bingo, and the rural and geographical implications of the closure of bingo clubs and halls. It is obviously devastating for people for whom bingo is their main social event in the week or the month. 

The industry has argued for a reduction of GPT to 15% to help reverse this trend and for bingo taxation to be put on the same footing as the taxation on other gaming industries. It states that its target level of 15%, which it believes to be a fair amount, would lead to further capital investment. Gala is planning £29 million of capital investment, and Mecca Bingo has pledged to open new clubs if the tax rate is reduced to that level. 

The Bingo Association expects, using a demand elasticity based on observed data from both the 2004 and 2010 rate changes, a 15% rate of gross profits tax to stimulate growth that could return the sector to 2008 levels of activity—when they were last at their highest—by 2014. It is an ambitious target, but it believes it has the data to back that up. Given those figures, it would be helpful if the Minister could outline the Government’s reasoning behind the decision to put bingo GPT at the current rate. What assessment have the Government made of the cumulative impact of both the current rate of GPT and machine games duty on jobs and growth in the bingo sector? I am sure the Minister will have received many considered representations from those in the industry about reducing the rate of GPT. What assessment has the Department made of the impact that reducing the rate of GPT would have on the Exchequer and the industry? Will he also explain a little about the decision to tax bingo at a higher rate than other parts of the leisure sector? Does it relate to any social or economic policy objectives of the Government? 

I want to be clear that we do not wish, with this proposed new clause, to suggest that other areas of the leisure or gaming sector are receiving a good deal compared with bingo. We are merely trying to probe and establish whether bingo is receiving a poorer deal

in comparison. We are asking the Government, for the reasons I have set out, to commit to a review so that the full impact of the current taxation regime on bingo can be fully understood. 

Fiona O'Donnell:  It is a pleasure to see you back in the chair, Mr Amess. I am not sure whether you have ever played bingo, Mr Amess. I see you nodding; that is an interest. The first time I played bingo was in 1982 at the Royal British Legion club in Cockenzie? I decided to play one card, thinking that that would tax me enough—“tax” being the operative word today—and did not understand that the lines were in units and tens. Every time a number was called I quickly scanned, and was amazed by all the, mainly, women who were managing with three or four cards. 

I speak in support of our new clause 5, because there are serious concerns, as the hon. Member for Penrith and The Border mentioned, especially for older people and in rural constituencies. It is great that in my constituency we have free bus travel for older people, so they are able to come out during the day and spend time in one of the local bingo clubs. Increasingly, bingo clubs provide a really important service in preventing isolation for older people in rural communities. The sad reality is that for many older people it means that they can turn off the heating at home and sit during the day in a warm environment and have social interaction with people of their own generation. That is many older people choose to spend time in a bingo club. 

I do not have the same concerns about bingo clubs as I do about online gambling. On that subject, I wish that there had been an opportunity in the Bill to talk about off-shore gambling and its impact on the horse racing industry in this country. However, I am aware that is not the subject of new clause 5, so I will move on. 

The atmosphere in a bingo club is responsible and social. We do not need to be concerned about them in the same way as about online bingo because we do not see the excesses that we do online. I was concerned recently was to hear one online bingo site boasting that it had given £5 million in prizes last year. That prompts questions about how much money had been spent on the site, often by people sitting at home on their own, with no restriction on access. People can get carried away and not realise how much they are spending and how much debt they are building. 

I hope the Minister will welcome new clause 5, because it is an opportunity to pause and ensure that there is no detrimental impact. That impact could be on income to the Treasury; on economic growth in some communities through investment in refurbishing, as my hon. Friend the Member for Newcastle upon Tyne North said. There is also the general health of the high street. Where there is a bingo club, as is the case in Musselburgh in my constituency, people coming out to play bingo will pick up a paper and perhaps buy a dabber for marking off the numbers. That provides a boost for the whole high street, not just for the bingo club. 

I hope that the Minister will welcome this opportunity to assess the impact on the Treasury’s take and on local communities, and the social impact on older people who, in the main, use bingo clubs as a way of staying socially active—and, sadly, keeping warm. 

10.15 am 

Sheila Gilmore (Edinburgh East) (Lab):  It would be wrong to give the impression that absolutely everybody who plays bingo is elderly, as that might suggest that it is an industry that is about to disappear. It certainly does cater for that demographic, but there is a wider age range than some might expect. It may be true that there are more female bingo players than males. We see mothers and daughters going together; in that sense, it is a family outing. 

Fiona O'Donnell:  Does my hon. Friend agree that the opening hours during the day are convenient to older people? Those people may not have access to the internet and online gambling, which may be a blessing, but for older people bingo is a unique service during the day. 

Sheila Gilmore:  I certainly agree that there is that element. We are dealing with relatively low-level gambling in terms of the stakes and the amount that people can spend. Indeed, unlike in some other forms of gambling, the outlay is relatively low; it is probably not dissimilar to other social activities, unlike machine gambling activities or, even worse, online gambling. 

Pamela Nash (Airdrie and Shotts) (Lab):  I support my hon. Friend’s point about the younger generation going to bingo. In recent years, many of my friends have started to have children and we often swap a night in a nightclub for a night in a local bingo hall. In fact, Gala Bingo now does a disco night for young people, which I have participated in. 

Sheila Gilmore:  I am not sure what is worse: a night in a club or a night at bingo. I suspect, however, that bingo allows people to get to sleep earlier, which must be beneficial. 

In terms of tax, during the last three years in particular—but perhaps for even longer—the industry has been subject to a lot of changes and alterations that have made things difficult for those who work in the industry. The accumulation of those changes, with, most recently, the impact of machine games duty, makes them feel that the tax system is not giving them the support that they need. 

