House of Lords
Thursday, 4 March 2004.
The House met at eleven of the clock (Prayers having been read earlier at the Judicial Sitting by the Lord Bingham of Cornhill): The CHAIRMAN OF COMMITTEES on the Woolsack.
Horse Passports
Lord Dixon-Smith: My Lords, at the request of my noble friend Lord Burnham, whose car has broken down, I beg leave to ask the Question standing in his name on the Order Paper:
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To ask Her Majesty's Government why VAT is payable on horse passports when it is not payable on passports for people or cattle.
Lord Dixon-Smith: My Lords, I am grateful to the Minister for that explanation. Does he agree that there is an unfortunate coincidence in type, if not in practice, and in who issues the passports? Did the Government look sufficiently carefully at parallel issues before coming to a conclusion?
Lord Davies of Oldham: My Lords, our VAT laws are quite specific and are drawn up in the context of the European position on VAT. They are as stated, that if horse passports were issued by a public body—I understand that they will not be so issued—they would not be subject to VAT. But we are mindful of the fact that there is potential discretion in this area and we are aware that representations are being made. Therefore, the mind of the Treasury is not entirely closed on the matter.
Lord Livsey of Talgarth: My Lords, would it not be better if horse passports were issued by a public body and if there were no VAT on them? In Wales the value of some horses being exported can be as low as £25. That can be the value of a pony. If that is the case, surely the administrative costs alone would mean that it would not be worth enforcing VAT on such passports.
Lord Davies of Oldham: My Lords, that may be an area for further discussion, but the noble Lord will recognise that the most convenient way for horse passports to be issued is through the various horse associations. They are private bodies and are therefore subject to the law.
Lord Campbell-Savours: My Lords, could not such work simply be transferred to Workington, my former
constituency, where there is the cattle traceability centre? That is precisely the kind of work that the centre has been doing for a long time.
Lord Davies of Oldham: My Lords, I am grateful to my noble friend for that constructive suggestion. I am reflecting the fact that we are aware that this is an irksome problem and one that appears to have an element of unfairness about it. The issue with regard to cattle, subject to public regulation and the issuing of passports, is different and does not suffer the incubus of VAT. Representations, such as that made by my noble friend, may prove to be helpful.
Baroness Masham of Ilton: My Lords, will very old family ponies that will never go into the food chain be required to have passports?
Lord Davies of Oldham: My Lords, the issue of the requirements of horse passports is a little remote from this Question which concerns purely the taxation element. I hear what the noble Baroness says. She will recognise that there is always the matter of definition when it comes to the issue of documents such as animal passports.
Baroness Byford: My Lords, does the Minister accept that the whole scheme is a sledgehammer to crack a nut? Much more thought could have been given to the proposition when it was first produced. The Minister has clearly said that VAT will be charged because other organisations will have to collect it. Defra must have known that in the first place, so when the department came up with the original scheme why did it not put it through as a government scheme? It would help if the Minister could assure the House that the matter will be reconsidered. It is typical of Defra to fall down in its duty to come up with a proper scheme, a scheme that is not welcome in the country.
Lord Davies of Oldham: My Lords, Defra was responding to a very real issue with regard to the transport of animals and the transfer of animals across borders. I hear what the noble Baroness says and that is why I have indicated that representations are being made and the Government are in listening mode.
Lord Cope of Berkeley: My Lords, the Minister has just said that a European directive somehow inhibits the Government from moving on this matter. I have some knowledge of such matters, but off the top of my head I do not know the directive. Which European directive inhibits the Government from moving on the matter if they wished to?
Lord Davies of Oldham: My Lords, it is Directive 6, governing VAT, which allows public bodies and
statutory bodies not to have charges of VAT placed upon them; whereas non-public bodies, of course, do not fit into that category.
Lord Acton: My Lords, can my noble friend say how many horse passports are issued each year and how much VAT is raised?
Lord Davies of Oldham: My Lords, we are at the beginning of the scheme so at present I do not have those figures.
Baroness Byford: My Lords, perhaps I may help the Minister. At the moment horse passports are held by breeders and people who compete internationally. This is a totally different scheme which ensures that horses that have been given certain drugs cannot be used for human consumption. It is a totally new scheme. My question concerned Defra's mess. The scheme should have been introduced back in December. It has now been delayed until July, so it is not due to come into being until July. That is part of the problem and it is why we are trying to get the imposition of VAT reconsidered.
Lord Davies of Oldham: My Lords, that may be a subtle way of the noble Baroness asking her question twice, but I shall not answer it twice.
Film Production Tax Relief
11.7 a.m.
Viscount Falkland asked Her Majesty's Government:
- Whether they will consider transitional arrangements following the termination of film production tax relief for investors so as to allow current projects to continue without the need for financing packages to be restructured.
Lord Davies of Oldham: My Lords, film production tax relief has not been terminated. A number of tax reliefs exist specifically for film production and remain available for film makers. The most frequently used are known as Sections 42 and 48 relief. What have been terminated are certain highly aggressive tax planning schemes that used general accounting principles to create paper trading losses for wealthy people. The Government acted decisively on 10 February to stop that abuse with immediate effect.
Viscount Falkland: My Lords, the Minister has attributed to me an objection to matters that I had not intended to raise. He must know that the sudden end to what was accepted by the film industry as being quite a reasonable closing of a perceived and actual tax loophole was not expected to be introduced as abruptly and with such a retrospective flavour as it was. As I am sure the noble Lord knows, it has caused the termination of about 40 film projects and has put at risk a number of production companies, with all the hardship that that entails for employment and so on. Was that decision taken, at such high cost, because of
the gravity of what was perceived to be damaging to the nation as a tax loophole? Did his department not realise what absolute turmoil would be caused in the industry by such a sudden decision?
Lord Davies of Oldham: My Lords, I am grateful that the noble Viscount recognises, as the industry does, that serious abuse was taking place. The Treasury's motivation was with one objective solely in mind: to end the abuse of the tax system. That abuse represented £100 million and was therefore considerable.
The closing of the loophole is not retrospective; it was implemented on 10 February and stopped the abuse from that point. But I appreciate that, as the noble Viscount says, there have been effects upon the film industry, and we recognise that representations are being made in that respect.
Lord Trefgarne: My Lords, I have an interest in this matter as I have a son who works in the industry. Is the noble Lord proud of the fact that a dozen or more major film productions have either been cancelled or delayed and that a number of film workers have been placed out of work, or is he grievously ashamed, as he should be?
Lord Davies of Oldham: My Lords, the reliefs available to the film industry extend to about 15 per cent of production costs. The tax avoidance schemes being employed took those exemptions as high as 45 per cent. The Treasury had to act to stop such a significant abuse. The film industry agrees with the position we have taken.
The noble Lord's remarks reflect the fact that several films in production were based upon this source of finance and are now looking for other sources of finance which do not fall foul of these requirements.
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