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Vat: Higher Rate

Volume 895: debated on Thursday 17 July 1975

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4.4 p.m.

I beg to move Amendment No. 112, in page 13, line 17, leave out subsection (2).

Before considering the amendment, I wonder if I might raise with you, Mr. Deputy Speaker, one point of order about the grouping of certain later amendments on the Notice Paper. You will see that there are three separate groups, the first beginning with Amendment No. 36 and including Amendments Nos. 35 and 39; the second beginning with Amendment No. 41 and including Amendment No. 42; and the third comprises Amendment No. 43 alone. All those amendments are concerned, broadly speaking, with navigational and aviational matters—in other words, boats and aircraft. It would appear to be convenient, certainly to my hon. Friends on the Opposition side of the House, if those three groups could be taken together; namely, the groups beginning with Amendment No. 36, Amendment No. 41 and Amendment No. 43. That proposal appears to be acceptable to the Minister.

I understand that the Chief Secretary has indicated his assent, so that will be in order.

The amendment is concerned with the proposed removal of subsection (2) of Clause 17 as it now appears before the House. We had some discussion on this subsection yesterday. We have already drawn attention to the way in which the Government propose to make use of this subsection, and I pause briefly to repeat that point.

It is of some concern that the concessions that the Government propose to make about the scope of Schedule 7—the breadth of the impact of the higher rate of VAT—are to be made not by debate before the House but by use of statutory instruments laid under this subsection.

We are concerned in principle that this subsection removes from the House the power to decide exactly what changes should be made by the Government in the light of representations made by my hon. Friends in Committee about the nonsenses which the Government committed when they originally designed the scope of the higher rate of VAT. We do not welcome the way in which use is to be made of this subsection. Moreover, and more fundamentally, this subsection gives power to the executive, subject to mere negative resolution procedure in this House, to tax at the higher rate of 25 per cent. VAT, apparently without limit, a wide range of goods and services which are not at present subject to that higher rate. The House should certainly pause to consider how far it is prepared to entrust to any executive, but, above all, to this executive, the power to impose a higher rate of VAT on a limitless range of goods and services merely by laying a statutory instrument before the House.

The House should consider how far it is prepared to accept the principle of conferring a taxing power upon the executive, subject only to negative review by Parliament. One wonders how easily that proposal sits in the consciences, minds and hearts of Ministers—if at all —alongside the protests which some of them at least made about the transfer of the power to impose taxes to the European Community.

Moreover, we should argue that the power to add to the range of goods subject to the higher rate of VAT is in itself questionable, because it gives the Government power to extend the range of a tax which we have from the outset criticised as bad in principle. My right hon. and hon. Friends and I have from the start criticised the motivation behind the introduction of the higher rate of VAT. We have criticised it as representing a kind of latter-day version of Marxist materialism, profoundly misguided, and that has led the Government, as so often Socialist Governments tend to be led, to search for a range of goods which can be identified as luxurious and for a range of services which can be described as non- essential upon which they can impose a higher rate of tax.

Throughout the proceedings in Committee hon. Members on both sides pressed the Government to acknowledge the unattractive, indeed lunatic, position which they have been obliged to take up in seeking to establish this higher rate of value added tax. They have been obliged as a result of the force of the arguments advanced by right hon. and hon. Friends, to make some concessions. They are to make concessions by statutory instrument hereafter to relieve of the higher rate of tax at least those purchases which are necessary for the salvation of human life and safety at sea and in the air, but apparently no further than that. The nonsense of which we have complained since the proposals were first disclosed apparently remain to take their place on the statute book.

From the beginning we have said that it would have been better for the Government, if they wished to raise additional revenue—with their extravagant spending habits, nobody can question the need for that—to raise that additional revenue by either restoring the 10 per cent. flat rate of value added tax or, indeed, never departing from it in the first place.

The introduction of these two rates of broadly applicable value added tax makes life far less tolerable than it is already for the trader, the retailer and the entrepreneur and tends to diminish, as we have pointed out many times, the respect which the citizen on either side of the counter has for the workability and good sense of the tax system.

We have no doubt—I take this opportunity of repeating the point—that the Government's decision to move towards a multi-rate value added tax has in practice, in the months during which it has applied, been as unwelcome and disastrous as we always warned that it would be.

The substantive points of complaint have been argued many times in Committee, and most of them remain upon the Notice Paper for consideration by the House today. We regard them as very important.

The Government, by their commitment to introduce a multi-rate value added tax, are doing grave damage in a number of directions. For example, they are doing grave damage to a wide range of consumers by imposing a tax upon the servicing and repair of ordinary domestic equipment. They are doing wanton, pointless damage. They are destroying the credibility and reliability of the tax system and causing more citizens to cry out: "Why have the Government departed from the simple path of sanity?"

The Government are doing grave damage to consumers—in particular, to those living on retirement pensions and other small fixed incomes—by their proposal not merely to introduce a higher rate of value added tax on television rentals, but to do so in relation to preexisting contracts. Many hon. Members on both sides of the House have been roused to anger by this proposal. It is astonishing that there is only one ordinary Member on the Government benches when this matter comes up for discussion, because, as I said earlier, many hon. Members on both sides of the House have complained, with good cause, about the decision to increase VAT on television rentals, including pre-existing contracts.

The proposal to extend the higher rate of VAT to shipbuilding, yachting, certain classes of aviation and caravans is a characteristic misapplication of the fiddling predisposition of a Socialist Government. The small boats part of the shipbuilding industry has already been facing grave difficulties. Many of my hon. Friends have written to me, and I am sure, to the Chancellor, drawing attention to the impact of this proposal on the industry and their constituencies. This higher rate of VAT is unnecessary and has not been justified.

