Finance Bill [WAYS AND MEANS]

House of Commons, 5 July 1999.

CAPITAL ALLOWANCES (FIRST YEAR ALLOWANCES)

OIL TAXATION (ANTI-AVOIDANCE)

CHARGEABLE GAINS: ABSOLUTE ENTITLEMENT TO SETTLED PROPERTY

GOODS FOR SALE ON BOARD SHIPS OR AIRCRAFT

Patrick McLoughlin (Conservative, West Derbyshire)

Will the Financial Secretary tell us why she considers the motion to be necessary?

Barbara Roche (Labour, Hornsey and Wood Green)

I certainly will. We shall have a number of debates today on the matters covered by the motions, and during those debates, we will explain exactly why we are dealing with them in this way. It is, of course, natural for representations to be made during the passage of a Finance Bill, not only by hon. Members on both sides of the House—

Patrick McLoughlin (Conservative, West Derbyshire)

Will the Financial Secretary give way?

Barbara Roche (Labour, Hornsey and Wood Green)

Not at this stage. It will be my great pleasure to give way to the not-so-silent Whip when the time comes. As I was saying, it is right for representations to be made not only by hon. Members on both sides of the House, but by industry. That has been the normal course of events during not only this Bill's passage, but the passage of Finance Bills under the Conservative Administration. Being a listening Government, we listen and take representations into consideration.

Oliver Letwin (Conservative, West Dorset)

In due course, we shall debate the substance of the new clauses that deal with goods for sale on board ships and aircraft, but this motion paves the way for that substantive discussion. I think that this an appropriate time for us to ask a number of pertinent questions relating to the amounts of the taxes and duties being raised, which are of some significance, and which we debated to an extent when similar matters dealt with in statutory instruments came before the Standing Committee last week. Can the Paymaster General—or the Financial Secretary, on her behalf—tell us how much money will be raised by this and associated measures? Can she also say how she envisages the money being used? If, as seemed clear in Committee, it is to go directly into the Consolidated Fund—as we would expect—what projections have been made as part of the forward look, how far have the figures already been incorporated in the Chancellor of the Exchequer's projections, and will any revisions to those projections be required? In Committee, the Paymaster General waxed eloquent about the Government's difficulty in forecasting the financial effects with any degree of accuracy. [Interruption.] As the Financial Secretary says, from a sedentary position, she explained that it would be difficult to forecast the total effect of the change relating to duty-free sales. I assume that this measure will form part of those arrangements. If there is a difficulty of forecasting, how can appropriate numbers have been figured into the Chancellor's calculations? However, if numbers have been figured into his calculations, how can there be the difficulty of calculation to which she alluded during the Committee's consideration of the measure? The answers to those questions will be helpful when it comes to consideration of the subsequent matters that are associated with the motion, and which fall to be debated a little later.

David Wilshire (Conservative, Spelthorne)

I have a couple of questions to which I would welcome an answer when we debate the substance later. Both relate to the amount of money that will be raised by the measures. The first relates to something that the Minister said in the Eighth Standing Committee on Delegated Legislation last week. One of the concessions that the Government said that they had obtained was that items that are dutiable, but consumed on board an aircraft or ship, would continue to be "free of tax"—I quote from the Hansard of the Committee. Before we start our debate later, may we be told whether it is free of tax—VAT—or free of VAT and duty? We need to have that point clarified, so that, when we debate the substance, we shall know exactly how much the concession is worth. If it concerns only VAT, it is hardly worth anything. If it concerns VAT and duty, it is a significant concession. That is something that we must debate, but we need the financial facts first. On the other matter, I would be enormously grateful if, at the start of the debate on the substantive matters, the Government could let us have a list of those ports and airports that are geographically within the European Union, but to which the measures would not apply. What is the value of that concession, or exemption from the regulations that they seek to bring in? I should be grateful for answers to both those questions before we start the main debate.

Michael Fabricant (Conservative, Lichfield)

I, too, would like to express my concern that there has been insufficient analysis of the split between duty and VAT, which my hon. Friend the Member for Spelthorne (Mr. Wilshire) has already mentioned. In particular, I wonder whether the resolutions would apply to airports and ports, or only the vessels and aircraft themselves. If they apply to airports, in the collection of VAT, how will a distinction be made between travel within the European Union and transportation that is undertaken by passengers outside the European Union—where, of course, the issue will be duty free? The Minister will be aware that, for example, terminal 3 at London Heathrow has aircraft travelling to the European Union, to other parts of Europe that are not part of the EU and to the United States of America. Has she made any analysis of the burden on shops in trying to determine whether a boarding card is for the EU or outside the EU? Has she made any projections of how much extra revenue will be derived gross over the next five years from the collection of VAT and/or duties, compared with the actual disbursements by the state over the next five years as part of our contribution to membership of the EU? Has the Minister estimated the costs that will be incurred by Government in ensuring that the new regime will be administered properly? Presumably, extra staff will be employed by Customs and Excise to ensure that the duties are maintained correctly. If that is so, what will be the marginal cost of employing extra staff for each of the next five years? For that period, what burden will the state—and, therefore, taxpayers—bear in implementing the measure?

Teddy Taylor (Conservative, Rochford and Southend East)

Will the Minister tell us the implications for our further debates of approving motion 5? Motion 1 states that provision may be made in the Bill including provision having retrospective effect". However, in the paper submitted on 12 May, in Brussels, to the code of conduct group, the Minister said: This Scheme has been legislated but not yet activated. If there has been some error, will it have an impact on our further debates, bearing in mind that there is provision for retrospectivity in something that has not yet been—

Alan Haselhurst (Deputy Speaker, Saffron Walden)

Order. I remind the hon. Gentleman that we are debating motion 5, not motion 1. As far as I can see, there is nothing in motion 1 about a retrospective effect.

Teddy Taylor (Conservative, Rochford and Southend East)

I am not questioning that point. I am asking the Minister what relevance the motion will have to our future debates. I was simply citing the matter as an example of something that has already happened.

Gwyneth Dunwoody (Labour, Crewe and Nantwich)

Has my hon. Friend the Paymaster General had an opportunity to look back over the papers from any previous Government who, 15 years ago, were aware of what would happen on the matter? Has she had access to the calculations that were made then? Will she also tell us whether she has had any access to the terms of reference of BAA plc on its responsibility being divided between the administration of airports and the creation of shopping malls?

Edward Leigh (Conservative, Gainsborough)

Motion 5 is important, as it could have a significant effect on not only the public, but on Ways and Means motions generally and on the Government's finances. It is a thoroughly unpopular measure, which is being foisted on the British people against their will. However, the matter has now been settled and we cannot argue about it. The Government pray in aid the fact that the measure will have a significant impact on Government revenue, as those who are affected by it will have to pay duty. Nevertheless, today, I think that we have to hear a bit more from the Minister about the precise revenue implications of a thoroughly unpopular and draconian tax increase being imposed on those who are simply trying to buy something on board a ship or aeroplane. In this short debate, the Government might also make clear the precise implications of the measure for the various tax regimes as—now that we are getting rid of duty free—even the shortest journey by sea or air might pass through different tax regimes. It is not clear how the measure will be implemented in practice, or how the tax will be levied. Therefore, not only will the public be losing a highly valued privilege—which they have enjoyed for a very long time—and the Government, by underhand means, be receiving revenue that they had not previously expected, but the public will be put to various inconveniences.

Michael Fabricant (Conservative, Lichfield)

My hon. Friend mentioned implementation of the measure and various tax regimes. