Barbara Keeley
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Finance Bill (First sitting)
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Barbara Keeley (Worsley and Eccles South) (Lab)
It is pleasure to serve under your chairmanship, Sir Roger, and that of your co-Chair, Mr Howarth, when he joins us later. I associate myself with the remarks of the shadow Chief Secretary, my hon. Friend the Member for Feltham and Heston, and welcome the Clerks, the Hansard reporters and others who will assist us in the days ahead, although it will just be one day ahead for me.
I welcome the members of the Committee and in particular those who came into the House in May. On the Labour side, that is my hon. Friends the Members for Bradford South, for Halifax, for Dewsbury, for Torfaen and for Cambridge, and we will be joined by my hon. Friend the Member for Erith and Thamesmead. We should also mention the stalwart work of our Whip, my hon. Friend the Member for Scunthorpe.
As has been said, this is the first ever Bill Committee for those new Members, and I remember when I served on my first Finance Bill Committee back in summer 2006. I checked back, and the Financial Secretary was on that same Committee. We know now that he has served on 11 Finance Bill Committees, so he certainly wins the prize. I am afraid I do not. I assure the Committee and him that we will scrutinise the Bill thoroughly, as is our duty. Members should be grateful that the Bill is much shorter than the Finance Bill in 2006, which had 21 sittings.
As an opening comment, the Bill sadly does little to help families and individuals on low and middle incomes, and I think that is a pity. Millions of those families have heard that they will be hit by the tax credit cuts that were voted through by Government Members earlier this week. Those savage cuts will come to be seen as the hallmark of the summer Budget of 2015, which was also a tax-raising Budget, but I will come back to that point.
In Prime Minister’s questions yesterday, we heard about a working family who would be hit badly by the cuts, and there will be so many more, because 3 million families will lose more than £1,000 a year. In my constituency, more than 8,000 families with children receive tax credits, of whom 5,300 are working families. The Bill does not contain that measure on tax credits, but it comes from the same Budget, so I will keep those families in mind as we work through all the issues in the Bill.
Roger Mullin
It is a pleasure to serve under your chairmanship, Sir Roger, along with my colleagues. I start by thanking everyone who has already been thanked, thus making sure that I miss no one out. I am slightly surprised that I am making this speech, because I did not know that this was how proceedings would begin, but on behalf of my colleagues, I would like to say that we look forward to scrutinising the Bill in detail. We are particularly unhappy about a number of matters, and we share the views already expressed by the Labour spokespersons.
We also want, through new clauses, to raise some matters that are of particular concern to Scotland and the people of Scotland, who are severely disadvantaged on a number of fronts by measures within the Bill. I hope we will contribute constructively and speedily. I had a wonderful experience when I attended the Sub-Committee of this Bill Committee on Monday; the thing I thought was particularly impressive was that it lasted one minute. I am sure this Committee will take a little longer, but we will do our best to contribute constructively and efficiently.
Barbara Keeley
Clauses 1 and 2 enact the promise that the Government made during the general election not to increase the rate of income tax or VAT in the next Parliament. Clause 1 states that the basic, higher and additional rates of income tax will not increase above 20%, 40% and 45% for the duration of this Parliament.
We support the Government’s pledges on tax locks for this Parliament. In fact, it would be surprising if we did not, because we made them first. The Labour party made the same pledge on 25 March, and our 2015 manifesto contained a commitment not to increase the basic or higher rates of income tax, or to raise VAT or national insurance. We are glad the Conservative party adopted our pledge during the election.
However, as my hon. Friend the Member for Torfaen said, and as was discussed in the Budget debates, legislating for that pledge represents a U-turn. As my hon. Friend rightly said, in 2009 the current Chancellor said he was very critical of Chancellors passing laws to ensure they fulfil their promises. The current Chancellor stated then:
“No other Chancellor in the long history of the office has felt the need to pass a law in order to convince people that he has the political will to implement his own Budget…As one commentator observed this week, there are only two conclusions. Either the Chancellor has lost confidence in himself to stick to his resolution, and is, so to speak, asking the police to help him, or he fears that everyone else has lost confidence in his ability to keep his word, but hopes that they might believe in the statute book if not in him. Neither is much of a recommendation for the Chancellor of the day.”—[Official Report, 26 November 2009; Vol. 501, c. 708.]
