Orders of the Day — Toll Charges (VAT)

– in the House of Commons at 9:42 pm on 5th November 1996.

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

Photo of Mr Roy Hughes Mr Roy Hughes , Newport East 10:28 pm, 5th November 1996

In seeking this debate about VAT on toll charges, I confess that I am particularly concerned about the two Severn bridges, although if VAT were imposed on those crossings, it would also apply to many others throughout the country.

Hon. Members, especially my Welsh colleagues, know that, over the years, I have taken a good deal of interest in the Severn crossing. It is, after all, the lifeline of Wales.

The background to this issue is that tolls at present on the Severn crossings are simply prohibitive. For example, for a motor car the charge is £3.80. For a small van, it is £7.70 and for a heavy lorry it is £11.50. They are, I believe, the highest tolls in the country.

Many people on either side criss-cross the channel each day to follow their employment. Many on the Newport, East side and in other areas on the Welsh side cross the channel to follow their employment in Bristol and Avonmouth. Likewise, quite a number do the journey in the opposite direction from Bristol, many of them teachers in south Wales.

On the Newport, East side some years ago, there were many thousands of redundancies in the steel industry, and the people affected at the time were advised by the then Mr. Norman Tebbit, now Lord Tebbit, to get on their bikes. Many of them took that advice, taking jobs in Avonmouth and Bristol, and now have to pay these punitive toll charges. Small companies on either side of the channel—perhaps small plumbing or electrical contractors—need to cross the estuary frequently, and they have to pay £7.70 for their small van. That adds considerably to their costs and subsequently to their charges to the consumer.

The third category is heavy lorries, which pay £11.50 for each journey into Wales. Incidentally, they carry the goods that provide our standard of living in this country, and it has often been said that, when the cost of transport is put up, it just about puts up the cost of everything.

The journey out of Wales across these bridges is free, so the toll is paid on the return journey. Consequently, some companies in south Wales instruct their drivers not to use the bridges when coming back into Wales; accordingly, many lorries are diverted into the villages of Gloucestershire. That in turn causes a good deal of consternation in those villages, because of the serious environmental and safety problems that the diversions cause.

All in all, the toll charges are simply an abomination, and much of the responsibility for this situation rests squarely with the Government. Some years ago, the Select Committee on Transport called for the phasing out of toll charges on estuarial crossings. It was a perfectly sensible recommendation, but, instead of taking that advice, the Government decided to hand over the then existing Severn bridge to a foreign-backed consortium. They also authorised it to build a second crossing, and to charge exorbitant tolls on both bridges so that the company could recoup its costs and more.

I come now to the nub of my argument. From time to time there are reports in the press that the European Commission is threatening to take Britain to court over its refusal to charge VAT on road tolls. On 26 July 1996, a report by Helen Cranford in Brussels in The Daily Telegraph—a highly reputable newspaper, although I do not often agree with it—said: Britain remained defiant yesterday after the European Commission threatened court action over its refusal to charge VAT on road tolls.If the EC wins, the case could force up the cost for dozens of crossings such as the Skye Bridge and the Dartford Tunnel"— and, I might add, the Severn crossings.

The report continues: France, along with Greece and Ireland, has also been accused of failing to comply with the EU directive on VAT. All four countries will be given 40 days to change their legislation. That is clear enough. We recognise that the 40 days haveelapsed, but I have been reliably informed that that court action will take a long time and is now expected in the second half of next year. There is speculation, too, on how the issue will be handled. Will action be taken against all the offending countries at once or will particular countries be singled out? It has been suggested that France will be the first country to be taken to court, particularly because it has a large motorway network, with many toll positions.

