Skip to main content

Value Added Tax

Volume 893: debated on Thursday 12 June 1975

The text on this page has been created from Hansard archive content, it may contain typographical errors.


asked the Chancellor of the Exchequer how many representations he has had asking him to review the 25 per cent. VAT on television rentals; and if he will make a statement.


asked the Chancellor of the Exchequer how many representations he has now received on the proposed rate of VAT on hired television sets.


asked the Chancellor of the Exchequer how many complaints he has received about the increased rate of 25 per cent. VAT on televisions.


asked the Chancellor of the Exchequer what representation he has received requesting him to review the 25 per cent. VAT on television rentals; and if he will make a statement.

My right hon. Friend has received over 1,200 representations about VAT on television rentals. The great majority of them have been about the application of the 25 per cent. rate to rentals under existing hiring contracts.

Does not my hon. Friend agree that the 25 per cent. value added tax on television rentals is an unfair and excessive burden, particularly for pensioners? Will he investigate alternatives, such as photographic films, together with cuts in defence expenditure, to produce the £100 million revenue required?

I understand and share the concern of my hon. Friend about the effect of these proposals on pensioners. However, we have to keep these matters in proportion. The average increase in the rental of monochrome sets will be about 35p a month. For colour sets it will be about £1·10 a month. Any concession related to pensioners or any other section of the community would, unfortunately, be open to abuse and extremely difficult to police.

Is the Minister aware that this is a punishing imposition on poorer people and that the unfairness is specially resented by those renting old television sets under contract? Scores of constituents have written to me asking why the Chancellor has not restricted this extra tax to new sets, because that at least would be regarded as a fairer approach.

There is nothing new in the impact of this change under VAT law. It was inherent in the provisions of the Finance Act 1972, which was heartily endorsed by the hon. Gentleman and his hon. Friends. I agree that there has been considerable concern about it. However, it is not necessary for retailers to pass the amount on in the case of the very oldest sets. I happen to rent an old monochrome set from the Dudley Co-operative Society, which I am glad to say has absorbed the charges.

Does my hon. Friend agree that there is a great feeling of public outrage not simply about this increase in taxation but about its retrospective nature, in that it applies to contracts taken out prior to the new operative date, and that it applies to people who unfortunately, perhaps because of financial hardship, had fallen behind in their rental payments on the operative date?

I should emphasise to my hon. Friend that there is nothing retrospective about the application of these provisions. No payments made with respect to hiring contracts before 1st May will be affected in any way. This is purely an ongoing situation. I should also draw my hon. Friend's attention to the fact that at such time as the higher rate of VAT may come down in the future it will be the renters who will benefit. The people who will have bought their sets at the higher rate will be stuck with paying for them at that rate.

The Minister says that we must keep this matter in proportion. Does he not agree that it affects 12 million people, including the poorest sections of the community? Would it not have been far fairer to cut public spending rather than put this additional burden on the elderly and those who can least afford it?

The hon. Gentleman will be well aware that the present Government have done more for the elderly than his party ever considered doing. We have arranged for pensions not only to go up in line with rises in the cost of living, but to go further and rise with general increases in the standard of living as reflected in wage rates.

My hon. Friend must understand that there is real disquiet among retirement pensioners about this matter. Will he be a little more flexible and at least say that he will discuss it with his right hon. Friend the Chancellor of the Exchequer? Perhaps it would be helpful to pensioners owning old sets if he spelt out a little clearer, here and now from the Dispatch Box, what he means by saying that the extra VAT on old sets need not be passed on by retailers.

Of course, I recognise the concern which has been expressed by my hon. Friend and by other hon. Members, but the decision whether to pass on the VAT must be a matter for the commercial judgment of the firm concerned. We must recognise, of course, that when VAT was first introduced not all rental firms increased their rentals by the amount of the tax. It is very much a question of the firm's commercial judgment whether it can absorb all or part of this increase itself or must pass it on to its customers.

Do not the points raised by hon. Members on both sides of the House reveal the folly of departing from a uniform tax, and are not the Government returning to all the ridiculous anomalies that we had with purchase tax?

If the hon. Lady is under the impression that the original VAT at a single rate was free of anomalies, I could spend a great deal of time disabusing her of that illusion, but I should be abusing the time of the House. My right hon. Friend decided, quite correctly, that it was time to reintroduce a proper system of discrimination into indirect taxation in this country, and his proposals received the approval of the House.


asked the Chancellor of the Exchequer what is his estimate of the cost to the Revenue of increasing the exemption limit for VAT from £5,000 to £7,000 so as to allow for the fall in the value of the £ sterling since the limit was originally fixed at £5,000.

To increase the VAT exemption limit to £7,000 would cost about £15 million a year.

May I ask the Financial Secretary to increase the limit? May I point out to him that many thousands of small traders are now being brought within the complexities of the VAT regulations? Does he agree that, with inflation, now is the time to raise the limit? It must be increased at some time. Surely this is the time to do so.