Simon Hoare (North Dorset) (Con)
On Tuesday the hon. Lady advised us on the Floor of the House that she would not seek to defend or reference remarks made on previous occasions by the new leader of her party. Surely what is sauce for the goose is sauce for the gander.
Barbara Keeley
I think comments that somebody made when they were a Back-Bench MP are different. Once somebody has taken on a role, either in opposition or in government, what they say carries a certain weight. There is a freedom to the Back Benches that I and others here have experienced. Many Members of the Conservative party say things that their Front-Bench team would not agree with. That is my distinction, and I am sticking to it.
It appears that the Chancellor had a change of heart, and now feels the need to pass a law to convince people that he has the political will to implement his own Budget. During the debate on the National Insurance Contributions (Rate Ceilings) Bill earlier this week we discussed the view that measures such as this are in fact gimmicks. We questioned why Ministers feel the need for this additional legislation when the promises that the Prime Minister and the Conservative party made during the election should be good enough. To people outside Westminster, it could appear that Treasury Ministers have lost confidence in their ability to stick to their resolutions, or perhaps they fear that everyone else has lost confidence in their ability to keep their word. The Minister may want to tell us which he thinks it is.
Although Labour supports the pledge to make no increase to VAT, income tax and national insurance contributions during this Parliament, I still question whether introducing legislation to ensure those locks is the best course of action. Rather than gimmicks, we need long-term tax reform and sensible policies to ensure that the taxpayer gets a good deal.
We have some concerns about the durability of the income tax lock in clause 1. As it stands, it appears that rates could be raised by repealing the Bill in a future Budget. Can the Minister assure the Committee that it is not simply a gimmick? Will he outline how he intends to show that the lock will remain in place? In our deliberations, we should consider the impact of that tax change and the other changes to the tax system announced in the Budget. As many tax experts have pointed out, only then will we be able to see the real impact of Government measures on particular groups of people.
In Committee of the whole House, I raised the issue of the insurance premium tax. Although the clause protects workers against an income tax rate rise, I note that they will not be protected from the other tax increases in the Bill.
Chris Philp (Croydon South) (Con)
I look forward to serving under your chairmanship, Sir Roger; I hope to profit from your experience. I want to challenge the hon. Lady’s assertion that the tax lock is a gimmick. Is it not in the same spirit as the legislation that ensures that 0.7% of GDP is spent on international aid each year? That measure is ensuring, as we speak, that refugees from Syria are being rescued from terrible circumstances. Is this not in a similar spirit?
Barbara Keeley
I do not think it is. In fact, if it is seen in the same way, someone needs to have a word with the Prime Minister. He constantly refers to the 0.7% commitment as a matter of huge pride and has quoted it a great deal in our debates about the refugee crisis over the past week or two. The difference with financial matters—this is probably why the current Chancellor was so critical of things in 2009—is that there are many opportunities to legislate. This is the third Finance Bill this year, so things could change. The 0.7% international aid commitment was a very long-term commitment. It came up a great deal in international discussions and still does, so there is a difference.
I was talking about the insurance premium tax and the fact that people are not protected from those sorts of tax increase. Paul Johnson, director of the Institute for Fiscal Studies, has said:
“The tax and welfare changes between them mean that poorer households have lost quite significantly and as a result of yesterday’s Budget, much more significantly than anything that has happened to richer households.”
He also said:
“Unequivocally, tax credit recipients in work will be made worse off by the measures in the Budget on average.”
Let us bear in mind that many of the households that benefit from this tax lock have been adversely impacted by other tax changes. In fact, the summer Budget did not cut the overall tax bill; it raised it.
