Finance Bill

Graham Stuart Excerpts

Tuesday 3rd July 2012 Commons Chamber

[Catherine McKinnell]

Our position is that we would like none of the VAT changes to be introduced so by voting against new schedule 1 today, as I have already explained, we vote against all the VAT changes.

As was pointed out, if the pasty counter was near the oven, the ambient temperature would be higher. If it was near the chiller, the ambient temperature may be lower. Greggs’ official consultation document asked whether servers would ultimately have to take the temperature of both the pasty and the surrounding air to determine whether a 20% surcharge should be applied. The proposal was universally and rightly rounded on as ridiculous. Ken McMeikan, the chief executive of Greggs the bakers, which I am proud to say is based in my part of the world, Tyne and Wear, deserves a mention for his excellent campaign against the pasty tax. A massive £30 million was wiped off the value of the company in the week after the Budget as orders were threatened and jobs put at risk. Along with several hundred other bakers, Mr McMeikan delivered a petition to 10 Downing street. He told Ministers:

“we are the voice of half a million people. We embody their resentment at what this Government is trying to impose against the people’s will. . . ordinary hard working people simply do not want this pasty tax.”

I visited a local school breakfast club with Mr McMeikan and I know just how committed Greggs is to local schools and community projects. It did not deserve to have its business torpedoed by Ministers who are too out of touch ever to have eaten one of its products. Eventually the Government backed down on the pasty tax—they had to because that was the only move they could make—but they left behind them a legacy of arrogant disregard for ordinary people that will not quickly be forgotten. My only hope now is that the U-turn that has been made will be made properly. Representatives of Greggs are still raising concerns that the new wording of the regulations on hot food now state that VAT should be charged if it

“is provided…in packaging that retains heat (whether or not the packaging was primarily designed for that purpose)”.

The hon. Member for St Austell and Newquay (Stephen Gilbert) raised the matter with the Minister, but his answer did not provide certainty, so I would be grateful if he would clarify in his reply exactly how the Government will ensure certainty for this slightly battered production market.

Any sort of paper bag or wrapping could inadvertently help to retain heat, so there is a danger that pasties could still be caught in the regulations and that this whole incompetent mess of U-turns and retractions will all have been for nothing. I hope that the Government will take the opportunity to clarify that point and reassure Greggs and other bakers up and down the country that supplying customers with paper napkins, for example, which could inadvertently slow down the cooling process, will not result in an extra 20% charge for their customers.

Greggs would like confirmation, as I am sure would other bakers across the country, on whether taking trays of baked products from the oven and stacking them in counters that have no other means of heating or heat retention would be considered to be slowing down the cooling process. The practice is used by bakers to minimise food handling and the number of trays in use, but there are genuine concerns in the industry that it could constitute slowing down the cooling process and so incur a VAT charge.

The Government’s second U-turn was on their attempt to charge 20% VAT on static caravans—[Interruption.] I am asked from a sedentary position “Are you only on the second U-turn?” Yes, I am. I venture to guess that caravan holidays, like pasties, are not familiar to most members of the Cabinet. They saw an opportunity to take some extra tax and went ahead without considering the impact on individuals, jobs, growth or tourism. Because of the huge campaign mounted against the policy—I pay tribute to Members on both sides of the House for that, particularly hon. Members who represent the Hull constituencies, who are particularly concerned about the impact on jobs in their area—the Government backed down, but they are still trying to impose the 5% charge, as the Minister set out in more detail earlier.

The Treasury’s own figures show that 20% VAT on static caravans would result in a 30% fall in demand. The industry estimates that it would result in 1,000 job losses in manufacturing, excluding the supply chain. We know that at least one factory in the supply chain, Willerby Holiday Homes, put all 700 of its staff on a 90-day consultation as a direct result of the Government’s announcement that it would levy 20% VAT on its product. The National Caravan Council states that 4,300 jobs might be lost in holiday parks, plus another 1,500 jobs from associated suppliers.

