Rate of Tax

Clause 9 – in the House of Commons at 12:00 am on 9th May 1972.

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Photo of Mr Brian Walden Mr Brian Walden , Birmingham All Saints 12:00 am, 9th May 1972

I beg to move Amendment No. 2, in page 8, line 17, leave out ' ten ' and insert seven and a half

Photo of Mr Selwyn Lloyd Mr Selwyn Lloyd , Wirral

With this Amendment we can take for debate the following Amendments, all standing in the name of the right hon. Member for Leeds, East (Mr. Healey) and the names of his hon. Friends:

No. 3, in page 8, line 25, leave out ten ' and insert ' seven and a half';

No. 4, in line 26, leave out ' seven and a half ' and insert ' five';

No. 5, in line 26, leave out ' twelve and a half ' and insert nine';

No. 7, in line 28, after ' increase insert: 'the rate for the time being in force by such percentage thereof, not exceeding ten per cent. ';

and No. 88, in page 8, line 30, leave out ' 20 ' and insert 10 '.

standing in the name of the hon. Member for South Angus (Mr. BruceGardyne).

Photo of Mr Brian Walden Mr Brian Walden , Birmingham All Saints

The intention of this group of Amendments should be quite clear. We are seeking not to diminish the capacity of the Government to lower the rate of the value added tax but to diminish the rate at which the Government say they will introduce it and also their regulative power to increase it. I shall answer the constant invitations from the Government, who are sparing in the information they give us, for us to define more clearly our attitude. I welcome the chance on this narrow set of Amendments to do just that.

First, however, I want to make a technical point which arises from my experience—and I need to declare a financial interest here. It is of great interest to the business community. Obviously, at some stage the rate of VAT will be varied and I hope that the present or any future Government, if they decide to vary it, will not do so beyond two places of decimals. It is a technical point but important.

If accounting machines have to be sold on the assumption that they have to deal with three or four places of decimals, it makes a great deal of difference to the business equipment industry. If it sells machines on the basis that that is likely to happen and it does not happen, it will be put in the position of having appeared to have defrauded those it has supplied. On the other hand, if it supplies machines which calculate up to two places of decimals and then there is need to calculate up to four places, palpably the job will have to be done all over again and the industry will find itself in an invidious position. I begin therefore with what is, I hope, a fairly non-controversial point. From the Treasury Bench point of view I shall get worse but I begin by drawing the Minister's attention to this and asking for some reassurance.

I want to say a little about regressive and progressive taxation. I at least am unhappy about how these words are being used and defined. Every direct tax is by its nature regressive. There is only one really progressive form of taxation and that is Utopian. It is the old slogan of "From each according to his ability". In this case it is his ability to pay. People would pay differently for the same commodity in proportion to their income which would have the effect of equalising incomes. That cannot be done in the real world. That is the only really progressive form of taxation.

With all indirect tax the issue is "How regressive?" That brings us to the point that worries us when we look at Clause 9, to our suspicions about what is likely to happen in future if the Clause is passed unamended. We do not like the virtue that hen. Members on the Government side so frequently praise about the tax, namely that by being widely based and having a single rate it is non-discriminatory. We like discriminatory taxation. If there is to be regressive taxation, and indirect taxation is regressive, we prefer a discriminatory tax. What for hon. Members opposite is a virtue is for us a vice.

We believe the Tory Party when it says that it prefers a system in which a much greater proportion of revenue is raised from indirect taxation and there is a decline in direct taxation and taxation of corporations. That sincerely expresses the philosophy of hon. Members opposite.

It is a highly regressive philosophy but it is one in which they believe and, given the basis for their support, that is understandable. That is what makes us suspicious about the rates laid down in Clause 9.