We all know of bingo halls that have had to close down. Undoubtedly, there will be other reasons why some halls found it difficult to survive, but, faced with difficulties and concerns—many were concerned by the smoking ban, for example—many have sought to reinvent themselves to appeal to a wider audience and to keep functioning. Most—not quite all—in my constituency have managed to keep functioning. Having done that, however, they need some certainty on what the tax will be, and for that not to change, but also they need to feel that they are not being placed in an adverse position, even in relation to other forms of gambling, as they are subject to competition. 

New clause 5 relates to issues that have come up in previous Finance Bills. We now need to assess what is going on and to be fair to the industry. We need a proper review to determine whether we are taxing it appropriately, or whether there could be better taxation arrangements that would protect it. 

Chris Evans (Islwyn) (Lab/Co-op):  Thank you, Mr Amess, for calling me again. As a member of the Caravan Club, you know that bingo is a mainstay of many of our rallies. I want to speak in defence of the gambling industry. My father was a bookmaker; my grandfather was a bookmaker; so I am a son of a bookmaker’s son. I want to talk about the problems we have with the gambling industry in general. Bingo is seen as the acceptable face of gambling. I held an event with William Hill recently at the Commons and every time representatives of the betting industry come here they feel they have to defend themselves— 

Ben Gummer (Ipswich) (Con):  I agree with the hon. Gentleman. He is an honourable man and I am sure his family is too in their profession. His leader was in my constituency a few weeks ago lecturing us all about how there were far too many betting shops in the high street—reputable ones, good ones that people enjoyed using, which employed people, made money and gave people a bit of leisure betting. He was telling us all that they should be empty. Does he support his leader’s position on that? 

Chris Evans:  My general attitude is that I would walk into the shop and see how it was. I would defend the betting industry to the hilt because this is my family’s business. There is a version of the betting industry and it is not the one I recognise. I see that 53% of people who are employed in the industry are women. It is a flexible, part-time occupation. The betting industry has a problem with the way it promotes itself. It is being labelled with the pawnbrokers and the moneylenders and all these other bloodsuckers we see on the high street. In reality, people go into a betting shop because they are interested in sport. I will be honest. I have been in the betting industry all my life and I have not met a problem gambler yet. Most people talk about fixed odds betting terminals and amusement with prizes, but the average punter does not like FOBTs anyway because it distracts them from the horse racing. 

I want to put on record my feelings about what I think is a good industry. When alcohol or beer groups come to the House—the Minister mentioned the beer from his constituency in Bromsgrove—the alcohol industry is proud that it sells beer. It is proud of what it does. Yet all the betting industry does is defend itself over problem gamblers. I feel it should promote a British tradition. There is no better tradition than bingo. I pick on the hon. Member for Bristol West an awful lot about the valleys. He will remember that one of the features of the valleys is the bingo hall. The saddest thing you see when you go round the valleys now is the almost Art Deco buildings being boarded up because bingo has died out in most communities. It is so important for older people. My grandmother still goes to the Tylorstown Con every week, where she can play Housie and play on the Snowball or whatever. She enjoys that and it is part of her community. She likes to see her friends and get together there as well. 

Catherine McKinnell:  My hon. Friend makes a passionate and personal case for supporting this industry. He mentions his grandmother and the social side of bingo and gambling. For many elderly people, it keeps their brains active. It keeps up their interests. It is a bit like

Sudoku for many people in exercising their brains, which is so important when we see the rising levels of dementia, Alzheimer’s and those difficult conditions that a lot of people develop in their later years. 

Chris Evans:  I agree. One of the big things that older people face is loneliness. They lose their spouse and have to learn to live on their own. It is important that, when they go to bingo, they are allowed to mix and meet friends, and to share experiences. That is something that cannot be measured in a Finance Bill or by taxation. When the Prime Minister was the Leader of the Opposition, he said that we should not measure GDP without taking into account the feel-good factor and quality of life. That is important with bingo. 

Bingo is one of the industries that have been victims of the double taxation rule. I am glad that that has now come to an end, but the bingo tax—the gross profits tax—should be reduced to 15%. As for bingo halls themselves, it is the same as with betting shops: we have to remember that there are not many gamblers in the shops any more—certainly that is the most important difference I can see from when I worked in the industry. That is why I have a big issue about problem gamblers: the problem gambler is probably gambling in private, on his iPhone or online. That is what we see with the betting industry now: the real competition for bingo is not in the betting shop but online—we often see Foxy Bingo or Sun Bingo sponsoring all sorts of programmes on ITV. The real and important issue is how we get people back into the bingo clubs. 

I want to make the case for a tax cut for bingo. An additional £9.25 million tax has been added to the bingo industry with the introduction of the machine games duty, and I know that the Minister will be lobbied hard by those who are anti amusement machines and FOBTs. What are his thoughts about those industries? The bingo hall or betting shop is being squeezed by the internet and other competitors. 

Sajid Javid:  Clause 182 relaxes the tax rules for combined bingo and will benefit UK bingo clubs. By way of background, combined bingo is a game of bingo promoted by more than one bingo operator and played in many locations simultaneously. In effect, it refers to when bingo clubs groups together to offer larger and more attractive prizes to consumers. 

The current tax rules for combined bingo apply only to UK bingo clubs. That means that if a UK bingo club joins with a non-UK club to offer combined bingo, it will be liable for a disproportionately larger bingo duty charge. The clause relaxes that rule and will allow UK bingo clubs to join with non-UK clubs to offer combined bingo without causing the UK bingo operator to incur additional duty. 