I appreciate that the Minister has sought to give some reassurances on the change and indicated that the Government are listening, to the extent of reducing the VAT rate to 5%. However, he has made it clear today that no actual calculation has been made on the potential impact of the 5% charge, which is of great concern. Even the reduced charge of 5% will mean either that caravan holidays will become more expensive for holidaymakers or that holiday parks will be forced to absorb losses and job cuts. At a time when consumers are already severely squeezed, many people will simply have to go elsewhere. In turn, the whole economy of holiday towns would be hit, with shops, pubs and attractions losing their main business. Is that really what the Government intended?

[Mr Graham Stuart (Beverley and Holderness) (Con)]

rose—

[Catherine McKinnell]

I would be delighted if the hon. Gentleman would answer.

[Mr Stuart]

I am grateful to the hon. Lady, who is being most generous in giving way. I ask her to note that the National Caravan Council, the industry body, and the British Holiday and Home Parks Association have welcomed the 5% rate. They feel that the Government did listen and that the industry can take on that burden as part of the whole national effort to tackle the vast deficit her party left behind when it left government.

[Catherine McKinnell]

I am pleased that the industry is “delighted” with a 5% increase in VAT on its products. That is surprising in the circumstances.

--- Later in debate ---

[Sarah Newton]

It is surprising to me that, as far as we are aware from the comments of the shadow Minister, the Opposition will be voting against the very improvements that the hon. Lady says they have been working so hard to achieve. I do not doubt her good intentions or that she has been working very hard to represent her constituents, but if she was truly doing so, she would walk through the Lobby with the Government this evening, because they have listened thoroughly.

Let us take the pasty tax, for example. It will not surprise Members that I am keen to talk about pasties, because not only am I a big fan and regular consumer of them, but I represent Cornwall, where they are an incredibly important industry. When I listened to the Budget some months ago, it was clear to me that the Government were doing exactly the right thing. They had seen some dreadful anomalies in VAT on food that had led to huge unfairness. Independent owners of fish and chip shops in my constituency had to pay VAT, but other outlets selling hot takeaway foods did not. The Government’s attempt to sort out VAT struck me as perfectly reasonable.

We all know that what is really holding back growth in our economy is that for too long, small businesses have been massively overburdened by a dreadfully confused and muddled-up tax code. Under the last Government, the tax code multiplied and multiplied. We would probably have to use a wheelbarrow to carry all its volumes into the Chamber. The current Government are making a very reasonable effort to simplify some of the taxes that are such a burden on businesses in my constituency. They have listened carefully to the representations that have been made and are now going to create a level playing field for all people producing and selling takeaway food. That will benefit independent bakers in small businesses throughout Cornwall who bake pasties.

[Mr Graham Stuart]

As my hon. Friend is aware, the Government inherited the largest overspend and deficit in the developed world, so it was right for them to probe every possible area of tax revenue. It was also right for them to listen to people when representations were made and to respect parliamentary democracy. Does she agree that if the Labour party had listened to Back Benchers when it was in power, we would not have got into the mess that we are in and we would not have the vast deficit that the Government are having so valiantly to fight to reduce?

[Sarah Newton]

My hon. Friend makes his point as passionately and persuasively as always, and he is absolutely right.

To return to pasties—one of my favourite subjects—when I listened to the Budget, it was clear to me that there was a problem with the proposals as they stood. Some of the architects of those proposals clearly did not understand how pasties are baked in Cornwall. Within hours I spoke to my hon. Friend the Exchequer Secretary, who clearly understood the problem that I described to him. He said the Government realised that there could be some complications and unforeseen consequences, hence the reason for their consultation. Colleagues from around the country responded positively to that consultation, and their concerns have now been met.