Likewise, the impact of the higher rate of VAT on many millions of citizens throughout the country who engage in sporting activities, boating, sailing and flying is unnecessary. In all these areas we shall continue to criticise what the Government have done.

4.15 p.m.

The Government have committed themselves to a wrong-headed change which will lead, as it has already, to mounting problems for those engaged in these trades and industries. It will lead, and has led, to growing disrespect for the law and to a rapid and extensive multiplication of anomalies.

It is for that reason that I renew the commitment that I have already given on behalf of my right hon. and hon. Friends that, as fast as possible, we shall restore the original simplicity of a single standard rate of value added tax. There can be no justification for the alternative to which the Government have committed themselves.

I question the Government about the way in which this subsection, which gives taxing powers to the executive, is to be, and has been, used. It is gravely disturbing in principle and particularly disturbing because of the extent to which the Government are relying on it as a means of bypassing parliamentary consideration of the changes which we have urged on them in our many debates on this subject.

I do not propose to detain the House long, but I should like to endorse everything that was said by my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe). We have here a graphic illustration of the absurdity and anomalies created by a multi-rate value added tax system. There cannot be a Member in this House who does not in his heart share the feelings of constituents who have written about the effect of this proposal on electrical repairs, television rentals and the difficulties of those who innocently enjoy their leisure in boating and other sporting activities.

The matter to which I should like to refer at greater length is slightly more esoteric, but important.

My hon. Friend the Member for Norfolk, South (Mr. MacGregor), in a brilliant speech in Committee, referred to the anomalies created in the antique trade by the discrimination against certain objects over 100 years old.

Briefly, the facts are that when VAT was brought in—I should be grateful for the Minister's attention, because this is important for some people—after pressure from both sides of the House—the Minister of State took part in some of the negotiations—a special scheme was devised to preserve and protect the British art market. Under that special scheme, VAT was levied merely on the margin between the cost and selling prices of articles. That special scheme still remains, but, as a result of the Govern- ment's mucking about with VAT and the introduction of this multi-rate, we have the absurd situation that one sector of the art and antique market—that dealing with silver, jade and other precious objects—is unfairly discriminated against.

I said that this was a slightly esoteric subject, but it is of real importance to Britain's position as the centre of the art market. After the Minister of State's particularly sympathetic reception of the powerfully advanced arguments in Committee, I had hopes, as had many others, that the Government would think again.

It was significant that this was the only amendments which was supported by hon. Members on both sides of the Committee. Even today, although it has not been called—indeed, it would be improper for me to refer to it at length—a similar amendment appears on the Notice Paper signed not only by myself and my hon. Friends but by the two senior Members on the Government benches. It is extremely unfortunate that the non-partisan powerful arguments advanced in Committee have not been heeded by the Government.

I believe that the Government are in danger of doing great damage to an important part of the British art market. They are in danger of creating chaos and confusion where previously uniformity and an understandable situation applied. I would urge the Government even at this late hour to think again on this.

In conclusion, I would reiterate the wise remarks of my right hon. and learned Friend in opening this debate, that tinkering with the machinery of VAT, which was originally, from the public's point of view, a simple and understandable tax, is one of the most ridiculous things the Government have done. The most ridiculous aspect of this ridiculous act is that they would have had much more revenue—and, heaven knows, we need revenue—if they had reintroduced the flat 10 per cent. rate. Nobody would quibble with their decision to increase VAT in these parlous times, but reintroduction of the 10 per cent. rate would have been so much more sensible. Let us hope that when we get Finance Bill (No. 3) in the autumn of this year, as undoubtedly we shall, the Government will at long last see sense.

Like the right hon. and learned Member for Surrey, East (Sir G. Howe), I have consistently opposed a higher rate of VAT and feel that that is still a sensible position to take. I do not oppose a higher rate of VAT or multi-rate VAT on grounds of absolute dogma. If one could be persuaded that the efficiency of the tax required that we should have one more rate I believe that most of us on this side of the House would go along with it. If we were persuaded that there was an essential revenue requirement and that revenue could be raised only in this way. I am sure we would go along with that.

There are, however, no reasons for this change that the Government have made. It is an exceedingly bad revenue raiser because they are to get in total income, as additional revenue from this change to the higher rate, approximately a 1 per cent. increase across the board of VAT. Had the Government raised the rate from 8 per cent. to 9 per cent. they would have got in as much by doing so as by the 25 per cent. rate. Considering the distortions that are inevitably caused by a higher rate of VAT as between one industry and another, if the Government could prove that this tax was efficient it might be justified, but in this case they cannot. I would favour, therefore, an alternative increase right across the board. I would actually have favoured 10 per cent. had the Government not reduced the rate from 10 to 8 per cent.

I am much more concerned in this amendment with the stability of the tax system, which has not so far been argued as the main reason for this amendment. This change which the Government are seeking power to make may well be a very small step in terms of the Government's total revenue but it can be a very considerable step in terms of the economic planning within one particular industry. If at the drop of a hat, as this subsection allows, the Government decide that one industry's products shall suddenly be moved from the 8 per cent. rate to 25 per cent., the total amount of extra revenue for the Exchequer probably will be peanuts, but in terms of the distortions it will cause within that industry it may have massive effects. Therefore, I believe we should take our stand here in this Parliament and say that we are not going to accept a measure which makes it too darned easy to change a tax of this kind which can have these very substantial economic effects on a particular industry.

