Modifications of Schedule 5 to Value Added Tax Act 1983

Part of Orders of the Day — Finance (No. 2) Bill – in the House of Commons at 12:45 am on 30th April 1984.

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Photo of Jim Wallace Jim Wallace , Orkney and Shetland 12:45 am, 30th April 1984

The amendments principally seek to exempt from the extension of VAT to building alterations those alterations that are made with the prime intention of improving energy efficiency in houses and factories. Ministers in the Department of Energy regularly tell us that the Government support the concept of energy efficiency. Indeed, for some months Ministers from the Department of Energy have been breakfasting industrialists up and down the country, extolling the virtues of energy conservation. Even more recently, we have been told about it by means of a touring caravan which apparently has something called a talking head. A press release from the Energy Efficiency Office states:

One interesting feature of the Caravan is a talking head, an animated mannequin of Brian Murphy, TV's 'L for Lester'. He tells visitors how he discovered the importance of improving the efficiency of his own heating system by watching his neighbours getting more money to spend on holidays through cutting their energy bills. So one would hope, or at least think, that one would not have to spell out the arguments in favour of energy conservation and efficiency to this Government.

However, it appears that other Departments try to undo what the Secretary of State does. Last winter, the Welsh Office directed local authorities to freeze funds specifically allocated for domestic insulation. Cutbacks in expenditure on public housing have made it less likely that effective improvements will be done to poorly insulated housing stock. Now the Budget extends VAT to building alterations, including those undertaken for the prime purpose of improving energy efficiency in factories, industrial and business premises and, in particular, houses.

Such an extension of VAT is wrong in principle. The revenue that will accrue to the Treasury as a result cannot match the enormous savings—which we are regularly told about by Ministers from the Department of Energy—that can result fom improving energy efficiency. One of the arguments that the Secretary of State for Energy and his Ministers constantly put forward is that insulation is important because of its cost effectiveness. Indeed, the animated mannequin that is touring with the Energy Efficiency Office caravan is trying to make that very point to householders. One cannot help but think that taxing insulation and energy conservation measures must reduce that cost effectiveness and make that option less attractive to many of those who would otherwise be encouraged to make energy efficiency improvements to their homes.

In turn, that will affect demand, with all the consequences that has for the many small businesses involved in energy conservation. In 1973, at the time of the oil crisis, when the Department of Energy told us to "Save It!", the energy conservation industry boomed, but in the latter part of the 1970s and the early part of this decade, people became dangerously complacent over expanding North sea oil production and many of the small energy conservation industries suffered badly and some went out of business. It is only in the past year or 18 months that a good number of them have started to see things improve. Now that there is some sign of improvement, it would be disastrous if we allowed a major setback by taxing something that we are told the Government think is a worthwhile objective.

I shall try to anticipate some of the Minister's arguments. In a letter dated 13 April, addressed to me the Secretary of State for Energy gave a reason for believing that this additional tax would not be so important. He said:

The substantial increase in personal disposable incomes, which will result from the changes in income tax, will also help consumers to offset these extra costs. It defies the imagination to believe that a Budget increase in wages of £1·21 per week, excluding the effect of indexing personal taxation, will in any way influence those who would otherwise have undertaken a major item of capital expenditure involving alterations to improve their home insulation. If the Secretary of State for Energy believes that a small increase in weekly take-home pay will encourage that with an additional 15 per cent. on the capital cost, he is stretching our credibility.

Earlier this month the Secretary of State even said that at least people always had the option of doing work themselves. In a letter to me dated 14 April the Minister said:

successive Governments have consistently resisted pressure to introduce a relief for energy saving work as such.

The argument, "We have never done it before", has been a feature of bureaucratic conservatism for many years. We challenge it. Why should we not give relief to energy saving? After all, the Government give direct financial assistance to nuclear energy production, for instance.

We hear repeatedly about the money that the Government give to the coal industry. Energy conservation is important to our overall energy strategy. Why are the Government not prepared to back that policy with specific relief?

Energy conservation has a role to play in energy strategy. It has an important role in job creation, particularly in rural areas, where there are many old houses with poor insulation, and in inner cities where unemployment is high. It has a social role to play in improving housing stock by providing better insulation and so cutting the fuel bills of many poor, elderly people. We urge the Government to accept the spirit of the amendment and to support their own policies by making an exception for work directed towards conserving energy.