Clause 25 - Relief from vat on acquisition if importation would attract relief

Finance Bill – in a Public Bill Committee at 11:15 am on 16th May 2002.

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Question proposed, That the clause stand part of the Bill.

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Transport)

I wonder whether the Financial Secretary would respond to certain representations from one company that has written to the Secretary of State for Trade and Industry on 25 April. That company makes the following point:

''Many millions of pounds worth of taxpayers' money is being provided to help indigenous manufacturers, particularly in the knitwear industry locally. I am amazed that the Government can then contemplate a measure which would give purchasers of, say, overseas knitwear, an advantage over those who buy within the UK.''

The point being made is that the clause will give an advantage to those who import goods, compared with those who buy goods from domestic manufacturers.

Photo of Mr Paul Boateng Mr Paul Boateng Financial Secretary, HM Treasury, The Financial Secretary to the Treasury

First we had anoraks from the right hon. Member for Fylde and now we have woolly jumpers from the hon. Member for Christchurch. One wonders what it will be next. What does the hon. Member for Arundel and South Downs have in store for us? Who knows? However, the hon. Member for Christchurch makes an important and serious point, because we on the Committee must be aware of the effect that our decisions have on business people. It never comes amiss to hear specific examples of perceived impact.

I could read out the entire list of goods covered by the Value Added Tax (Imported Goods) Relief Order 1984 introduced by the previous Conservative Government, but I do not think that I should detain the Committee in that way. However, let me give just a few examples. The goods include items donated for use in charity fund-raising events, forms, tickets and labels sent to UK travel agents by overseas tourist agencies and goods to be used in the construction or

upkeep of memorials dedicated to overseas war victims—a specialist but wide range of items. Therefore, the clause seeks to address a wide-ranging anomaly.

The clause is very modest. It recognises that way back in time there were oversights. In 1992, the term ''imports'' in VAT legislation covered all items brought into this country, whether from within or without the EU, and that meant that VAT relief was available on certain imported goods, regardless of the country of origin. With the onset of the single market, that changed. Goods brought into the UK from other member states came to be known in law as acquisitions. Unfortunately, the then custodians of the VAT legislation overlooked the need to make a corresponding change in the relief on certain imported goods, so the clause now seeks to correct that anomalous situation.

The clause does no more than that. It corrects the anomaly and puts those goods on an equal footing with zero-rated imports, as they should have been since 1993. It is a small technical change that corrects an unnecessary inconsistency in the law. It should be welcomed by everyone who wants a simpler tax system, and I believe that, on reflection, the hon. Member for Christchurch will find that his correspondent's fears about the matter are unfounded.

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Transport)

I am grateful to the Financial Secretary for that response. However, the correspondent was not writing to me. I have a copy of the letter with me. It was sent by a company chairman to the Secretary of State for Trade and Industry, addressing her as ''Dear Patricia.'' I am disappointed that the Financial Secretary does not have a copy of the letter and that he has not been invited by the Secretary of State to respond to it. It states:

''The point which concerns me is the proposal to ease the VAT regime for importers. I was particularly concerned about the cash flow advantages to importers inherent in the VAT regime many years ago and after strong representation by myself and others, the rules were changed such that importers were then at a cash flow disadvantage rather than an advantage which they had held before.

I now see a proposal which suggests that importers could again be put at a cash flow advantage compared to those who buy from EU sources and this I find totally unreasonable and unacceptable.''

I am not sure that anything that the Financial Secretary has said will allay those concerns.

Photo of Mr Paul Boateng Mr Paul Boateng Financial Secretary, HM Treasury, The Financial Secretary to the Treasury

I do not see what has changed or what the cash flow advantage is for importers. The explanatory notes state:

''Clause 25 inserts a new section 36A into the VAT Act. This gives a power to the Treasury to provide by order that no VAT will be payable on an acquisition of goods in the UK from another European Union Member State where VAT would be relieved on the importation of the same goods into the UK from outside the European Union.''

I really do not see what the Secretary of State's correspondent has to fear from the measure. I will certainly draw this particular exchange to the attention of the correspondence unit of the DTI, and I hope that

the correspondent will find it of some comfort. If he does not, he can write to ''Dear Paul'', and I shall reply as best I can.

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs

May I ask the Financial Secretary whether the clause comes as some relief to the fine art auction business in London? As I think he will be aware, the deal that we were forced to do with the EU has transferred about half of the international fine art market from London to New York. One of the problems, as far as I am aware, was the complexity of VAT, especially on objects coming from the rest of the EU into London. Will the strange semantic point about acquisitions and imports addressed in the clause be helpful to that market?

Photo of Mr Paul Boateng Mr Paul Boateng Financial Secretary, HM Treasury, The Financial Secretary to the Treasury

No. I do not necessarily accept the analysis that the hon. Gentleman has shared with the Committee on the state of the fine art market, but this

clause has absolutely nothing to do with it. The current dispensation in relation to the fine art market was first granted by the Conservative party when in government and subsequently renewed by us. This clause addresses a completely different issue.

Question put and agreed to.

Clause 25 ordered to stand part of the Bill.

Angela Smith (Basildon) rose—

Photo of Joe Benton Joe Benton Labour, Bootle

Before I put the Question, I have an announcement to make. As from next Tuesday, we shall be sitting in Committee Room 10. I understand that the boxes and everything else will be moved after this afternoon's sitting. I give forewarning that we shall be in Committee Room 10 from next Tuesday.

Further consideration adjourned.—[Angela Smith.]

Adjourned accordingly at twenty-one minutes past Eleven o'clock till this day at half-past Two o'clock.