I do not necessarily follow the hon. Gentleman in all of his inferences. We have had no recent representations from any trade bodies, and only a few suggestions from individuals, that the limit be raised.

Does not the hon. Gentleman agree that this figure is quite unrealistic in present circumstances and that many individual self-employed shopkeepers will take up so much time in filling in these forms that they will be unable to get on with their business?

I ought to make it clear to the hon. Gentleman that registration is not without certain benefits, as it enables a firm that is registered to reclaim the input tax deduction. I recognise that there are costs and benefits which run both ways in this situation. It would also not be entirely to the advantage of firms already registered to be relieved of registration, because they would also have to pay tax on their existing stocks and assets.


asked the Chancellor of the Exchequer whether he will now seek to raise the point at which firms have to register for VAT.

Does my hon. Friend agree that by far the greater proportion of the VAT revenue is obtained from large concerns and that the cost of collecting that proportion is comparatively low? Does he also agree that as inflation attracts more and more small concerns into the VAT net the administrative cost and burden of VAT is massively increased with a correspondingly small increase in revenue?

I am seized of the general points which my hon. Friend makes, but I cannot usefully add anything to what I said in reply to an earlier Question. The effect of registration is not clear-cut, one way or the other. There are benefits to small traders to offset the administrative costs that registration brings for them.

As we might have to begin to harmonise VAT with our partners in the Common Market, will the Minister tell us the starting points for VAT in some of the Common Market countries?

As far as I am aware, the highest registration level in any Common Market country is £1,800 a year, and discussions—which are by no means binding on us, and no decisions have yet been taken—are centring around a possible figure of £1,600 a year.


asked the Chancellor of the Exchequer why VAT at 25 per cent. is levied on labour charges for repairing washing machines.

It is desirable that, in general, the 25 per cent. rate of VAT should apply both to the servicing of, and to spare parts for, goods which are themselves chargeable at 25 per cent., so as to reduce anomalies and to remove incentives to distortion of trade.

Does the Financial Secretary agree that literally millions of wives, mothers and working women regard a washing machine as a necessity and not as a luxury? Will he reduce this rate of tax from 25 per cent. to 8 per cent. and certainly give that reduction priority over any reduction in the VAT on television rentals?

I welcome this opportunity to make clear yet again that we have never suggested that the 25 per cent. rate was being applied solely to luxuries. My right hon. Friend the Chancellor made it clear that so many things that used to be considered luxuries are no longer considered so—items like television sets and washing machines. It was inevitable, if he was to raise the revenue he thought necessary in the public interest, that certain things which are to be found in every home and are not considered luxuries would have to carry the higher rate of tax.

Is the Financial Secretary aware that the vast majority of washing machines manufactured in the United Kingdom are made in Wales—at Llandudno Junction and Merthyr Tydfil, and that these are in areas of high unemployment, in special development areas? In the light of that, will he reconsider the 25 per cent. level of VAT on washing machines, so that there can be a boost for this industry and for these areas?

I accept the general proposition in the hon. Gentleman's remarks, but my right hon. Friend made it quite clear in his Budget Statement that the impact on his proposals upon employment was one which had caused him the greatest concern. We estimate that over every section of industry affected by VAT the total effect on employment of all the measures will be no more than about 20,000 jobs, which, regrettable as it is, means considerably less for the washing machine industry alone.

Does my hon. Friend agree that, whatever the grievance about VAT, this tax is part and parcel of the price we pay for entering the Common Market? Does he further agree that, whatever the lamentations on this subject now, there will be even more lamentations as and when the tax is harmonised with the rest of Europe?

My right hon. Friend's Budget proposals were directed solely to the economic position of this country, and were—as he was the first to acknowledge—a regrettable but necessary result of the inflation we found here a home.


asked the Chancellor of the Exchequer whether he will take steps to ensure that traders' VAT records can be reconciled with their financial accounts.

It is part of the duty of a Customs and Excise officer, when he visits a trader for VAT purposes, to verify that VAT records and financial accounts are consistent.

Does the Financial Secretary agree that the job of the Chancellor is to collect taxes fairly, with the smallest number of snoopers and the least inconvenience to the taxpayer? Does he agree that this could be achieved if he would call off the stupid civil warfare between the Inland Revenue, on the one hand, and the Customs and Excise, on the other, which prevents the reconciliation of trading accounts, which are sent to the Inland Revenue, with the VAT records, which go to the Customs and Excise?

It is news to me that there is warfare or anything but total harmony between the officials of the Customs and Excise and the Inland Revenue. Certainly no representations have been made to me on that account. It is worth emphasising that the Customs and Excise does not require VAT records and accounts to be kept in a special form. This is entirely a matter for the retailer. There is a need to police reconciliation between cash accounts and what has been charged for supplies of goods and services.