Mark Garnier
The hon. Lady makes a lot about feeling it unnecessary that the Government have to promise to legislate not to change tax rates and about the importance of not affecting working households, particularly those at the bottom end. Is it not the case that when her party was in government, there was an understanding that people at the bottom end would be protected, yet at that time the 10p tax rate was removed, causing huge problems for working households? What is sauce for the goose is sauce for the gander.
Barbara Keeley
There is a great deal of looking back, but let us look at what is happening this year and what will happen in the years following this Budget. The Office for Budget Responsibility forecasts net taxes to rise by more than £47 billion over the next four years, with much of the money coming from increases in dividend tax, insurance premium tax, vehicle excise duty and cuts in pension tax relief. Of course, welfare cuts will also raise almost £35 billion. It is one thing saying that families will benefit from the tax lock, but all of those measures will hit many families and individuals in the UK hard.
The combination of changes needs to be seen in the context of the cut to tax credits that Government Members voted through this week, which are likely to leave millions of families worse off. I was asked the other day, “What else would you do?” It is our contention that the welfare reform we need is to things such as overpayments and the error and fraud in the welfare system, because things are not properly checked at the point of application. Error and fraud cost £3 billion a year. The cut to tax credits will hit working people on middle and lower incomes, which undermines the Government’s argument that this is a Budget for working people.
Nick Thomas-Symonds
On that point, the Chancellor of the Exchequer made much in the last Parliament of a distinction between those who are in work and those who are not. By this attack on those who are in work, does he not find himself on the wrong side of his own dividing line?
Barbara Keeley
Absolutely so. A great deal is said at the moment about working people, working families and who supports them. Paul Johnson, director of the IFS, has said:
“Significant allowances were an integral part of the design of universal credit, intended to give claimants an incentive to move into work.”
That is an important point. On tax credit cuts, he adds:
“This reform will cost about 3 million families an average of £1,000 a year each. It will reduce the incentive for the first earner in the family to enter work.”
Chris Philp
Could the hon. Lady confirm whether it is the Labour party’s intention to reverse the tax credit proposals put forward earlier this week?
Barbara Keeley
We had the same question the other day. It is not helpful for us to keep repeating things.
As we saw during the election campaign, we have a different mix of changes that we want to introduce and different ways of moving the economy forward, and that will always be the case. I am sure we would not have made the cuts to tax credits. We introduced tax credits to help working people. We believe in them, because they help to bring children out of poverty. We would never have made such savage cuts. We believe that it is necessary to tackle the root causes of welfare spending—low pay and high housing costs—to bring down Government spending sustainably. Those things are not being tackled; rather, the infrastructure that supports families in work is being taken away. The Institute for Fiscal Studies confirmed that the introduction of tax credits played an extremely powerful part in the improvement in child poverty figures, and that is what is at risk.
Simon Hoare
The hon. Lady is being generous in giving way, as always. Under the moderate and reforming Labour leadership of the right hon. Member for Doncaster North (Edward Miliband), Labour Front-Bench Members for the whole of the previous Parliament were never able to say what they would actually do. They were very good at saying what they would not do and at opposing everything that my right hon. Friends in the Treasury sought to do to reduce spending and bring it back under control. We await—with bated breath, it has to be said—what the reforming instincts of the new Labour leader will bring forward, but can the shadow Minister say what she would do? She has spoken about her long-term plans for house building, and so on, but, in the shorter to medium term, what would the Labour party do today, or what would it have done recently, to balance the nation’s finances better?
Barbara Keeley
That is a very easy question to answer. We heard earlier about the former shadow Chancellor, my hon. Friend the Member for Nottingham East, who put in a great deal of work this year on zero-based budgeting spending reviews. He came up with a list of savings that amounted to £12 billion. We talked about that a great deal during the election—
Barbara Keeley
I think it would be better, Sir Roger, if we could move away from things to do with the Labour party and concentrate on the Bill. It is not helping progress.