The clause has been welcomed by the bingo industry. It encourages bingo clubs to expand their customer base and to grow their businesses. An informal consultation with industry representatives was held last year and draft legislation was shared with them in December. As I have said, the industry welcomed the change. 

New clause 5, tabled by the Opposition, would compel the Government to publish a report on the impact of bingo duty on the bingo industry. The Government carefully consider gambling tax rates and the potential impact on affected industries each year at the Budget,

and will continue to do so, to ensure that gambling businesses continue to make a fair contribution to the public finances. To that extent, the new clause is unnecessary, as the Treasury keeps taxes under review at all times. I will therefore be asking Opposition Members not to press the new clause. 

First, however, I will turn to some of the questions raised by hon. Members. 

Ian Mearns:  I am not sure whether the Minister is an avid bingo player. One aspect of the development of the game that I keenly regret is the demise of the idiosyncratic way of calling bingo numbers: things such as, “Five and nine—the Brighton line,” or, “Doctor’s orders—number nine,” or, “Kelly’s eye—number one,” or, “Two horizontally challenged persons—88.” It was an idiosyncratic way of doing it, but it was actually quite entertaining in its way. Nowadays, when I have gone into bingo clubs in the north-east, I have found that the way they churn the numbers over and get the games out quickly is a bit industrial. 

10.30 am 

Sajid Javid:  If the hon. Member for Gateshead ever chooses not to be a parliamentarian any more, I can think of an alternative career that he would be a great success in. The answer to his question is that I have played bingo, but I certainly would say that I am not an avid player. Perhaps one day I will be. It is an important industry. 

Many hon. Members spoke, including my hon. Friend the Member for Penrith and The Border, who intervened, and the hon. Members for Edinburgh East, for East Lothian and for Islwyn. The hon. Member for Islwyn spoke with great passion, given his family experience. I listened carefully, and I think that he, along with other hon. Members, made good points. Many hon. Members pointed to the social value of bingo, which I recognise. 

In that vein, I think all hon. Members will join me in welcoming the change to combined bingo rules, which, as I said, has been welcomed by the industry. It is a positive change; it is an opportunity for UK clubs to link with non-UK clubs. Although it is voluntary, it increases the flexibility of clubs and will hopefully lead to new businesses and more jobs. 

The hon. Member for Newcastle upon Tyne North asked about the potential impact. It is difficult to measure that. We also asked the industry. Although it lobbied hard for the change and clearly welcomes it, it is hard to put any numbers on the issue. I think it is fair to say that the impact of this particular change will probably be minimal, because not all clubs would be interested in the new combined bingo rules. 

The hon. Lady also asked about anti-avoidance measures. Combined bingo rules have existed for some time—albeit not on this basis, but they are long-standing rules. When we looked at the potential changes, we were comfortable that no new anti-avoidance measures would be necessary. However, we will keep a close eye on the matter and ensure that if changes need to be made and if anti-avoidance measures are necessary, we will not hesitate to make them. 

As I said, I recognise the positive social impact of bingo. The Government are currently reviewing the stake and prize limits for gaming machines, following a

public consultation that closed on 9 April; the hon. Member for Islwyn raised the issue of gaming machines. The Government’s initial preferred option is to increase stake and prize limits for some gaming machine categories, which would benefit bingo halls. Once the Government have made a decision, I will be sure to share it with hon. Members. The issue of larger prizes was also raised. That could be a result of the change. 

I was asked whether the Government had assessed the new games that might come into existence due to the change. Clearly, there will be new games, but HMRC has not directly assessed what and how many new games there will be. I think that that is unnecessary. 

Pamela Nash:  I seek clarity in the Minister’s comments. Recently there has been a high-profile campaign against fixed odds betting terminals, seeking to reduce the maximum stake available to players on such machines. Is the Minister saying that the Government are looking to increase the stake? 

Sajid Javid:  Yes. We are reviewing stake and prize limits. We are looking at potentially increasing them for certain types of machines. I emphasise that no decision has been made at this point. When we look at the matter further, we will look at its potential impact and provide the information to hon. Members. 

I was also asked whether the Government have estimated the impact if the rate of bingo duty was decreased to 15%. Our estimate is that such a decrease would lead to a reduction of tax revenue of approximately £30 million a year. If that is the case, clearly we would have to find a way to fund the reduction in revenues already assumed in Government finances. 

The impact of machine gaming duty was raised by hon. Members, and it was suggested that it might hurt bingo halls. Machine gaming duty is designed to be revenue-neutral for the Exchequer. The impact on different businesses will vary, but the change will ensure that machine operators continue to make a fair contribution to tax receipts. 

Lastly, I want to touch on the important issue of online gambling, which the hon. Member for East Lothian mentioned. Although it is not the subject of the clause, it pertains to the issue of having a level playing field for gambling taxes. She will know that we are introducing a remote gambling reform, on the basis of the place of consumption, to create a fairer playing field. I am sure she supports that reform. It will ensure that all gambling businesses that target UK consumers, no matter where they are based in the world, make a fair contribution to UK tax. The reform will help to create a level playing field for gambling operators based in the UK and those based overseas. 

The clause makes a small, uncontroversial change to bingo duty, and benefits the bingo industry. I ask hon. Members to consider not pressing new clause 5, and I hope that clause 182 will stand part of the Bill. 

Question put and agreed to.  

Clause 182 accordingly ordered to stand part of the Bill.  

Clause 185 ordered to stand part of the Bill.  

Clause 186 

Not exhibiting licence: period of grace 

Question proposed, That the clause stand part of the Bill. 