The Government take the issue seriously. If such a court hearing went against France, it is pretty obvious that a precedent would be set, and action would quickly follow against Britain. I have a letter dated 24 October 1995 from the then Paymaster General, the right hon. Member for Wells (Mr. Heathcoat-Amory), in which he specifically says: If tolls were to be subject to VAT it would have to applied at the standard rate of 17.5 per cent. Under EC law it is not possible to apply a reduced rate of VAT to tolls. What would that mean in practice? It raises an interesting situation. Tolls for cars would rise from £3.80 to £4.47, for light vans from £7.70 to £9.05, and for lorries from £11.50 to £13.51. I repeat that, in Wales, the Severn crossings are our lifeline, and the toll charges are already prohibitive.

Only yesterday, the Western Mail contained the headline "Wales next to bottom in the UK prosperity league table". The article stated: Prosperity in Wales is lower than almost any other part of the United Kingdom, with a person's average income almost half that of a Londoner.Of 11 parts of the United Kingdom included in a new prosperity survey, only Northern Ireland has a lower income per head. Wages in Wales are abysmally low. It was reported in the press a week or two ago that 13,000 people in Wales are paid less than £1.50 an hour. Those people must be subsidised by the state through social service payments. In other words, the firms that employ those people at such a low rate of pay are being subsidised.

Male unemployment in Wales is still about 11 per cent. There is much hidden unemployment. Many people who have been made redundant draw state benefits but do not sign on, so they are not recorded in the unemployment statistics. There is no doubt in my mind that VAT on top of the existing tolls would do a good deal of harm to the economy of Wales.

The European Union Commissioner for Transport is Mr. Neil Kinnock, the former Member of Parliament for Islwyn and former leader of the Labour party. In response to a submission from me on the issue of VAT on toll charges, he said in a letter dated 14 November 1995: The Commission has been asked by the Member States to promote the harmonization of the different VAT regimes applied… if tolls are levied for the use of a motorway or a bridge, VAT should be levied as well. That seems clear enough, but he goes on to point out: if no toll is charged, there will be no VAT payable. In this context, it would be possible, for example, to apply reduced toll rates (or even zero toll rates) for local people and residents who have to use the Severn Crossing often for their daily journeys to and from work. I referred to that earlier. I took this matter up—I call it a reasonable suggestion—with the French-American consortium that operates both bridges, which goes under the name of Severn River Crossing plc. The reply came from the well-known former Liberal Member for Montgomery, Lord Hooson, who is now the chairman of that company. In a letter dated 2 October 1995, he said: With regard to the suggestion that either no tolls should be levied or that there should be special concessions, these are entirely unrealistic. It was a political decision to build the bridge through the medium of private enterprise. That is the attitude of his company. Lord Hooson goes on to talk as if the company is finding it a little difficult to make ends meet.

The reality is very different, to say the least. A local journalist, Mr. David Barnes of the South Wales Argus, conducted a survey last summer, when we had only the first Severn crossing. He said that the Severn bridge was reckoned to be taking no less than £16,000 per hour. I should point out that toll charges have risen since then.

I have no doubt that the company is simply profiteering on a massive scale. It is all the Government's fault for entering into such an arrangement with the company. The new bridge should have been paid for by the massive amounts they receive in motor taxation. The original bridge was paid for several times over. The so-called debt was merely a paper figure on the Consolidated Fund; it could well have been wiped out at a stroke.

We are now faced with the doctrinaire, meddling approach of the European Union. If court action goes ahead, as is being threatened, we could well face additional toll charges. The Government would shed crocodile tears; they would be in receipt of a nice little earner.

In Wales, it cannot be said too often that the Severn bridges are our lifeline. As a direct result of the Government's handing over control of those bridges to a foreign-backed consortium, we are being subjected to prohibitive toll charges, and, as I have said, the company is profiteering on a massive scale. Any further increases in toll charges would be very damaging to Wales and its economy.

In fairness, the Government proclaim that they do not want the VAT charges. They should therefore tell the European Union in no uncertain terms that they will not accept such interference in our affairs. In Wales, that is the least we are entitled to expect.