I am staggered by what the Opposition wish to inflict on our country by not supporting the Government tonight. In the nightmarish scenario that they won the Division, we would return to the situation in which the Treasury wastes hundreds of thousands of pounds of taxpayers’ money every year having to fight litigation cases against multi-million-pound companies that are trying to avoid paying VAT. The extremely complicated tax code that was developed under Labour over its 13 years was a lawyers charter. I have nothing against lawyers—I am married to a very good lawyer—but that ever-increasing and complicated tax code means that, not unreasonably, companies try to avoid paying tax. That causes Her Majesty’s Revenue and Customs to be tied up in court, spending hundreds of thousands of pounds on lawyers fees that it could be spending in a far better way.

It beggars belief, but what the Labour party is saying tonight is, “We are on the side of companies trying to avoid tax. We are on the side of lawyers who are constantly taking HMRC to court.” What a dreadful waste of taxpayers’ money. The Government are trying to have a fair and simple tax system that everybody in the country can understand, so that we are not caught out by those who avoid taxation.

--- Later in debate ---

There are two issues that I want to go into in detail. First, the question of whether the previous position was an anomaly is still up for debate. I do not think we necessarily want to cede the principle that the previous regime of not subjecting holiday statics to VAT was indeed an anomaly. There is an argument to be had about that. The second thing I want to pursue is the assurances we have heard, which I am pleased the Minister gave at the Dispatch Box, in so far as he is able when it comes to future tax policy. We have been assured that it is unlikely that the Government will seek to look at the issue again. I am sure that we would all welcome that and that the Minister will welcome not having colleagues from all parts of the country banging on his door, as we did.

[Mr Graham Stuart]

rose—

[Andrew Percy]

I give way to my hon. Friend, who led the campaign.

--- Later in debate ---

[Mr Stuart]

I am grateful to my hon. Friend. Now that a 5% VAT rate has been introduced, does he agree that any Government, whether the coalition or a future Labour Government, would be ill-advised to return to this issue with any form of increase? The level of 5% can be accepted. People do not pay council tax on these caravans. We are talking about a compromise, but one that can last, that the industry can live with and that the political establishment should live with. Indeed, no Government should ever think of returning to the issue at any time while even someone as young as my hon. Friend is in this House.

[Andrew Percy]

I am being abolished at the next election anyway, so there are only three years in which the Government might have to worry about me. However, they would frankly be stupid—if that is not unparliamentary language—to look at the issue again. I think any Government will take note of the campaign.

The final assurance I seek from the Minister is that we will continue to be conscious that there will still be a potential impact, as was mentioned in interventions by the hon. Member for Kingston upon Hull North (Diana Johnson), who also fought valiantly. I hope that the Treasury will continue to monitor that.

In the final minute, I want quickly to say something about the Opposition’s VAT cut for millionaires, which I think is what they are proposing. Whereas we on this side of the House have decided to target tax changes at those struggling the most—for example, by raising the personal allowance and taking some of the poorest out of tax altogether—the Opposition policy is to issue a massive VAT cut for high earners and millionaires, and just to pepper money around. The Opposition are not quite sure how much—they have not told us, although we think the figure might be £12 billion—and they do not know for how long the measure would be in place. What a policy! The interesting thing we have learnt is that we now know that the Opposition’s official policy is to support, ultimately, VAT at 20%, because they have said that the measure would be temporary, meaning that they have therefore definitely agreed the 20% rate.

--- Later in debate ---

[Diana Johnson]

This section of the debate is about VAT. When we are in a double-dip recession, the imposition of VAT on items such as caravans is not going to help us to grow out of that economic position. That is what I will concentrate on.

The proposal for 20% VAT to be levied on static caravans came out of the blue in the Budget. There had been no consultation with the industry, and no warning that the Government were planning that measure. The impact assessment published alongside the Budget stated that the 20% VAT would result in a 30% reduction in the market for static caravans. The Government’s U-turn involved a 75% reduction in the amount of VAT involved, and 5% will now be levied from April 2103, as opposed to 20% from October 2012.

I can go some way towards welcoming the fact that the Government have listened and put forward a response to the widespread view that the imposition of 20% VAT would have been a disaster. There was cross-party work on the issue, with a number of debates, early-day motions and petitions. I will give the Minister his due; he did take the time to listen to what people had to say, especially those from my part of the world. However, serious concerns remain about the effect that the 5% VAT will have, and I want to run through them tonight.