Does the Liberal Party believe in arguments in terms of social justice in favour of having differential rates of tax in principle? I accept the hon. Gentleman's argument on the effect on one particular industry, but does he not concede the general case that there is an argument in terms of the redistributive effects between necessities and essentials on the one hand and luxuries on the other? That is the classic argument in favour of having two rates of tax.

I might be perfectly prepared to debate whether there is or there is not if we had not had to suffer page upon page of argument from the Government Benches that this is not a luxury tax. If it were a luxury tax we could debate it as such, but I will answer the hon. Gentleman's point. I can concede that there could be arguments in favour of taxing certain goods more or less than others, because we may have made value judgments about the desirability of poor people or rich people buying goods, or about their ability to buy them, or whatever.

Frankly, I might prefer to make the argument in terms of the environmental consequences of the use of products but I believe that the disadvantages of trying to make value political judgments of that kind are greater than the advantages we gain—the disadvantages of distorting the market and trying to set the Government or Parliament up as some kind of almighty god to judge what people should wear and buy and do with their money. The best thing we can do with people's money is to let them choose how to spend it; and the more hon. Gentlemen opposite allow the people of this country to make that fundamental choice themselves, the better this country will survive in the economic future.

I am always interested in listening to the Liberal Party saying that Parliament should not be the judge of what people should wear and buy and do with their money, but the Liberal Party believes firmly that Parliament should be judge of what people should be paid and what people should earn and that Parliament should make a value judgment about what people are worth to the community. We have been listening to a typical piece of Liberal humbug. Time after time we get this kind of outburst from the hon. Member for Cornwall, North (Mr. Pardoe), and half his speeches directly contradict the other half.

On this occasion the hon. Gentleman was on to a good point, but he made it in his normal, double-thinking, bad way. I would tell the Financial Secretary that I firmly believe the Government have once again complicated unnecessarily the tax structure by going for a 25 per cent. rate. I heard the hon. Gentleman make many arguments against the VAT, and we all know that the object of introducing this is as a broad-based tax on expenditure which does not attempt to impose value judgments on different types of expenditure. Those were the arguments made by the Government of the day.

I happen to believe that the 10 per cent. and zero rating produced good revenue and produced as few complications as it was possible to have—and there are bound to be some in any expenditure tax. The Financial Secretary in Committee pointed to some of the anomalies which existed, on children's footwear and so on, but forgot to mention that most of these anomalies arose out of concessions urged on the Government by his own party during the course of the debate on VAT. It was the hon. Gentleman and his hon. Friends in those days who were urging the Government to create the exemptions which produced a number of the anomalies. I thought it was a little bit rich of him at that time to point to the anomalies for quite a few of which he was claiming the credit of having secured when he was sitting on the other side of the House.

In Committee we saw some of the silly consequences of the introduction of the 25 per cent. rate. I think particularly of the caravan group in Schedule 7, where caravans have been elevated to the role of non-essentials. People who go for a holiday in a caravan they own have paid 25 per cent. tax on it but people who go to luxury hotels, abroad or at home, or take holidays in all kinds of other, no more essential, ways are regarded as being responsible for paying VAT at the rate of 8 per cent.

The 25 per cent. rate does not produce much income. It produces a mass of complications, and the Government should have gone back to the 10 per cent. basic rate. By doing so they would have had more revenue available and would have avoided many problems. There is no real defence of the 25 per cent. rate except that of which we have heard, stock appreciation relief. The Chancellor made a "boob". He cut the rate to 8 per cent. for purely political reasons and then could not bring himself to reverse a bad decision; so we have this mass of totally unnecessary complications.

Amendment No. 112 is very sensible, and, therefore, I am certain that the Government will not accept it.

4.30 p.m.

On a point of order, Mr. Deputy Speaker. Subsection (2) says:

"The Treasury may by order vary Schedule 7 to this Act by adding to or deleting from it".
It seems to me that that is out of order. I cannot see how you allowed the Bill to be printed in this form, Mr. Deputy Speaker. It is wrong for back benchers to seek to amend a Finance Bill by adding to the taxation imposed upon the citizens. If, for instance, the words "by adding to" had been left out of the Bill and I had put down an amendment seeking to include them, you would rightly have ruled it out of order, because it would have widened the scope of the increased VAT rate band, thereby increasing taxation, and it is out of order to do things of that sort.

It seems to me that the conclusion from that is that it is out of order for the Treasury to seek to increase taxation by the order referred to in the subsection. I know of no parallel instance where taxation can be increased by order. I think that the House would thoroughly dislike the concept of increasing taxation by order. If it were decided to add to the increased rate band at any stage, a further Finance Bill should be introduced, so that the matter could be debated with the full procedures given to a Bill, and not simply dealt with by an order.

Therefore, Mr. Deputy Speaker, would you accept a manuscript amendment from me to remove the words "by adding to", whatever may be the result of the debate and vote on this amendment, on the ground that these words are out of order?

The effect of the Bill when it becomes an Act is a matter for the courts; and it would be wrong, and out of my capacity, to accept such an amendment.

But if I had moved an amendment in the spirit of those words, Mr. Deputy Speaker, you would have ruled it out of order. I do not think that you would quarrel with that proposition, and I would not have quarrelled with your action if you had done so.

Therefore, I cannot see how the Government can put something in their Bill which is out of order, something which you would regard as out of order if I tried to include it in the Bill. It seems to me a question of "heads they win and tails we lose", and, with the greatest respect, I should like to take the matter further.

I am advised that there is frequently such a situation in financial matters.