However beautiful an instrument the Chancellor says he has devised for the nation and however many people he claims to have consulted and—I noticed this leaking into his briefs and those of this colleagues—however much he regards this as being so perfect as to make any changes unnecessary, we cannot agree. We do not really believe this, being suspicious men or at least not being naive men. We cannot really believe that the Government intend to employ an additional 6,000 of their own servants plus a minimum of 50,000 people in industry to cope with this tax to raise in perpetuity exactly the same amount of revenue as is raised by purchase tax and SET.

We do not buy it. We do not think it is a likely proposition. What we think is likely is that a singularly nasty pill will be sweetened, at least in its presentation. The country will be told that everything has been worked out with full consultation although there has been no consultation with the vast majority of people who pay tax, namely the consumers. Their views have certainly not been requested.

[Sir STEPHEN MCADDEN in the Chair]

10.15 p.m.

Despite all the consultative mechanism, we do not believe that the Government would go to all this trouble and philosophic nicety just because the Tory Party has decided that rather than reform purchase tax it is ideologically purer to introduce VAT. We think that the VAT rate will go up, as it has done in every country in which VAT has been introduced. I am delighted to see that my old friendly enemy the hon. Member for Oswestry (Mr. Biffen) agrees with me on that. He knows, I know and the Chancellor knows that no country which has introduced VAT has kept to the rate at which it was introduced.

It would be a purposeless and farcical exercise if, simply because hon. Gentlemen opposite have scruples towards pur- chase tax, which they never had during the 13 years they were in power in the 1950s and 1960s, and because they excessively dislike SET, they felt it necessary to produce the massive provisions which appear in the early part of the Bill.

We notice—and this was conceded by the Financial Secretary to the Treasury —that in accordance with Clause 9(2) and (3) it is an indisputable fact, although only obliquely confirmed by the Treasury Bench, that the tax could be operating a year from now at 15 per cent. I am not even taking into account, as it would be out of order on this series of Amendments, that the zero ratings could also be changed. We could have a 15 per cent. rate. The Government have given themselves power to do that. I think it was the Financial Secretary who said that the rate will be 5 per cent. Pigs could fly. It will not be a 5 per cent. rate and in our judgment it will not be 10 per cent. for very long either.

The Chancellor has given himself power by subsections (2) and (3) to put the rate up to 15 per cent. If there is no intention to do that, and if the regulative powers are not needed to do that, our series of Amendments could easily be accepted. We are not taking away from the Chancellor his ability to use the regulator; what we are seeking to take away from him is the chance to put up the rate to 15 per cent. If he has no intention of doing that, if no thought could be further from his mind, he should accept the Amendments. The Financial Secretary said in a memorable phrase that the Conservative Party would be prepared to run on its taxation record. We shall remember those words and we shall see whether or not the rate goes up. If it is not the intention to do that, it will not be difficult for the Chancellor to come to the Box and say—so that his intentions shall not be misunderstood, and standing as he always does on his record—that he is not prepared to take sweeping regulative power of this kind which will enable him to increase the rate of tax simply, as my right hon. Friend the Member for Leeds, East (Mr. Healey) said, by means of an order at the fag end of a day. We are inviting the Chancellor not to take those powers but to take the more limited powers we are suggesting in our series of Amendments

Harmonisation is relevant to our Amendments and it is another suspicion in our minds. The Chancellor can always dispel these suspicions by giving guarantees that will stick instead of running on his record by filling out the bare bones of the tax that we have been given.

Despite all that is said about Green and White Papers, the fact remains that the VAT provisions give us a flimsy framework and a devil of a lot of regulations. Although it may be true that the Customs and Excise will be involved in the most profound talks on these regulations with interested parties outside the House, very few inside the House will have the opportunity to be privy to any of these talks or to discover what we have let ourselves in for until we have passed these various Clauses.

