Value Added Tax Bill

Part of the debate – in the House of Commons at 12:15 pm on 8th February 2019.

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Photo of Robert Jenrick Robert Jenrick The Exchequer Secretary 12:15 pm, 8th February 2019

As one might expect, many people wanted it to be increased, but a very large number of those who took part in the survey came to the conclusion that the bunching effect that my hon. Friend described, which is the fundamental issue here, would simply be kicked further down the road if we increased the threshold to £100,000. Of course, if one increased it to a very large figure such as £500,000 or £1 million, that might be of less concern because it would take out a swathe of small and medium-sized businesses, but the fiscal cost would be even higher. While I am the first person to seek a dynamic approach to taxation and lower taxes, we have to balance those two considerations and ensure that we do not live beyond our means as a country. As my hon. Friend the Member for South Suffolk said, taken together the proposals in the Bill carry a significant fiscal cost of several billion pounds, which I will mention briefly later.

The Bill proposes a threshold of £104,000. We already have the highest in the EU and OECD, so we lead the international business community in that respect. There is no evidence to suggest that the policies that the Government have adopted are leading to a diminution in the number of small businesses created in this country. There is a new start-up every 75 seconds. We are the start-up capital of Europe. We are the most dynamic and supportive economy in the world for entrepreneurs. If the UK economy has any challenge in this respect, it is how to help a business to scale up into a much more substantial business, far beyond the VAT threshold. We have been trying to tackle that issue in a number of ways that I do not have time to discuss today.

The measure is expensive, as we have heard. Its estimated cost to the Exchequer would be about £2.1 billion per year. I take my hon. Friend’s point that it might have a dynamic effect and that we need to take such things into consideration. It can be a criticism of the Treasury and the OBR that the processes that we have created in the past 15 years make it much harder to take the kind of attitude that a Chancellor such as Nigel Lawson would have taken in the 1980s. None the less, there is a substantial fiscal cost to the measure. The loss in revenue has to be balanced by reduced public spending, increased borrowing or increased taxation elsewhere, all of which we want to avoid. While we support the desire to improve business growth, concerns remain that increasing the threshold would simply shift the problem higher up the level.

I want to mention some of the issues that my hon. Friend and others spoke about. I know that many right hon. and hon. Members care strongly about VAT on women’s sanitary products, as do I, and wish to see change as soon as possible. The Government have taken action to address the issue, but we have been unable to succeed as a result of our continued membership of the EU. There will be opportunities for reform in the future, but not until the UK leaves the EU or after the end of the implementation period, should there be a deal, which we hope there will be. At that point, we will have the opportunity to address some of the issues.

It is worth saying that since the referendum on leaving the EU, the Government have received in excess of £40 billion of requests for reliefs from VAT using the additional flexibilities that we may have when we leave the EU. In addition, numerous other requests have been made to us, whether it be on excise duties or air passenger duty. In aggregate, these produce a substantial cost to the Exchequer, which would harm our ability to fund public services. We have to be realistic about our ability to act and to reform these taxes once we leave the EU.