I am interested in the Opposition's arguments on this matter. They now appear to be arguing that the provision is out of order, when previously they had argued that it was impractical in the immediate situation, and wrong in principle to have a higher VAT rate in addition to the standard rate. Whether they are Conservative or Liberal, they should make up their minds precisely which argument they wish to use. The object of my brief intervention in the speech of the hon. Member for Cornwall, North (Mr. Pardoe)—[Interruption.] I agree, and I was interested in the hon. Gentleman's remarks, which bore out my suggestion that there was a difference in the Opposition's argument on this matter.

If the Opposition argue that it is wrong in principle to have a number of different VAT rates, I think that they are completely wrong. There is a classic and well-argued case in favour of having different rates. The Opposition say that there is a value judgment in having more than one rate. There is equally a value judgment in having just one rate, because one then accepts the existing value judgment of the economic system in deciding the price of goods at particular times. Therefore, it is fallacious humbug to argue that we are imposing our Socialist values and that the Conservatives are not imposing their Conservative values in having a single rate. I am glad to see that the hon. Member for Cornwall, North agrees.

This is a most important point, which seems to be missed in these debates. We argue about the effect on a particular industry. Occasionally we stray into matters of principle. Many of us on the Government Benches are in favour of having differential rates on particular items because we believe that we must inject our value judgments, just as the Opposition believe that they must inject theirs, into the system. We think that we thereby achieve a better degree of social justice than exists today.

I was always one of those who favoured a single-rate VAT, not for value-judgment reasons but for a number of other reasons. The longer our debates on Schedule 7 continued in Standing Committee, the more I became convinced that it was wrong to introduce the two-tier rates, particularly when the increase was so big, from 8 per cent. to 25 per cent., and that the Opposition pledge to return to a single rate was wise.

Would there be any point in having a narrow differential, such as a difference of 5 per cent.? The whole object of the exercise is to have a big difference, as for other items. I think of the car tax, for example.

That is another argument for having a single-rate VAT—the consequences of having such a big jump, from 8 per cent. to 25 per cent. In Standing Committee the Government began with the view that they were following a principle and making value judgments between one type of product and another, but the longer our debates continued the more that sort of reply diminished as it became clear that we were not talking about essentials or even non-luxuries. We were not discussing views about particular products.

My first reason for being opposed to a jump from 8 per cent. to 25 per cent. is the effect on employment. As my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) said, it is already clear that the jump to 25 per cent. has had a distorting effect on employment in particular firms and industries producing certain products.

It became clear as our debates continued in Standing Committee that the firms involved were in rural areas or small communities, where unemployment had been accelerated by the 25 per cent. rate of VAT, and was having devastating effects. Admittedly, it was not caused by that rate, because there had already been a down-turn in the economy. I have some such areas in my county.

I make no apology for mentioning again a television company which has closed down two factories in two separate small villages, with a serious effect on employment there. It is still threatening to lay off 25 per cent. of its work force in my constituency. Representatives of the workers saw me in the House last week to make a last plea that the Government should think again. They can see no other form of employment in the villages in which they live.

Similar effects are seen in industries manufacturing caravans and many other products which are now subject to the 25 per cent. rate. Therefore, the employment effect must concern us first.

It is not only the manufacturers that are affected. Retailers are worried about the effect on their turnover of the increase to 25 per cent. on a certain range of goods. We are to discuss on a later amendment the television rental position. The television industry, particularly at the retail end, is badly affected by the increase to 25 per cent.

The second argument is the effect on the retailer from the administrative point of view. VAT was opposed by retailers, and still is strongly opposed, because of the extra administrative burdens it places upon them. The two different levels of VAT make that administrative burden a great deal heavier. It will not be easy sometimes for the retailer to decide exactly which rate of VAT he should apply. It is difficult for him to make clear to his customer the logic of the distinction between many of the products that he sells.

The Government heeded the view of the retail chemists, who organised a strong lobby, and as a result something was done to diminish the impact on the retailer. If the Government had included a whole range of other products in the higher rate there would have been an administrative nightmare for many retailers. Nevertheless, many retail sectors will have an administrative problem as a result of Schedule 7.

The next problem relates to difficulties that arise from having a dividing line, which is always the case with two rates. In Committee many examples were given of the distinction between goods that could be used for agricultural or gardening purposes and the rate that will apply to them. It will be difficult for retailers to explain the position.

My hon. Friend the Member for Staffordshire, South-West (Mr. Cormack) mentioned antiques. A glaring example is the work of art of a hundred years old or more which is made of glass and has one small piece of silver attached to it. That product would take a 25 per cent. rate of VAT, but another piece of similar glass without any silver would take an 8 per cent. rate. We debated this matter in Committee, and we advanced many arguments, as the Minister knows, for excluding those items from the 25 per cent. rate of VAT which have the special scheme for antiques applied to them and which are, therefore, works of art over a hundred years old. The hon. Gentleman will recall that he did not reply to the arguments about cascade effects and the antique trade having no final consumer because the products are sold again and again. My hon. Friend the Member for Staffordshire, South-West said that London was the centre of the international art market, and he mentioned the loss of outstanding works of art to overseas buyers who will not have to pay 25 per cent. VAT. He said that, therefore, there was an incentive to the dealer to sell these works of art overseas.

The Financial Secretary kindly received a deputation on this point and listened sympathetically to the arguments advanced. It is because we cannot debate this matter today that we are in the position of the Financial Secretary having made no reply on the record to all these powerful arguments.

In Committee the Financial Secretary understandably, took refuge behind the fact that discussions were taking place. However, as I understand the position from his announcement yesterday, only a small group of products will have, by order, exclusion from the schedule, and works of art over one hundred years old are not included. I hope that the Financial Secretary will take this opportunity to give me his reasons for not accepting these arguments about works of art over a hundred years old in order that the trade and many hon. Members who feel strongly about this point understand the situation.

I turn to the effect on the consumer. The point has been made time and again that the groups mentioned in Schedule 7 often affect people such as pensioners, who will feel the increases severely. For example, there is the increase in television rentals and the 25 per cent. rate on radios. In the range of products that have been picked out no value judgment has been made as to luxuries or to the ranges of consumer who can afford to pay the extra 25 per cent. Throughout there have been cases where the poorer sections of the community have been discriminated against just as much as the better-off.

We shall deal with some of the more powerful arguments about safety and maintenance when we discuss a later amendment. One of the points that worry me in relation to Schedule 7 is that, with the high rate of tax on direct income and with this range of goods to which a 25 per cent. rate of VAT will apply, we shall reach the situation in which more and more of our citizens will regard it as legitimate and fair to find ways round the taxes. I do not condone that attitude—I greatly regret it. However, as well as being Members of Parliament we are ordinary members of the public, and I am sure that many hon. Members have heard of many instances in the past two or three months of people trying to find ways round the 25 per cent. rate. One of the sad things about the VAT system —of which I do not complain but it is there—is that there is, not only for the retailer but often for the consumer, an incentive to find ways round the high rate. I regret to say that with higher and higher rates of tax, such as we are experiencing now, this will become more customary, and it is a sad development.

I hope that the debates we have had in Committee and this brief debate this afternoon will cause Ministers never to introduce these types of swingeing increases again. I believe that there are many Labour Members who are as deeply worried as we are about some of the implications of the 25 per cent. rate and would have preferred a straightforward increase from 8 per cent. to 10 per cent. I hope that Ministers will learn from our experiences, and that this will not happen again. For that reason, I support the amendment, because it will at least stop any addition between now and the next Finance Bill to the range of 25 per cent.

4.45 p.m.

Since the inception of VAT there have always been two rates because there has been a zero rate as well as a standard rate. The Government have argued that there should be a third rate, which was not just a step up but more than three times the standard rate and would have a totally disproportionate effect on a handful of industries.

In the debates we have had on Second Reading, in Committee on the Floor of the House and in Committee upstairs no Government spokesman has ever given a proper justification of the Government's philosophy behind the swingeing imposition of a 25 per cent. rate on certain selected items.

The hon. Member for Gateshead, West (Mr. Horam) said that the Government had made a value judgment—I believe I have quoted him correctly—on selecting certain items for the imposition of this tax. It is a value judgment that imposes 25 per cent. VAT on a schoolboy's canoe but exempts the golfer and the polo player. It is a value judgment that has been so riddled with holes during the debates on this subject that any honest Minister would have agreed long ago that there was not only no value judgment but no valid justification for what was being done.

I do not recall a situation in which the Opposition have turned to the Government and said "Tear up this rubbish and impose a heavier tax", because that is what my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) has said on many occasions since the tax was first imposed. He has said that we should restore a standard rate of 10 per cent., which would yield £510 million to the revenue, instead of this special and selective increase that will yield barely half that amount. Why do the Government not accept that offer? Why do they not say "Done. It will be 10 per cent. It is easier worked out, produces more revenue and is satisfactory from our point of view". The reason is quite clear. It is because last July the Chancellor of the Exchequer thought that he would buy a few votes by cutting consumer taxation so that VAT would go down from 10 per cent., to 8 per cent. He has not had the guts to admit that that was an error. He may not need all the revenue, but he needs part of it. Therefore, he has produced this strange form of taxation which we have opposed throughout the passage of the Bill.

It has been possible in the past for selective taxation to produce serious damage in special industries because of its effect on employment and investment. However, rarely can one have seen so much damage done to so many people for so little return. In Committee the Financial Secretary admitted that a particular tax on aviation would yield no revenue. I asked why we had taxation that will not yield revenue. The answer was that if this item had been accepted it would have made nonsense of the general principle of taxing private flying. No only has this tax not been produced as a result of a value judgment it has not produced special Socialist rewards which will apparently make us miserable in every respect and level us all down so that pleasure can be obtained only by the ordination of the Government. It has not even been able to carry out any political objective. It has failed utterly from start to finish.

I suspect that the argument will be adduced that the Opposition did not make such a song and dance when the Government put 25 per cent. VAT on petrol. The Government will say that we accepted that without much argument. It is a question of administration, the difference between duty—a pure old-fashioned duty originally, I suppose on bottles of brandy from France and pursued over the years into a highly complex mass of legislation—and the attractions of putting on VAT which enables the business user to reclaim the tax in a suitable administrative manner.

It is fair to say that we on the Opposition side of the House looked upon that particular imposition as a form of duty. However, the same argument cannot be applied to domestic appliances, boats. canoes, aeroplanes, jewellery and photographic equipment. These are quite separate things.

I hope—although I suspect that I hope in vain—that the Minister can give us some simple answers to the one vital question: why is it that the Government have not taken up the offer of the Opposition and increased the basic rate of VAT from 8 per cent. to 10 per cent. to achieve their revenue, to remove the anomalies about which we have complained and, in a simple stroke, to remove from the Bill the whole of the ludicrous Schedule 7 and restore a great element of simplicity to the tax?

I subscribe to the view put by my hon. Friend the Member for Norfolk, South (Mr. MacGregor), that there was a great case for having only one rate from the start and that all the exemptions given have created complications. However, if we re-open that argument we shall be here all night, and that would be quite wrong.

The offer has been made. The difficulties can be removed by one sentence from the hon. Gentleman. I hope that he will see the sense and logic of responding in that way.

The debate started off very narrowly, dealing with subsection (2), which allows the Treasury to vary Schedule 7 by order. The authorisation that we have for dealing with this subsection comes from Budget Resolution No. 16, which was passed by the House. That is the effective answer to the question put by the hon. Member for Cirencester and Tewkesbury (Mr. Ridley). However, the narrow point on which the debate started concerns the doubts expressed by a number of hon. Members about the executive power of the Government to tax at a higher rate of VAT those articles which are now taxed at a lower or even a zero rate.

A number of hon. Members, particularly the right hon. and learned Member for Surrey, East (Sir G. Howe), thought that this gave far too much power to the Government. In principle, one can understand that suspicion of the powers with which the Government provide themselves. But this argument was fought out a long time ago, in 1961. During the whole of the period since then we have seen the ability of Governments to make very large increases of the kind permitted under this legislation.

We must recall that there have been times when by use of the affirmative resolution procedure—this has carried on from purchase tax to VAT—the Government have been able to bring into charge at a different rate those articles that are in charge, as passed under Finance Acts. We must remember that there have been occasions when we have had purchase tax at a rate of 55 per cent.—if I recall correctly. Governments have had considerable powers which, over the period, have not been used in the way that was feared by the right hon. and learned Member for Surrey, East, because in normal circumstances these are used either as a regulator or for administrative order to correct certain anomalies.

That is not to deny that these powers may be so used in the future. I am merely saying how it has happened under successive Governments in the past. I thought that it might be useful to compare the powers given here with not dissimilar powers that were given in the past.

I understand the problems which exist when one moves into a multi-rate VAT. These were raised by the right hon. and learned Gentleman, who was echoed by a number of his hon. Friends. No one can deny that one sets up divisions between the various rates and that there are problems when one starts to re-define the boundaries. The only thing that I can say is that, although obviously one has one's new boundaries, that is not to say that the old boundaries did not cause a number of difficulties.

My hon. Friend the Member for Gateshead, West (Mr. Horam), in opposition to the hon. Member for Hertfordshire, South (Mr. Parkinson) and the hon. Member for Cornwall, North (Mr. Pardoe), pointed out that the single rate tax in itself produced certain value judgments. It is very hard to see what we are doing here as Members of Parliament if we are not passing a whole range of value judgments every day we sit in the House. That is what it is all about. If the decisions are made by themselves because the facts speak for themselves, they do not require hon. Members sitting here to debate these weighty matters. They could be settled much more simply.

We are concerned with the crucial matters on which there is no simple answer, on which there is a whole range of value judgments to be exercised all the time. That is our purpose, and we have to accept that. We cannot concede it to anyone else.

However, the old anomalies were there in very great measure. They were there when we used to make fun of the distilled water on which VAT was being charged, and when children's clothing was zero rated. I think it was the hon. Member for Hertfordshire, South who said what a pity it was that we lost the essential simplicity of the old VAT because we zero rated children's clothing. But we have to make value judgments. We decided that it was very wrong that parents should have to pay VAT on absolutely essential children's clothing. We make these judgments on food and all sorts of essential matters. Who is to say that the House of Commons is wrong when it makes decisions of this kind which are very inconvenient to administrators? It is the task of the House to make judgments of this kind, perhaps inconvenient to the operation and management of the tax but essential for the reasons we adduce in the House.

Therefore, the anomalies may be there, but we try to keep them to the minimum while getting the social advantage we consider is essential.

5.0 p.m.

The hon. Member for Staffordshire, South-West (Mr. Cormack) and the hon. Member for Norfolk, South (Mr. McGregor) made a number of points, but the point they had most in common was about VAT on antiques, particularly those over 100 years old. They will recall that the debate was, in fact, on war medals. I am not disputing that it was rather narrow. I received a very interesting deputation which both I and the Customs and Excise found very valuable. Representations were made on the cascade effect, the question of exports and some other matters. The cascade effect did not trouble me quite as much because it is 25 per cent. on the margin, and I do not think this presents the same problem as exports.

The case on exports was one of the strongest argued by the deputation. If, as was suggested at the meeting, there was to be an incentive to the export of some antiques, we would need to look at the matter again. We shall be watching the situation carefully in a number of areas to check on the suggestions that were made about how the tax was likely to affect certain industries and the running of some businesses. In the autumn, I shall be looking at a number of areas to see how we can devise methods of keeping a close check on what was predicted and what might be happening.

I am grateful for the assurance as far as it goes, but why is the Minister prepared to close the stable door after the horse has got out? He should listen to the detailed and knowledgeable representations made by people who are in a position to know and to appreciate the implications of the changes. The loss of revenue, as he has admitted himself, will be minimal. Why can he not protect something which is in obvious danger?

I am surprised the hon. Gentleman should ask me to listen, because I did listen when I saw the delegation and heard the interesting and valuable way in which the arguments were presented. As to closing the stable door after the horse has bolted, this horse has not even started yet. If the hon. Member believes that antiques have left the country in the weeks since 1st May he is overestimating the changes so far. I shall be looking at the changes to come in the way I have indicated.

There are a number of items on which the evidence is only too clear, in relation to both the higher rate and the selection of individual items for VAT. Can the hon. Gentleman give an assurance that he or his Treasury colleagues will, at the request of the appropriate trade bodies, see delegations at regular intervals, because between the Committee and Report stages there has been an understandable reluctance by Ministers to see delegations?

I was not referring to the hon. Gentleman in the remarks I was making. I shall be dealing with the points he made.

