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Finance Bill

Volume 547: debated on Tuesday 3 July 2012

[2nd Allocated Day]

Consideration of Bill, as amended in the Public Bill Committee

New Clause 4

Face-value vouchers

‘(1) In Schedule 10A to VATA 1994 (face-value vouchers), after paragraph 7 insert—

“Exclusion of single purpose vouchers

7A Paragraphs 2 to 4, 6 and 7 do not apply in relation to the issue, or any subsequent supply, of a face-value voucher that represents a right to receive goods or services of one type which are subject to a single rate of VAT.”

(2) The amendment made by subsection (1) has effect in relation to supplies of face-value vouchers issued on or after 10 May 2012.

(3) Subsection (4) applies where—

(a) a face-value voucher issued before 10 May 2012 is used on or after that date to obtain goods or services,

(b) paragraphs 2 to 4, 6 and 7 of Schedule 10A to VATA 1994 would not have applied in relation to the issue, or any subsequent supply, of the voucher because of paragraph 7A of that Schedule if the voucher had been issued on or after 10 May 2012, and

(c) VAT is not payable under the law of another member State on the supply of the voucher to the user.

(4) The use of the voucher is to be treated for the purposes of VATA 1994 as a supply of the goods or services by the person from whom they are obtained to the user of the voucher.’.—(Mr Gauke.)

Brought up, and read the First time.

With this it will be convenient to discuss the following:

New clause 3—Sixth form colleges (exemption from VAT)

‘In Schedule 9 to the Value Added Tax Act 1994 (Exemptions), in Group 6 (Education), the following shall be added at the end of Note (1) (description of eligible body)—

“(g) a sixth form college”.’.

New clause 10—VAT: review

‘No new Order shall be made under section 30(4) or 31(2) of the Value Added Tax Act 1994 unless the Chancellor of the Exchequer has fully reviewed the impact of any such Order on jobs, living standards and businesses, making reference to the HMRC Consultation “VAT: Addressing Borderline Anomalies”, and placed a copy of the review in the Library of the House of Commons.’.

New clause 12—Rate of VAT—

‘(1) In section 2(1) of the Value Added Tax Act 1994 (Rate of VAT) for “20 per cent.” substitute “17.5 per cent.”.

(2) Subsection (1) shall have effect from Royal Assent and shall expire at such time as the Government presents to Parliament a report stating that the UK economy has returned to strong growth.’.

Government amendment 17.

Government new schedule 1—‘Categorisation of supplies.

Government amendments 18 to 20.

A number of VAT measures are to be debated today. To help the House, let me outline how I intend to deal with them. I will first address new clause 4, which relates to VAT on face-value vouchers, before turning to Government amendment 17 and new schedule 1, which address VAT anomalies. I am also conscious that a number of new clauses have been tabled by other right hon. and hon. Members, which I will respond to more fully later in the debate. I will also address amendments 18 to 20, which are consequential amendments dealing with VAT anomalies.

New clause 4 is a Government change to protect revenue. It guards against the possibility of widespread VAT avoidance by the use of so-called single-purpose face-value vouchers. Because of the seriousness of the threat, I announced the change by way of a written ministerial statement on 10 May. Following a decision by the European Court of Justice in May, we need to amend our legislation as it relates to single-purpose face-value vouchers, such as phone cards, so that VAT is due when such vouchers are issued.

We need to act with immediate effect to prevent a loophole due to the mismatch between the ECJ decision and current UK legislation. This could occur because individuals could argue that VAT cannot be collected on redemption by virtue of the Court’s decision, and it cannot be collected on issue by virtue of UK legislation. Therefore, the new clause protects around £200 million of revenue a year and guards against avoidance that could otherwise run into hundreds of millions of pounds.

The changes made by new clause 4 will remove single-purpose face-value vouchers from the UK’s VAT regime. For face-value vouchers more generally, normal VAT rules will apply and they will be taxed when they are first sold. There is also a transitional rule to ensure the taxation of vouchers that were issued before 10 May but used to pay for goods and services after that date, other than where that would lead to double taxation.

It might be helpful to hon. Members if I provide a little background to the new clause. As I have said, the issue arose in connection with a recent decision of the European Court of Justice concerning the VAT treatment of cross-border supplies of single-purpose vouchers, in this case phone cards supplied by a business in the UK to customers in other member states. Most member states tax single-purpose vouchers when they are issued, but in the UK the issue is disregarded and VAT becomes due only when the vouchers are used to obtain the underlying goods or services. This treatment is welcomed by UK businesses, because it delays the point at which they have to account for VAT, so creating a cash-flow advantage and an absolute saving on those vouchers that are issued but never redeemed.

However, in the case before the European Court of Justice, the business concerned complained that the difference in treatment between the UK and some other member states caused double taxation, because VAT was due in the member state where the card was sold to the final consumer and again in the UK when it was used to pay for telephone calls. The Court found against the UK’s approach in such a way that, until UK law was changed, suppliers of single-purpose face-value vouchers could have escaped VAT altogether. In the current market, that would have led to a tax loss of £200 million a year. In addition, if UK law had not been changed there would have been the risk of widespread avoidance involving the use of single-purpose vouchers, which could have led to a significant loss of tax.

To give an example, a car manufacturer could have issued a face-value voucher for a new car of £15,000, which the customer could then redeem at his local dealership. UK law said that there was no tax on the issue of the voucher, and the Court of Justice of the European Union said that there was no supply at redemption and, therefore, no tax. That may be an extreme example, but it illustrates the problem that could arise in a variety of retail scenarios.

The changes that new clause 4 make would remove single-purpose face-value vouchers from the UK’s VAT regime. For face-value vouchers more generally, this means that normal VAT rules will apply, and such vouchers will be taxed when first sold. There is also a transitional rule to ensure the taxation of vouchers that were issued before 10 May but used to pay for goods or services after that date, other than when that would lead to double taxation, but the Court’s definition of what constitutes a single-purpose voucher allowed us to retain the UK’s treatment for most vouchers.

The Court took the view that a single-purpose voucher is one that can be used to obtain goods or services of only one type, and which are subject to a single rate. Single-purpose face-value vouchers that are for one type of good or service form only a small proportion of the overall market for face-value vouchers, because most face-value vouchers can be exchanged for a range of goods or services. For example, a cinema voucher may be exchanged for tickets as well as for confectionary. Both the entry to see the film and the confectionary make suppliers liable to standard-rate VAT, but as they cannot be said to be of the same type the voucher is not caught by the judgment. We therefore expect the change to affect a relatively small number of businesses, and I hope that that explanation is helpful to the House.

In conclusion on face-value vouchers, the new clause is a proportionate response to the significant risk of tax loss arising from the use of single-purpose vouchers. It is carefully targeted against the risks and retains the VAT treatment for the great majority of vouchers sold in this country, and I commend it to the House.

Amendment 17 and new schedule 1 relate to the categorisation of suppliers for the purposes of value added tax. New schedule 1 would implement the changes announced at the Budget, which have been refined in the light of consultation, to address anomalies and loopholes in the area of VAT liability. The VAT system contains a number of anomalies along the borderlines of VAT exemptions and VAT zero rates, and addressing some of those anomalies and loopholes is precisely what the Chancellor announced at the Budget.

The Government announced at the Budget that they were introducing a number of measures to address some of those VAT anomalies, reducing uncertainty, costs for business and for HMRC, and raising revenue. On Budget day, we proposed a number of measures and launched a consultation to engage stakeholders and to listen to their ideas. The measures that we announced proposed to clarify the treatment of catering to ensure that all hot takeaway food is taxed, and to clarify the meaning of “premises” in the context of whether food is consumed on or off a supplier’s premises.

We proposed also to tax sports nutrition drinks to ensure that all sports drinks receive the same tax treatment, and to remove self-storage from exemption in order to ensure that all suppliers of storage receive the same tax treatment and to counter avoidance.

I certainly will, although at this point I am just setting out what we set out at the Budget. I will turn to each individual measure in more detail in a moment and happily give way to my hon. Friend at that point.

We propose to remove the anomaly whereby approved alterations to certain listed buildings are zero-rated while alterations to other buildings and repairs to and maintenance on all buildings are standard-rated. We included transitional arrangements for alteration works to listed buildings which had been contracted before the Budget, and we wanted to put beyond doubt the fact that VAT applies to the rental of hairdressers’ chairs.

Finally, we proposed to ensure that holiday caravans are taxed consistently at the standard rate of VAT. The proposal, as set out in the consultation document, was that all the changes would take effect from 1 October via secondary legislation, supported by anti-forestalling provisions in this Bill. The consultation was opened on 21 March, and overall HMRC received some 1,500 responses. Owing to the volume of interest in the consultation, we decided to extend it, and since it has closed we have reflected fully on the points made during the process.

As the House will be aware, in two areas—hot food that is cooling down naturally and static holiday caravans—the Budget proposals created a high degree of business uncertainty, so the Government wanted to let people know our preferred course of action as soon as possible; we did that on 28 May. Last Thursday, we published a consultation response document and tabled the new schedule setting out our approach to all the measures on which we consulted. We stand by the rationale for removing anomalies, but have made several refinements, including those we announced on 28 May. They are intended to improve the policy and reflect the practical concerns raised in the consultation.

HMRC produced a document on the impact of the caravan tax, but can the Minister provide enlightenment on the impact of the 5% VAT imposition? There are no figures now on how many jobs will be lost and by how much demand for static caravans will decrease, and I was hoping that the Treasury had worked that out.

Clearly there is a substantial difference between 20% VAT and 5% VAT. We set out our estimates in relation to the 20% rate, and some of the concerns that people took from what HMRC set out were, I think, somewhat greater than the reality warranted, because the impact set out and the assumption regarding the reduction in demand related solely to that element to which the change from zero-rated to standard-rated applied. On many caravans that are sold, the VAT is recovered—VAT already applies to an element of the price of a static caravan: that of the fixtures and fittings.

We do not think the impact of the 5% rate is likely to be substantial. In the usual course of business there are tax changes—national insurance contributions and rates are the subject of regular fluctuations—and in many cases the VAT change may well be absorbed. In addition, we have given industry much more time by deciding not to implement the change until April next year. Caravan manufacturers will have the opportunity to sell more caravans in advance of next year’s summer season—the information we have is that spring tends to be the busiest period. The overall impact on the industry is therefore unlikely to be significant.

Before discussing each of the anomalies and saying more about static caravans, I would like to give the House a little bit of history about the VAT system. As I am sure all hon. Members know, the VAT system was introduced in 1973 and amendments and adjustments were being made as early as 1974. The then Labour Government added confectionary, soft drinks, ice cream, potato crisps and certain other savoury snacks—

Order. My ears pricked up when the Minister suggested he might furnish the House with what he gently described as “a little bit” of information about VAT. In offering to the House—in a public-spirited fashion, I am sure—a potted history of the value added tax system, I am sure that he will have regard to the new clause that he is presenting.

I certainly will, Mr Speaker. I did say I would give a little history and, following your guidance, I will focus on the little.

I hope it helps the House if I explain that, in the almost 40 years in which we have had VAT, there have been changes from time to time. There were changes in the VAT on building alterations in 1982 and 1984, on hot takeaway food in 1984 and on newspaper and magazine advertising in 1985—I could go on, Mr Speaker, but let me move on.

I am sure that hon. Members are conscious of the ongoing debates on whether a Jaffa cake is a cake or a biscuit. It is a regular pub quiz question, Mr Speaker; I am almost tempted to try it on you this afternoon. There was a question on a Radio 4 quiz about the amount of potato in a Pringle. I highlight those points because there are complexities and anomalies in the tax system and addressing that is the purpose behind the new schedule and the policy behind the announcements in the Budget, not the least of which related to hot food. It is fair to say that the current rules on the VAT liability of hot takeaway food have been made complex and unfair by a patchwork of different legal decisions over the decades, which is very much what we are debating today.

VAT has always applied to food consumed on the supplier’s premises, notably in restaurants and cafés, and it was extended to hot takeaway food in 1984. The definition of “hot takeaway food” in the 1984 legislation is that the food

“has been heated for the purposes of enabling it to be consumed at a temperature above ambient air temperature; and…is above that temperature at the time it is provided to the customer.”

There have been repeated efforts since the 1980s to chip away at that boundary. A number of businesses have argued in litigation that although the food that they provide to their customers is hot and is taken away, it should not be taxed as hot takeaway food but should be zero-rated.

Some have successfully argued that the purpose in heating the food was not to provide their customers with food to be eaten hot and that they heated their food for other purposes—for example, for hygiene reasons, to finish the cooking process, to provide evidence of freshness, to create an aroma or to improve appearance, crispiness or texture. Those arguments have not always been successful, but when they have been they have allowed some businesses to secure zero rating for a range of hot food products such as hot rotisserie chickens, meat pies, pasties and panini.

However, other businesses have continued to apply VAT to the similar hot food products that they sell. They have accepted, or the courts have ruled, that their purpose in heating hot food products is so that the customers can eat them hot. Under the current rules, a small independent fish and chip shop will have to charge VAT on its hot chicken and hot pies, but a major supermarket will argue that its rotisserie chickens or heated pies are zero-rated.

The current rules mean that many customers simply do not know whether they are being charged VAT on their hot food, because the treatment currently depends on a particular supplier’s purpose in heating the food, and identical products can have different VAT treatment. The new rules that we are introducing in new schedule 1 will ensure a level playing field. The taxation of hot food will be the same whether the supplier has used a hot cabinet to keep food hot so that it can be eaten hot or to ensure enticing aromas.

During the consultation, many concerns were expressed about bakery products such as Cornish pasties, which are not kept hot after being cooked but are left to cool down naturally. As those products are sold while they are cooling down naturally, under the changes as originally announced their VAT liability would change when they reached ambient temperature and were no longer hot. As has been previously announced, we accepted that the implied requirement to test the temperature of such products at the point of sale could cause practical difficulties, so the revised legislation takes a slightly different approach to creating the level playing field.

The new definition of “hot food” retains the condition that the food is hot when provided to the customer. It also retains the current criterion of the supplier’s purpose in heating the food, but adds a number of other criteria to define other circumstances in which hot food will be standard-rated. Those additional criteria are that the food is either heated to order, kept hot after being heated, sold in special heat-retaining packaging or other packaging specifically designed for hot food, or advertised or marketed as hot.

My hon. Friend refers to the marketing of such things as sold hot. Will he confirm that a baker who markets something as freshly baked would not fall foul of this provision, given that presumably when something is freshly baked it is hot? I think that the intention is that, say, a freshly baked sausage roll that is cooling down would not be subject to VAT, but if that marketing term were used it could perhaps be caught by the provision.

The final details as to what exactly will or will not constitute marketing something as hot will be set out in the HMRC guidance. However, I take on board my hon. Friend’s perfectly reasonable point that something that is presented essentially as fresh, but cooling, is different from something that is clearly presented as hot at the point at which one purchases it.

I am tempted to ask my hon. Friend whether he knows how many different chocolate eyes a gingerbread man must have to go from being zero-rated to standard-rated. The answer is on HMRC’s website.

On packaging, new schedule 1 uses the wording:

“whether or not the packaging was primarily designed for that purpose”.

There is some ambiguity as to whether a simple paper bag might be caught by that definition. Can the Minister assure us that people will be able to get their pies and pasties in a paper bag from the bakery without their being standard-rated?

The purpose of that wording relates to packaging that is specifically designed for the retention of heat. For example, hon. Members will all have experience of a paper bag with a foil interior that is used for such purposes. I do not think that a simple paper bag would fall into that category. In most people’s experience, pasties and suchlike are generally left on shelves rather than contained within bags while in the shop. I hope that that provides some clarification.

We have arrived at this change after 20-odd years in which, through various legal challenges, we have come to our current conclusions on this aspect of VAT. Can the Minister assure us that we are not facing another 20 years of litigation in order to get these finer details clarified?

One can never rule out the fact that some people will be litigious and try to take a creative view of any particular guidance. However, we believe that we have reached the right position after much consultation and discussion with the industry and with hon. Members, many of whom have been very engaged in the matter. I look around the House and see at least two Members who have been in my office to make representations on this point. We believe that we have reached a position that is sustainable and fair, and that is what we are putting to the House in the new schedule. The additional criteria will ensure that hot food will generally be taxed at the standard rate of VAT, but if food that would be zero-rated when cold is bought when it happens to be cooling down, but is not yet cold, it will still be zero-rated provided that it does not meet any of the criteria that I set out. These changes will add further tests to make the relief less open to abuse and provide a level playing field for all businesses supplying their customers with hot food.

Turning to the issue of holiday caravans, which we have touched on briefly, the VAT zero rate was originally intended to apply to the sale of caravans used only for residential purposes. To achieve that objective, the rules drawn up in the 1970s applied tax only to the sale of smaller caravans that could legally be towed on UK roads by a typical family car. However, over the years, an increasing number of large caravans have been used for holiday purposes. Those caravans inadvertently benefit from the VAT zero rate that was intended for residential caravans. That has led to widespread inconsistency in the VAT treatment of the sale of holiday caravans.