The Chair
Order. It is for the Chairman to decide what is in order and what is not. Inevitably in any debate of this kind there is going to be a certain amount of party political skirmish, and both Chairmen understand that. However, now that I am on my feet, what is relevant is that this debate is about income tax. We could have a debate about every aspect of tax—we could not, actually, because it would be out of order. Perhaps we can now revert to income tax.
Daniel Zeichner (Cambridge) (Lab)
It is a pleasure to serve under your chairmanship, Sir Roger. I quite take the point you just made, but does my hon. Friend agree that it is slightly rich for Government Members to talk about the past when they were elected last time on a pledge to reduce the deficit by half by the end of the Parliament, which they have completely failed to achieve? Setting tax rates in stone will only further perpetuate their past failure.
Barbara Keeley
Absolutely. In talking more broadly, I have been trying to paint a picture of the impact of the set of policies in the Budget, not all of which are in the Bill.
We feel that the tax lock is a short-term measure. As I said earlier, we need to think about long-term reform to ensure an equitable and efficient tax system that provides good value for the taxpayer. There is also a need for long-term tax system planning. We welcome the consultations announced by the Government, but action is also needed on, for example, the alignment of national insurance contributions and income tax. That has been discussed many times, over and over again, but never acted upon, and I will be talking about that later in the debate.
Mr Alan Mak (Havant) (Con)
May I associate myself with hon. Members from both sides of the Committee in saying that it is a pleasure to serve under your chairmanship, Sir Roger? I look forward to profiting from your experience. Does the hon. Lady—
The Chair
Ah. I understood that the hon. Lady was giving way. As no one else wishes to speak, I call the Minister.
Mr Gauke
I shall briefly respond to the hon. Lady’s speech. Let me be clear that if one looks at the measures set out by the Chancellor of the Exchequer in his Budget speech this summer, one will see that we are ensuring that working families will benefit from a strong and growing economy. By 2017-18, eight out of 10 working households will be better off as a result of the changes we are making to the personal allowance, the introduction of the national living wage and the welfare changes set out in the Budget.
The concern has been raised that the clause is somehow just presentational, but I return to the point I was making earlier about underlining our commitment. It is consistent with the approach we have taken to the tax system, and I think families up and down the country will welcome that. In particular, in the current context, with the official Opposition apparently moving in the direction of wanting to increase taxes, the fact that Parliament is making it clear what the current majority feels can only be helpful.
Barbara Keeley
As I have said already in this debate and the other day in the Committee of the whole House, this is a tax-raising Budget and the Government are raising taxes. I touched on some of those taxes and we have talked about the insurance premium tax. This is a tax-raising Budget and a tax-raising set of measures.
Mr Gauke
The Government are committed to creating a low-tax economy and the clause marks clear progress towards that. We must remember that the Government inherited the biggest deficit in our peacetime history. We heard criticism from the hon. Member for Cambridge, who said it should—[Interruption.] If the Scottish National party’s position is that the deficit should be larger, I strongly disagree. The deficit fell significantly over the course of the previous Parliament, but there is still further work to do. In that context, we must make some difficult decisions.
Public spending is taking the greater share of the strain when it comes to fiscal consolidation, and we believe that is the right approach. I do not know whether the Opposition parties share that belief, but I very much doubt it. The clause demonstrates our commitment on income tax, just as in the next clause demonstrates it on VAT—to ensure that over the course of this Parliament we do not increase those tax rates. I think the British public will welcome those measures—after all, they were set out before the last general election. I hope that the clause has the Committee’s support.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clause 2
VAT lock
Question proposed, That the clause stand part of the Bill.
Mr Gauke
I will say a word or two about the clause and then, if I may, I will respond to the new clauses that I assume will be set out by the hon. Member for Kirkcaldy and Cowdenbeath. The clause states that the standard and reduced rates of VAT will not rise for the duration of the Parliament. It also locks certain provisions in the Value Added Tax Act 1994 to prevent them from being used to change the scope of VAT by moving any goods or services out of the zero rate or reduced rate for the duration of the Parliament.