We want to vent our suspicions. We do not believe that the Chancellor has given us any assurance that is worth having. The hon. Member for Horsham (Mr. Hordern) said the Chancellor had assured the House that harmonisation could come about only by a unanimous decision in the Community. He felt that was an absolutely sufficient guarantee from the Chancellor in respect of all our fears about a rising rate. It would be a guarantee if he knew that our iron Chancellor would fight against any harmonisation proposals which would cause him to have to raise the rate in this country. We do not believe that for a moment. We do not believe that will happen. We think the Chancellor will welcome the chance to put up VAT rates and will run it in on the pretext that he has to do this to harmonise with regulations inside the Common Market. I say to the hon. Member for Oswestry—who like the Opposition Front Bench was not born the day before yesterday—that we are in agreement on this matter.

I say to the hon. Member for Horsham, whom I have known and liked for a long time, whatever our political differences, that we have not had any assurance on this matter. We have no guarantee to give to our constituents. What we can tell them is simply that we are passing a Bill which might mean that the rate of VAT, when it starts to operate, will be 10 per cent; on the other hand, it might mean that it will be 15 per cent. Again it might mean that it will be 6 per cent., but nobody seriously believes that and it is thrown in only as a debating point. The amount of tax is so broadly based that the amount that can be raised by giving the Government regulative powers under Clause 9 is colossal. I do not recall any Government on a narrow tax of this kind ever asking to be given regulative authority of this kind. I suggest that the Government would do well to consider the Opposition Amendments and to examine whether they want to go back to their constituents and say that the tax might be at 10 per cent., 12½ per cent. or 15 per cent. Will they say that the people should be content to accept the Chancellor's belief in the long run in the record of the Conservative Party on taxation?

Photo of Mr Albert Cooper Mr Albert Cooper , Ilford South

I would point out to the hon. Gentleman that in the six years of Labour Government taxation was increased by £3,000 million and that in the two years we have been in power we have reduced taxation by £3,000 million.

Photo of Mr Brian Walden Mr Brian Walden , Birmingham All Saints

The hon. Gentleman must feel that I have been under an anaesthetic for a very long time if he thinks that is the first time I have heard that chestnut. If I wanted to hold up the progress of the Committee, which I do not, I would talk about the respective rates of balance of payments at various times when one side or the other was in power and would deal with the rate of demand in the economy and so on. We can all make these points. I am less interested in what we did in six years of government or in what the Tories did in their 13 years than I am in worring about the rate of VAT once the tax comes into operation.

Our Amendments give the Chancellor the chance to come clean. They give him the chance to say that he does not need a regulative power which could bring him in such a large additional sum in revenue and, bearing in mind many people's just and proper apprehensions about the intentions of the Treasury, to say that he is prepared to accept these Amendments.

Photo of Mr Peter Trew Mr Peter Trew , Dartford

Any Amendment proposed by the party opposite which has the effect of reducing taxation is one which we ought to welcome—and examine.

The hon. Member for Birmingham, All Saints (Mr. Brian Walden) gave an innocuous reason for introducing the Amendment. He said that it was to reduce the freedom of action of the Government to increase the rate of VAT in the future. In effect, the hon. Gentleman proposes a reduction in revenue of £360 million, and really he must say where he proposes—[Interruption.] The Amendment is to reduce the provisional rate of VAT by 2½ per cent., which has the effect of reducing the revenue by £360 million.

Photo of Mr Brian Walden Mr Brian Walden , Birmingham All Saints

But all the consequent Amendments give the Chancellor of the Exchequer the chance to recoup back to the 10 per cent. rate if he wishes to.

Photo of Mr Peter Trew Mr Peter Trew , Dartford

But the Amendment reduces the band within which my right hon. Friend can act in a way equivalent to reducing revenue by £360 million. However, the hon. Gentleman gave a clue about the way in which he would like to see the additional revenue made up. He disapproved of the fact that we on this side wanted to shift the burden of taxation from earning to spending. In that, of course, he disagrees with his right hon. Friends the Members for Birmingham, Stechford (Mr. Roy Jenkins) and for Manchester, Cheetham (Mr. Harold Lever), who are on record as acknowledging the disincentive effect of high direct taxation. Presumably they are in sympathy with the principle of shifting the burden of taxation from earning to spending.

When the hon. Member for All Saints hinted darkly at the Government's intention to increase the rate of VAT in order to bring in more revenue, he overlooked a very important aspect of VAT, which is its buoyancy. To leave the rate at 10 per cent. is not to raise the same amount of revenue for ever. It is a buoyant tax because it is a comprehensive one and, therefore, extends automatically to every new process, technology and service coming on to the market. But in addition the rate of revenue increases faster than consumer expenditure for one important reason. Those goods and services relieved from VAT, which are the necessities of life, each year form a progressively smaller proportion of total consumer expenditure. Therefore the tax base for VAT increases year by year. That is why it is a buoyant tax and very different from the tax favoured by the party opposite, purchase tax.

From 1959 to 1969 consumer expenditure increased by 78 per cent. But the yield from purchase tax increased by only 59 per cent. Purchase tax is not a buoyant tax because the base for it shrinks year by year. It cannot be extended to services which each year form a greater part of consumer expenditure. Just as the tax base for VAT increases relatively year by year, so the tax base for purchase tax decreases relatively year by year. Therefore, if it is to yield the same revenue as VAT it has to have a running mate. The chosen mate of the Labout Party is SET. They are the two terrible twins of Socialist indirect taxation policy.

SET has never been a popular tax. It has been introduced in this country in various forms. It so greatly incensed a distinguished former constituent of mine, Wat Tyler, that he rebelled against it in 1381. It was a long time before any Government were so foolish as to introduce such a tax again.

There are no alternative indirect taxes which in any way match VAT as a revenue raiser. I consider that 10 per cent. is eminently fair. It represents an overall tax of 5 per cent. on consumer expenditure. By no stretch of the imagination can that be called harsh.

It is not regressive. It is worth referring again to the figures referred to by my hon. Friend the Financial Secretary in the previous debate. The analysis of the 1970 family expenditure survey showed that 40 per cent. of the average household expenditure would be exempt from VAT, rising to over 65 per cent. for the poorest households. That is not a regressive tax but a fair one. The rate of 10 per cent. is eminently reasonable and the lowest in Europe, and I therefore oppose the Amendments.

10.30 p.m.

Photo of Mr Jock Bruce-Gardyne Mr Jock Bruce-Gardyne , South Angus

I do not intend to go quite as far back as my hon. Friend the Member for Dartford (Mr. Trew) in his reference to a distinguished former constituent. I want to say a few words in particular about the Amendment in my name, No. 88, and Opposition Amendment No. 7, which is really the pair to it.

Before doing that I feel impelled to say something about the introductory remarks of the hon. Member for Birmingham, All Saints (Mr. Brian Walden). I think that on the whole the hon. Gentleman made a somewhat more impressive case than did his right hon. Friend the Member for Leeds, East (Mr. Healey) earlier this afternoon, but that is not surprising. That is what we should expect of the hon. Gentleman, particularly on these matters.

Nevertheless I felt that the hon. Gentleman brushed aside too easily embarrassing comments from this side of the Committee about the tax records of the two sides of the Committee during their respective terms of office. The hon. Gentleman sounded rather like the confirmed alcoholic who turns to his abstemious friend and says "I say, old fellow, we will put the hard stuff out of reach ", because that is ostensibly what the Amendments are designed to do. That will not wash in view of the Labour Party's record.

The hon. Gentleman expressed all sorts of concern about the evil intentions which my right hon. Friend the Chancellor of the Exchequer might have about harmonisation in the European Community. I am bound to tell the hon. Gentleman that what concerns us on this side of the Committee is nothing of that kind. What concerns us is what, in the improbable event of the electorate returning them to power, another Labour Government would do by way of confirming their reputation of using regulators invariably in an upward direction. How the hon. Gentleman can have the nerve to talk about the Tory Governments of 1951 to 1964 using the regulator upwards without mentioning that only last summer the Government used it not merely downwards, but downwards doubly, is past belief.

The fact is that we were all surprised that my right hon. Friend was able to announce a 10 per cent. standard rate. We had all expected something substantially higher. As my right hon. Friend said, in his election address, the right hon. Member for Leeds, East forecast something substantially higher. If the right hon. Gentleman was not surprised at a 10 per cent. rate—and he confessed that he was not—one can only assume that he does not believe anything in his election addresses, and on his past track record he would be well advised to take that view.

There is a double hypocrisy about the Opposition's attitude on Amendment No. 2 and the other principal Amendments. As my right hon. Friend said on Second Reading, the position is that there is a total conflict between the desire of hon. Gentlemen opposite, in these Amendments, to go for a lower rate of VAT and their determination to demand all sorts of extensions of zero-rating under Schedule 4.

In his first intervention on Second Reading in his new appearance as Opposition spokesman on financial matters, the right hon. Member for Leeds, East said that if we were worried about extending concessions on zero-rating, we could always put up the rate of VAT. That being his view, what hypocrisy it is for hon. Gentlemen opposite to call for a lower standard rate. We can treat Amendment No. 2 and the Amendments that go with it with the contempt they deserve.

I come to Amendment No. 88 which stands in my name and Amendment No. 7 which stands in the names of hon. Gentlemen opposite, though the hon. Member for All Saints paid scant attention to it. For the benefit of hon. Members who have not followed these matters in detail, perhaps I should emphasise that the purpose of Amendment No. 7 is to empower the Government to use the VAT regulator to 20 per cent. downwards but to only 10 per cent. upwards. The purpose of my Amendment No. 88 is to restrict the freedom of the Government to use the regulator to 10 per cent. in either direction, which conforms to the existing regulator on purchase tax.

Photo of Mr Dick Douglas Mr Dick Douglas , Clackmannan and East Stirlingshire

The hon. Gentleman lays great stress on hypocrisy. If he has such endearing concern for the veracity of the statements of his colleagues in the Government, may I ask him to explain why he is proposing in Amendment No. 88 to restrict their freedom of action to reduce the tax?

Photo of Mr Jock Bruce-Gardyne Mr Jock Bruce-Gardyne , South Angus

If the hon. Gentleman will have patience I will come to that. He must let me make my speech in my own way.

I use the word "hypocrisy" again. For hon. Gentlemen opposite, who in six years used the regulator twice in an upward direction but never in a downward direction, to demand that we, who have already used the regulator doubly downwards, should restrict ourselves not to nut up the rate by more than 10 per cent. but to be free to put it down by 20 per cent. is a hit hard to swallow.

Why do I suggest that we limit the use of the regulator to 10 per cent. in either direction? I am increasingly an agnostic about the use of the regulator for purposes of fine tuning because I doubt whether it is given to man to manipulate the economy almost from week to week by substantial adjustment in the fiscal system. I sometimes think that if we devoted to what we might call the monetary choke half the loving care and attention that we devote to the fiscal accelerator and brake mechanisms we might find ourselves more successful in managing the economy.

There is one very good case for the use of the regulator in a downward direction, and that is as a weapon against inflation. I hazard a guess that the historians of our affairs may come to the conclusion that the decision of my right hon. Friend to reduce purchase tax by 20 per cent. last year was more effective in fighting inflation than the so-called CBI price initiative, which I believe to have had some disadvantageous effects in other spheres, a matter which I cannot develop without straying out of order. If, however, one wishes to adjust rates of indirect taxation downwards in order to combat inflation, one does not need a regulator for that purpose. One of the curious things about the remarks of the hon. Member for All Saints was that he showed no awareness of the fact that last year it was not the regulator that was used but the power to issue an order under the Purchase Tax Act, 1963.

As I understand it—my hon. Friend the Minister of State will correct me if I am wrong—the only purpose of having a regulator is to enable the Government to adjust the rates of indirect taxation when the House of Commons is not in session, because when the House of Commons is in session it is open to the Government to introduce orders on the same lines as the order introduced last July to reduce the rate to 20 per cent.

Perhaps my hon. Friend the Minister of State will clear up a point that arises on this matter. The power to make such an order existed under the Purchase Tax Act, 1963. May we take it that a similar power would exist under the Bill for VAT? I think that this is probably correct but it needs clarification. If it is correct, clearly the only reason for having the regulator must be for purposes of fine tuning for the four months of the year when the House of Commons is not sitting. Abstemiousness from fine tuning for four months of the year would not help very much. So. whether or not we have the regulator in existence is not a matter of overriding significance in the management of the economy. But perhaps we should have an explanation from my hon. Friend the Minister of State as to why it has been decided to put the regulator power at 20 per cent. as opposed to the 10 per cent. on purchase tax. We have not had such an explanation to date.

In his Budget Statement my right hon. Friend the Chancellor said that there would be a VAT regulator. He did not explain precisely what it would be. But in the Budget debate on 23rd March, my hon. Friend the Minister of State said: There is one important advantage of VAT and the 20 per cent. regulator power which has not yet been fully recognised and to which I should like to refer. The coverage of purchase tax is limited. Consequently changes in the rates of purchase tax intended to stimulate or restrict demand in the economy as a whole are concentrated upon a relatively small slice of consumer expenditure. The introduction of VAT will reduce the scale of this problem." —[OFFICIAL REPORT. 23rd March, 1972; Vol. 833. c. 1810.] This afternoon my right hon. Friend the Chancellor again drew attention to precisely this advantage when he said that the wide sweep of the VAT meant that rate adjustments for purposes of managing the economy—I think I have his words correctly—can be "much smaller" than they were in the case of purchase tax. In that case, why do we go to a 20 per cent. regulator from a 10 per cent. regulator?

Photo of Mr Jock Bruce-Gardyne Mr Jock Bruce-Gardyne , South Angus

The hon. Gentleman keeps saying that these things are suggestive and he gets tremendously excited about all the awful things that may happen. He must have been listening to his right hon. Friend the Member for Leeds, East this afternoon, when my right hon. Friend pointed out that in his election address the right hon. Gentleman forecast a 20 per cent. VAT on fuel and so on. The right hon. Gentleman said "No, you have not got it now, but you will have it." If the right hon. Gentleman were to accuse his neighbour of beating his wife and his neighbour were to sue him for libel, one can imagine the right hon. Gentleman saying in court "I agree that there is no evidence that he is beating his wife, but I know damned well that he will and I make the accusation against him."

Photo of Mr Brian Walden Mr Brian Walden , Birmingham All Saints

Is it not the case that one is always more disposed to believe that a right hon. Gentleman will not beat his wife if he is not seen to be carrying rods and canes into his house? We are inviting the Chancellor not to carry so many sticks. Then we shall believe that the right hon. Gentleman's matrimonial intentions are as he said.

10.45 p.m.

Photo of Mr Jock Bruce-Gardyne Mr Jock Bruce-Gardyne , South Angus

As I thought I had explained to the hon. Gentleman, his record and that of his party in this matter is so dubious that protestations of anxiety about our future conduct come ill from them.

What worries me slightly, as one who is a complete agnostic about the virtues of attempting to fine-tune the economy, about the Clause as it stands is that the instrument we appear to have in mind to use could be better described as a hay rake than a tuning fork. If we have to use these instruments at all, I should like to know why we could not stick to a more modest tuning fork.

To report Progress and ask leave to sit again.—[Mr. Barber.]

Committee report Progress; to sit again tomorrow.

ADJOURNMENT

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Fortescue.]