Group 14 — Children's Clothing

Part of Orders of the Day — Finance Bill – in the House of Commons at 12:00 am on 16th May 1972.

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Photo of Mr John Golding Mr John Golding , Newcastle-under-Lyme 12:00 am, 16th May 1972

I want to talk about the impact of value added tax on the Post Office, particularly on its telecommunications services. The fact that £40 million will be added to the residential charges has hit the headlines, but I do not want to labour the point because I have supported the last two price increases imposed by the Post Office. The record of the Post Office since 1965 shows that the increases on the telecommunications side have been well below the national average because of technical innovations and the rapid increases in productivity by the telecommunications workers.

I oppose the imposition of VAT on telecommunications on several grounds. First, it is wrong that a different set of principles should be applied to the telecommunications side as opposed to the postal side. They are both complementary and competitive services. It is desirable that both should be treated in the same way. It is particularly wrong that the telecommunications services should be discriminated against, for it appears to many of us that they are in the best position to develop at the present time.

I am disturbed to discover that for the purposes of the value added tax a telegram is not to be regarded as a postal packet, so that it appears that neither zero-rating nor exemption will apply to telegrams. For many years the telegraph service has been in a state of financial crisis and it receives a considerable subsidy. The application of VAT to telegrams will make the situation worse.

There are good social reasons for the retention of the telegram service. The thinking of Members of Parliament is dominated by the ease with which they can make telephone calls, but for working-class people the telegram is the normal lifeline. Many people find it difficult to use the telephone or do not have access to the telephone. The people with whom they wish to communicate may not be on the telephone. To those people the telegram is very important. Whatever else the Government may do, I hope they will reconsider the definition of "postal packet".

My second objection to the application of VAT to telecommunications is that the following absurd situation will arise. Roughly £200 million a year is borrowed by the telecommunications business from the Treasury. Value added tax will be collected by the Post Office and handed over to the Treasury. Immediately the Post Office will apply to the Treasury to borrow the money back, paying interest on it. Were the telecommunications service to be in competition with private enterprise I could see the logic of applying VAT so that no unfair advantage would be given to the private sector, but telecommunications and posts are a public monopoly, so that that argument does not apply.

Gas, electricity, local authorities and transport, including air transport, will not be subjected to VAT. It is ironic that it will be possible for a person physically to carry a message through the air without VAT being chargeable while a message sent by the telecommunications system will be subject to VAT.

I believe strongly that there will be an impact on Post Office finance. The Minister said the other day—perhaps he will admit to some small error—that the application of VAT would have little impact on the telephone calling rate. Speaking to the learned economists on our Front Bench, I find it difficult to visualise a situation in which suddenly in the year 1972 there is an inelastic situation as it applies to telephone calling rates. As far as one can see there is a degree of price elasticity in the telephone service.

1.15 a.m.

It is important for the Minister to realise that neither SET nor purchase tax has previously been applied to telecommunications services, so that the relative increases in price in telecommunications will be greater than in most businesses where either purchase tax or SET has applied.

Increases in postal and telecommunications rates are always followed by economy drives in business and in the home. Those who have been concerned with Post Office finances for a number of years have noted that. These economy drives may be short-lived, but they are significant at the time.

It may be that the Post Office will welcome the increases in installation charges and rentals which will follow from the imposition of VAT because it is unable to cope with the demand due to the failure, as the Minister of Posts and Telecommunications knows, of private manufacturers to deliver on time. Many people in the Post Office would like to see connection charges and installation rates go sky high in order to fend off the demand. They are not arguing that price increases will have no effect on demand. They are hoping that there will be price increases because they know what a dramatic effect they can have on demand, at least in the short term.

Everybody in the Post Office must be concerned about the impact of price increases on the residential subscriber's calling rate, because this is the heart of the problem of Post Office finance. People use their telephones to a very small extent. The residential calling rate is fantastically low. A few years ago I did a survey and found that the residential calling rate was as low as five calls a week per phone.

The charge for a call does not seem to make a great impact on the calling rate. Most people think that it is more expensive to make a phone call than it actually is. A few years ago I carried out a survey among people involved in telecommunications and found that not one could tell me what the cost was to him of making a call from his own home. Everyone over-estimated the charge. What is important is how much people believe a call costs them, and if they are faced with a 10 per cent. increase in call charges their immediate reaction will be to cut down on the number of calls they make. This would be very undesirable indeed. Although an argument can perhaps be adduced for increasing connection or rental charges in present circumstances, no argument can be presented for increasing the price of off-peak residential calls.

It is utter nonsense for the Post Office to have to employ people to work out how much it owes the Treasury. It is nonsense for the Treasury to have people to check up on those calculations. In the circumstances of the day where the Post Office is going year by year to the Treasury to borrow substantial sums of money, it would be better for posts and telecommunications to be subject to zero-rating.