I want to talk first about jobs and demand, which are at the heart of the issue. As I said, the Treasury’s own figures showed that the imposition of 20% VAT would have resulted in a 30% reduction in demand for static caravans. It worries me that the Treasury seems incapable of using figures appropriately. When I looked at the impact assessment, I realised that it had got the figures for businesses and manufacturers in the caravan industry wrong. It worries me that it cannot even get such basic information correct when it sets out to consult on a proposal. I want to see much better research into the impact of the 5% VAT on caravan manufacturers.

I have not been reassured by what the Minister has told me today, even though I have pressed him to tell me what will happen to manufacturers in the caravan industry. I did not feel that he really had a grasp of what the numbers might be. It worries me that there has been no proper assessment of this policy. Does he think that levying 5% VAT will put at risk roughly a quarter of the demand that the 20% VAT would have put at risk? Does he also think that the number of job losses in the caravan manufacturing industry will be reduced from the 6,000 mentioned in KPMG’s report to about 1,500 as a result of the change in VAT? Will he also comment on the knock-on effects for the wider UK tourism and domestic holiday industry?

I want to draw the Minister’s attention to the HMRC document, “VAT: Taxing Holiday Caravans”, which was published at the end of last week. On the economic impact of the 5%, it states:

“This measure is likely to lead to an increase in the price of static and larger touring caravans which could lead to a fall in demand.”

I take the view that the Treasury civil servants are among the brightest and best that the civil service has to offer, and it seems odd that they have been able to come up with nothing more definitive than that the measure “could” lead to a fall in demand. The document goes on to state:

“Although the overall impact on the macro economy is expected to be negligible, the measure will impact local manufacturing in Yorkshire and the Humber where the bulk of static holiday caravans are manufactured.”

Most people in Hull and East Yorkshire would agree with that, but surely the Treasury can come up with something better. The section of the document entitled “Impact on businesses including civil society organisations” states:

“The vast majority of static holiday caravans are manufactured in Yorkshire and the Humber and a small number of manufacturers account for the vast majority of all UK sales. Although some manufacturers produce other types of caravans, static caravans are the main source of income for most of these manufacturers.”

Again, it worries me that the document uses such general terms. Where is the meat in all this? Where are the figures? Where does it tell us what the actual economic impact of the policy will be?

Let us bear in mind that we are in a double-dip recession and we are all desperate to get growth back into the economy. I mentioned in an intervention that 46.3 people in my constituency chase every job vacancy going, so any loss of jobs in the caravan manufacturing industry is a disaster for my constituents. I think that the hon. Member for Brigg and Goole mentioned that the caravan industry suffered very badly in 2008-09, and it is only just getting back on its feet. If the Treasury thinks that the imposition of 5% VAT will be fine for an industry that is struggling in a double-dip recession when people are not spending, it really needs to look again at its figures and ensure that they all add up.

The Minister said that the goods within a caravan were already taxed, in that VAT had already been levied on such items. My understanding is that the figure involved is about 5%. Will he tell us whether the 5% proposed in the Bill will be an additional 5%, making a total of about 10% VAT payable? I am confused by that, and the Minister has not made it clear.

One of the strongest arguments against the initial proposal for 20% VAT was that it would raise very little revenue for the Treasury. When taking that into account, we also need to consider the welfare costs that would be incurred from people in the industry losing their jobs. Has the Minister looked at the figures involved? Does he think that the sums add up?

HMRC now estimates that the 5% VAT will first raise revenue in 2013-14, when it will bring in £5 million a year, rising to £10 million a year from 2013-14. That is a relatively small amount of money, given the Government’s overall spending, especially in the light of the millions that they have found in the Budget for tax cuts for millionaires. Let us put this into perspective: £10 million is perhaps a third or half of what Mr Diamond’s severance payment might be.