Catherine McKinnell:  This is another short, technical clause, which replaces the current five-day waiver on vehicle owners displaying a newly issued tax disc in their vehicle with a 14-day waiver. It is a welcome change. It follows on from the Government’s Budget 2012 aim to reduce the DVLA’s tax disc postage costs. The measure will have effect on and after the date this Bill receives Royal Assent. The Government’s stated intention is for the DVLA to centralise its issuing of tax discs on to call centres and internet applications to save administration costs, although tax disc applicants will still be able to receive their disc directly from the Post Office if they so desire. 

I am sure many people welcome the streamlining of the process of applying for tax discs, resulting from the centralisation of the information that is required to get a tax disc issued. Will the Minister say a few words about the process of centralisation? Can he give us a breakdown of the expected cost saving of the administrative centralisation, the number of jobs involved, and what the time frame for completing the centralisation is? The centralisation is intended to save on postal costs. Will the Minister confirm how much of the saving is expected to come from postal costs, and how much is expected to come from job reductions in the newly centralised process? 

The impact note states: 

“The Driver and Vehicle Licensing Agency (DVLA) will save at least £1.5 million a year in reduced postage costs.” 

Will the Minister give us a breakdown of where those savings will come from? Will they be simply from the change in postage costs—presumably from first class to second class—or will there be other associated cost savings as a result of the change? Will he also provide an updated figure for the number of licences expected to be granted, and a figure for those expected to be posted rather than directly collected from the post office? I am sure the Treasury has undertaken that assessment as part of processing this change. 

Steve Baker:  May I invite the Government to extend indefinitely the grace period for not exhibiting a licence? In other words, will they abolish it altogether? The motorist already pays for the roads many times over through fuel duty, and the country is so festooned with automatic number plate recognition cameras automatically checking whether our vehicles are insured and MOT-ed that there can be no reason whatever for continuing with the licence. Why not just abolish it altogether and make some considerable administration savings? 

Sajid Javid:  Clause 186 provides for a 14-day grace period against the requirement to display a newly issued vehicle licence tax disc. The existing display waiver period applying to licence renewals is five working days and was introduced by the previous Government in 2008. The clause will extend that period to 14 days and create further situations where the waiver will apply, so

that it is no longer limited to simple tax renewals but also supports applications for tax discs where a vehicle’s status has changed. 

The change to the waiver has several benefits. First, it will enable the Driver and Vehicle Licensing Agency to reduce tax disc postage costs. The agency intends to issue tax discs via second-class mail from a single central point rather than the current practice of issuing tax discs via first-class mail through local offices. It is estimated that that will save some £1.5 million a year, and I can confirm to the hon. Member for Newcastle upon Tyne North that that amount comes just from postal cost savings. She also asked about the impact on jobs, but we have made no such assessment, so I cannot give her more information on that. 

Secondly, the change increases the convenience of the online and telephone electronic vehicle licensing service to taxpayers. Taxpayers will for the first time be able to use the service when licensing a newly acquired second-hand vehicle or returning a vehicle to the road after a period of storage. The option to obtain a tax disc immediately at a post office will remain. 

Finally, the change will reduce the burden on motor dealers by removing the need to collect blank tax discs, store them securely and manually issue them to each customer. Tax discs will instead be sent directly to customers by the DVLA, which will have the positive effect of removing the indemnity that motor dealers have had to hold as insurance against the loss of tax discs, thus reducing the financial burden on the motor dealer industry. 

The measure is not just a cost-saving exercise, because it will reduce the administrative and financial burden on motor dealers who register and licence new vehicles. It will also give motorists more flexibility to continue to drive while waiting for a tax disc to arrive. The measure has built-in contingency to cater for any disruption to the postal service. 

Further to the hon. Lady’s question about jobs, I have just had a moment of inspiration and I can tell her that we believe that there will be no impact on jobs as a result of the change in posting practice. 

To conclude, the measure enables the DVLA to deliver significant efficiency savings while reducing the burden on businesses and motorists. 

Catherine McKinnell:  My question related more to the process of centralisation rather than simply the switch to concentrating on postal delivery for tax discs rather than using the post office. I appreciate that the Minister may not have that information available, but I just wanted to make that clarification. 

Sajid Javid:  I do not have specific information on centralisation. I will check to see whether there is any more information once I have contacted the DVLA. If there is, I am more than happy to write to her and furnish her with that information. 

James Duddridge:  I am minded to support my hon. Friend the Member for Wycombe in his pursuit to abolish this tax altogether, and I somewhat regret that neither he nor I tabled an amendment on the matter. The reason is that we already have a distribution method of collecting tax equitably through fuel duty, but I

wonder what the cost is. Specifically, what is the cost of this individual process? I own a Toyota Yaris and pay only £35 in tax—it is a good vehicle in relation to the certificate that goes on the window. I cannot possibly believe that the Government managed to process that tax disc at a cost below £35. 

10.45 am 

Sajid Javid:  I am glad that my hon. Friend has raised that issue, because it has prompted me to give a response. I also thank my hon. Friend the Member for Wycombe for his views. They might know that the excellent Secretary of State for Transport has published a consultation on a number of issues, including the potential abolition of the paper road tax disc. The Government are considering a response and will publish our decision on whether we are ready to abolish the disc. 

Ben Gummer:  Would it be possible to refer the matter to the Office of Tax Simplification to see the effects of amortising the revenue from tax discs across fuel duty? 

Sajid Javid:  I have heard my hon. Friend and will take on board his representation. 

Steve Baker:  I listened extremely carefully to what the Minister has just said, and I think that he intimated that he might abolish the paper disc, but not the tax itself. Will he just explain whether he means to consult on abolishing the tax as well as the disc? 