Under the current legislation, any caravan wider than 2.55 metres or longer than 7 metres is zero-rated as a residential caravan. The Government propose to replace the definition of a zero-rated caravan based on size with a new definition based on whether the caravan has been designed for residential use. To achieve that, we propose a new test that links the zero-rating with British Standard 3632, which indicates that the caravan has been designed and manufactured for continuous, all-year-round occupation and is therefore suitable for residential accommodation.

We consulted on whether the additional criteria should be added to ensure that the zero rate applies only to caravans intended for residential use. Given the reaction to the proposal, we decided that rather than having a single dividing line between a zero rate of VAT on residential caravans and a rate of 20% on static holiday caravans, static holiday caravans should be subject to VAT at the reduced rate of 5%. Static residential caravans—those that meet BS 3632, or early equivalents in the case of second-hand sales of older caravans—will remain zero-rated, as per the Budget proposal. We do not intend to restrict the zero rate further by adding additional criteria.

There is a little more that I was going to say that may be helpful to the hon. Lady, but I will give way at this point.

I wonder whether it is sensible to make decisions on tax policy based on manufacturing standards. Manufacturing standards will change and no doubt get better, so is that a sensible way of operating tax policy?

In this particular circumstance, the manufacturing standard provides a better definition or borderline than the size criteria that I set out. It was put to us in the consultation that it would be very easy for manufacturers to do a bit more here and there, and that a static caravan that was once not BS 3632-compliant suddenly would be. When we investigated that, we concluded that it was quite expensive and difficult to meet BS 3632. Genuine residential caravans meet that standard, but non-residential, holiday vans do not. It seems to be an effective borderline. Of course these matters will be kept under review, but we think that this is a sensible conclusion and one that the industry recognises. The evidence that the industry has put to us is that BS 3632 adequately distinguishes between residential caravans and static caravans.

It is worth pointing out that BS 3632 caravans tend to be more expensive and are built to a higher specification. For those reasons, they tend to be used more in the residential market than in the holiday market. It is worth coming back to the intention of the 1970s definition for zero-rated caravans.

We recognise that static holiday caravans fall in a grey area between residential property and temporary holiday accommodation, which have different tax regimes. We have therefore produced the fair compromise of a 5% VAT rate. The argument was sometimes made to us that static holiday caravans should be treated like a second home, on which VAT is not paid. However, council tax is paid on a second home, which is not the case with static holiday caravans. Imposing the council tax regime on static caravan homes would have placed a significant burden on their owners and holiday parks, so we believe that we have made a fair compromise. As I said earlier, to give the industry more time to adjust, the measure will be delayed until 6 April 2013. All the other measures that we are discussing today will proceed as planned on 1 October this year.

My hon. Friend the Member for Kingston upon Hull North (Diana Johnson) asked about the impact that the current proposals will have on the industry. Will the Minister confirm that the Treasury has not yet calculated that impact?

We assessed what the impact would be if VAT was at 20%, and obviously 5% is a quarter of that, so one can draw correlations. Most industries supply VAT-inclusive durable goods at a profit, so it is reasonable to apply VAT in this case. The impact that we originally set out in the tax information and impact note at the time of the Budget will be significantly lessened by the change to the 5% rate, particularly bearing in mind that there is already a full 20% rate on a fair proportion of static caravans because of the durable goods contained within them.

We can partly assess what the impact will be from what manufacturers themselves have said, which is that they do not expect the 5% rate to have an impact of any great severity on them. However, it is important to recognise that there needs to be stability, so an assurance that the Government will not raise the rate in future would be welcome, as would an undertaking that there will be an assessment of the rate after a year or two to see whether it has had any impact. Generally, the industry has welcomed it.

My hon. Friend is right to say that the industry has welcomed the change to our policy. As we would expect, it does not anticipate the 5% rate to have a significant impact on it. As far as the stability of the rate is concerned, the standard wording is to say that all decisions are for the Chancellor and all taxes are kept under review, but I do not anticipate that the Government will return to this issue in any great hurry. I am sure my hon. Friend will be pleased about that. Were we to do so, I have no doubt that he would make strong representations once again. I hope he will take some comfort from that.

The National Caravan Council has said that the caravan industry is fragile after the problems that it experienced in 2008. Based on the figures in the KPMG report, there would have been 6,000 job losses if the imposition of the 20% rate had gone ahead. Am I right to assume that with the 5% rate, the Treasury is working on the assumption that the impact will be a quarter of that number, which means 1,500 job losses?

Perhaps it will help the hon. Lady if I run through the situation. We have to raise a certain number of taxes, and VAT probably does less harm to the economy than almost any other tax that one could mention, whether it be employers’ national insurance contributions, which reduce the number of jobs, or corporation tax, which reduces investment. There is an issue with any tax.

On this particular policy, however, we are talking about a 5% rate on 80% of the price of a caravan, the other 20% being standard rated already, and on 85% of sales, the other 15% being standard rated already—or rather the purchaser being able to recover input taxes on it. There is then an elasticity of demand, and the 5% rate might result in a 5% reduction in demand, but of course that involves various assumptions and some uncertainty. As my hon. Friend the Member for Brigg and Goole (Andrew Percy) said, however, much of the industry does not think it will have a significant impact.

I wish to reinforce that point. The site operators, of which, as the Exchequer Secretary knows, there are many in south and west Wales, would also come to the same view—although not ideal, they thoroughly understand the situation and recognise it as one they can manage for the foreseeable future. They much welcome the news that it will not be revisited in the foreseeable future.

My hon. Friend is absolutely right. Tax is but one of the various factors that will have an impact on demand, and VAT is but one tax. I shall not dwell on it, Mr Speaker, but I should mention that the Government are putting in place a much more competitive corporation tax regime, which will be to the advantage of caravan manufacturers and many others.

I shall touch briefly on alterations to listed buildings. The reaction to our announced changes to VAT on approved alterations to listed buildings demonstrated the need for the measure on the grounds of simplification alone. The consultation and media coverage have highlighted the huge uncertainty over whether an item of building work is an alteration or a repair. The purpose of the measure is to avoid the need for such discussions by applying the same VAT liability to all alterations, repairs and maintenance. Repairs and maintenance to all buildings, including listed buildings, have always been liable to VAT, and alterations to non-listed buildings have been since 1984. The Budget announcement changes none of that, although a zero rate currently applies to alterations to protected buildings—mostly listed dwellings but also scheduled monuments and listed buildings used for charitable and other residential purposes.

For listed buildings, the borderline between alteration and repair or maintenance is a major source of confusion. The Budget announcement has no impact on the repair and maintenance of listed buildings, which have always been liable to VAT, so there will be no change to the VAT treatment of repairs to thatched roofs or steeples, contrary to what has been reported in the press. The Budget decision also reflects our view that grants can provide a more flexible mechanism than VAT for providing specific financial support for the heritage sector. We have increased the funding for the listed places of worship scheme and broadened its scope so that churches and other listed places of worship can claim grants to offset the impact of VAT on their alterations, repairs and maintenance.

The Budget proposal for alterations to listed buildings includes transitional arrangements, and, following the consultation, we have decided to make these more generous. As with the Budget proposal, the transitional arrangements will cover cases where written contracts had been entered into before Budget day 2012 or, in the case of the first grant of buildings that have been substantially reconstructed, where 10% of the work had been completed before Budget day. We have now agreed that they should also apply where listed building consent had been applied for before the Budget, and the transitional arrangements will be extended so that, where a project qualifies, zero rating can apply until 30 September 2015. These extensions will mean that the zero rate will continue to apply for most alteration projects where work was close to starting at the time of the Budget announcement.

Let me turn to the Budget proposal for self-storage.

I apologise for interrupting the Minister’s flow, but I want to take him back to listed buildings. He spoke about grants being available to churches for alterations and repairs. However, my understanding is that there is concern that what is proposed is more of a rebate or reclaim of tax spent, rather than a grant that would be available before the alterations and repairs are undertaken. Will he clarify what the position will be?

The first point to make is that the increased funding for the listed places of worship scheme was entered into after consultation with the Church of England, which led for other religious groups in this matter, and I understand that they are satisfied with the arrangements that have been reached. The listed places of worship scheme, which the previous Government set up, has been extended to allow recovery costs relating to VAT for both repairs and alterations. It offers church groups, for example, an opportunity to recover the costs they would otherwise incur, but is now much more generously funded, and a much greater proportion of VAT costs will be able to be reclaimed. Indeed, VAT costs should be able to be reclaimed in full for the time being, such is the scale of the support we have made available for the listed places of worship scheme.

It is perhaps worth pointing out that we always made it clear that we would increase the listed places of worship scheme, because of the increased costs that were going to be placed on churches, but after further discussions, with the Church of England in particular, we realised that the amount we had initially said would be adequate was not adequate, and we increased it. However, to deal with the hon. Lady’s specific question, what is proposed is indeed a reclaim arrangement. That is how it will work, and that is how it worked in the last Parliament as well.

Will the Minister clarify, therefore, whether he has received any expressions of concern about churches, which often rely on fundraising to undertake works, having to raise additional money, which they will then have to reclaim from Her Majesty’s Revenue and Customs, or about the additional burden that this will place on what are already quite stretched resources?

I understand the point the hon. Lady raises. The Church is satisfied with the arrangements. She is suggesting that in order to fund a project, a church group would need to fund the cost, plus 20%. That is not how it should work, because the scheme will be sufficiently flexible to ensure that a church group will have the funding in time, so that it does not have to raise an additional 20% or so. I have had considerable conversations with Church representatives on this issue, and I am not getting representations that they are concerned about that point.

I have just one last question about this issue. Has HMRC undertaken any assessment of the additional bureaucracy and administrative costs that will result from all churches having to engage in the process?

The advantage of the way in which we have introduced this measure—through the listed places of worship scheme—is that there is already a mechanism in place for providing grants for repairs. That is something we inherited, and although I cannot say this about everything we inherited, it is quite helpful. We anticipate that there will be a monthly repayment process through the listed places of worship scheme. With regard to the hon. Lady’s concern about cash flow, the main point to make is that the Church is content with the arrangements.

I thank the Minister for his clarification on that matter. I understand that if churches want to reclaim VAT in such circumstances, such a claim will have to apply to work on the footprint of the original construction. When work is done not only to the old part of the church but also to the new, will it be possible to differentiate a claim so that the work done on the old part and that carried out on the new extension can be treated differently?

The arrangements that will be in place following the legislation will mean that repairs and alterations will be chargeable for VAT. However, the listed places of worship scheme will apply to both types of work. It has been the case for some time that repairs involved the payment of VAT. The listed places of worship scheme will enable people to reclaim the VAT costs relating to those repairs. An extension—which is an alteration, rather than a repair—will now have VAT charged to it, but it will be possible to reclaim it through that same scheme. The scheme is now more generously funded than it was before the Budget, which means that a higher proportion of the costs that the churches would have incurred will now be able to be reclaimed. We have taken steps that the churches have widely welcomed.

I am sorry to have missed the beginning of the Minister’s remarks on this subject. I was actually checking up on certain aspects of a similar issue in my constituency. He said that the Church of England was content with the arrangements, but I hope that he will accept that it is not just the Church of England that is involved. I have a lot of churches, places of worship and listed buildings in my constituency, and I have been contacted by a church that was in the advanced stages of preparing to carry out work that could be seriously affected by the proposals. Will the Minister guarantee that, if the funding for the scheme does not meet the requirements, he will look again at the level of funding provided? Will he also monitor the scheme closely to ensure that no extra bureaucracy is introduced that could delay projects that would otherwise go ahead?

The hon. Gentleman is absolutely right to say that not just the Church of England is involved. I said earlier, however, that the Church of England had led on behalf of all the churches on this matter. On his second point, we have made the transitional rules more generous for churches that were close to commencing work at the time of the Budget. I obviously cannot comment on the specific case in his constituency without knowing all the details, but I think that he will find that many cases in which plans had reached an advanced stage will benefit from the transitional rules. He mentioned the funding for the scheme. We believe that this is a generous settlement, but we will of course keep such matters under review. He also mentioned bureaucracy. The scheme is organised by the Department for Culture, Media and Sport, but the Treasury will also take a close interest in it. The two Departments have worked together very effectively on this matter, and we are keen to ensure that the scheme works in an adequate way. I would underline the point that the representations that we have received from the churches suggest that they are happy with the arrangements.

The Minister says that the two Departments are now working closely together on the scheme. Was there a similarly close working relationship when the Treasury was thinking up the proposal? Did the DCMS know about the proposal and approve it—before it was modified, of course?

The right hon. Gentleman is attempting to draw me into dangerous, and perhaps more interesting, territory. All I would say to him is that all decisions are for the Chancellor, although of course the Department for Culture, Media and Sport was involved at an appropriate level.

The Budget proposal for self-storage changed the liability of supplies of facilities for self-storage from exempt to taxable. Following consultation, we planned to avoid creating a competitive advantage for those larger operators with more expensive facilities. These businesses can partially mitigate the impact of the change by using the capital goods scheme to claim back some of the VAT they had previously paid on the purchase of these facilities, whereas smaller businesses with less expensive facilities cannot. We will therefore make a separate provision by statutory instrument to amend the capital goods scheme so that self-storage providers affected by the measure whose individual capital items are worth less than a £250,000 threshold for the scheme can opt into it and have the same input tax recovery benefits as larger providers with capital items that would already qualify for the scheme.

We also propose to ensure that the storage of live animals will remain exempt, as the original proposal might inadvertently have applied VAT to stabling, and we propose to introduce an anti-avoidance provision so that if the storage is used by a third party with the permission of the person who contracts for the storage, it is taxed in the same way as if it were self-storage. This will prevent someone from avoiding taxation by getting a third party to contract with the supplier. We have revised the exclusion for storage facilities provided to persons connected with the supplier so that it is more directly targeted on facilities that are subject to the capital goods scheme. This fine-tuning reflects the benefit of consulting and listening to what respondents say, but it does not undermine the rationale for the measure.

For hairdressers’ chairs, the schedule provides a clearer description of the services typically provided under a chair rental agreement and excludes services that could legitimately be provided with a simple supply of a right over land. The schedule also reflects a change to make it clear that the supply of a whole building to a hairdresser will not become taxable unless it is supplied along with other goods or services.

Finally, regarding the measure to apply VAT to all sports drinks and to clarify the definition of premises for the purposes of determining whether food is consumed on or off the suppliers’ premises, we are proceeding as planned in the Budget.

I am grateful to the Minister for giving way to me again. On the sports drink issue, I am sure he will remember the old milk advert suggesting that if children did not drink their milk, they would end up playing for Accrington Stanley rather than Liverpool. The gap between those two teams might be a bit less nowadays, but the idea was that milk improves physical performance. Will my hon. Friend confirm that an ordinary pint of milk will not be caught within these provisions?

I confirm that I remember the adverts and that milk will not be standard rated for these purposes. I refer my hon. Friend to the remarks the Chancellor made in respect, I think, of the 2010 Budget—that everyday essentials will not become standard rated. However great the advance of Accrington Stanley and the decline of Liverpool, that will remain the case.

Will the Minister provide a bit more clarity, as I believe the industry has been extremely concerned about the definition of a sports drink as opposed to sports nutrition products? I understand that some drinks would not be caught within the definition, but that some products legitimately used by athletes—by weight-lifting participants, for example—would be. Given the concern about it, further clarification from the Minister would help.

The broad point is that sports drinks—such as Lucozade and others—are standard rated and have been for some time, and that sports nutrition drinks marketed as such will now become standard rated. We believe that that is fair. These products can be distinguished from a pint of milk or a milk drink not designed or marketed for sports nutrition purposes. Nothing in the consultation responses calls us to query the rationale for the measures or to amend the draft legislation other than through a minor amendment to tidy up the wording.

Can the Minister reassure me that his proposal will not lead to the same riddles and illogicalities that arose from the original pasty tax proposal, meaning that the same product marketed or packaged in a different way could end up attracting a different rate of VAT? Will he also tell us what consultations he has had with the industry?

We have completed a period of consultation and received a number of representations. In recent days, I have met representatives of GlaxoSmithKline and listened to their concerns. As for the hon. Lady’s first question, when products are aimed at different markets but clearly targeted at particular consumer groups, I think it reasonable to view them in the light of some of the competing products that are aimed at exactly the same market. Our research suggests that most sports drinks are clearly targeted at particular markets, and their VAT treatment will follow from that.

The Minister has not really explained why the Government should want to target a sports industry or sports-related products for tax purposes when much more unhealthy products might remain tax-free. Will he clarify that?

If the Opposition are setting out the principle that whether or not VAT applies should depend on the healthiness or otherwise of the products involved—which brings us back to hot food—we may have to engage in a slightly different debate, and I am not sure that either of us wants to go in that direction.

I am happy to clarify the fact that I am not setting out any particular policy position on whether sports goods or health products should be targeted for tax. However, the Minister appears to be saying that although the milk that is marketed for general consumption is VAT-free, if it is marketed for sports-related consumption it will be subject to VAT. Will he explain that policy?

VAT is charged on all beverages. Typical sports drinks which are consumed primarily to rehydrate or quench thirst are already taxed accordingly at the standard rate, but some sports drinks companies have won court rulings that their products are not beverages because of their nutritional content and because they are not designed to quench thirst. The changes that we are introducing will ensure that all sports drinks are subject to the same VAT treatment whether they are consumed for rehydration or for nutritional purposes, because they are targeted at much the same group, and we think it only right to apply the same approach to consumers. The argument for the zero-rating of food is that it should apply to everyday essentials, but it is difficult to apply that argument to sports and nutritional drinks.

I am desperately trying to understand what the Minister is saying will happen to sports and nutrition products. Is he saying that all drinks will now be subject to 20% VAT? What about other nutritional products that are not sold in liquid form?

Let me try to be helpful to the hon. Lady—not for the first time during our deliberations, I hope. We propose that drinks aimed at the sports nutrition market will be standard rated. We are not applying the same approach to meal-replacement drinks. There is a clear distinction between them, as one is more closely aligned to food than to sports drinks.

New schedule 1 will remove some of the anomalies in our VAT system. It will raise revenue and reduce the administrative burden on HMRC and businesses. It shows that the Government are willing to listen to practical concerns and to amend the proposal accordingly, without undermining the rationale for the measures. It will help to remove the means by which some businesses secure for themselves an unfair advantage over others. I commend the new schedule to the House.

Turning briefly to amendments 18, 19 and 20, as I have explained, the consultation period was extended because we wanted to ensure that we fully reflected on the points raised before finalising our decisions. We have decided to introduce these changes through the Finance Bill. As a consequence, schedule 26, introducing the anti-forestalling provisions for self-storage and approved alterations to listed buildings, needs to be amended by amendments 18 to 20 so that it refers to the changes being made in the new schedule. I commend these consequential amendments to the House.

I have spoken for over an hour—doesn’t time fly when one’s having fun, Mr Speaker! I hope I have given a helpful introduction to the debate, setting out some of the details to the House, and I hope these proposed provisions will be added to the Bill.

I am sure we are all indebted to the Minister for the informative character of his contribution —and, of course, for his oratory.

I will speak to new clauses 10 and 12, as well as the Government amendments that the Minister has already set out for us in quite some detail today.

The Opposition’s new clause 10 seeks to put a stop to the chaotic farce of ill-thought-through VAT changes being slapped on items from the pasty to the caravan, from haircuts to church alterations—imposed, defended, downgraded and then, in some cases, eventually quietly removed by Ministers during the parliamentary recess, once they realised quite how ridiculous the changes were to begin with, particularly given the current economic climate. We simply ask the Government not to meddle with VAT exemptions until they have carried out a proper assessment and worked out exactly what the impact of any change would be on jobs, living standards and businesses.

We assume that, before imposing a 20% tax, the Government will do their sums, work out who would be affected, consult them and think long and hard about whether such a change was a good idea. Our new clause 12 seeks to reverse the VAT bombshell, which, as I am sure many Members will recall, the Liberal Democrats shouted so loudly about before the election, and before they all subsequently discovered that they actually supported raising the 20% rate after all. That was a surprise all around, even to themselves, I think. In fact, everyone’s surprise about that was surpassed only by the discovery that the Liberal Democrats had also been in favour of £9,000 tuition fees all along.

Labour is clear that higher VAT hits the poor harder than the rich. It drives up the cost of living at a time when people are already feeling the squeeze, and it takes money out of people’s pockets and off the high street at a time when businesses are crying out for spending to drive growth. Our five-point plan for jobs and growth calls for VAT to return to 17.5% on a temporary basis until the economy is strong enough to cope with a rise. That would give £450 a year back to couples with children, to give the economy a boost and to drive growth.

The hon. Lady will of course recall that we had this exact same debate during last year’s Finance Bill, and when the House divided on a Plaid Cymru-Scottish National party motion her party abstained. Can she explain her party’s damascene conversion in tabling the same amendment to this year’s Finance Bill?

Can the hon. Gentleman clarify whether he is talking about the debate that we had on raising VAT from 17.5 to 20%, because that is what we are addressing today?

An amendment last year sought to do exactly what the measure she is arguing in favour of would do. That was presented to the House by Plaid Cymru and the SNP, and the Labour party abstained.

I thank the hon. Gentleman for that clarification. I do not have the full details of the intricacies of that particular debate, but I know that what I am proposing is our policy and we support it. We are going to vote today for this measure to reduce VAT to 17.5%.

Can the hon. Lady explain to the House how much her policy would cost and how she intends to pay for it? Or will it be paid for through additional borrowing?

That is an interesting question, coming from a Minister who has just justified a temporary delay of the rise in fuel tax that is apparently to be paid for by underspends that are not quantified by the Government, who are in a much better position to provide detailed costings to the House but cannot for their own tax reductions. We have said all along that the Government’s current policies are costing the taxpayer more. Borrowing is increasing, not reducing—the Government are borrowing £150 billion more over the spending period—and the benefits bill is sending the economy backwards, not forwards.

I have just answered it. I would be grateful if the Minister could similarly provide detailed costings as to where the Government’s tax reduction for the fuel relief is going to come from. If he were able to do that, we could certainly provide detailed costings of our tax proposal. The point is that the reduction to 17.5% will put money back into people’s pockets, get the economy moving and get growth back into the economy. That will help to bring down borrowing, which is increasing at the moment.

I repeat what I said before: the Government’s current policy of increasing VAT to 20% is taking money out of people’s pockets and is causing a slump in demand. It is very strange that these questions are coming from a Government who are borrowing more than they intended over the spending period, not less.

The hon. Lady mentioned a figure of about £400 a year. What I missed, and what I am hoping she will be able to clarify, is whether that is per person or per family. If we knew that, we might all be able to do the maths as to how much this measure would cost the Exchequer.

The figure that the hon. Gentleman is looking for is £450 for a couple with children. It would put money back into their pockets, boost the economy and drive growth. Let us not forget that the Institute for Fiscal Studies has predicted that the Government’s tax credit changes will mean that families will be £511 worse off this year and £1,250 a year worse off by 2015.

Who would benefit more from a VAT cut, a family earning just above the minimum wage or a millionaire?

Clearly, a family would gain more from a VAT cut because they spend much more on VAT as a proportion of their household income. The hon. Gentleman’s indignation at that response demonstrates just how much the Government are out of touch with the reality of the effect of their spending plans on households and household incomes. That would explain why this economy is going backwards rather than forwards under the Government’s plans.

Does my hon. Friend find the interventions of Government Members bizarre? The Government inherited a growing economy and we now have a double-dip recession created totally in Downing street by their efforts to have no other aim than driving down the deficit. They are stifling growth and making ordinary families pay the cost of their economic failure.

I thank my hon. Friend for that intervention and think that the response from Government Members is deeply worrying, as it shows worrying complacency about the direction in which they are taking this country and about the decisions they are making on the economy, which are making things worse, not better.

Our new clause 12 would reverse the VAT rise immediately and prevent it from rising again—I emphasise this point—until the Government can show that our economy is growing strongly again. That is the right move to get our economy back into growth and out of this double-dip recession. I also want to put on the record that we will oppose the Government’s new schedule 1, which would bring in ill-thought-through and unwelcome VAT changes that, despite the concessions, are still wholly unsatisfactory.

Does my hon. Friend share my concern that the proposals in schedule 1, especially those on the caravan tax, seem to have taken no account of job losses or of the effect on demand when we are in a double-dip recession and will cost the Exchequer more than it would gain in revenue?

I thank my hon. Friend for that intervention and her focus on the subject of the debate—that is, these deeply worrying and shambolic VAT changes. We have discussed at some length the new proposals that followed the Government’s concessions and we have had the opportunity to question the Minister on them. I share my hon. Friend’s concern at the failure to provide costings for some of the changes and the lack of consideration of the concern about jobs and growth that our new clauses aim to deal with. Those factors need to be given proper consideration and the Government do not appear to have done their homework.

New clause 12 would delay the rise to 20% in VAT until there was strong growth in the economy. Can she help us by defining what strong growth would be? What percentage growth might it be? Or would it be growth based on a properly balanced economy rather than a financial services-led boom?

I could probably answer the hon. Gentleman’s question with just four words: “out of double-dip recession.”

The Government’s economic credibility, not to mention any reputation for competence they might have had, has taken a massive hit over the VAT changes. They put VAT on pasties and took it away. They put VAT on caravans, then they reduced it to 5%. They put VAT on churches and kept it. Then they invited payment of the charge up front. Churches could claim it back by submitting forms to the Treasury for access to a special fund, which essentially is a big pot of all the money that they paid up front in the first place. What a shambles. Do the Government even know what they are doing any more? They say that their U-turns show that they are listening. When they got it so horrendously wrong, it is good that campaigners were able to get through to them.

I know that hon. Members on both sides of the House have worked hard to get the Government to listen on the subject of the VAT changes, but is it not all too serious to be left to second chances? Do not the people of this country deserve a Government who can get it right first time? People saw in the Budget a true reflection of a Chancellor who tried to sneak through thoughtless changes and got found out.

Let us look at some of the Government’s tax changes. The selection speaks volumes about this Government. They gave a tax cut to banks and to millionaires, but showed no mercy to people who eat pasties. The pasty tax will go down in history as one of the most incompetent Government debacles ever. The attempt to raise the price of pasties and sausage rolls by 20% was claimed to be necessary to close an anomaly, but was universally seen as evidence of an out-of-touch Government trying their luck and grabbing tax on a food that Ministers never eat. The Save Our Savouries campaign run by The Sun pointed out that caviar is still VAT-exempt. Perhaps we can learn something from that. Perhaps the Minister will comment on that in his concluding remarks.

The Prime Minister told us:

“I’m a pasty eater myself. . . I love a hot pasty”,

but he gave himself away when he said that his last pasty was from a shop that turned out not to exist. It was just one gaffe after another. The Chancellor ended up giving evidence to the Treasury Committee on how to tell whether a pasty was hot or cold. Members pointed out that because products would be subject to VAT if they were above ambient temperature when bought, pasties could cost different amounts on summer and winter days.

Notwithstanding some of the flaky accusations the hon. Lady is making against the Government, can she explain why Labour Members will not join in supporting the Government on new schedule 1, which addresses the concerns that were expressed during the consultation process?

Our position is that we would like none of the VAT changes to be introduced so by voting against new schedule 1 today, as I have already explained, we vote against all the VAT changes.

As was pointed out, if the pasty counter was near the oven, the ambient temperature would be higher. If it was near the chiller, the ambient temperature may be lower. Greggs’ official consultation document asked whether servers would ultimately have to take the temperature of both the pasty and the surrounding air to determine whether a 20% surcharge should be applied. The proposal was universally and rightly rounded on as ridiculous. Ken McMeikan, the chief executive of Greggs the bakers, which I am proud to say is based in my part of the world, Tyne and Wear, deserves a mention for his excellent campaign against the pasty tax. A massive £30 million was wiped off the value of the company in the week after the Budget as orders were threatened and jobs put at risk. Along with several hundred other bakers, Mr McMeikan delivered a petition to 10 Downing street. He told Ministers:

“we are the voice of half a million people. We embody their resentment at what this Government is trying to impose against the people’s will. . . ordinary hard working people simply do not want this pasty tax.”

I visited a local school breakfast club with Mr McMeikan and I know just how committed Greggs is to local schools and community projects. It did not deserve to have its business torpedoed by Ministers who are too out of touch ever to have eaten one of its products. Eventually the Government backed down on the pasty tax—they had to because that was the only move they could make—but they left behind them a legacy of arrogant disregard for ordinary people that will not quickly be forgotten. My only hope now is that the U-turn that has been made will be made properly. Representatives of Greggs are still raising concerns that the new wording of the regulations on hot food now state that VAT should be charged if it

“is provided…in packaging that retains heat (whether or not the packaging was primarily designed for that purpose)”.

The hon. Member for St Austell and Newquay (Stephen Gilbert) raised the matter with the Minister, but his answer did not provide certainty, so I would be grateful if he would clarify in his reply exactly how the Government will ensure certainty for this slightly battered production market.

Any sort of paper bag or wrapping could inadvertently help to retain heat, so there is a danger that pasties could still be caught in the regulations and that this whole incompetent mess of U-turns and retractions will all have been for nothing. I hope that the Government will take the opportunity to clarify that point and reassure Greggs and other bakers up and down the country that supplying customers with paper napkins, for example, which could inadvertently slow down the cooling process, will not result in an extra 20% charge for their customers.

Greggs would like confirmation, as I am sure would other bakers across the country, on whether taking trays of baked products from the oven and stacking them in counters that have no other means of heating or heat retention would be considered to be slowing down the cooling process. The practice is used by bakers to minimise food handling and the number of trays in use, but there are genuine concerns in the industry that it could constitute slowing down the cooling process and so incur a VAT charge.

The Government’s second U-turn was on their attempt to charge 20% VAT on static caravans—[Interruption.] I am asked from a sedentary position “Are you only on the second U-turn?” Yes, I am. I venture to guess that caravan holidays, like pasties, are not familiar to most members of the Cabinet. They saw an opportunity to take some extra tax and went ahead without considering the impact on individuals, jobs, growth or tourism. Because of the huge campaign mounted against the policy—I pay tribute to Members on both sides of the House for that, particularly hon. Members who represent the Hull constituencies, who are particularly concerned about the impact on jobs in their area—the Government backed down, but they are still trying to impose the 5% charge, as the Minister set out in more detail earlier.

The Treasury’s own figures show that 20% VAT on static caravans would result in a 30% fall in demand. The industry estimates that it would result in 1,000 job losses in manufacturing, excluding the supply chain. We know that at least one factory in the supply chain, Willerby Holiday Homes, put all 700 of its staff on a 90-day consultation as a direct result of the Government’s announcement that it would levy 20% VAT on its product. The National Caravan Council states that 4,300 jobs might be lost in holiday parks, plus another 1,500 jobs from associated suppliers.

I appreciate that the Minister has sought to give some reassurances on the change and indicated that the Government are listening, to the extent of reducing the VAT rate to 5%. However, he has made it clear today that no actual calculation has been made on the potential impact of the 5% charge, which is of great concern. Even the reduced charge of 5% will mean either that caravan holidays will become more expensive for holidaymakers or that holiday parks will be forced to absorb losses and job cuts. At a time when consumers are already severely squeezed, many people will simply have to go elsewhere. In turn, the whole economy of holiday towns would be hit, with shops, pubs and attractions losing their main business. Is that really what the Government intended?

I am grateful to the hon. Lady, who is being most generous in giving way. I ask her to note that the National Caravan Council, the industry body, and the British Holiday and Home Parks Association have welcomed the 5% rate. They feel that the Government did listen and that the industry can take on that burden as part of the whole national effort to tackle the vast deficit her party left behind when it left government.

I am pleased that the industry is “delighted” with a 5% increase in VAT on its products. That is surprising in the circumstances.

I give way to my hon. Friend the Member for Kingston upon Hull North (Diana Johnson), who wanted to intervene earlier.

I would not say that the industry is “delighted.” I think that it accepts the measure, on the basis that it was very concerned about the 20% figure. My concern as a constituency MP, with 90% of static caravans being built in Hull and the surrounding area, is that there are 43.6 people chasing every vacancy in my constituency. That is the highest figure in the UK, and any job losses are going to be very difficult for my constituents, so that is why I am pressing the Minister to be very clear about the number of job losses that the 5% imposition will bring about. Will the shadow Minister comment on my concerns?

I thank my hon. Friend for that rational and considered intervention and appreciate that the industry is willing to accept the change, as it is much easier to bear than the original suggestion of 20%, but that is the point I seek to make. The Minister in his opening remarks confirmed that no assessment has been made of the impact of the 5% increase on the industry, and that is gravely concerning, because, as the hon. Member for Brigg and Goole (Andrew Percy) suggested, the industry needs certainty, security and stability to create the jobs that my hon. Friend is so concerned about.

The fact that the proposal is being put in place without a proper assessment of what is a lesser impact but still one of 5% is deeply concerning, because the last thing the industry needs is for the measure to be reviewed 12 months down the line, be seen to have had a detrimental impact, and for it to have to go through the whole process all over again.

I thank the hon. Lady for her generosity in giving way. In Great Yarmouth, I represent a £500-million-a-year tourism industry, with about 50% of our bed space in static caravans. Our industry was concerned, but its message to me is that it thinks the 5% rate is not only fair, but better than it had hoped for.

The industry understands the arguments that everyone has to do their bit and that there has been an anomaly for a long time, and feels that the measure is manageable, will not have an impact on its business and is fair. We are very pleased, in fact, that we finally have a Government who say that they will consult and listen, do so and come back with exactly what the industry wants.

The only point I can make is that the industry suffered the serious blow of having a 20% tax announced. That has been reduced to 5%, which it will obviously welcome, but we propose to remove the VAT changes altogether, because at this particular time the last thing that any industry needs, but particularly the holiday, static caravan and manufacturing industries, is a VAT hike. We need to invest in jobs and growth to get the economy moving, to get out of the double-dip recession that we are in and to get back into growth.

Does my hon. Friend share my astonishment at the previous intervention? If the proposal to impose that VAT rate had never been made, there would have been no need for consultation or listening—and it would have been far better to have consulted first. What happened to the notion of a proper pre-Budget report, where suggestions could have been made in general terms and then we could have had a consultation? We all sat here listening to a very strong defence of the original proposals only a few months ago.

My hon. Friend speaks a lot of sense and makes her point very forcefully. The Government seem to have tax-grabbed first and consulted later. They have sneaked through changes—the ones they have got away with, they have pocketed and the ones they have been seriously challenged on, particularly by their own Back Benchers, they have had to relent on. But that is no way to conduct tax policy or business.

Is my hon. Friend as confused as I am by Government Members saying that their local manufacturers were asking for a 5% increase and demanding to be charged VAT? That is what it sounds like.

I made that very point when I expressed surprise at the impression being given that the static caravan industry warmly embraces and welcomes the change. A more rational description is that the industry accepts it as a much better deal than the one they were originally given by the Government—a slapped-on VAT increase to 20%, which would certainly have had an impact on jobs and compounded the lack of growth in the economy.

Once again, the change was announced during a parliamentary recess, the same day as the U-turn on the dreaded pasty tax. As Parliament was not sitting, there was no opportunity for the House to scrutinise the details of the Government’s plan—details such as where the money to pay for the change of heart would come from. The Government have yet to provide an answer to that question. We know the money will come from “underspends” in unidentified Departments, but we do not know where those underspends have occurred, whether they were planned, or why the coalition’s No. 1 priority of deficit reduction is no longer the default destination. The two measures—pasties and caravans—were supposed to raise £70 million, which is now unaccounted for. I hope that someone somewhere knows how to make up those sums. Many ordinary people consider £70 million quite a big hole to fill. How do Government plan to deal with it?

The third U-turn is the Government’s partial reversal on the so-called church tax. Ministers claimed that, in future, VAT would be payable on alterations to listed buildings, which are currently exempt. Of course, as the Government acknowledged today, half the listed buildings in this country are owned by the Church of England, which pointed out immediately that the change would cost it at least £20 million. Many churches collect donations from their congregation to pay for necessary alterations—often basic alterations, such as to provide a toilet and to ensure that the whole community can access the building. Without greater reassurances, the Church told the Government, the extra 20% payable would result in projects already scheduled having to be cancelled, and many of those projects were part of initiatives that churches had been encouraged to undertake through the big society.

The Government did not agree to a U-turn as such. I imagine they felt a bit embarrassed by that point, although that did not stop them performing another U-turn just days later—again, when Parliament was not sitting—on the charity tax. Instead, when they realised how hard churches would be hit, they agreed to give an extra £30 million to the listed places of worship scheme, so that churches could claim the money back in grants.

It is welcome that churches will no longer be hit with the huge extra cost of VAT, but my understanding of the Exchequer Secretary’s comments today is that churches will be asked to pay the VAT up front, then claim it back. They will have to raise the money to pay for the work they need to carry out, then wait for months to—hopefully—get it back. The hon. Gentleman says that measures have been put in place to make sure that churches do not suffer cash-flow problems, but I am not clear how much reassurance that provides. If he gives more detail when he winds up the debate, I am sure the House will be grateful. For a Government who say that they are waging war against red tape, it seems a bureaucratic process to put in place. My hon. Friend the Member for Edinburgh North and Leith (Mark Lazarowicz) raised concerns not just about the bureaucracy for HMRC and the Treasury in processing the payments and rebates, but the bureaucracy for the churches, which could well do without it.

I also understand that, contrary to what the Minister said about the Church of England’s being entirely happy with the proposal, many churches have expressed concern that the uncertainty would put them off accessing the scheme and relying on the VAT rebate. Churches could be deterred from undertaking necessary alterations and repairs. The other concern is that the measure does not help non-religious listed buildings, which still have to pay the 20% tax. Many people will choose not to go ahead with their projects. Among other things, that will hit jobs in the construction industry, and we all know how hard that has been hit by the downturn and the double-dip recession. It is an extra setback for that industry that listed building projects will not go ahead because of the 20% increase in cost.

We have seen at least partial U-turns on the pasty, the caravan and the church, but the Government have refused to budge on two issues. Sports nutrition drinks are still being subjected to a 20% price hike while sugary milkshakes will still be VAT exempt. The Government want to put VAT on sports drinks that are advertised or marketed

“as products designed to enhance physical performance”

or “accelerate recovery after exercise”.

The Minister sought to provide clarification for the Opposition, but I, for one, am none the wiser about the rationale behind the policy. No rationale has been offered for why a sports drink designed to provide and facilitate exercise and fitness should be targeted for VAT while drinks laden with refined sugars and fats are still exempt. Moreover, as my hon. Friend the Member for Kilmarnock and Loudoun (Cathy Jamieson) said earlier, the industry has raised serious concerns about whether milk and milk products will unintentionally be caught up in the ruling. From the Minister’s comments today, I wonder whether that is unintentional at all.

We all remember the “Make mine milk” ads in which well known sportspeople such as Denise Lewis promoted the benefits of milk for sport. If milk has been marketed as something that enhances physical performance and sporting prowess, will the Government levy VAT on it? My understanding from the Government’s comments today is that they would. There is no indication about how the anomaly would be resolved by the Government or whether they even have an issue. For that reason, we will vote against this shambolic VAT reform.

The final issue on which we have concerns is the VAT levied on hairdressers’ chairs. The Chancellor wants self-employed hairdressers to pay 20% VAT on hiring a chair in a salon. With the cost of chair hire up, hairdressers will have to choose between passing the cost on to their customers or absorbing it themselves. Industry data show that that will disproportionately hit small businesses and their customers, especially women between 16 and 44 years old. Why do the Government think that a good idea?

If the measure is just another routine closing of an anomaly, have the Government considered who they are hitting with it and why? I am truly concerned that the measure looks as if it was worked out on the back of an envelope, without any consideration of how many jobs it might cost. Our amendment would force the Government to consider carefully the impact on jobs and growth before imposing VAT on any previously exempt products. It is not clear that they have given any thought to the change that I have mentioned.

On haircuts, I wonder whether the increase in VAT in the case of hairdressers will precipitate a return to hairstyles such as the one that I currently sport.

My hon. Friend read my mind as I gazed across the Chamber.

Giving a tax cut to millionaires and the banks but making it harder for self-employed women and their customers reveals a Government who are, once again, truly out of touch with ordinary people’s lives. New clause 12 seeks to go further on VAT and create a temporary reduction in the rate from 20% to 17.5%. The Liberal Democrats ran for election on a manifesto that warned of the dangers of a VAT rise with their pledge to protect constituents from the “VAT bombshell” threatened by the Conservatives. The Deputy Prime Minister pledged:

“We will not have to raise VAT to deliver our promises…Let me repeat that: Our plans do not require a rise in VAT.”

Why were they so against VAT? Perhaps it is because the evidence clearly shows that people on lower incomes are hit proportionately much harder than the rich by VAT because they tend to spend more of their income rather than save and invest it. Government Members will claim that, looking at different measures, more VAT is paid by the rich—the hon. Member for Brigg and Goole (Andrew Percy) fell into that trap—but there is absolutely no doubt about the fact that VAT is regressive and that those on lower incomes spend a higher proportion of their income on it than those on higher incomes. Even the Prime Minister agrees. In 2001, he said:

“If you look at the compared with people’s income then, yes, it’s regressive”.

Does the hon. Lady concur that those on lower incomes pay a higher proportion of their income on fuel, and will she therefore welcome the postponement of the 3p increase in fuel duty?

I not only welcome it but point out that we proposed it, and the Chancellor shortly followed us on the same day. Our proposal to bring about an immediate reduction in VAT to 17.5% would deliver that 3p fuel duty reduction for drivers and put money in their pockets not only in respect of fuel but right across the board. It is a measure that is absolutely required to turn our economy round from the double-dip recession we are in.

Is not the real VAT bombshell the fact that the hon. Lady does not know how much this policy would cost Her Majesty’s Treasury? In the hour or so for which she has been talking, has she had any inspiration from colleagues?

As I said, it is the Government’s job to work out the cost of any tax changes or spending commitments, and they have not even been able to provide answers as regards their own fuel duty reduction.

As the hon. Lady says that it is the Government’s job, let me tell her—I do not want to keep her in suspense —that her policy of reducing VAT to 17.5% would cost £12 billion to £13 billion a year. Does she dispute that number, and can she explain how she is going to pay for it?

If our policy turns the trajectory of the economy around from one of recession to one of growth, then clearly it will pay for itself and bring down the benefits bill, which is currently going up.

I would like clarity on what the Opposition’s policy is. [Interruption.] I can hardly hear myself think. Is it our policy that VAT will be permanently reduced to 17.5% or that the reduction will last for 12 months and then it will go back up to 20%?

We are suggesting—we hope that the Government will jump on our way of thinking, as they did with the delay in the rise in fuel duty—an immediate reduction to 17.5% until we get the economy back into growth.

It all depends on how long the Government take to get the economy back into growth. The reaction of Government Members seems strange, when they are driving the economy into recession rather than into growth.

The hon. Lady will be aware that the temporary reduction under the last Government had a significant cost impact on a number of businesses. If the economy suddenly went into growth in the quarter following the reduction, would she expect businesses to take the burden of the costs of implementing the reduction and then unimplementing it in two successive quarters?

The hon. Gentleman is getting ahead of himself, given that we are in a double-dip recession, that growth has stalled, that all the predictions of the Office for Budget Responsibility are being revised down day on day, and that borrowing is going up. Everybody agrees that we need demand in the economy. The way of generating demand in the economy is to put money back into people’s pockets. I remind hon. Members that before the increase in VAT, the economy was on a trajectory of growth. That was before this Government took over and brought in their disastrous austerity policies.

Does my hon. Friend agree that the Minister’s figures assume that when VAT rises or falls, it has no impact on people’s expenditure? The thrust of what we have been saying, not just in response to the Budget, but for several months, is that the rise in VAT has dampened demand. The tax-take in May, for example, was down by 7%. Far from a static amount of money being drawn in, a VAT reduction would increase demand and, ultimately, increase the tax-take.

I thank my hon. Friend for her characteristically rational contribution. I would add that the recent Institute for Fiscal Studies report estimated that the Government’s tax and benefit reforms will make a couple with children £511 worse off in this financial year and £1,250 a year worse off by 2015. It does not take an economic genius to work out what that does to demand in the economy.

The Prime Minister admits that a 2.5% increase in VAT hits the poorest hardest, so what happened to, “We’re all in this together”? I would like to hear an answer on that. As well as hitting poor people the hardest, higher VAT is hitting the economy at a time when we can least afford it. As we have discussed, the Chancellor unveiled a fuel duty cut last week, using mystery funding sources. Dropping VAT could have taken 3p a litre off petrol immediately. Across the board, a temporary cut in VAT would stimulate growth and get the economy moving again. Putting money back into people’s pockets is the only way to support businesses and create jobs—the very things that the Chancellor left out of his mangled Budget. That is why a temporary return to 17.5% is part of Labour’s five-point plan for jobs and growth.

Is not another way to stimulate the economy to spend the money on employing the police officers who have been sacked and on reversing the ambulance cuts, the fire service cuts, the Army cuts and other cuts? We could use the £50 billion that a VAT cut would equate to over a Parliament to employ public servants, rather than to cut taxes.

My hon. Friend makes a valid point. Since June 2011 we have lost more than 100,000 public sector jobs, which means that there have been redundancies at a rate of one a minute since the Government took office. Yet the private sector, which the Prime Minister anticipated would flood in to create jobs, has simply not delivered. It has created only half that number of jobs, leaving the other half of those people on the dole and claiming benefits. That is pushing Government borrowing up, not down.

The measures that we suggest would boost the economy and people’s spending power and ensure that we are not saddled with taxes that no one can afford. We want to see the economy moving into growth again.

When I came into the Chamber to listen to the opening part of this debate, I did not anticipate speaking. However, I am very pleased to have caught your eye, Mr Deputy Speaker, because I felt utterly compelled to join in, notwithstanding my current incapacity. It has been an illuminating debate.

I listened to the shadow Minister’s speech and the interventions of her colleagues, and I find it staggering that they are not going to listen to the submissions of my constituents on the pasty tax, caravans or fundraising for places of worship, on which many people work so hard. Oh no—their opinions do not count for anything to the Opposition. They are not going to listen to all the representations that have led to the Government’s sensible proposals. The listening exercise to improve and amend the Budget has led to proposals that respond directly to all the concerns expressed by my constituents, and I dare say by the constituents of a great number of colleagues.

I am really very confused. My constituents have been saying exactly the same thing, which is why Labour Members have been arguing against this dreadful Budget in the Chamber, the Public Bill Committee and wherever we can. We have said that the Government should not put VAT on pasties, caravans, hairdressers’ chairs and so on. I agree with the hon. Lady about that. Thank heavens, the Government listened to us a bit in the end, but sadly not enough.

It is surprising to me that, as far as we are aware from the comments of the shadow Minister, the Opposition will be voting against the very improvements that the hon. Lady says they have been working so hard to achieve. I do not doubt her good intentions or that she has been working very hard to represent her constituents, but if she was truly doing so, she would walk through the Lobby with the Government this evening, because they have listened thoroughly.

Let us take the pasty tax, for example. It will not surprise Members that I am keen to talk about pasties, because not only am I a big fan and regular consumer of them, but I represent Cornwall, where they are an incredibly important industry. When I listened to the Budget some months ago, it was clear to me that the Government were doing exactly the right thing. They had seen some dreadful anomalies in VAT on food that had led to huge unfairness. Independent owners of fish and chip shops in my constituency had to pay VAT, but other outlets selling hot takeaway foods did not. The Government’s attempt to sort out VAT struck me as perfectly reasonable.

We all know that what is really holding back growth in our economy is that for too long, small businesses have been massively overburdened by a dreadfully confused and muddled-up tax code. Under the last Government, the tax code multiplied and multiplied. We would probably have to use a wheelbarrow to carry all its volumes into the Chamber. The current Government are making a very reasonable effort to simplify some of the taxes that are such a burden on businesses in my constituency. They have listened carefully to the representations that have been made and are now going to create a level playing field for all people producing and selling takeaway food. That will benefit independent bakers in small businesses throughout Cornwall who bake pasties.

As my hon. Friend is aware, the Government inherited the largest overspend and deficit in the developed world, so it was right for them to probe every possible area of tax revenue. It was also right for them to listen to people when representations were made and to respect parliamentary democracy. Does she agree that if the Labour party had listened to Back Benchers when it was in power, we would not have got into the mess that we are in and we would not have the vast deficit that the Government are having so valiantly to fight to reduce?

My hon. Friend makes his point as passionately and persuasively as always, and he is absolutely right.

To return to pasties—one of my favourite subjects—when I listened to the Budget, it was clear to me that there was a problem with the proposals as they stood. Some of the architects of those proposals clearly did not understand how pasties are baked in Cornwall. Within hours I spoke to my hon. Friend the Exchequer Secretary, who clearly understood the problem that I described to him. He said the Government realised that there could be some complications and unforeseen consequences, hence the reason for their consultation. Colleagues from around the country responded positively to that consultation, and their concerns have now been met.

I am staggered by what the Opposition wish to inflict on our country by not supporting the Government tonight. In the nightmarish scenario that they won the Division, we would return to the situation in which the Treasury wastes hundreds of thousands of pounds of taxpayers’ money every year having to fight litigation cases against multi-million-pound companies that are trying to avoid paying VAT. The extremely complicated tax code that was developed under Labour over its 13 years was a lawyers charter. I have nothing against lawyers—I am married to a very good lawyer—but that ever-increasing and complicated tax code means that, not unreasonably, companies try to avoid paying tax. That causes Her Majesty’s Revenue and Customs to be tied up in court, spending hundreds of thousands of pounds on lawyers fees that it could be spending in a far better way.

It beggars belief, but what the Labour party is saying tonight is, “We are on the side of companies trying to avoid tax. We are on the side of lawyers who are constantly taking HMRC to court.” What a dreadful waste of taxpayers’ money. The Government are trying to have a fair and simple tax system that everybody in the country can understand, so that we are not caught out by those who avoid taxation.

I wonder whether the hon. Lady has noticed the size of the Bill. It is apparently one of the biggest Finance Bills ever, which suggests that the tax code is being added to all the time. Would it not have been easier for the Government never to have made their VAT proposal in the first place?

No. As I have said—very clearly, I hope—the Government’s change will bring about a lot of clarity and be beneficial. For example, new schedule 1 clarifies what constitutes takeaway food and hot food. I accept the point that my hon. Friend the Exchequer Secretary made that we can never be 100% certain that companies will not litigate to try to wriggle their way out of paying their taxes, but the added clarity will be welcome to pasty makers. They will understand the situation that applies to pasties that are made and consumed in the way that they are in Cornwall.

For the benefit of Opposition Members who do not seem to understand what master bakers do in pasty shops in Cornwall, I will explain that each day they get up very early to make high-quality bread, cakes and buns as well as pasties. They cook them on their premises so that they are beautiful and freshly made. Throughout the course of the day, anybody can buy freshly made bread, cakes, buns, scones or pasties. Thanks to the clarification in the new schedule, we can continue doing that in the certain knowledge that we will not pay VAT. Labour Members, however, who, feeling peckish on their way home tonight, decide to pop into the West Cornwall Pasty store, perhaps at the station, will, as in every other takeaway food outlet at the station, quite rightly pay VAT, because those pasties are deliberately kept warm all day long alongside other takeaway food. It is only right and proper, therefore, that they pay VAT.

We did not have that clarity before. There were all sorts of loopholes that companies sought to exploit at huge cost to the Exchequer and, ultimately, to us taxpayers, because we pay the bills. I find it astonishing, therefore, that the Labour party is on the side of wealthy companies, with their deep pockets, and the lobby in favour of tax avoidance. I find that absolutely extraordinary.

Of course, it was not just a pasty tax; it would also have affected the fantastic Cissy Greens pie shop in Haslingden. We are dancing from the River Ogden to the River Irwell in celebration of the fact that we can enjoy our Cissy Greens pies without VAT.

My hon. Friend makes a good point. This affects master bakers, whether of pork pies, sausage rolls, steak pies or chicken pies, the length and breadth of the country. Those self-employed, highly skilled master craftsmen can carry on producing their much-loved regional foods, which we enjoy all over the country and which make our country so distinct, as we celebrate our rich and varied food heritage. I hope that that addresses any misapprehensions among Labour Members about the benefits of the pasty tax.

Much has been made of the Government’s U-turns. I welcome having a Government who, when they launch a consultation, as they did after the Budget, actually listen to representations on a range of measures, and I am pleased that the Chancellor is driving our economy in the right direction. We have to reduce our deficit and get our expenditure under control. The hard-working families and small businesses in my constituency understand that, and frankly will feel let down by this retread idea of a 2.5% reduction in VAT—the only proposal we hear from Opposition Members. But, of course, we do not know whether that will be their proposal tomorrow, next week or next month, because the shadow Minister could only say that it was the proposal today. If that is their only proposal and if it is only for today, how can families in my constituency have any confidence that they would drive the economy in a better direction? I am confident that the Chancellor is on the right road, and I am certain that focusing on the Budget, making sensible changes along the way, is the right way to go.

Does the hon. Lady agree that it is good news that the Chancellor listened to me on pasties, on caravans—after I invited him on holiday with the Prime Minister and me in a caravan—and on petrol? Does she also agree that it would be even better news if he also listened to me on churches and VAT on listed buildings?

I am glad that the hon. Gentleman makes that intervention, because I was going to talk about that issue. First, however, I would like to make a little more progress on the analogy I was drawing to the House’s attention. We all get behind the wheel of a car from time to time—sadly, at the moment, I cannot, but I hope to be back there before too long—and when on a journey we are often certain of our destination, but sometimes we are not as good navigators as we would like and have to put on our sat-nav to help us, and sometimes we get an instruction from that irritating person on the sat-nav saying, “As soon as the road ahead is safe and permits, please do a U-turn.” At that point, do we throw up our hands in horror and say, “Oh, it’s just appalling to have to make a U-turn”, or do we think, sensibly, that to reach our destination in a safe and timely way it is appropriate to make the occasional U-turn? I have no problem with the Government making U-turns if it gets us to our destination in a timely and safe way.

The hon. Gentleman asked me about the changes to listed buildings. Having the beautiful Truro cathedral in my constituency, I was concerned about the proposals and immediately consulted the diocese and a wide range of churches in my constituency about their implications. I brought all that information to the Chancellor’s attention, as, I am sure, did Members across the House, and I was satisfied with his response. The Second Church Estates Commissioner, my hon. Friend the hon. Member for Banbury (Sir Tony Baldry), is to be congratulated on how he co-ordinated all our efforts and on the work he has done with the Church Commissioners and the Treasury. Their solution is both practical and actionable, and has met with the perfect satisfaction of churches in my constituency.

I know that many Members wish to join in the debate, so I shall conclude. It is immensely important that we have a Government who listen, who consult on proposals and who then act on them. Whether on fuel duty, pasty taxes, caravan taxes or fuel taxes, my constituents are immensely pleased and relieved that the Government have listened and helped hard-working people and small businesses during these difficult times.

I want to speak to new clause 3, although it might first be appropriate to pick up on one theme from the speech by the hon. Member for Truro and Falmouth (Sarah Newton). She said she was pleased that the Chancellor was creating a level playing field. Well, if there is any area of the country where it would be difficult to create level playing fields, it would be in Truro. But anyway, I am pleased that she is satisfied.

I wish to make a plea for a level playing field for young people in my constituency and other constituencies who go to sixth-form colleges, and I wish to compare their tax position with that of young people undertaking sixth-form studies in school. In a recent Westminster Hall debate, led by my right hon. Friend the Member for Sheffield, Brightside and Hillsborough (Mr Blunkett), we discussed how poorer young people in sixth-form colleges or similar establishments were discriminated against in respect of free school dinners compared with young people in school. Here is yet another example of discrimination against young people, depending on the institution they attend.

I plead again with the Government, in respect of VAT, to treat sixth-form colleges as we treat schools with sixth forms. In Birkenhead, most pupils have no option but to attend sixth-form college if they want to undertake post-16 studies because the sixth forms of most of the schools were pooled together in that one enterprise. The VAT on services that the college purchases, but which schools do not pay, adds £300,000 to the college budget—a reduction of 4% in that budget.

My plea to the Chancellor will be brief and simple;I will not go up and down the country lanes, visiting various constituents, bakers and so on. He hoped to create a level playing field for taxation for sixth-form colleges and sixth forms in schools by the end of the Parliament. That was a noble objective, but the 2015 election, as it draws ever nearer, will certainly concentrate Government Members’ minds not only on small U-turns but perhaps on more major ones.

The Institute for Fiscal Studies undertook an analysis of the Government’s public expenditure changes which showed that the part of the education system that will be most handicapped and suffer the largest cuts by 2015 will be colleges of further education. Indeed, they will experience a 20% real-terms cut in their budgets by 2015. I know that it would not be in order to ask the Minister to respond to that, but given that the Government’s policies are making the playing field even more unequal for sixth-form colleges, compared with the treatment of sixth forms in schools, let me make a plea for him to concede that point and exempt sixth-form colleges, whose students are of an age that if they were not at college, they would be in school.

I do not understand why this has ever occurred. How come a sixth-form college is not treated exactly the same as a sixth form in a normal school? They may be in different areas, but they are essentially the same kids. I do not understand it, so perhaps the right hon. Gentleman—my friend, because I have known him a very long time—can tell me the answer.

I am grateful for the intervention. Unfortunately I cannot give an answer, but I will redirect the question to the Minister. This time, I hope that he will give us an answer and—I hope even more—say that the Government intend to take action.

It is a pleasure to follow the right hon. Member for Birkenhead (Mr Field), who made an interesting contribution, on an issue that I was not planning to speak about, but which I hope will be pursued if his new clause is not accepted this evening.

This has been an interesting debate. I am only sorry that the Minister’s attempt to take us through every VAT change since 1973 was cut somewhat short. We got to about 1983, which was probably as far as most of us needed to get, but it was interesting none the less. The debate has also been interesting because of the number of food products that have been mentioned. At one point, when we were talking about rotisserie chickens, pasties and sausage rolls, I thought it was lunchtime at the Percy house, but apparently not. I am proud to say that I eat pasties: I ate my last one from Fuller’s bakery on the precinct in Goole just the other day. I cannot say that I partake of sports drinks, so I will not take much of an interest in that part of the debate, but I am certainly pleased that the Government have seen sense on pasties. I am not sure that I necessarily share the full analysis offered by my hon. Friend the Member for Truro and Falmouth (Sarah Newton) about the seamless transition of policy. I do not think it has necessarily been the Government’s finest hour, but at least at the end of the process we have a system with which we can all live.

I want to make a few brief comments about the caravan tax. It is a pleasure to see my hon. Friend the Member for Beverley and Holderness (Mr Stuart), who assisted with—[Interruption]—sorry, who led the campaign. I chide him with an in-joke. He led the campaign very ably and got us all together. He deserves credit for that, and I am pleased to see him here for this debate. The impact that the measure would have had is well documented in the various debates we have had. The Minister knows from the meetings we had with him that we were very concerned, particularly in our part of the world, where the vast majority of the relevant manufacturing is and where a lot of the supply chain is based, including, in my constituency in Brigg, a number of companies that were affected. I also have some of the parks that would have been affected in my constituency. I am pleased to see my hon. Friend the Member for Cleethorpes (Martin Vickers), who would have similarly been greatly affected, from the point of view of the park owners, had the measure gone forward. It is therefore incredibly important that we have reached the position we have.

Some genuine points have been made about the consultation. One needs only to do a Google search to find headline after headline, in both local and national papers, about the state in which the industry has found itself in recent years. Indeed, it had to go to the previous Government looking for support, although I am not sure that a great deal was forthcoming. We are talking about an industry that has struggled considerably over the past few years, so quite who came up with the idea of slapping on 20% VAT, thereby affecting sales by up to 30%, I do not know, and I hope that some lessons will be learned. I prefer to see what the Government have done not as a U-turn, however. There was a US politician who used to describe a U-turn as a recalibration of policy, so I welcome this recalibration of policy. It is a shame that the previous Government did not do that on more occasions, as my hon. Friend the Member for Beverley and Holderness mentioned.

There are two issues that I want to go into in detail. First, the question of whether the previous position was an anomaly is still up for debate. I do not think we necessarily want to cede the principle that the previous regime of not subjecting holiday statics to VAT was indeed an anomaly. There is an argument to be had about that. The second thing I want to pursue is the assurances we have heard, which I am pleased the Minister gave at the Dispatch Box, in so far as he is able when it comes to future tax policy. We have been assured that it is unlikely that the Government will seek to look at the issue again. I am sure that we would all welcome that and that the Minister will welcome not having colleagues from all parts of the country banging on his door, as we did.

I am grateful to my hon. Friend. Now that a 5% VAT rate has been introduced, does he agree that any Government, whether the coalition or a future Labour Government, would be ill-advised to return to this issue with any form of increase? The level of 5% can be accepted. People do not pay council tax on these caravans. We are talking about a compromise, but one that can last, that the industry can live with and that the political establishment should live with. Indeed, no Government should ever think of returning to the issue at any time while even someone as young as my hon. Friend is in this House.

I am being abolished at the next election anyway, so there are only three years in which the Government might have to worry about me. However, they would frankly be stupid—if that is not unparliamentary language—to look at the issue again. I think any Government will take note of the campaign.

The final assurance I seek from the Minister is that we will continue to be conscious that there will still be a potential impact, as was mentioned in interventions by the hon. Member for Kingston upon Hull North (Diana Johnson), who also fought valiantly. I hope that the Treasury will continue to monitor that.

In the final minute, I want quickly to say something about the Opposition’s VAT cut for millionaires, which I think is what they are proposing. Whereas we on this side of the House have decided to target tax changes at those struggling the most—for example, by raising the personal allowance and taking some of the poorest out of tax altogether—the Opposition policy is to issue a massive VAT cut for high earners and millionaires, and just to pepper money around. The Opposition are not quite sure how much—they have not told us, although we think the figure might be £12 billion—and they do not know for how long the measure would be in place. What a policy! The interesting thing we have learnt is that we now know that the Opposition’s official policy is to support, ultimately, VAT at 20%, because they have said that the measure would be temporary, meaning that they have therefore definitely agreed the 20% rate.

No, I am not going to give way, because other people want to speak.

The shadow Minister talked a lot about VAT consultation and the Government’s failure, she said, to consult on the changes. I just wonder whether she has consulted very widely on her proposal to reduce the rate temporarily to 17.5%, because I suspect not.

It is a real pleasure to follow the hon. Member for Brigg and Goole (Andrew Percy), who, with characteristic humility, accepted that bringing forward these VAT proposals was not the Government’s finest hour, unlike the hon. Member for Truro and Falmouth (Sarah Newton), who unfortunately is no longer in her place. She has a rose-tinted view of the shambles of this Budget and the proposals that have been put forward, which caused consternation, upset and distress to many individuals and businesses around the country. However, she now seems to think that we should be celebrating the fact that the Government have had to cobble together this compromise.

I shall be supporting new clause 10, which was tabled by those on our Front Bench, and I want to speak against the Government’s new schedule 1. Our opposition to new schedule 1 underlines Labour’s commitment to having low taxes, because it would implement a tax increase, including the 5% VAT on caravans, which I want to address.

I am interested to hear about that commitment, because I had understood that it was Labour policy to do more of the heavy lifting on deficit reduction through raising taxes than through cutting public spending. Is her party now the party of low taxes?

This section of the debate is about VAT. When we are in a double-dip recession, the imposition of VAT on items such as caravans is not going to help us to grow out of that economic position. That is what I will concentrate on.

The proposal for 20% VAT to be levied on static caravans came out of the blue in the Budget. There had been no consultation with the industry, and no warning that the Government were planning that measure. The impact assessment published alongside the Budget stated that the 20% VAT would result in a 30% reduction in the market for static caravans. The Government’s U-turn involved a 75% reduction in the amount of VAT involved, and 5% will now be levied from April 2103, as opposed to 20% from October 2012.

I can go some way towards welcoming the fact that the Government have listened and put forward a response to the widespread view that the imposition of 20% VAT would have been a disaster. There was cross-party work on the issue, with a number of debates, early-day motions and petitions. I will give the Minister his due; he did take the time to listen to what people had to say, especially those from my part of the world. However, serious concerns remain about the effect that the 5% VAT will have, and I want to run through them tonight.

I want to talk first about jobs and demand, which are at the heart of the issue. As I said, the Treasury’s own figures showed that the imposition of 20% VAT would have resulted in a 30% reduction in demand for static caravans. It worries me that the Treasury seems incapable of using figures appropriately. When I looked at the impact assessment, I realised that it had got the figures for businesses and manufacturers in the caravan industry wrong. It worries me that it cannot even get such basic information correct when it sets out to consult on a proposal. I want to see much better research into the impact of the 5% VAT on caravan manufacturers.

I have not been reassured by what the Minister has told me today, even though I have pressed him to tell me what will happen to manufacturers in the caravan industry. I did not feel that he really had a grasp of what the numbers might be. It worries me that there has been no proper assessment of this policy. Does he think that levying 5% VAT will put at risk roughly a quarter of the demand that the 20% VAT would have put at risk? Does he also think that the number of job losses in the caravan manufacturing industry will be reduced from the 6,000 mentioned in KPMG’s report to about 1,500 as a result of the change in VAT? Will he also comment on the knock-on effects for the wider UK tourism and domestic holiday industry?

I want to draw the Minister’s attention to the HMRC document, “VAT: Taxing Holiday Caravans”, which was published at the end of last week. On the economic impact of the 5%, it states:

“This measure is likely to lead to an increase in the price of static and larger touring caravans which could lead to a fall in demand.”

I take the view that the Treasury civil servants are among the brightest and best that the civil service has to offer, and it seems odd that they have been able to come up with nothing more definitive than that the measure “could” lead to a fall in demand. The document goes on to state:

“Although the overall impact on the macro economy is expected to be negligible, the measure will impact local manufacturing in Yorkshire and the Humber where the bulk of static holiday caravans are manufactured.”

Most people in Hull and East Yorkshire would agree with that, but surely the Treasury can come up with something better. The section of the document entitled “Impact on businesses including civil society organisations” states:

“The vast majority of static holiday caravans are manufactured in Yorkshire and the Humber and a small number of manufacturers account for the vast majority of all UK sales. Although some manufacturers produce other types of caravans, static caravans are the main source of income for most of these manufacturers.”

Again, it worries me that the document uses such general terms. Where is the meat in all this? Where are the figures? Where does it tell us what the actual economic impact of the policy will be?

Let us bear in mind that we are in a double-dip recession and we are all desperate to get growth back into the economy. I mentioned in an intervention that 46.3 people in my constituency chase every job vacancy going, so any loss of jobs in the caravan manufacturing industry is a disaster for my constituents. I think that the hon. Member for Brigg and Goole mentioned that the caravan industry suffered very badly in 2008-09, and it is only just getting back on its feet. If the Treasury thinks that the imposition of 5% VAT will be fine for an industry that is struggling in a double-dip recession when people are not spending, it really needs to look again at its figures and ensure that they all add up.

The Minister said that the goods within a caravan were already taxed, in that VAT had already been levied on such items. My understanding is that the figure involved is about 5%. Will he tell us whether the 5% proposed in the Bill will be an additional 5%, making a total of about 10% VAT payable? I am confused by that, and the Minister has not made it clear.

One of the strongest arguments against the initial proposal for 20% VAT was that it would raise very little revenue for the Treasury. When taking that into account, we also need to consider the welfare costs that would be incurred from people in the industry losing their jobs. Has the Minister looked at the figures involved? Does he think that the sums add up?

HMRC now estimates that the 5% VAT will first raise revenue in 2013-14, when it will bring in £5 million a year, rising to £10 million a year from 2013-14. That is a relatively small amount of money, given the Government’s overall spending, especially in the light of the millions that they have found in the Budget for tax cuts for millionaires. Let us put this into perspective: £10 million is perhaps a third or half of what Mr Diamond’s severance payment might be.

This measure will have an impact from next year onwards, while raising £5 million to £10 million. When we take into account the fall in demand in the industry and the resulting job losses, I do not think that the Treasury will end up in credit. Introducing the measure could result in more money being spent, through welfare benefits. Will the Minister set out for me the sums that he is using to ensure that the measure will bring a net benefit to the Treasury? In my view, this is an ill thought-through policy, and these are crazy economics.

The Minister referred to the manufacturing standard, BS 3632. As I said in my intervention, using a manufacturing standard to dictate tax policy is silly.

I want to return to the hon. Lady’s point about the overall costs. A significant percentage of the cost of a new caravan is found in the chattels inside, which already have VAT on them. So the additional overall cost will not be higher than 5%; it will be more like 3% or 4% on the overall average retail cost of a caravan. The manufacturers are telling me that they think that that can broadly be absorbed within their business model. It will have some negative impact, but a fairly minimal one. We are certainly not talking about 10% costs, but about rather less than 5%.

I am grateful for that intervention, and I pay tribute to the hon. Gentleman for the work he did on this matter. However, I would really like to hear from the Minister what the VAT level is going to be, because my understanding is that it is 5% plus the additional VAT already levied. The hon. Gentleman says that it is 3% or 4% and not 5%, but is that 3% or 4% on top of the 5%, which would mean it was 8% or 9%, not 5%?

Basically, VAT has already been paid on those chattels, so if 25% of the cost of the caravan were for the chattels, that already includes VAT, so we are looking at 5% on 75% of the overall cost of the caravan. That is why it is significantly less than 5% as an addition to the actual cost when someone goes to a park to try to buy a caravan. The additional costs as a result of this change will be significantly less than 5%—I say that clearly and categorically.

I am grateful to the hon. Gentleman again, but I would still like to hear from the Minister exactly what the figure will be. My understanding—I was at the same meeting with the caravan manufacturers in Beverley as the hon. Member for Beverley and Holderness (Mr Stuart)—was that a figure was levied across the whole price of the caravan, including the chattels in the caravan at around 3% or 4% of the overall cost. Will the Minister clarify that? Are there two figures that we need to be aware of, or is it just 5% overall of the total amount of the purchase? I have to tell the Government that if this were intended to make things clearer, the truth is that it is making things even more complicated and less transparent.

Let me return to the BS 3632 specification. I was saying that I thought that that was not a sensible way to make tax policy. I know that the distinction between static caravans and those used for residential purposes 365 days of the year is based on the reference to BS 3632. If we look at the responses to HMRC’s consultation, we see that while many respondents felt it would be relatively straightforward to upgrade static caravans to meet the BS 3632 standard so that they could benefit from zero-rated standing, many others said that the costs of doing so would be prohibitive. There is a confusion there, which is why I would like the Minister to be very clear about it.

With certified British standards changing all the time because manufacturing gets better and better, how often does the Minister think he would need to return to this tax provision to update it? I doubt whether it will be set in stone for years to come; it will have to be looked at and changed in the future. I heard the Minister’s reassurance that we would not see changes to the standard in the future, but he is opening the door to potential changes. The system that the Minister has devised, based on the British standard and keeping the distinction between static, residential and touring caravans, does not make things clearer and more transparent; rather, I think it extends the anomalies in the tax system.

An even bigger issue for me is the lack of clear evidence of what the change to VAT policy will do for my constituents and for jobs in my city. That is what really concerns and worries me. I know that the Minister has listened carefully to my pleas about employment and jobs. I hope he will think again and will instruct his officials to do a proper piece of work, so that when MPs scrutinise Government policy, they will have accurate figures to look at in order to assess whether the Government’s policies will result in what they say they are trying to achieve. In this case, I do not think the Government will see additional revenue in the Exchequer. If they bring forward this ill thought-through proposal, which will disproportionately affect my constituents, there will be a loss to the Government.

I feel as if I have fallen into a parallel universe in this debate. It is interesting, is it not, that although Labour crashed the economy so totally, Labour Members today want to provide a £12 billion giveaway by reducing VAT—something that would presumably have to be paid for by further cuts in the public services that they say they want to protect, or indeed by an increase in borrowing. It seems inconceivable to me that this measure is on the amendment paper in the name of Labour Members. I recall that when I was growing up there was television programme called “Jamie and the Magic Torch”. I used to enjoy it considerably, but it seems that we have a show on the other side of the Chamber tonight called “Ed and the Magic Money Tree”, with the Opposition unable to be clear or consistent about their VAT policy.

Another bizarre aspect of the debate is that when the Government are forced into what my hon. Friend the Member for Brigg and Goole (Andrew Percy) refers to as a “recalibration” on a number of issues, which my constituents certainly welcome, the Opposition oppose the measures that the Government are taking to address the problems that they initially highlighted. It strikes me as utterly bizarre that, a few months ago, the hon. Member for Newcastle upon Tyne North (Catherine McKinnell)and her hon. Friends raised concerns, as did I and other hon. Members, about the pasty tax, the caravan tax, the problems affecting static caravans and other issues, yet tonight the same hon. Lady and her colleagues are going to vote against the U-turn that the Government have made. It may well be the case that the Government have made a U-turn, but it is clear from the positioning going on tonight that Labour has taken a wrong turn.

Labour Members cannot have it both ways. They cannot criticise a Government for being cavalier when they do not listen, and then criticise them as chaotic when they do listen. As they well know, the reality is that on all these issues, particularly on tackling anomalies in the VAT system, the problems were set out in the consultation that my right hon. Friend the Chancellor rightly announced. That consultation was widely subscribed to by many interested parties, and the Government took the responses to it into account and changed their view on the back of the evidence they received. I for one recognise that none of us has a monopoly of wisdom. It is surely in the finest traditions of good government that the people likely to be affected by these rules are listened to and that a Government take advice if a deleterious effect is pointed out.

Labour Members talk about the need to consult, but when they abolished the 10p tax rate, plunging millions of the lowest paid into further tax, I do not think they consulted on that measure. That is why, as I say, the last few moments of the debate have been somewhat eye-opening, highlighting the sheer opportunism of the Opposition in opposing a U-turn. They call for consultation, then, in the very debate that shows that the Government are listening, they choose to ignore it. Frankly, as I said at the outset, that is bizarre.

My constituents would want me to welcome new schedule 1 and Government amendment 17. Those provisions will protect jobs in Cornwall, protect the Cornish high street and high streets across the country, protect the secondary spend in the wider economy and will ensure that Cornwall, which is already a disadvantaged part of the our United Kingdom, is not further disadvantaged by proposals that the Government have, thankfully, amended.

I would also like to thank the Minister. In all the discussions between him, me and my hon. Friends, he has always been entirely professional, courteous and constructive in his engagement. I would like to thank others, too. As the hon. Member for Newcastle upon Tyne North knows, Greggs is based in her constituency. Its effort to mobilise more than 500,000 signatures across the country for a petition that my hon. Friends in Cornwall and I were able to deliver to Downing street showed the level of grass-roots concern about proposals that could have been very damaging.

I thank the National Association of Master Bakers; that is not a sentence that one wants to rush through! Its engagement with this issue has been constructive and professional, and it has represented the views of its industry to the Government very effectively. For what will probably be the only time in my life, I also thank and pay tribute to The Sun, which ensured that the issue touched the popular zeitgeist and was able, ultimately, to deliver change. More locally, the Western Morning News, the voice of the south-west, played a useful role in keeping the issue in the public eye.

I can tell the Minister that people in Cornwall are relieved that this coalition Government took soundings, listened and, at the end of the day, delivered a result that will protect an iconic and important Cornish industry. It is estimated that the measure will safeguard about 13,000 jobs in Cornwall, put hundreds of millions of pounds into the local economy, and guarantee the production of the 180 million Cornish pasties that are made in the county every year.

Everyone has been saying how great it is that VAT will no longer be charged on pasties, but I should point out those who own fish and chip shops are at a slight disadvantage by comparison. I just want to balance the equation a bit, and that is one of the things that we were trying to put right.

I entirely agree with my hon. Friend. He will be pleased to know that new schedule 1 will deliver the level playing field to which he and my right hon. Friend the Prime Minister have referred, and on the subject of which I have received representations from fish and chip shops in my constituency.

If a product in a fish and chip shop is being kept artificially warm it is standard-rated, and new schedule 1 will ensure that the same applies in a pasty or pie shop. The simplicity for which the Government aimed has been delivered, as has the level playing field for suppliers of hot food. I hope that my hon. Friend will convey to the fish and chip shop proprietors in his constituency with some enthusiasm the message that, as a result of the constructive process of consultation and engagement undertaken by the Government, the special status of baked goods which are hot only as a product of their baking process has been recognised. The fact that a freshly baked hot pasty which is simply cooling down will remain VAT-free should be welcomed by one and all.

The hon. Member for St Austell and Newquay (Stephen Gilbert) seemed to think that he was living in a parallel universe, and, indeed, most of we Opposition Members thought that we were living in one as well. The process that has taken place is rather like the process that takes place when someone says “I want £10 from you”, and then, after a great deal of argument, says “I will make it just £2, so you should be happy”, and we find ourselves saying “Thank you so much for listening.”

Yes, it was good that the Government listened. I do not think that any Opposition Member has said otherwise, although we might have preferred them to listen from the outset. They had an opportunity to do so on Second Reading. One or two Conservative and Liberal Democrat Back Benchers voted against the Government even then in order to make their views known, but many others who had heard the Government say that the measures were necessary voted for them. Yes, it is good that the Government have listened, but it might have been better had they never embarked on this road. We must ask whether it was sensible for the Treasury—which, one assumes, is in charge of our economy to some extent—to spend the last four months dealing with matters which it had, after all, generated in the first place.

Does my hon. Friend agree that the Government listened only partially, especially when it came to the imposition of VAT on listed buildings? Churches will still have to undergo a bureaucratic process in order to claim it back, and other listed buildings will still be subject to VAT for repairs. That could really affect the country’s heritage.

I shall say something about precisely that issue later.

The time and effort of officials and politicians was largely wasted by a process that, in some but not all instances, led us back to where we started at a time when the economy was tanking. Could not much of that energy have been expended on something far more worth while? It was said on Second Reading that this was not a Budget for jobs and growth but a Budget that tinkered at the edges of various issues, and the Government have themselves conceded that all that tinkering was probably a bad idea.

Does my hon. Friend agree that the VAT measures in the Budget had a major effect on business confidence in certain industries? For instance, when the caravan industry was threatened with the imposition of a 20% rate, some companies issued their work forces with 90-day potential redundancy notices.

Of course the stress and anxiety affected confidence and well-being. Indeed, it may have led to a further plunge in demand as people anticipated the impending redundancy which, thankfully, did not come about in many cases. That is an important consideration at a time when the economy is struggling so much.

I think that a great deal of time was wasted because the Government included measures in the Budget rather than dealing with the position earlier. If they believed that there were anomalies in the VAT system, why did they not consult? As I have suggested before, they could have said “We are minded to look at these things” at the time of the autumn statement, rather than at a time when they were putting together a Budget that, apparently, they wanted to balance. We heard a lot about that at the time.

Why did the Government not say “We want to look at these anomalies and review them in a general context”? One of our amendments proposes that that should happen in future. If there is to be consultation, it should be proper consultation. Saying, as the Chancellor did in March, “This is what we have to do and this is why we have to do it, but we will have a bit of consultation afterwards” is putting the cart before the horse. I hope that that lesson will be learned for the future.

One theory being put about is that the Chancellor was hijacked by civil servants whose pet projects had been turned down by the Labour Government, who had said “Don’t be silly”, and the Treasury was suckered into proposing a load of nonsensical changes.

That may indeed may be the case. I recall that in 2007 a new council took charge in Edinburgh—it was a Liberal Democrat-SNP coalition—and it announced that it was planning to close some 22 schools. There was a very interesting cartoon in the local paper. It showed officials coming out of a meeting with the new administration and turning to each other and saying, “We never expected them to accept all that. That was a starter for 10, and we thought we’d get beaten back.” The officials had put forward this proposal and the new and inexperienced administration had said, “Yeah, we’ll go for that.” It did them some reputational damage. They proposed closing 22 schools, but then had to roll back very substantially because of the public outcry. The officials had expected to be told, “Actually, that’s not what we want to do. That’s not sensible. Let’s see the proper workings before we ever go public on this.” Perhaps the suggestion that this Budget measure was a consequence of our having a very inexperienced Government and Chancellor was right, therefore.

Does my hon. Friend not agree that that view is much too kind to the Chancellor and the Government parties, as they clearly dreamt up these mad ideas themselves?

I will resist the temptation to take up my hon. Friend’s invitation to agree with that view, because we have to be tolerant, to a degree, of inexperience. There is currently a strong cult of youth and inexperience in our politics, but that might change, and it might at some point in the future be acknowledged that there is merit in looking to those who have had experience of life and living before entering politics, rather than to those who become as exalted as the Chancellor of the Exchequer before they have lived and experienced a great deal of ordinary life.

I shall spare Members having to listen to me list all the listed buildings in my constituency that are not churches. Those who want to know what those buildings are can read the relevant Committee report in Hansard. There is an important point, however. It has been assumed that because the Government made a concession—albeit not a full one, perhaps—to churches, the problem has been solved. There are other listed buildings that are not churches, however, which will now face the 20% rate with no financial assistance or concession made to them. These buildings are equally important. Churches are extremely important as historical monuments, even if some of them are no longer used as churches. In Edinburgh, there are examples of churches that have been converted to other uses, but there are other buildings that are at risk, too, and imaginative alterations might be made to some of them in order to put them into community use. This extra cost will put some such community projects at risk, however, and will put some buildings at risk, too. If those buildings cannot be put into community use, it is likely that they will deteriorate and end up having to be demolished on safety grounds.

Does my hon. Friend agree that it is thoroughly irresponsible to bring in the increase on repairs on listed buildings without conducting a proper impact assessment, and that the Government should review this policy?

I agree. The Government have pointed out that VAT falls on repairs but it did not previously fall on alterations, and they say we should equalise the situation. That misses the point. Alterations often enable buildings to have a different use from their previous one. They are made to be able to function again for business, residential or community-use purposes. Such alterations are generally bigger projects than simply repairing the roof and ensuring that the rain does not come in. The costs involved can be great, and this 20% addition to the cost will therefore be very considerable and will put many such projects at risk. Many people have made that point, and do not feel the Government concession in respect of churches goes nearly far enough. We must bear that in mind. We will find out in the future whether these concerns were right.

In respect of VAT at least, this Budget has been shambolic. It is not good enough for people to say, “Well, because there has been a change, the whole process is now a good one.” It has not been a good one reputationally for the Government—and perhaps we, as Opposition Members, should be pleased about that. We cannot be pleased, however, when we see the effects that a declining economy has on so many of our constituents, who feel they are faced with a Government who truly are not caring.

Let us think about the arguments made in defence of some of these changes. On listed buildings, we have heard all sorts of arguments, such as, “The previous situation allowed rich people to build swimming pools.” There was no particular evidence of that, but the Chancellor obviously thought it was a good argument to put up because he liked the idea of presenting himself as being on the side of the small person rather than the rich—despite the overall effect of his Budget policies.

Does my hon. Friend agree that if the Government were indeed concerned that alterations were going to be made to create swimming pools, the measure could simply have exempted such alterations?

That is indeed the case. Conducting research and finding good evidence before making and changing policy is of paramount importance. We have seen that in respect of many aspects of this Budget. We saw it in the debate yesterday in respect of the 50p tax rate. There were a lot of hypotheticals—a lot of “maybes” and “perhapses”—but there was not a lot of solid evidence.

This has been a poor piece of policy making. I congratulate the Government on turning, but if they had thought things through first, they would never have had to turn.

It is a pleasure to follow the hon. Member for Edinburgh East (Sheila Gilmore). We have heard each other speak quite a lot over the last eight weeks or so. It is also a pleasure to have a chance to talk on VAT measures.

I will start by addressing the Opposition’s new clause 12. If we are talking about ill-thought-through measures that should not have been brought forward, this is a prime example. It would cost £12 billion if it were in place for a year, not that the Opposition know how much it would cost or how they would pay for it. It is intriguing to ponder how they can tick off the Government for announcing a U-turn that costs a few million pounds a year and accuse us of not having a balanced Budget because of it, while they have a proposal for a £12 billion hole in the Budget that would do untold damage to the public finances, probably completely wreck our country’s reputation for trying to sort out its deficit and lead us into a situation none of us would even want to dream about.

Does my hon. Friend agree that this £12 billion spending commitment is astonishing and irresponsible and proves how unfit Labour is for government?

My hon. Friend may be that cruel, but I probably would not go that far.

New clause 12 is not a highly principled statement that VAT should be 17.5% rather than 20%, as it would apparently be just a temporary reduction. Moreover, when Labour was in government, it had plans to raise VAT. These are the stances Labour has taken recently: before the election, it had a plan to raise VAT; later, when there was a proposal for a VAT rise, Labour abstained; and now it proposes a temporary cut, back down to 17.5%. The country can be forgiven for not knowing what on earth Labour’s view is. If Labour ever got back into power, would it reduce VAT from this 20% rate that it seems to so loathe?

This Labour new clause proposes a temporary cut that would apply from Royal Assent to the Bill until the UK economy returns to strong growth. No definition of “strong growth” has been provided. When I asked for one, we were not told that it was 2% or 3% a year. We did not get a sensible approach about it being when the economy is growing based on balanced growth and sustainable industries such as manufacturing, rather than on inflating a massive debt-filled boom. We were told that “strong growth” meant not being in a double-dip recession any more. We could end up in a bizarre situation whereby we reduce VAT on Royal Assent and then, when we get the last quarter’s financial data, which I am sure we all hope show the economy growing again, we have to reverse the temporary cut. It could be in place for only a matter of days, which would result in a huge administrative cost; the move would be utterly pointless. [Interruption.] I hear someone saying from a sedentary position that that is ridiculous, but that is what the new clause would mean. We are doing a serious thing here. We are legislating, not engaging in sixth-form school debate. If we were to pass this new clause tonight, it would be in the Finance Bill, it would become law and it would have to come into effect. This is not a little proposal that we can idly dismiss but an actual idea that the Opposition want us to legislate for. It is clearly nonsensical on all levels, and we need discuss it no further.

Let me return to the various changes to VAT charging in new schedule 1, where, again, the Government have done exactly the right thing. They proposed some ideas, realised that they contained some mistakes and things that may be impossible to implement, and then changed them in order to get to a better policy. That is surely what we want Government consultations to end up with. We do not want the Government to announce something, consult on it and then blindly drive on without listening to any of the criticisms and details of any mistakes in it.

Does the hon. Gentleman feel that better decision making might come through consulting before putting a proposal to Parliament, and getting all the ducks lined up before coming before the House?

I agree with the hon. Lady, and I said yesterday that it would be better to consult before trying to legislate, but we did have a detailed consultation document that looked at this idea. I do not think that the legislation to implement this proposal was in the original draft of the Finance Bill, but it would have been brought forward by a statutory instrument later on; although it was announced as an idea, it was not in a legislative form at that point, so strictly speaking the Government have done what she calls for.

I wish to make one comment on the pasty tax, as an aside. It is clear that when making tax policy we have to avoid things that have a handy popular nickname. We have had big campaigns on the “pasty tax” and the “caravan tax”. It has been a bit harder to get the public behind a “sports drinks nutritional drink tax.” If it had been called a “Lucozade tax”, there might have been more publicity. The Government should be careful in making future tax policy to look out for what nicknames might be used. However, those who favour tax being understandable may feel that all taxes should have a simple nickname so that the public understand what they are for.

On the new “pasty tax” definitions, I am concerned that we might end up with some things that are unclear, such as the definitions of what is being “marketed” as “hot” and of what wrapping is allowed. We are told, “Don’t worry, it will be clear in HMRC guidance what is allowed.” However, we should be trying to legislate clearly: Parliament should be clear in what it says. I hope the Minister can put it on the record that bakeries on the high street that are trying to sell freshly baked products will not find those things subject to VAT unless they are kept hot or are wrapped in a heat-retaining bag, and that using ordinary, simple packaging or marketing those products as “freshly baked” will not be caught. That is absolutely the intention that Parliament has, and we should make it clear.

On sports drinks, I am concerned about going down the road of having a principle of deciding a tax treatment on the basis of how something is advertised or marketed, rather than on the fundamental underlying nature of the product. We can see that strange ways of how someone chooses to market something might change the tax treatment. I think I understand the aim of this proposal, which is to provide for high-sugar drinks sold as sports drinks when they are not much different from Coca-Cola or other fizzy products that we are trying to equalise the VAT treatment on. The wording in new schedule 1 leaves where the line is open to question.

We exchanged comments earlier about whether milk could strictly drift into being covered by the wording if it was marketed as something that aids physical performance and whether we risk a court, at some point, taking an utterly perverse and stupid view that milk is caught by the provision, given that we clearly do not intend it to be. We need to be careful what we mean. That line will be tested and people will ask, “What is a sports drink that is largely based on milk or some milk-derived product, and what is an ordinary pint of milk?” Where will we draw the line about what is VAT-able? A Mars drink is advertised with the slogan, “Unlike other sports drinks, this milk product actually tastes nice.” It is hard to understand why a Mars milk-flavoured drink is not going to attract VAT but a sports drink will. We need to be careful to avoid people not knowing what we actually mean.

If I market a whey-based product that is made up into a drink as a sports product, VAT will apply, but if I market it as a diet product or a nutritional supplement, perhaps for the elderly who are struggling to get enough calories in their diet, that will presumably not be VAT-able. All I have to do if I want to buy the thing to use it for sports purposes is choose the one marketed for an old person’s supplement, and although I would be able to use it in exactly the same way as the sports drink on the next shelf, I would be buying it for 20% less. I am not entirely sure that that is what we intend. Although I understand what is going on, we have to be careful if we start defining tax policy based on how something is sold and not on the underlying product.

With those few remarks, may I finally commend the Government on the position they have got these things into? It is vastly better than where we started, and I will certainly vote for new schedule 1.

I took my car for a service last week at my local garage, which is a one-man band. He said, “For heaven’s sake, will you get rid of that lot? They are ruining my business.” When I asked him what he meant and what the Government were doing that was ruining his business, his reply was, “VAT—the 20% rate is destroying my business, and all the other small business owners I know think exactly the same.” Sadly, a reduction in VAT from 20% is not an option in this debate, but putting VAT on to so many other things just increases the problem for hard-pressed businesses and struggling people.

The hon. Lady tells us that she went to her garage and the man said, “Get rid of that lot”, but what would her lot do instead to give him much more business? That is what I would be delighted to hear, and I hope that she can give me an answer.

What Labour would have had is jobs and growth. We would not have been in a double-dip recession and we would not be in this stupid position of cutting too fast and too deep, which is ruining the British economy. Unfortunately, we are not in government.

It has been incredibly difficult to prepare this speech, because it is hard to work out, in this omnishambles of a Budget, what this disorganised Government have done a U-turn on. Perhaps I should not call them U-turns, because in many cases the Government have done them only partially; I am not sure whether these are L-turns or C-turns. I thought that they had done a full U-turn on the caravan tax, but I discovered this afternoon that they have not done a full U-turn at all, and the pasty tax is as clear as mud. I was having a discussion with colleagues before this debate as to what food is now VAT-able and what is not. It seems that a rotisserie chicken that will be cold when someone eats it is VAT-able, whereas a pasty that comes out of the oven will not be, unless it is put on a hot plate. But what happens if the oven is put on low so that the pasty is just kept warm? Will that pasty be VAT-able or not? The Minister needs to explain to me and the nation how this proposal is different from his first proposal, and how it is to be policed. Will taxmen regularly visit all the sandwich shops in the country to check on their ovens? That needs further explanation.

What about the mess of heritage tax? Again, we saw panic among Government Members and a little U-turn, perhaps to silence the bishops and return some money to places of worship for their alterations. However, £30 million will not go far, and the tax has been a huge blow to many communities.

Some 30,000 listed building consents were given last year, with some £120 million being spent on alterations. Does the hon. Lady feel that that £30 million will be adequate compensation ?

I thank the hon. Gentleman for that intervention. Clearly, I do not believe that £30 million is anywhere near the sum needed to compensate. Of course, the Government have also said that those people will get lottery and Government grants, but hang on a minute: is that not just taking with one hand and paying back with another? The change has been a huge blow to many communities that have been working for years and years to raise enough money to rescue old buildings and convert them for use by the whole community, only to now have to find another 20%.

The Government have tried to say that we should not worry too much about the heritage tax as it is really about charging millionaires who live in listed buildings and who get their indoor swimming pool tax-free, but there is no evidence for that. They conclude on the basis of a review of 105 applications that the majority of the work covered by the relief is

“not necessary for heritage purposes”,

but as nearly 30,000 listed building applications are made a year, that does not seem to me to be good evidence. From a sample of 12,049 applications, only 34 were for swimming pools. Perhaps we could deal with the problem in a slightly different way rather than imposing the heritage tax on all buildings. Indeed, 50% of those who live in listed buildings are in socio-economic groups C1, C2, D and E—supervisory, clerical, junior management, administrative, skilled workers, semi-skilled workers and unskilled workers. People in those groups are not usually millionaires.

That implementation of VAT will not raise a great deal of money in the scheme of things, but will be another blow to the construction industry and run the risk of more of our heritage buildings going to rack and ruin. Of course, once VAT is put on something it can never be returned to zero.

Skip taxes seem to have been introduced and then withdrawn. I think they probably have been withdrawn—who would know? The Government seem to be introducing a self-storage tax, however. Self-storage is often used by people in transition, such as those who are selling or buying houses or those whose homes are undergoing renovation. It is also used by people who have downgraded or moved to a different community and therefore have to live in much smaller accommodation. It is usually in a prime location so that customers can come and go as they choose, changing their winter wardrobe for their summer wardrobe or taking goods in or out of storage. Removals and storage providers have storage facilities as an ancillary part of the business and are therefore frequently in more remote places, as the location of the property does not need to attract customers. One reason for putting VAT on self-storage was to level the playing field for removal companies, even though they have different purposes. The effect will be that ordinary people will be hit again. Businesses that use self-storage to store documents and so on will be able to reclaim the VAT, but the ordinary person will not.

I think we still have a hairdressers tax. That will mean that self-employed hairdressers who rent a chair in a small salon will have no choice other than to register for VAT and decide whether to charge their customers VAT at 20% or to absorb the cost themselves. Of course, that will particularly hit females aged between 16 and 46—the very people whom the Government say they want to encourage to be entrepreneurs, start up their own businesses and pay into society.

The situation with sports nutrition is another unholy mess. If I have got this right—I hope that the Minister will correct me if I have not—sports drinks will become VAT-able, but sports nutrition products will not. If the Minister wants to intervene, I am happy for him to do so.

Does that mean that it will be exempt if a liquid product is made into a solid and people are just advised to drink water with it? What about weight-management products? More than 20% of the products in the sports nutrition category are for weight management. If they are slimming products, they are zero-rated, but they could also be considered to be sports nutrition products. We could have a bizarre situation in which men and women who exercise hard, follow a balanced diet and use sports nutrition products to help them get into shape would pay VAT, whereas those who skip meals, sit on the sofa and take magic slimming products would not.

It seems odd that we are making that tax change in Olympic year, when we are encouraging people to get fit, but it is typical of this Budget. It is a shambles that will create more anomalies than it will resolve. With all the U-turns—even though we welcome some of them—it is still totally confusing. Even after listening to the Minister this afternoon and spending many weeks on the Bill Committee, I am still not clear what the Budget says.

Secondly, the Budget rewards millionaires and punishes ordinary people. It punishes the squeezed middle and the battered base, which my hon. Friend the Member for Gateshead (Ian Mearns) frequently mentions. The VAT changes all hurt people who lead ordinary lives. They all hit hard-pressed businesses and do absolutely nothing for jobs and growth. The millionaires still get their tax cut, but they are not paying the tax that is due. If the rest of us decided not to pay our taxes, could we have a tax cut too? Or does that apply only to the very rich, who can also avoid their tax by paying accountants a great deal of money?

The Government forget that there was a global economic crash. They do not like to talk about it. They like to say that it was all the previous Government’s fault, but there was a global economic crash that affected all the countries in the world. They forget that they have created a double-dip recession—[Laughter.] They like to laugh, but they inherited an economy that was growing. In two years, they have managed to turn that into a double-dip recession made totally in Downing street. They believe that continuing to cut and cut will somehow magically bring change and growth. Government Members are prepared to accept compromises in their areas of interest but will let others face the full force of the VAT rises. They are prepared to vote for these provisions, even though it means that other businesses and other ordinary people will continue to suffer. The proposal is an omnishambles that will do nothing for jobs and growth and it is simply typical of this Government.

I want to speak briefly about new schedule 1. In my constituency is A and S Self Storage, run by Diana and George Pelly, which is a small family-run storage business. My concern is about how the new measure will work and I hope that Ministers will take on board some of my points.

The mischief that the new schedule seeks to attack is the business whereby big companies exercise the option to tax on a piece of land, build a storage facility and later disapply the option to tax, giving themselves a tax advantage. The Treasury have applied VAT on all self-storage and my concern is that some 250,000 people in the UK use self-storage and will find from September onwards that their bills will suddenly go up by 20%. I hope that the Government will consider this a little further and think whether there is a better way to deal with the real mischief, which is the abuse of the option to tax.

My other concern is that the revenue raised will disproportionately benefit larger businesses that can claim back costs under the capital goods scheme, rather than the smaller businesses, which cannot. Effectively, it will disproportionately benefit the four big players in the self-storage industry at the expense of smaller businesses such as A and S Self Storage. I hope that Ministers will consider that point.

The Exchequer impact is also in question. The Exchequer says that the measure will raise money, but the Self Storage Association’s brief states:

“In its calculations the Government has not taken into account the significant reclaim of VAT under the CGS rules, which Deloitte have calculated to be £43m based on the detailed results of their survey…According to Deloitte many operators, particularly the largest ones, could accelerate CGS recovery under existing VAT law.”

I want to plead for caution on the part of Ministers and ask them to consider carefully the question of tackling the underlying abuse, which is the business of disapplying the option to tax. I appreciate that many Members will find that exceptionally dull, as it involves highly technical VAT law, but my principal concern is that it is a hard thing to raise VAT across the board for 250,000 people when one really wants to target the few people who are playing the system to get more tax money for their businesses at the expense of everyone else and of the UK Treasury.

It is a great pleasure to respond to the debate. I thank my hon. Friends the Members for Truro and Falmouth (Sarah Newton), for Brigg and Goole (Andrew Percy), for St Austell and Newquay (Stephen Gilbert), for Amber Valley (Nigel Mills) and for Dover (Charlie Elphicke) for their remarks. In many cases it has been a pleasure to work closely with them on some of the Budget measures that we have discussed. I thank my hon. Friend the Member for St Austell and Newquay for his kind remarks. I am grateful for the courteous and constructive way in which he engaged with us, and I am grateful also to my hon. Friend the Member for Truro and Falmouth and, although he is not here, to my hon. Friend the Member for Camborne and Redruth (George Eustice), who were very involved in these matters. [Hon. Members: “He is here.”] I am delighted to see that he has joined us. Even if I did not know he was here, I would have said something nice about him. He can assess my sincerity on that basis.

My hon. Friend the Member for Dover made a point about the capital goods scheme. I think he was otherwise engaged earlier today, but I confirm to the House that we are making a separate provision by statutory instrument to amend the capital goods scheme so that self-storage providers affected by the measure and whose individual capital items are worth less than the £250,000 threshold for the scheme can opt in to the scheme and have the same input tax recovery benefits as larger providers with capital items that would already qualify for it. My hon. Friend can note that within two minutes of his making a request, the Government have acceded to it. I hope he is pleased with that.

I want to pick up on some of the points made and say a word or two about some of the new clauses. I think the point that the right hon. Member for Birkenhead (Mr Field) is addressing in new clause 3 is the funding of sixth-form colleges, as opposed to whether they are charged for VAT. Sixth-form and further education colleges are under the control of local authorities and have always been funded differently from schools or academy schools. I think he has in mind a refund scheme along the lines of that for academies.

Sixth-form colleges have never been able to receive VAT refunds against expenditure on their non-business activities, but the basic funding principle for sixth-form colleges is that their VAT costs are taken into account within their up-front funding allocation. Thus funding for sixth-form colleges includes cover for various costs, including VAT, on top of the direct costs of teaching. The right hon. Gentleman has put his argument on the record. Essentially, he argues for additional funding for sixth-form colleges. That must be assessed in light of the current fiscal situation.

New clause 10, which requires an assessment of the impact of the VAT borderline changes, is virtually identical to new clause 3, which was debated and defeated in the Committee of the whole House on 18 April, and to amendment 200, which was withdrawn in the Public Bill Committee on 21 June. Given that the amendment was debated and defeated the first time and withdrawn the second time, I suggest that the Opposition withdraw new clause 10 on this occasion.

On new clause 12, the Opposition have tabled an amendment to return the rate of VAT to 17.5% until

“such time as the Government presents to Parliament a report stating that the UK economy has returned to strong growth.”

This would be very costly. I know that the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) was keen not to provide a cost to the House, but the proposal would cost £12 billion to £13 billion. That would substantially erode our fiscal credibility, and if credibility is lost and interest rates rise, the impact on the fiscal position would be severe. We would expect this to have a negative effect on the UK economy. If the Opposition believe that the answer to our current problems is more borrowing, they should stand up and say so. If the solution that the economy needs is a bigger gap between what we raise in tax and what we spend, let me give the hon. Lady the opportunity to say that now.

Is the Minister aware that the overall borrowing that the Government are engaged in is £9 billion higher now than was planned in October 2010, so the Government’s own economic strategy is resulting in higher, not lower, borrowing?

I am not sure whether the hon. Lady welcomes that. Does she support more borrowing or not? The Institute for Fiscal Studies has made its position clear on what would happen if we pursued the policies that the Opposition advocate or have advocated—that moves around a bit. It stretches the Opposition’s credibility if they think that their approach means that borrowing now would be lower. I think the sincere position of the Opposition is that we should have a bigger fiscal stimulus—we should be borrowing more now in order to pump money into the economy. Is that their position?

The Opposition’s point is that the Government’s own plans are resulting in more borrowing. The alternative is to give a 2.5% VAT cut to households to stimulate demand in the economy and get the economy out of the double-dip recession that it is in and back into growth, which will ultimately bring borrowing down.

So when borrowing is higher than we plan it to be, it is a disaster, but when borrowing is higher because the Opposition would bring that about through a deliberate policy, that would be a fiscal stimulus. I am not entirely clear where they are trying to go with this. We know why the public finances are more difficult than we had anticipated. It is to do with the eurozone, the increase in commodity prices and the fact that the economy took a bigger hit than anyone had previously realised, but a discretionary fiscal loosening of £12 billion or £13 billion, which is what the Opposition are about to vote on, would be taking a huge risk with our credibility.

It is worth making the point that if we do that, we lose our fiscal credibility and we are likely to see long-term interest rates rise. That will result in our paying out more in debt interest. A one-point rise in interest rates would mean £7.5 billion in additional debt interest payments by 2016-17, and an increase for the average mortgage borrower of £1,000 per year. Is that what the Opposition want? Do they think that would help?

The Minister should accept that he has given a partial quotation from his own Office for Budget Responsibility. He is fond of saying that the recession has been deeper than previously thought. Yes, the OBR did say that, but it also said at exactly the same time that the climb out of that recession had been faster than had previously been thought. That was a result of the economic stimulus measures that the previous Government put in place.

The OBR was very clear about the reasons why the economy did not grow as quickly as it had predicted. That was not because of the measures that we had taken to clamp down on borrowing. It was because of the factors that it set out. Now, at a time when we see other countries without fiscal credibility facing enormous difficulties, the Opposition want a discretional fiscal loosening of £12 billion or £13 billion a year. That is not responsible opposition. That is not a responsible policy and it is not a policy that this Government will pursue. I urge the Opposition not to press new clause 10.

I note that the Opposition are also opposing the VAT measures in total. That would be an additional cost of £210 million. These are measures that will remove anomalies. We have listened to the concerns raised by hon. Members and others to improve what we initially set out.

Can the Minister clarify how much the U-turns that the Government are legislating for today will cost and whether the £210 million has been factored into them?

After the changes we have announced, the Budget remains fiscally neutral. The reality is that the £70 million we are talking about has to be compared with the policy of cutting VAT, which would cost between £12 billion and £13 billion, and the £210 million for refusing to go ahead with the VAT changes we have announced. I am afraid that that simply underlines the fact that, once again, the Labour party has no fiscal credibility, will not face up to the challenges in the public finances and remains unfit for office.

Debate interrupted (Programme Order, 2 July).

The Deputy Speaker put forthwith the Question already proposed from the Chair (Standing Order No. 83E), That the clause be read a Second time.

Question agreed to.

New clause 4 accordingly read a Second time, and added to the Bill.

The Deputy Speaker then put forthwith the Questions necessary for the disposal of business to be concluded at that time (Standing Order No. 83E).

New Clause 12

Rate of VAT

‘(1) In section 2(1) of the Value Added Tax Act 1994 (Rate of VAT) for “20 per cent.” substitute “17.5 per cent.”.

(2) Subsection (1) shall have effect from Royal Assent and shall expire at such time as the Government presents to Parliament a report stating that the UK economy has returned to strong growth.’.—(Catherine McKinnell.)

Brought up.

Question put, That the clause be added to the Bill.

Clause 195

Anti-forestalling charge to value added tax

Amendment made: 17, page 115, line 3, at end insert—

‘(1) Schedule (Categorisation of supplies) contains provision about the categorisation of supplies for the purposes of value added tax.’.—(Mr Gauke.)

New Schedule 1

‘Categorisation of supplies

Part 1

Zero-rated supplies


1 Part 2 of Schedule 8 of VATA 1994 (zero-rating) is amended as follows.


2 (1) Group 1 (food) is amended as follows.

(2) After excepted item 4 insert—

“4A Sports drinks that are advertised or marketed as products designed to enhance physical performance, accelerate recovery after exercise or build bulk, and other similar drinks, including (in either case) syrups, concentrates, essences, powders, crystals or other products for the preparation of such drinks.”

(3) In Note (3), omit the words from “and for the purposes of paragraph (b) above” to the end.

(4) After that Note insert—

“(3A) For the purposes of Note (3), in the case of any supplier, the premises on which food is supplied include any area set aside for the consumption of food by that supplier’s customers, whether or not the area may also be used by the customers of other suppliers.

(3B) “Hot food” means food which (or any part of which) is hot at the time it is provided to the customer and—

(a) has been heated for the purposes of enabling it to be consumed hot,

(b) has been heated to order,

(c) has been kept hot after being heated,

(d) is provided to a customer in packaging that retains heat (whether or not the packaging

was primarily designed for that purpose) or in any other packaging that is specifically

designed for hot food, or

(e) is advertised or marketed in a way that indicates that it is supplied hot.

(3C) For the purposes of Note (3B)—

(a) something is “hot” if it is at a temperature above the ambient air temperature, and

(b) something is “kept hot” after being heated if the supplier stores it in an environment which provides, applies or retains heat, or takes other steps to ensure it remains hot or to slow down the natural cooling process.

(3D) In Notes (3B) and (3C), references to food being heated include references to it being cooked or reheated.”

Protected buildings

3 (1) Group 6 (protected buildings) is amended as follows.

(2) Omit items 2 and 3 (approved alterations and building materials).

(3) In Note (3), for “(12) to (14) and (22) to (24)” substitute “and (12) to (14)”.

(4) For Note (4) substitute—

“(4) For the purposes of item 1, a protected building is not to be regarded as substantially reconstructed unless, when the reconstruction is completed, the reconstructed building incorporates no more of the original building (that is to say, the building as it was before the reconstruction began) than the external walls, together with other external features of architectural or historic interest.”

(5) In Note (5), in paragraphs (a), (b) and (c) omit “or other supply”.

(6) Omit Notes (6) to (11).


4 (1) Group 9 (caravans and houseboats) is amended as follows.

(2) For item 1 substitute—

“(none) “ Caravans which exceed the limits of size of a trailer for the time being permitted to be towed on roads by a motor vehicle having a maximum gross weight of 3,500 kilogrammes and which—

(a) were manufactured to standard BS 3632:2005 approved by the British Standards Institution, or

(b) are second hand, were manufactured to a previous version of standard BS 3632 approved by that Institution and were occupied before 6 April 2013.”

(3) In item 3 for “5(3)” substitute “5(4)”.

(4) In the Note for “item 3” substitute “item 4”.

Part 2

Exempt supplies

Land: self storage and facilities to supply hairdressing services

1 (1) In Part 2 of Schedule 9 to VATA 1994 (exemptions), Group 1 (land) is amended as follows.

(2) In item 1, after paragraph (k) insert—

“(ka) the grant of facilities for the self storage of goods;”.

(3) In that item, omit “and” at the end of paragraph (m) and after that paragraph insert—

“(ma) the grant of facilities to a person who uses the facilities wholly or mainly to supply hairdressing services; and”.

(4) In that item, in paragraph (n), for “(m)” substitute “(ma)”.

(5) After Note (15) insert—

“(15A) In paragraph (ka)—

“facilities for the self storage of goods” means the use of a relevant structure for the storage of goods by the person (or persons) to whom the grant of facilities is made, and

“goods” does not include live animals.

(15B) For the purposes of Note (15A), use by a person with the permission of the person (or any of the persons) to whom the grant of facilities is made counts as use by the person (or persons) to whom that grant is made.

(15C) A grant of facilities for the self storage of goods does not fall within paragraph (ka) if—

(a) the person making the grant (“P”)—

(i) is doing so in circumstances where the relevant structure used is, or forms part of, a relevant capital item, and

(ii) is connected with any person who uses that relevant structure for the self storage of goods,

(b) the grant is made to a charity which uses the relevant structure solely otherwise than in the course of a business, or

(c) in a case where the relevant structure is part of a building, its use for the storage of goods by the person (or persons) to whom the grant is made is ancillary to other use of the building by that person (or those persons).

(15D) In Notes (15A) and (15C) “relevant structure” means the whole or part of—

(a) a container or other structure that is fully enclosed, or

(b) a unit or building.

(15E) In Note (15C)(a)(i) “relevant capital item” means a capital item which—

(a) is subject to adjustments of input tax deduction by P under regulations made under section 26(3), and

(b) has not yet reached the end of its prescribed period of adjustment.”

(6) After Note (16) insert—

“(17) Paragraph (ma) does not apply to a grant of facilities which provides for the exclusive use, by the person to whom the grant is made, of a whole building, a whole floor, a separate room or a clearly defined area, unless the person making the grant or a person connected with that person provides or makes available (directly or indirectly) services related to hairdressing for use by the person to whom the grant is made.

(18) For the purposes of Note (17)—

(a) “services related to hairdressing” means the services of a hairdresser’s assistant or cashier, the booking of appointments, the laundering of towels, the cleaning of the facilities subject to the grant, the making of refreshments and other similar services typically used in connection with hairdressing, but does not include the provision of utilities or the cleaning of shared areas in a building, and

(b) it does not matter if the services related to hairdressing are shared with other persons.

(19) For the purposes of Notes (15C) and (17) any question whether a person is connected with any other person is to be determined in accordance with section 1122 of the Corporation Tax Act 2010 (connected person).”

Part 3

Supplies chargeable at reduced rate

1 (1) Schedule 7A to VATA 1994 (charged at reduced rate) is amended as follows.

(2) In Part 1 (index to reduced-rate supplies of goods and service), at the appropriate place insert—


Group 12”

(3) In Part 2 (the groups), at the end insert—



Item No

1 Supplies of caravans which exceed the limits of size of a trailer for the time being permitted to be towed on roads by a motor vehicle having a maximum gross weight of 3,500 kilogrammes.

2 The supply of such services as are described in paragraph 1(1) or 5(4) of Schedule 4 in respect of a caravan within item 1.


This Group does not include—

(a) removable contents other than goods of a kind mentioned in item 4 of Group 5 of Schedule 8, or

(b) the supply of accommodation in a caravan.”

Part 4

Commencement and transitional provision

1 (1) Subject to sub-paragraphs (2) and (3), the amendments made by this Schedule come into force on 1 October 2012.

(2) Paragraphs 4 and 6 come into force on 6 April 2013.

(3) Paragraph 3(2) to (6) comes into force, in relation to relevant supplies, on 1 October 2015.

(4) A supply is “relevant” if it is—

(a) a supply of any services, other than excluded services, which is made—

(i) in the course of an approved alteration of a protected building, and

(ii) pursuant to a written contract entered into, or a relevant consent applied for, before 21 March 2012, or

(b) a supply of building materials which is made—

(i) to a person to whom the supplier is supplying services within paragraph (a) which include the incorporation of the materials into the building (or its site) in question, and

(ii) pursuant to a written contract entered into, or a relevant consent applied for, before 21 March 2012.

(5) In relation to supplies made on or after 1 October 2012 but before 1 October 2015, Group 6 has effect as if, for the purposes of item 1 of that Group, a protected building were also regarded as substantially reconstructed if sub-paragraph (6) or (7) applies.

(6) This sub-paragraph applies if at least three-fifths of the works carried out to effect the reconstruction (measured by reference to cost) are of such a nature that the supply of services (other than excluded services), materials and other items to carry out the works would, if supplied by a taxable person, be relevant supplies.

(7) This sub-paragraph applies if—

(a) at least 10% (measured by reference to cost) of the reconstruction of the protected building was completed before 21 March 2012, and

(b) at least three-fifths of the works carried out to effect the reconstruction (measured by reference to cost) are of such a nature that the supply of services (other than excluded services), materials and other items to carry out the works would, if supplied by a taxable person, be relevant supplies but for the requirement for a written contract to have been entered into or relevant consent to have been applied for before that date.

(8) For the purposes of sub-paragraph (4), works carried out that are not within the scope of the written contract entered into, or the relevant consent applied for, as it stood immediately before 21 March 2012, are not a supply made pursuant to that contract or relevant consent.

(9) In this paragraph—

“excluded services” means the services of an architect, surveyor or other person acting as consultant or in a supervisory capacity;

“Group 6” means Group 6 of Part 2 of Schedule 8 to VATA 1994 (protected buildings);

“relevant consent” means—

(a) in the case of an ecclesiastical building to which section 60 of the Planning (Listed Buildings and Conservation Areas) Act 1990 applies, consent for the approved alterations by a competent body with the authority to approve alterations to such buildings, or

(b) in any other case, consent under any provision of—

(10) The Notes of Group 6 apply in relation to this paragraph as they apply in relation to that Group, except that in applying Notes (9), (10) and (11), references to item 2 are to be read as references to sub-paragraph (4) of this paragraph.’.—(Mr Gauke.)

Brought up.

Question put, That the schedule be added to the Bill.

The House divided: Ayes 311, Noes 230.

New schedule 1 added to the Bill.

Schedule 26

Anti-forestalling charge to VAT

Amendments made: 18, page 589, line 16, leave out sub-paragraph (1).

Amendment 19, page 589, line 24, after ‘a supply’ insert

‘of a description specified in paragraph 3’.

Amendment 20, page 589, line 28, leave out ‘the order’ and insert

‘the amendments made by Schedule (Categorisation of supplies)’. —(Mr Gauke.)

New Clause 13

Bank bonus tax

‘The Chancellor of the Exchequer shall review how a bank bonus tax could be repeated and place a report in the library of the House of Commons by 1 September 2012 on how the revenue raised could be invested in a Real Jobs Guarantee to create new jobs and tackle unemployment.’.—(Catherine McKinnell.)

Brought up, and read the First time.

I beg to move, That the clause be read a Second time.

In this new clause we call on the Government to consider repeating the bank bonus tax, which raised £3.5 billion in 2010-11, and to use the revenue to create 100,000 jobs for young people. It is an understatement that this has not been a good few weeks for the banks. First, there were the disgraceful mistakes at Royal Bank of Scotland that left thousands of people unable to access their own money for up to a week. I am sure that top bankers there managed to get by for a few days, but for people on low incomes it is no laughing matter to be left without a week’s wages.

Does the hon. Lady think that those who set up the regulatory system that governed the banks, such as the shadow Chancellor, should come to the House to apologise?

Then came the shocking revelations at Barclays—[Hon. Members: “Oh!”]—of traders fiddling the markets, cheating with mortgage and lending rates.

I will answer the question, but it was rather an insult to the people who have suffered from the situation at RBS, which was caused by administrative failures and poor management. The question put by the hon. Member for South Staffordshire (Gavin Williamson) does not address the severity of the matters that I am laying before the House.

Then came the shocking revelations at Barclays: of traders fiddling the markets, cheating with mortgage and lending rates—

It would be more appropriate for the hon. Gentleman to make his intervention now, but I will complete my sentence. Those traders then paid each other for the favours with bottles of Bollinger.

The point that I was trying to ask the hon. Lady to explore was that the regulatory system put in place under the last Labour Government has led to market failure and the recent LIBOR problems. Does she not think that the shadow Chancellor should come to the House to explain why he took no action when he was City Minister? Yes or no?

I was talking about the situation at RBS, which was caused by a total administrative meltdown and computer failure; it had nothing to do with regulation. On the subject of regulation, Conservative Members called for less regulation. Politicians on both sides of the House need to consider where we go from here.

Whatever people say about the banks’ responsibility for things that happened in the past, there can be no doubt that what has happened at RBS in the past few days is the responsibility of people running the bank now and of those responsible for the financial sector now, who include the Government.

It is not just those on low incomes who suffer from the damage caused by the difficulties at RBS, which obviously is trying its best to resolve them. Businesses in my constituency have contacted me saying that if the problem is not resolved immediately, they face closure. The Government need to take that issue seriously, but clearly they are not.

I absolutely agree with those sentiments. When discussing the impact that the total administrative failure at RBS had had, particularly on those on low wages but also, as my hon. Friend has just said, on small businesses, I was shocked and taken aback at the political opportunism