This measure will have an impact from next year onwards, while raising £5 million to £10 million. When we take into account the fall in demand in the industry and the resulting job losses, I do not think that the Treasury will end up in credit. Introducing the measure could result in more money being spent, through welfare benefits. Will the Minister set out for me the sums that he is using to ensure that the measure will bring a net benefit to the Treasury? In my view, this is an ill thought-through policy, and these are crazy economics.

The Minister referred to the manufacturing standard, BS 3632. As I said in my intervention, using a manufacturing standard to dictate tax policy is silly.

[Mr Graham Stuart]

I want to return to the hon. Lady’s point about the overall costs. A significant percentage of the cost of a new caravan is found in the chattels inside, which already have VAT on them. So the additional overall cost will not be higher than 5%; it will be more like 3% or 4% on the overall average retail cost of a caravan. The manufacturers are telling me that they think that that can broadly be absorbed within their business model. It will have some negative impact, but a fairly minimal one. We are certainly not talking about 10% costs, but about rather less than 5%.

[Diana Johnson]

I am grateful for that intervention, and I pay tribute to the hon. Gentleman for the work he did on this matter. However, I would really like to hear from the Minister what the VAT level is going to be, because my understanding is that it is 5% plus the additional VAT already levied. The hon. Gentleman says that it is 3% or 4% and not 5%, but is that 3% or 4% on top of the 5%, which would mean it was 8% or 9%, not 5%?

[Mr Stuart]

rose—

[Diana Johnson]

I am happy to give way again.

[Mr Stuart]

Basically, VAT has already been paid on those chattels, so if 25% of the cost of the caravan were for the chattels, that already includes VAT, so we are looking at 5% on 75% of the overall cost of the caravan. That is why it is significantly less than 5% as an addition to the actual cost when someone goes to a park to try to buy a caravan. The additional costs as a result of this change will be significantly less than 5%—I say that clearly and categorically.

[Diana Johnson]

I am grateful to the hon. Gentleman again, but I would still like to hear from the Minister exactly what the figure will be. My understanding—I was at the same meeting with the caravan manufacturers in Beverley as the hon. Member for Beverley and Holderness (Mr Stuart)—was that a figure was levied across the whole price of the caravan, including the chattels in the caravan at around 3% or 4% of the overall cost. Will the Minister clarify that? Are there two figures that we need to be aware of, or is it just 5% overall of the total amount of the purchase? I have to tell the Government that if this were intended to make things clearer, the truth is that it is making things even more complicated and less transparent.

Let me return to the BS 3632 specification. I was saying that I thought that that was not a sensible way to make tax policy. I know that the distinction between static caravans and those used for residential purposes 365 days of the year is based on the reference to BS 3632. If we look at the responses to HMRC’s consultation, we see that while many respondents felt it would be relatively straightforward to upgrade static caravans to meet the BS 3632 standard so that they could benefit from zero-rated standing, many others said that the costs of doing so would be prohibitive. There is a confusion there, which is why I would like the Minister to be very clear about it.

With certified British standards changing all the time because manufacturing gets better and better, how often does the Minister think he would need to return to this tax provision to update it? I doubt whether it will be set in stone for years to come; it will have to be looked at and changed in the future. I heard the Minister’s reassurance that we would not see changes to the standard in the future, but he is opening the door to potential changes. The system that the Minister has devised, based on the British standard and keeping the distinction between static, residential and touring caravans, does not make things clearer and more transparent; rather, I think it extends the anomalies in the tax system.

An even bigger issue for me is the lack of clear evidence of what the change to VAT policy will do for my constituents and for jobs in my city. That is what really concerns and worries me. I know that the Minister has listened carefully to my pleas about employment and jobs. I hope he will think again and will instruct his officials to do a proper piece of work, so that when MPs scrutinise Government policy, they will have accurate figures to look at in order to assess whether the Government’s policies will result in what they say they are trying to achieve. In this case, I do not think the Government will see additional revenue in the Exchequer. If they bring forward this ill thought-through proposal, which will disproportionately affect my constituents, there will be a loss to the Government.