Sajid Javid:  I think my hon. Friend knows the answer to that question, but it is incumbent on me to be clear that I am talking about the paper disc and not the tax. I do not think that that will surprise him. To put some perspective on the matter, the vehicle excise duty raises approximately £6 billion each year, which is vital revenue for the Government to pay for public services. The actual cost of the paper system that the DVLA administers is approximately £8 million a year, and we are considering how to reduce that figure. The paper disc costs money to produce and is delivered to the post office or through the post, which is why the Department for Transport has run a public consultation and is seeking the views of motorists and businesses. Most on-the-road enforcement action is now based on digital technology, which is the automatic number plate recognition system rather than visual inspection of the disc, which is a helpful innovation. 

Question put and agreed to.  

Clause 186 accordingly ordered to stand part of the Bill.  

Clause 187 

Vehicles not kept or used on public road 

Question proposed, That the clause stand part of the Bill. 

Catherine McKinnell:  As many classic car enthusiasts will know—we may have some on the Committee— the statutory off-road notification is required by the DVLA when a vehicle is not being used on a public road

and therefore does not require vehicle tax. SORN was introduced in January 1998 and it applies to all vehicles licensed on or after that debate. 

I will allow the Minister to explain, if he deems it necessary, the thinking behind the changes that are being proposed. I will jump straight to my questions, because I want him to clarify a few points about the changes to the regulations. Will he confirm when the relevant regulations will be amended, how much the DVLA is expecting to save from the changes and in what ways it will make those savings? In other words, how many vehicles and owners are likely to be affected by the changes? Will there be any change in how vehicle owners can make a SORN declaration once the change takes place? An original reason for introducing SORNs was to enable the DVLA to keep up-to-date information and maintain accuracy on the vehicle register, to aid the police who rely on DVLA records when investigating vehicle-related crime and fraud. 

Will the Minister clarify whether any assessment has been made of the potential impact of the changes on the detection of vehicle-related crime and fraud? Has he considered any change in penalties for failing to declare a vehicle in a SORN, following this change, given that owners could have failed to make a SORN declaration for many years now, rather than simply months, as under the current legislation? 

Sajid Javid:  The clause is the first stage in the legislative process for making statutory off-road notification declarations across the UK indefinite, following the Government’s red-tape challenge, which took into consideration the public’s views on reducing road transport regulations, including the burden involved in making annual declarations of a vehicle’s continued storage away from the public road. Having listened to what the public said, the Government are now committed to removing the annual requirement, so that in future the declaration will be indefinite. 

Some 2.4 million vehicle enthusiasts, such as classic car club members and motorcycle enthusiasts, keep their vehicles stored off-road for a long period. They will benefit from less bureaucracy. The move to an indefinite basis for the declaration also avoids the present unnecessary, inefficient engagement of tax enforcement processes set in motion when vehicle keepers forget to renew their annual declaration. It will contribute towards Government savings of some £3.6 million over the next 10 years. To support that policy intention, the clause removes from primary legislation defunct references to the annual basis of statutory off-road notification declarations, paving the way for changes to regulations to be presented to Parliament later this year to facilitate indefinite declarations. 

The clause has been subject to targeted consultation with the police, in view of their road traffic enforcement role, and with the wider motor industry. In particular, the Government are liaising with the motor industry to ensure that this regulatory change has no unintended effects on vehicles that have come to the end of their working lives and need to be scrapped and issued with a certificate of destruction. 

Let me deal with questions raised by the hon. Member for Newcastle upon Tyne North. The regulations will be amended in December and, as I have mentioned, approximately £3.6 million will be saved over 10 years. Approximately 2 million people a year will be affected. 

On fraud or potential fraud, we expect no impact on fraud or evasion of VED. The DVLA has a range of measures to tackle VED evasion, from reminder letters to penalties through to prosecutions and wheel clamping. Currently, we collect 99.3% of VED, which shows that the measures are effective. 

The Government are also looking at how this change can be best publicised, to ensure that the vehicle owners affected can take advantage of it. The Government will cease to issue off-road declaration renewal requests and the registered keepers of stored vehicles will not be required to take any action. 

The clause will ease regulatory burdens for vehicle owners and unlock efficiency savings for the Government, and I ask that it stand part of the Bill. 

Question put and agreed to. 

Clause 187 accordingly ordered to stand part of the Bill.  

Clause 188 

Vehicle licences for disabled people 

Question proposed, That the clause stand part of the Bill. 

The Chair:  With this we will discuss that schedule 35 be the Thirty-fifth schedule to the Bill. 

Catherine McKinnell:  The clause relates to vehicle licences for disabled people. As I am sure members of the Committee are aware, the disability living allowance is split into three: the high, medium and low rates. Under the new personal independence payment, the payments will be split into just two rates: enhanced and standard. 

Under the current legislation, the Vehicle Excise and Registration Act 1994, claimants are exempt from vehicle excise duty only if they are on the higher rate. That suggests that some claimants who previously received a full exemption will now receive only a 50% discount, while some who previously received no exemption will now have to pay only half the rate. In addition, the measure provides for a full vehicle excise duty exemption for those receiving the armed forces independence payment, which came into effect on 8 April this year. 

It is true that the changes will bring new help to some people. The Government claim in their policy objective for the measure that their 

“aim is to ensure that the tax system provides support for people with serious mobility impairments to lead full, active and independent lives.” 

However, although the measure will work for some, large numbers of disabled people in the country will feel cast aside by the Government, with no support to help them to lead 

“full, active and independent lives.” 

The chief executive of Scope, Richard Hawkes, has said that 

“times are tough for everyone but disabled people are being hit harder than most. They face a triple whammy of cuts to their benefits, cuts to local services as local authority budgets get squeezed and an ever increasing cost of living.” 