The Government believe in lower taxes and are committed to eliminating the deficit in a way that is fair to taxpayers. As part of our plan to move the UK to a lower tax economy, we made a manifesto commitment to rule out any increase in the main rates of income tax, national insurance contributions and VAT for the duration of this Parliament, as I have mentioned. Clause 2, following on from clause 1 on income tax, implements that commitment for VAT. This initiative will provide certainty to taxpayers and ensure that working people will not have to pay any additional VAT on their purchases for the duration of this Parliament.
Let me set out the changes made by the clause in a little more detail. Currently, the standard rate of VAT is 20% and the reduced rate is 5%. Clause 2 states that the standard and reduced rates of VAT will not rise, locking the rates for the duration of this Parliament. As the zero rate clearly cannot be more than 0%, it is not covered by the legislation. Supplies that are subject to the reduced rate, such as domestic fuel and power, are listed in schedule 7A, and those that are zero-rated, such as books, children’s clothes and most food, are listed in schedule 8. The supplies listed can be varied by means of a Treasury order. However, the legislation will prevent the use of Treasury orders to expand the scope of VAT by removing supplies from the zero and reduced rates.
While the 20% standard rate of VAT is among the lowest in the EU, the UK also has the lowest reduced rate of VAT permitted by EU law and is one of only eight EU member states to have successfully negotiated to apply a zero rate of VAT. The Government will not increase the reduced or standard rates of VAT and will retain the zero rate of VAT, in keeping with our commitment to creating a higher wage, lower tax and lower welfare country.
In summary, clause 2 provides the strongest possible backing for the Government’s commitment not to increase VAT for the duration of this Parliament. It delivers on our manifesto promise and is consistent with our policy to deliver a lower tax economy for hard-working taxpayers.
Barbara Keeley
Many of the points I raised about clause 1 on the principles of tax locks also apply to clause 2, which states that the standard and reduced rates of VAT will not rise for the duration of the VAT lock period. It also ensures that no goods and services can be removed from the zero and reduced rates of VAT for the duration of the VAT lock period.
The Labour party made a commitment not to raise VAT back in March and in our 2015 manifesto. Indeed, the Government’s tax lock was announced in response to our challenge about not repeating their broken promises on VAT. We are pleased the Government have agreed that VAT rates should not go up, because that will benefit people on lower and middle incomes. This legislation is perhaps a little more needed, given the Conservatives’ record on VAT. The Prime Minister made a similar commitment in 2010 not to raise VAT, only to raise it to 20% immediately after entering Downing Street. However, as with the income tax lock, we are concerned that there is nothing to prevent the Government from changing the VAT lock in future legislation.
How will the VAT lock stand up in the face of European Union intervention? The UK is subject to EU VAT law and European Court of Justice decisions on VAT will have an impact on VAT here. On 4 June this year, the European Court of Justice judged that the UK had failed to comply with the VAT directive by applying a reduced rate of VAT to the supply and installation of energy saving materials for housing, which the Court ruled will have to be charged at the standard UK VAT rate of 20%. Another recent example of EU involvement is the 2015 Court decision in the “Go Fair” case, in which the Court found that VAT should be chargeable on the supply of care workers provided by a temporary agency. Currently, UK agencies supplying nursing staff can benefit from a VAT exemption. Will the Minister indicate whether that will change as a result of the European ruling?
Lucy Frazer (South East Cambridgeshire) (Con)
The hon. Lady may know that courts are overruled by higher courts day in, day out in the court system. Should the initial legislation not be passed because it may be overruled at some point in the future?
Barbara Keeley
I am not in any sense challenging it; I am asking the Minister to tell us what he thinks the impact on the legislation will be of that Court’s decisions. Those cases seem to suggest that the lock on UK VAT is not as robust as the Chancellor claims, so it would be helpful if the Minister outlined what impact future EU Court rulings could have.
