asked the Chancellor of the Exchequer what loss of revenue is entailed in reducing the inaugural rate of value added tax to five percentum only; what consideration of income standstill policy he will consider in that connection, having regard to the inflationary effect of value added tax at any higher rate than five percentum; and whether he will make a statement.
On the basis of the estimate published in last year's financial statement, introduction of VAT at a rate of 5 per cent. would reduce the full year yield by over £700 million. In deciding upon the initial rate of VAT in the context of his Budget my right hon. Friend will have regard to all relevant considerations.
Without expecting my hon. Friend to be anticipatory in present circumstances, may I remind him of the extreme attractiveness of a rate of 5 per cent. now that the freeze has been widely accepted in this country and that all quarters of opinion generally support it—since a 5 per cent. rate would be generally within the freeze conditions?
I agree with my hon. Friend that the Government's counter-inflation policy enjoys a great measure of support in the country. My hon. Friend also knows that my right hon. Friend the Chancellor of the Exchequer receives a variety of cogent and attractive advice which is not always mutually consistent. But we pay the closest attention to it all.
Is the hon. Gentleman aware that any rate will be inflationary, because it will be abused? Is he aware, further, that I have here a pair of children's slippers, bought at the Lincoln branch of Mothercare a few days ago, carrying a price tag of 70p but having underneath that price tag another tag, ready for the introduction of VAT which reads "Including VAT, 85p", an increase of more than 20 per cent. before the rate of VAT has even been announced? Is not it obvious that mothers will be exploited by this intolerable tax unless the Government remove it altogether from children's clothes?
In view of the fact that even the right hon. Member for Leeds, East (Mr. Healey) has admitted that a 10 per cent. VAT will do little to the cost of living when it replaces purchase tax and selective employment tax, will my hon. Friend resist blandishments to lower the rate, bearing in mind that because of the relief on the necessities of life a reduction will be of greater relative advantage to better-off families than to poorer families?
Will the hon. Gentleman recognise, first, that he deliberately misled the House the other day when he said in reply to me that there were 950,000 registrations? That was not the truth, and perhaps the hon. Gentleman will apologise. Will he recognise, secondly, that if he were to accept the advice of the hon. Member for Worcestersire, South (Sir G. Nabarro) it would make an even greater nonsense of VAT than it is at present? He would be raising about half the amount that is raised by the two taxes which it replaces. Would not it make more sense, in the present inflationary situation, to take notice of what was said by my right hon. Friend the Member for Blackburn (Mrs. Castle) and postpone the introduction of VAT altogether?
I apologise if I misled the House. I will look into what the hon. Gentleman says. I gave the latest figures of registrations and applications in the course of the Committee stage of the Counter-Inflation Bill.
Is it not nonsense to spend considerable sums of money encouraging safety consciousness and for the first time to introduce VAT on safety equipment which has not previously been subject to purchase tax—for example, fire blankets, fire extinguishers, goggles, safety footwear, respirators, gas masks, helmets, safety harness and machine guards which are designed for protection? Surely there must be a clash of policy somewhere in the Government's thinking.
We debated this subject at considerable length on the Finance Bill last year. Safety equipment, as a class, was not relieved in last year's legislation because of the impracticability of finding a satisfactory definition. The hon. Gentleman may recall that we debated at length the question of buckets of sand. I understand what he is saying, but I cannot agree with him, because VAT on safety equipment purchased by registered traders for business use will be recoverable, and many other circumstances apply.
Is the hon. Gentleman aware that my trade union, which is the construction section of the AUEW, is deeply concerned about the introduction of VAT on safety equipment? Does he realise that the construction industry, which has the highest accident rate in the whole country, makes extensive use of the articles mentioned by my hon. Friend the Member for Oldham, East (Mr. James Lamond)? On that basis, bearing in mind the number of firms which have gone out of existence because of lack of capital, will the hon. Gentleman reconsider the situation?
Is my hon. Friend aware that a part-time lecturer will have that portion of his income which comes from teaching VAT-ed under the present proposals? Since he receives fees under contract and the contract cannot be changed, he will have to accept 10 per cent. less in fees. Will my hon. Friend consider that matter and give a favourable reply?
I appreciate that my hon. Friend is referring to a self-employed lecturer. Lecture fees would be taxable only if they were in excess of £5,000 a year. I appreciate the particular circumstance which my hon. Friend has brought to my attention. I think that the educational establishment in question may be behaving in a rather harsh manner. I appreciate the case that my hon. Friend has made to my hon. Friend the Financial Secretary and, obviously, we will look into it.
During recent months, many charities have had useful discussions with Customs and Excise. Representatives of some of the larger charities saw my hon. Friend the Chief Secretary in December, and, together with the Financial Secretary, I myself saw representatives of the National Council of Social Service last Monday. I have noted their views.
But is the right hon. Gentleman aware that the report commissioned by the National Council of Social Service showed that 45 out of 52 charities would be worse off, even allowing for benefits that they received from other taxation changes? Surely the Chancellor can agree that at least goods donated for sale in charity gift shops could be zero rated? This is very important to charities such as War on Want.
The representatives of the national council who came to see me fully understood why I could not comment at this time. Therefore, I can only say that I have noted the hon. Gentleman's views.
Will my right hon. Friend confirm that the individual shops run by such organisations as Oxfam will be treated separately, as he undertook to do in the recent debates on this subject? If that is the case, will he confirm that they will then be able to compete more effectively than now with commercial businesses?
All I should say at this stage is that this aspect of charity shops was fully debated last year. I agree that it is very important, and I will certainly bear in mind all that is said.
Is the right hon. Gentleman aware that this is not a party matter in any way? Many hon. Members on both sides are deeply concerned at the fact that many charities will gain no benefit from the tax changes which the Chancellor announced last year but will suffer heavily from the effect of value added tax on their operations. As I understood it, in the debates that we had on this matter earlier, when the Chancellor refused to give any undertaking, he said he would see how the tax affected these charities, but is he aware that many of these charities may cease to exist after a year of value added tax, if it is applied in the way now proposed? Will he assure us that he will have an announcement to make on this matter in his next Budget, before the tax comes into effect?
It was as a result of what I said last year that there have been these very useful discussions between a number of charities and the Customs and Excise. However, with the Budget less than a fortnight away, I certainly could not respond to the right hon. Gentleman.