In particular, the 500,000 disabled people who, by the Government’s own assessment, will lose support in the move from DLA to PIP are the very people who will not benefit from the changes in the clause. Even in respect of those who will remain in receipt of support after the move to PIP, it would be helpful if the Minister could clarify how many will stand to gain from this measure. 

Will the Minister outline whether any of those affected by the move will see a reduction in support for VED rates, and, if so, how many? In other words, is it possible for people who were on the high rate of DLA to be re-categorised as on the standard rate of PIP, thereby going from a full exemption to only a 50% discount? 

The operational impact section of the Government’s impact note for the measure states: 

“Introducing the rates discount will require changes to tax systems at a one-off cost of between £5 million and £10 million.” 

Will the Minister provide a breakdown of where those costs will fall? That would be helpful for the Committee’s understanding of the impact of the change. Given that the introduction of a full exemption for those receiving the armed forces independence payment was not mentioned in the impact note, will he clarify whether the costs associated with creating the new tax support are included in the £5 million to £10 million range? 

Paragraphs 5 and 6 of schedule 35 provide that the full exemption or 50% discount will remain in effect during any period of the recipient’s treatment as an in-patient at a hospital or similar institution. Our understanding is that claimants will cease to receive PIP if their stay in hospital is more than a certain length of time. Will the Minister confirm whether that is the case and, if so, whether that will have any impact on a claimant’s ability to receive either the full exemption or the 50% discount? If it will, what processes will be put in place to claw back the exemption or discount from a pre-paid VED payment? The claimant may have already claimed the exemption or discount and then become ineligible. 

Finally, will the Minister give an update on the time scale for the implementation of the PIP and the corresponding time scale for the implementation of this measure? We would assume that they would dovetail, but it would be helpful if the Minister clarified that. 

Fiona O'Donnell:  I would like to add to the questions asked by my hon. Friend the Member for Newcastle upon Tyne North. What discussions has the Minister had with the Minister for Disabled People, the hon. Member for Wirral West (Esther McVey), about the further consultation that she has announced on the mobility component of PIP? There has been such an outcry, and so many concerns have been raised by NGOs dealing with disability issues, that she clearly thinks it is time to go back to the drawing board and look at some of the assessment criteria. Has the Minister had any discussions with her on the impact? Would it not be better for him also to pause and wait for the outcome of the consultation? 

11 am 

Sajid Javid:  Clause 188 introduces schedule 35, which maintains vehicle excise duty support for working-age people and armed forces veterans who suffer from serious difficulties in getting around. By way of background, successive Governments have recognised that tax support should flow from the award of welfare payments. This maintenance update to vehicle excise duty support flows from the changes the Government are making to welfare payments. In the June 2010 Budget, the Government announced their intention to reform DLA and have consulted on the change over the past two years. 

The DLA is a payment that has been made for children and adults of working age who have had to cope with the effects of disabilities. For people who have had to cope with the most serious difficulties in getting around, there has been a higher-rate mobility component to the allowance, which links through to the vehicle excise duty exemption. 

For people of working age, the DLA is being replaced by personal independence payments, and welfare claimants’ migration to the payment began on 8 April. Alongside PIP, the Government are introducing the AFIP to support veterans seriously injured as a result of service since 6 April 2005. The clause will ensure that the overall amount of vehicle excise duty support is protected with welfare claimants’ entry into those payments. 

The changes made by clause 188 will protect the overall amount of vehicle excise duty support through two routes. First, the principle of tax exemption for those most in need of help is upheld by giving 100% tax exemption to armed forces veterans in receipt of AFIP and people in receipt of enhanced mobility PIP. Secondly, the clause includes the standard mobility PIP recipients by means of a 50% tax rate discount for people who have better, albeit still limited, mobility. 

As a result of the clause, by May 2018 up to 223,000 more people than before will receive tax support for the first time. Altogether, up to 1.23 million people will be eligible for tax support by May 2018, of whom 602,000 will be eligible for the 100% exemption. I hope those numbers answer some of the questions that the hon. Member for Newcastle upon Tyne North had about the numbers of people affected. 

The hon. Lady specifically asked whether some people will pay more tax. Our assessment for the new welfare benefit will mean that some people who currently enjoy the 100% tax exemption will pay more in vehicle excise duty because they have better mobility. The full tax exemption is focused on the most needy and the most seriously mobility impaired. The 50% tax rate discount is for disabled people who have better, albeit still limited, mobility. It is important to note that, in our assessment, 223,000 more people will receive tax support for the first time. That is important. The measure is targeted to help the most needy people; it also helps more people at the same time. 

The hon. Lady asked about the impact of AFIP and whether we had numbers on that. The numbers are included in the numbers that I have mentioned. We have not separated those numbers or broken them down. I will check whether a breakdown is available. If there is, I will be happy to provide that for the hon. Lady. 

I was also asked when the new regime would commence. The DWP will start to pilot the new personal independence payment and the new armed forces independence payment from 8 April 2013, and we expect them to be fully implemented by 2018. 

Lastly, the hon. Member for East Lothian asked me if we would work with our colleagues in DWP on other changes that are taking place to disability benefits, particularly mobility benefits. Of course, we work very closely with our colleagues in that Department. The particular change under this clause and this schedule that we have discussed is fully accepted by all Departments as the right course of action, and it fits in with the general changes that the Minister with responsibility for disabilities, my hon. Friend the Member for Wirral West (Esther McVey), is making or proposing. 

This clause helps to provide support active and independent living for people who have the most severe mobility impairments. It ensures that disabled people who want to work and are able to work have tax support for their means of transport to get to work. I move that the clause stand part of the Bill. 

Question put and agreed to.  