On the scope of the VAT lock, clause 2 prevents any increase in the standard and reduced rates, and prevents anything from being moved out of the scope of the reduced or zero rates, but there is no mention of exemptions. It would be helpful if the Minister confirmed that the current exemptions from VAT will remain over the course of this Parliament.
SNP Members tabled a new clause that seeks a report on the impact of exempting women’s sanitary products from VAT. Labour supports the new clause. We welcome the opportunity to call again for those essential healthcare products to be made tax-free. Women do not choose to use sanitary products; they are essential. Although the reduction in the rate of VAT on sanitary products in the UK from 2000 was welcome, more needs to be done. This is not just a female issue, but a family and household issue. Women supporting families across the country should be able to purchase those necessary items VAT-free. We recognise the complexity of the EU rules on VAT and the challenges faced by national Governments that want to make such unilateral changes. I ask the Minister to take action at an EU level to support the exemption of women’s sanitary products from VAT in the UK.
The Chair
I assume that the hon. Member for Kirkcaldy and Cowdenbeath wishes to speak to his new clauses, but I may be incorrect. Before he does so, I ask hon. Members look at the amendment paper. I will reiterate what I said earlier for understanding. At the end of this morning’s amendment paper are new clauses 1, 2, 3 and 4. Only new clauses 1 and 3 have been selected for debate with clause 2, because they relate to VAT. New clause 2 does not relate to VAT, so although it appears on the amendment paper ahead of new clause 3, we are not debating it now. The new clauses will not be moved now. They can be spoken to by any hon. Member who wishes to address the subjects. Clearly, the hon. Gentleman in whose name the new clause was tabled will wish to speak to it. Others may also wish to speak to it; that is entirely in order. The new clauses will not be moved now. They will be moved, as with all other new clauses, right at the end of the Bill, which may be, I suspect, several weeks hence. There is an arcane form of words in which new clauses, as distinct from amendments, are moved. That is a pleasure in store for us, but we will deal with that when we come to it.
Mr Gauke
Let me say that I share your ambition for the timing of the Adjournment, Sir Roger.
I have addressed some of the points about the tax lock already. As for the application of EU law and ECJ judgments, which by the hon. Member for Worsley and Eccles South rightly raised, let me be clear: EU VAT law and Court decisions will have to apply to the UK, too. Legislation will have to be changed to reflect any changes or Court decisions, otherwise the UK would be breaking the law. I do not wish to evade that point in any way. None the less, that does not undermine the basis of the VAT tax lock, because the great bulk of VAT issues on rates and the boundaries between the zero rate, reduced rates and standard rate are unlikely to change. However, I acknowledge that point. VAT exemptions are set out in EU law and cannot be changed by the UK unilaterally. We are therefore not binding our hands on the exemptions because they are not determined by the UK alone. I hope that provides a little clarity.
Barbara Keeley
Before the Minister moves on, I want to clarify once more why Opposition Members believe that the tax lock is a gimmick. If things go really wrong, it will have to change and, having bound their hands, if the Government have to increase VAT or income tax, that will really destroy public confidence out there. That is the problem.
Mr Gauke
Let me respond to that quickly. I come back to the intervention made by my hon. Friend the Member for Croydon South. We did not hear those arguments from the hon. Lady or her colleagues when we were legislating for the 0.7% expenditure on overseas aid; these points were made in the context of the tax lock. One cannot help feeling that when the Opposition’s heart is really in the legislation, they think it is the right thing to do, and when their heart is not in it, they call it a gimmick. Very similar arguments apply to both items of legislation.
New clause 1 would require the Treasury to write a report on the VAT treatment of Police Scotland and the Scottish Fire and Rescue Service, including analysis of the change in their financial position since 2012 as a consequence of their ineligibility for section 33 VAT refunds. As we heard, in 2012 Scotland’s eight locally governed police and fire authorities consolidated to become two national bodies. As a result, they were no longer reliant on local taxation for funding, which is one of the two criteria for eligibility for the section 33 VAT refund scheme. Following the restructuring, the new national bodies were therefore no longer were eligible for VAT refunds.