I am grateful for what the Financial Secretary has said about exports, but would he also be prepared to monitor the effects of the cascade element? If antiques are sold many times within 10 years, 25 per cent. on the margin could have quite a significant effect on prices.

I have said that I want to find ways of ensuring closer scrutiny of the effects of changes introduced by the Government so that they can be brought to the attention of Treasury Ministers more easily than in the past. I am always happy to receive information from hon. Members or anyone else about the way in which these matters may be changing.

I understand the burden of the 25 per cent. rate on some industries. There are problems which arise whenever taxes are changed, and there have been problems in the way in which the new higher rate of VAT has been introduced, but it is sometimes a little difficult to separate other problems which arise at the same time. There have been a number of representations from people who have told me about the effect of VAT on their businesses, and sometimes it has been rather difficult to separate the result of the increase tax on an industry's operations. If there had been no change in VAT there would still have been a declining output in some industries because of the lack of sales. Some industries also suffer from seasonal elements, and the economic climate impinges on the spending of many people, which also has an effect on the performance of some industries. I only mention this to show that the problems are a little more complex than they sometimes appear.

We have heard about many of the anomalies involved in a multi-rate VAT, but there are also anomalies in a single tax rate. I am not going to trade anomaly for anomaly, though I could if I wished. There are anomalies inherent in any form of indirect taxation. As long as we have an indirect form of taxation, we shall have to draw the line here or there, and anomalies will be created automatically, whether in excise duties, tobacco duties or in the general indirect field. We are trying to reduce them in the same way as has been attempted in the past with purchase tax and VAT. We shall have to continue this operation whether we have one, two or three rates.

Countries on the Continent have more than one positive rate of VAT. They are firm adherents of the principle of a multi-rate VAT. They have a much longer experience of the system than we have, and it should not be assumed that they are completely wrong. I do not adduce that as evidence that we are so right, but I would say to those who claim that the old system was an ideal, comprehensive, broad-based tax, free from anomalies, that it never was and never could be.

We have brought in these changes in the way the Chancellor of the Exchequer said would be necessary to carry out his economic purposes. I hope they will be accepted by the House.

The House will be glad to hear that the Financial Secretary will be looking at the working of this tax in a number of areas and, I hope, reaching fresh judgments about the decisions the Treasury has been putting forward for us to put into law. We hope he will be able to report to the House on some of his conclusions as he goes along.

My right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) is unable to be here for the conclusion of this short debate, and he has sent his apologies for his absence. He has made clear, as we all have, that we are totally against the high rate of VAT on so-called non-essentials and that we believe that the revenue would have been better protected by the 10 per cent. VAT, which should never have been lowered to 8 per cent. for electioneering purposes last year. In that way the revenue would more than be secured, although I do not think that I need to tell that to the Financial Secretary since he appears to have recognised the point by omitting any reference to it from his speech.

There is no suggestion that we are in any way threatening the revenue by our total opposition to the 25 per cent. rate. We are more than protecting it, and if the rules of order had allowed we would have moved amendments accordingly, but we are barred from doing so. The question of the power under Clause 17(2) is one to which my right hon. and learned Friend referred in opening the debate. I take his point. I think I am right in deducing from what the Financial Secretary said that under the old purchase tax regulation it was possible to introduce an order which would transfer an item overnight from a zero rate of purchase tax to a very high rate, and in that sense there is nothing new in this development. However, it is still most worrying, and I do not think it is one we should necessarily accept uncritically just because it has been going on for 10 years or so.

It means that by Treasury order the tax on an item can be tripled from 8 per cent. to 25 per cent. or increased from zero to 25 per cent. The order to do that is subject only to the affirmative resolution procedure. It is a development which should worry both sides of the House.

We come now to the various defences which have been advanced by the Financial Secretary for the decision to go for the high rate VAT, to which we take strong exception. The hon. Member for Gateshead, West (Mr. Horam) was not at our debates in Standing Committee and, therefore he might not know that his suggestion that this is all a question of a reflection of social attitudes is from his point of view a most dangerous line to take. The Financial Secretary, who began our debates in Standing Committee as the Minister of State, put that argument forward in the early stages but wisely retreated from it. It is a total absurdity. There can by no stretch of the imagination be a set of social attitudes which identifies irons and refrigerators as more reprehensible and less desirable than stoves and ordinary kitchen equipment.

Does the hon. Member for Guildford (Mr. Howell) agree that the remarks by the hon. Member for Gateshead. West (Mr. Horam) will be more acceptable if he applies them with equal consistency to electrical repairs?

There is no doubt something in that point, and we shall be dealing with it in later amendments.

The fact that these anomalies exist does not destroy the fundamental case for having two different rates of tax upon goods.

The Financial Secretary has deployed his argument about the anomalies, saying "They exist anyway, so why not have more?", but I am concerned with the argument that there is a Socialist attitude and a scale of priorities which puts a kettle lower down the scale than a convector heater, a fire or a table lamp; an attitude which determines that a coffee percolator should have lower qualities for Socialist approval than a geyser, a floor or table lamp or an illuminated mirror. Of course, the Financial Secretary is right that we make value judgments, but we try to be aware of our limitations. We try to call a halt before plunging into these absurd divisions between one sort of item and other.

5.15 p.m.

After his Budget Statement the Chancellor of the Exchequer went on television and said, in referring to the higher VAT rate apply to non-essentials:
"I dare say many of us would be none the worse for cutting down on some of those."
But he was talking about cutting down on irons, washing machines and refrigerators. I understand that about 7½ million women go out to work each day. It falls upon them to do the washing and the ironing, and to them these items are essential. It is absurd for the Chancellor to categorise them as non-essential. It is more than most people can stomach to be told that these items get a lower rating of Socialist approval. When those 7½ million women come home from work at night these items are essential to them. We therefore should reject any attempt to intellectualise the argument by decorating these items with a higher or lower level of Socialist morality.