Clause 188 accordingly ordered to stand part of the Bill .  

Schedule 35 agreed to.  

Clause 189 

Repayments of value added tax to health service bodies 

Question proposed, That the clause stand part of the Bill. 

Catherine McKinnell:  This short technical clause ensures that certain health service bodies created by the Health and Social Care Act 2012 are added to the list of bodies that may claim refunds on VAT if they pay for certain goods and services, in the same way that their predecessor bodies were able to. These new bodies obviously include the new clinical commissioning groups and the three bodies whose status the Act changed from special health authorities to non-departmental public bodies. 

We touched on the creation of these new bodies in our discussion of clause 36, which ensures that the same bodies will also be exempt from corporation tax. We could talk, as we did in that discussion, about the views of Labour Members of the Committee on the 2012 Act. However, we have already put those views firmly on the record, so I will not detain the Committee unnecessarily this morning by repeating them, which I am sure you will be relieved to hear, Mr Amess. 

However, to complement our discussion of clause 36 and as the explanatory note explains, this clause provides that Government Departments may claim a refund on the VAT if they pay for certain goods and services, to the extent that the Treasury so directs. That is obviously to ensure that the VAT is not an obstacle to contracting out activities to the public and voluntary sectors. However, for the sake of transparency, can the Minister clarify the expected cost to the Exchequer of this particular measure? Also, can he give details of any assessment

that has been made of the nature of the activities that these four bodies are expected to contract out that they have not already contracted out? 

The Exchequer Secretary to the Treasury (Mr David Gauke):  It is a great pleasure to serve under your chairmanship this morning, Mr Amess. 

As we have heard, clause 189 ensures continuity of VAT funding arrangements following the enactment of the Health and Social Care Act 2012, and this is a consequential amendment. Let me briefly provide hon. Members with background information. 

Government Departments and a variety of NHS bodies, including primary care trusts and special health authorities, get VAT refunded on certain services. NHS bodies are refunded VAT on certain services purchased for a non-business purpose, such as free health care, if the bodies are named in VAT legislation. However, as a result of the Health and Social Care Act 2012, PCTs were abolished and replaced by the NHS Commissioning Board and clinical commissioning groups. Previously, the NHS Commissioning Board was a special health authority and it has now become a non-departmental public body. The National Institute of Health and Clinical Excellence and the NHS Information Centre were abolished and replaced by two new non-departmental public bodies: the National Institute for Health and Care Excellence, and the Health and Social Care Information Centre. All those changes occurred from April 2013, and mean that the organisations are no longer named under value added tax legislation, so they cannot be refunded VAT on certain services. 

Clause 189 ensures continuity of VAT funding arrangements, following the enactment of the Health and Social Care Act 2012. The changes under the clause will apply to four bodies: the NHS Commissioning Board; clinical commissioning groups; the National Institute for Health and Care Excellence, and the Health and Social Care Information Centre. Those changes will ensure that what would otherwise be irrecoverable VAT does not dissuade NHS bodies from contracting out activities, if that would be more efficient. 

I wish also to highlight the fact that the 2013 Budget announced further changes to the legislation. The Government plan to give refunds of VAT to two other NHS organisations: Health Education England and the Health Research Authority, when they become non-departmental public bodies in 2014. The hon. Member for Newcastle upon Tyne North asked whether the new bodies would be carrying out the same activities as those they are replacing. I can confirm that that is the case. She also asked about the cost of the measures. It is a matter of continuing with the same practice, so the measures are not expected to have an Exchequer impact. In conclusion, the clause is one of several consequential changes to tax legislation to reflect the reforms to the NHS and provide continuity of VAT treatment to certain NHS bodies. 

I take this opportunity to say that, in Committee on Thursday afternoon, in response to a question from the hon. Lady about the number of taxpayers who might be subject to the capital gains tax charge on disposals of United Kingdom residential property worth more than £2 million held by companies and some other non-natural persons, I misspoke by saying the estimate was that

fewer than 20 non-natural persons might pay the CGT charge each year, when I should have said that the estimate was fewer than 200. However, I hope that it remains clear that an extremely small proportion of companies other than non-natural persons, whether UK or non-resident, will pay the new charge each year. Having made that correction and explained the purpose of the clause, I hope that it will stand part of the Bill. 

Question put and agreed to.  

Clause 189 accordingly ordered to stand part of the Bill.  

Clause 190 

Valuation of certain supplies of fuel 

Question proposed, That the clause stand part of the Bill. 

The Chair:  With this it will be convenient to discuss that schedule 36 be the Thirty-sixth schedule to the Bill. 

11.15 am 

Catherine McKinnell:  The clause updates United Kingdom VAT law on how the use of business road fuel for private journeys should be taxed, which is obviously an important issue for many of our constituents who use their private vehicles for business and personal use. It brings two concessions into law, and it is also an attempt to bring United Kingdom law within its European vires. The Government have made it clear that there are four objectives: bring the two concessions into law, amend the current legislation to make it compatible with EU law, streamline how the law is set out to aid the understanding of small businesses and simplify how the valuation tables are updated over time. 

In relation to the final stated aim of the Government, the measure proposes to take the annual valorisation of the table set out under section 57 of the Value Added Tax Act 1994 out of the Budget process. Instead, HMRC will be required to update the table outside the Budget process and to a formula set out under a Treasury Order approved by Parliament. Will the Minister provide a little additional detail on that point? Will he also outline the consultation process to which that formula has been subjected and that to which it will be subjected in case of any future changes? How do we ensure that the measure is accountable to Parliament in how it is determined? 