The new clause asks the Treasury to write a report on the VAT treatment of those bodies, including an estimate of the change to their financial position since their restructuring if they had remained eligible for VAT refunds. However, it is important to remember that the Scottish Government were forewarned of that consequence well in advance of the decision they took. The Treasury was keen to ensure that the Scottish Government considered that consequence as part and parcel of their decision to restructure the services. Because the expected cost savings to the Scottish Government outweighed the loss of any VAT refunds, I perfectly understand why they went ahead with their restructuring programme.
As I have explained, as the Scottish Government restructured those services, they are no longer eligible for VAT refunds. That is plain and clear, and the eligibility is set out in legislation. There is no need to explain it further or for a report to be submitted to the House. If the Scottish Government are now reconsidering their position and wish to discuss how the services can become eligible once again for VAT refunds, the Treasury will happily engage with them to advise. In conclusion, there does not seem to be any justification for using Treasury resource to set out in a report something that is clearly set out in legislation. As things stand, the Scottish police and the Scottish Fire and Rescue Service are not eligible for VAT refunds. I therefore ask that new clause 1 not be moved.
New clause 3 would require the Treasury to write a report on a VAT exemption of women’s sanitary protection products, including a financial assessment and an assessment of the impact on the purchasing of these products, especially by those aged under 25. I am well aware of the ongoing campaign to zero-rate or exempt from VAT sanitary protection products, which has cross-party support. I very much sympathise with the aims of the new clause, but this is not simply a case of the Government taking action.
The new clause asks the Treasury to submit a report to the House on the impacts of exempting sanitary protection products from VAT. The plain facts of the matter are that the goods and supplies to which the UK Government can apply a VAT exemption are set out in EU law. Any change to EU VAT law would require a proposal from the European Commission and the support of all 28 member states, which is no easy task.
To put this into context, the UK applies a reduced rate of 5% to sanitary protection products—the lowest permissible rate of VAT under EU law. However, different countries have different priorities, setting their tax rates to meet the economic conditions prevalent in their own jurisdictions. Across the EU, the average rate of VAT applied to sanitary protection products is more than 17%. The hon. Member for Glasgow Central made reference to the Republic of Ireland. My understanding is that it is not correct that these products are zero-rated or exempt there. The UK applies the lowest rate across the whole EU.
In discussions in the EU, some member states may consider other reviews to be of more concern to them at this time. It is not that there is any lack of sympathy for the cause. When the previous Labour Government, under Gordon Brown, reduced the rate, he did not zero-rate these products because of the constraints of EU law. Any change would require the overall consent of the EU institutions.
Mr Gauke
Before I do so, I wish to correct something. I understand that the Republic of Ireland has a zero rate for sanitary products. I correct what I said: the hon. Member for Glasgow Central was correct, so I apologise. That zero rate was agreed before Ireland joined the European Union in the early 1970s. A zero rate on these products was not in place when the UK joined the EU, or the Common Market as it then was. I am sure we would all consider that regrettable, but that was the situation. Trying to extend zero rates across the board would be difficult.
Barbara Keeley
There is a recognition of the difficulty—that certainly came out in the speeches we heard on this element of the Bill. What other Members and I would like to hear from the Minister is whether he supports doing something about it. Does he want to have a push on it? Party leaders seem to say that they do, but it would helpful if we could hear him say that he wants to do something about this issue.
Mr Gauke
There are a number of ways in which the European Union and the rules that apply within it could be improved. A strong case is made from all parts of the House that greater flexibility in this context would be helpful, but the point I would make is that we see little indication that other member states, which by and large have higher rates—the average rate is 17%—share that objective. If there is a general move, we would support that.
Other than when an accession country joins the EU and negotiates a zero rate, there is no particular indication that the Commission or member states as a whole are prepared to introduce new zero rates. Indeed, quite a lot of the advice coming from organisations such as the OECD and the general position that the Commission takes tend to be against that, so I do not want to underestimate the difficulties.