Photo of Mr Philip Oppenheim Mr Philip Oppenheim , Amber Valley 10:47 pm, 5th November 1996

I am glad that the hon. Member for Newport, East (Mr. Hughes) has raised this important issue. He raised a number of other issues that are not directly related to VAT on tolls, and I think that it would be most appropriate if I referred those to the Department of Transport for reply. However, although I hoped that this would be the sort of consensual occasion for which I am best known and, indeed, loved in the House, the hon. Gentleman has provoked me into commenting on one or two matters that are not directly my concern, relating to the whole issue of the tolling of the Severn bridges.

I must say that I find it a little strange that the hon. Gentleman complains about tolls on the Severn bridges. Until he gets his own party to commit itself to taking away the tolls from the bridges, I shall not be able to take that seriously—but I will now give the shadow Secretary of State for Wales an opportunity to say that his party is committed to taking away the tolls from one or both of the Severn bridges.

Photo of Mr Ron Davies Mr Ron Davies , Caerphilly

The fact is that the present Government privatised the Severn bridge crossings. Is the Minister now suggesting that we should nationalise them?

Photo of Mr Philip Oppenheim Mr Philip Oppenheim , Amber Valley

I will make two points in response to the hon. Gentleman. First, having been given a clear opportunity to give a commitment on behalf of the Labour party to abolish tolls on the bridge, he failed to do so. He then accused us of privatising a bridge when what we have actually done is build a bridge by means of something called the private finance initiative. I suggest that he refer to his good friend the shadow Chancellor, and ask what is official new Labour policy on the PFI. Is this one of the old redoubts of old, unreconstructed stakhanovite Labour? I do not know.

I shall move to an area in which I hope there is more cross-party agreement. Tolls are not taxed in the United Kingdom. They have never been taxed, and we do not intend to tax them. The hon. Gentleman said that we would shed crocodile tears and pocket a nice little earner if they are taxed. If they were taxed, the Government would have some of the proceeds, but they would not be pocketed; they would go into hospitals and schools. [Interruption.] Opposition Members guffaw. I do not know where they think the money goes. Who builds the hospitals and accounts for the 70 per cent. increase in NHS spending in real terms since we have been in power?

I emphasise and doubly underline for the benefit of the hon. Gentleman and his constituents and everyone in Wales that we do not intend to tax tolls. We have consistently maintained that position throughout our disagreement with the European Commission on the issue.

I shall deal with a little of the background to the issue. Since VAT was introduced in 1973, we have viewed the large tolled crossings as activities undertaken by the state. European Union legislation accepts that the public activities of the state and of regional and local governments are not subject to VAT. Tolls charged on smaller private crossings are also exempted from VAT, but under a different provision. The European Commission disagrees, claiming that we should tax tolls in the same way that most services for payment are taxed.

To put it mildly, this is a very complicated EU legal issue of the type that would have been familiar to any of the priestly clerks who operated towards the end of the Byzantine empire. The United Kingdom is not alone in relieving tolls from VAT. France, the Netherlands, Greece and Eire do that. However, other member states with tolled roads add VAT to the toll charge.

The United Kingdom has strong and compelling arguments, to which the Commission has not given sufficient weight. The major tolled crossings are owned and controlled by the relevant Secretary of State, and they exist and operate under Acts of Parliament. They are in every sense an activity of the state, but the Secretary of State empowers local authorities and other bodies to run the crossings.

A comparison with the normal activities of local government might be helpful; refuse collection is an example. Councils are required by law to maintain environmental and public health standards. One requirement is to clean the streets and remove the refuse, and council tax is levied to pay for that. There is no dispute with the Commission that council tax is VAT-free. It is therefore eminently sensible that providing and maintaining tolled crossings should, by the same token, be VAT-free.