The Government’s policy objective for the clause states that, alongside any future amendments to the road fuel scale charges, they will also publish relevant guidance, achieving reductions in burdens on small businesses and reduced costs for HMRC and the Treasury. Will the Minister also provide extra detail on that point? For example, what savings are expected for small businesses, HMRC and the Treasury? What process will be put in place to ensure that the guidance produced is fit for purpose and helps to achieve those aims? 

Mr Gauke:  The Government announced at Budget 2012 that we would legislate to update and streamline VAT road fuel scale charges and to bring two existing VAT extra-statutory concessions into law as part of the Finance Bill 2013. Clause 190 and schedule 36 do that.

The measure will clarify the options businesses have for accounting for VAT on road fuel used for private journeys, take the revalorisation of scale charges out of the Budget process and allow HMRC to publish—in one place—the scale charges with legal force alongside guidance for their use. 

Let me provide some background to the clause and the schedule. Where a taxpayer uses business goods for private purposes, that is deemed to be supply-for-VAT purposes and VAT must be accounted for. That includes where a business’s road fuel is used in making private journeys. As calculating the value of such fuel is often onerous, the UK obtained a derogation that enables taxpayers to value such deemed supplies on a simplified flat-rate basis—the fuel scale charges. The derogation requires the scheme to be optional. 

Current UK law makes the fuel scale charge scheme compulsory, but two extra-statutory concessions allow taxpayers some flexibility, consistent with the UK’s derogation. As we can no longer retain concessions, the law is being amended to allow for the scale charges to be optional within a proper legal, framework. 

The clause and the schedule mean that taxpayers will retain three basic options for accounting for private use of road fuel and so will experience no change. Those are, first, not to claim VAT on supplies of fuel received; secondly, to claim VAT and account for VAT on the basis of the fuel scale charges; or, thirdly, to claim VAT and keep detailed mileage records demonstrating how the fuel is used. 

Where employers charge employees for road fuel used for private purposes at less than market value, those supplies will be valued at their market value, rather than at the amount paid. That will prevent tax avoidance whereby employers make an artificially low charge for the fuel used. 

As we announced in the autumn, to prevent forestalling, any supplies made between the autumn announcement and the Finance Bill coming into force will be valued by the anti-avoidance rule, but only to the extent that the fuel is used after Royal Assent to the Act. The new law requires the Treasury to set out in an order a base table of fuel scale charges and the method HMRC must use to revalorise those charges each year to reflect changes in road fuel prices. 

The first such order will be laid in the autumn and the table set out in the order will replace the table in the 1994 Act, with effect from next February. After that, HMRC will revalorise the figures annually, and update and publish that table, unless a new order is approved by Parliament. To allow for new fuels and technologies becoming more popular, there is a power to change the definition of road fuel by affirmative order. That will allow users of any new fuels and technologies to benefit from the optional flat-rate scheme where appropriate. The definition in the anti-avoidance rule will similarly be allowed to be varied. 

In response to questions asked by the hon. Member for Newcastle upon Tyne North, perhaps I should underline the fact that HMRC will have no discretion over how the revalorisation is done. The revalorisation will be able to reflect only the changes in pump prices each year and the prospective changes in the rate of duty. How revalorisation must be done will be set out in an order approved by Parliament after a debate, and that cannot be changed without a further parliamentary debate. 

On the compliance cost to small business in understanding these new rules, it is worth pointing out that there will still be a table of charges set by reference to CO

2

emissions that small businesses can simply look up and use to declare VAT on private use of fuel. No additional action is needed by small businesses to declare their tax accurately and with confidence. The changes will have no Exchequer impact and there is not expected to be either a positive or a negative impact on small businesses. 

Guidance will be drafted and exposed to interested parties in time for the new statutory instrument coming into force. HMRC is committed to ensuring that the matter is simple for business to understand and apply. 

The clause and the schedule ensure that UK law is consistent with the requirements of the European VAT directive and the UK’s derogation. They simplify the annual revalorisation of the scale charges, bring two concessions into law and enable the Government to ensure that rules governing road fuel are simple for small businesses to understand and apply. 

Question put and agreed to.  

Clause 190 accordingly ordered to stand part of the Bill.  

Schedule 36 agreed to.  

Clause 191 

Reduced rate for energy-saving materials 

Question proposed, That the clause stand part of the Bill. 

Catherine McKinnell:  The clause relates to a reduced rate of VAT for energy-saving materials. The UK applies a reduced rate of 5% VAT to the supply and installation

of certain energy-saving materials. Reduced VAT for installation of energy-saving materials in buildings solely used for a relevant charitable purpose will be withdrawn by the clause. That follows legal proceedings initiated by the European Commission against the UK on the basis that the reduced rate is not allowed under EU law. 

The European Commission, for three reasons, took the view that the UK was unlawfully applying the reduced rate. The Government have stated that they disagree with the Commission on the first two points, but accept the final point—namely, that charitable non-business buildings and village halls cannot properly be described as housing, which was the requirement under EU legislation. 

The tax information and impact note for the clause states that the Government have informed the Commission of 

“its intention to withdraw this reduced rate from charitable buildings as part of Finance Bill 2013… The subsequent publication of the EC’s Reasoned Opinion indicates that it intends to proceed with the infraction against the UK in any event.” 

I am sure that that will get many Government Back Benchers swivelling their eyes. The note continued: 

“The Government will continue to defend the remainder of the reduced rate.” 

Will the Minister update the Committee on what that defence will be and where we are with it? I appreciate the limitations on sharing legal advice to the Government, but if he updated us as much as possible on the legal position that would be helpful— 

11.25 am 

The Chair adjourned the Committee without Question put (Standing Order No. 88).  

Adjourned till this day at Two o’clock.