The same argument goes for television rentals. The current rates will be badly hit by the 25 per cent. VAT. I cannot understand why they should be rated as non-essential or suffer the mark of disapproval in the Socialist pantheon. Twelve million homes rent television sets, and these include the poorer sections of the community and the old people who rely on the television as a companion. The Financial Secretary can say that the Government have decided for reasons of revenue to take £100 million from this group, but I hope he will please refrain from asking us to swallow the proposition that this is in some way a reflection of Socialist attitudes and of an attitude of society and accords with the proper priorities of the consumer in the Socialist State.

There can be nothing in that argument, and I think that the hon. Member for Gateshead, West would have been wiser to have kept well clear of it. That is the wisdom that the Financial Secretary learned in Standing Committee. There is no mileage in it. Let him reconcile himself to the hard realities of seeking out a means of raising revenue and accept that that is the reason behind this high rate of VAT. Behind it, however, are a lot of totally unsubstantiated and ill-thought-out propositions about how the Government can somehow get at luxuries and non-essential goods. Their effort to do so leads to absurdities and offensive categorisations that we cannot accept.

There are other difficulties of a general kind which we raised in Standing Committee and about which we should like more clarification from the Financial Secretary. He will not necessarily give it in this debate, because he has already spoken, but perhaps he will deal with them later in the evening. There is, first, the continuing muddle over the status of certain standard goods which are listed in the schedule and which include things like nuts, bolts, screws, screw caps, nails, washers, rope, adhesive, wires and so on. They are listed in the schedule as being subject to the standard rate, but the schedule goes on to say that the standard rate applies except when they are supplied in connection with a service which is itself chargeable at the higher rate. This is a sentence that creates all the muddle, because it means that if a rope, chain or wire is supplied as part of a repair job on a boat, or a nut, bolt or screw is used in a repair job on a television or kitchen mixer it is liable for the higher rate of tax. We have had no clarification of this point, and great confusion exists over it. When these items are supplied as part of a service, are they chargeable at the higher rate or not? Until this matter is clarified great confusion will continue to exist at the retail level.

The Financial Secretary said that the higher rate was not having an impact on some industries. He argued that we should not confuse that with the development of the economic cycle. I am not sure about that. In Committee the Financial Secretary mentioned the revenue which he hoped to collect as a result of the high rate of VAT on caravans. It was clear that he took no account of the elasticity of demand and the effect that the higher charge on caravans would have. It is absurd to say that trebling the rate of tax will not have a depressing effect on the demand for the goods in question. It could probably be proved that the effect of a sharp rise in the tax on caravans, small boats and canoes will be a reduction in revenue. We may find that the measures will reduce the revenue rather than increase it. They have already had a devastating effect on production and sales.

The anomalies argument is silly. The Financial Secretary told us that there were anomalies when VAT was levied at 0 per cent., 8 per cent., and originally 10 per cent. No one disputes that anomalies existed. However, if he says that three rates of VAT will not produce more anomalies, that is more than we are prepared to believe. The fact that there were anomalies previously does not improve the case for multiplying them by one and a half times.

The increase in the VAT rate will produce anomalies not only in terms of numbers but in terms of absurdities, idiocies and divisions between the good and bad items, such as the difference between telescopes used for terrestrial and astronomic purposes, and the right and wrong kinds of television equipment, clock radios and convector heaters. It will carry us into a world of anomalies far exceeding the former degree of absurdity. It cannot provide any justification for proceeding with this tax.

This is the wrong way to go about this matter. It is untimely and damaging. It will cause the loss of many more jobs and more dislocation in the industries concerned than the increase from 8 per cent. to 10 per cent. recommended by the Opposition. We think that the arguments are spurious and should be vigorously opposed. We intend to oppose later amendments. We shall vote on some amendments. However, we intend to leave the Minister with the power specified, as without it he would not be able to introduce the amendments we favour.

We oppose the feebleness of the arguments and the general case for introducing a nonsensical tax on a nonsensical basis of priorities to the great damage of this country.

I apologise as I was unable to be present at the beginning of the debate on the amendment.

The question of electrical components was discussed at length in Committee. I shall endeavour to keep my remarks in order, as otherwise I shall be in trouble with the Chair.

I wish to speak about Erie Electronics, in Great Yarmouth. The goods which it produces are subject to a 25 per cent. rate of VAT. I wish to demonstrate what may happen to other firms if a similar rate of VAT is imposed on their goods. They will encounter the trouble experienced by Erie Electronics. That firm faces a monstrously difficult position. For instance, one small boatyard in my constituency has already closed. I agree that there are many factors which combine to make a difficult situation.

The Minister spoke of essentials and non-essentials. This Government—of all Governments—say that employment is the first essential. However, 900 people have been put out of work over a short period of time from a plant which used to employ about 3,000 workers. This is a serious matter for a semi-industrial town such as Yarmouth. It spells the most fearsome future for it.

I am using this amendment to persuade the Financial Secretary to ask the Chancellor, to whom I have written about this matter, to reconsider the situation.

Electronics, which may perhaps be considered non-essential goods, face strong competition from Japan. The enormous rate of VAT being levied on those goods is having a dreadful effect. I have received a letter on the matter from the works convener at the factory. This underlines the point that the workers are frightened of what will happen to Erie Electronics if nothing is done to improve the situation.

Amendment negatived.