The Commission first raised this issue some 10 years ago, and in 1989 it announced its intention to pursue infraction cases against the United Kingdom, France and the other member states through the European Court of Justice. However, until July this year, nothing further happened. Then the Commission suddenly announced its renewed intention to deliver its complaint and legal arguments to the European Court of Justice and thus commence infraction proceedings. To put it mildly, that is a somewhat odd way to operate. When that happens, the UK and other member states will be able to respond formally to those arguments and later defend their position before the European court.

It is a lengthy process, and a formal hearing is unlikely to take place for about a year. We wish to use the time to take legal advice on the Commission's latest arguments and prepare the UK's defence. Furthermore, if there is any area in which the EC directive as it stands does not support the UK's position, we shall certainly do our best to influence the matter and change the relevant directive.

It is important that the VAT system creates a level playing field and does not discriminate between public services, whether they are publicly or privately provided. It is important that reliefs are not given indiscriminately, not just in relation to tolls but in all areas.

The Government support the concept of the Commission ensuring that there is a level playing field so that United Kingdom businesses can compete in the single market. It is also right for the European Court of Justice to examine the legal issues where there is a dispute. It is not acceptable, however, that, since 1989, the Commission has prevaricated, and that, instead of approaching the United Kingdom Government again to discuss the issues, it issued merely a press release announcing its intention to pursue cases through the European Court of Justice.

The Government find it particularly concerning that, last year, Neil Kinnock, as European Commissioner for Transport, referred to the tolls issue, which received much media attention. He said: if tolls are levied for the use of a motorway or a bridge, VAT should be levied as well. As my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory), the former Paymaster General, has publicly said, that is simply not so. It would have been nice if the former right hon. Member, now an EU commissioner, had got his facts right and consulted us, or at least discussed the issue with us, before making such a comment.

Despite my earlier harsh words, I welcome the fact that the hon. Member for Newport, East had raised this important tax policy issue. I affirm the British Government's absolute opposition to placing VAT on toll charges. We will oppose it in the European Court of Justice. If we find that the directive in any way supports the EU position, we will do our best to influence the directive to change it. I hope that that reassures the hon. Gentleman, his constituents, my hon. Friends and people in Wales and in other regions that benefit from toll bridges.

Photo of Mr Geoffrey Lofthouse Mr Geoffrey Lofthouse , Pontefract and Castleford

Order. Has the right hon. Gentleman informed the hon. Member for Newport, East (Mr. Hughes) that he wishes to speak?

Photo of Sir John Cope Sir John Cope , Northavon

No, but as a few minutes remain, I wanted to support the hon. Member for Newport, East (Mr. Hughes)—

Photo of Mr Geoffrey Lofthouse Mr Geoffrey Lofthouse , Pontefract and Castleford

Order. If the hon. Member for Newport, East has no objections, the right hon. Member for Northavon may continue.

Photo of Sir John Cope Sir John Cope , Northavon

I want to support the hon. Member for Newport, East and my hon. Friend the Minister in relation to the arguments about VAT. In my constituency, I have half of both the Severn bridges into Wales. As it happens, not so long ago, I had responsibility for VAT in the Treasury. Of course, the person who should be responding to the debate is not my hon. Friend the Minister, but Commissioner Neil Kinnock and his colleagues in the European Community, because it is they who have raised the possibility of VAT being charged.

Over many years, I have worked alongside the hon. Member for Newport, East in connection with the bridges. Neither of the bridges would have been built if it had not been for the tolls. The Labour Government supported the tolls on the old Severn bridge just as much as the Conservative Government, and benefited from them. A former Labour Treasury Minister is present who can verify that, if needs be.

It is not right that the European Commission and the European Union should dictate to Britain—or France and the other countries concerned—whether we should impose VAT on the bridges. From the start, we have not done so. We have the right to continue to zero-rate tolls and to exclude them from the VAT system if we wish. I am glad to have my hon. Friend the Minister's assurance that we will fight any court case as vigorously as we can.

Question put and agreed to.

Adjourned accordingly at three minutes to Eleven o ' clock.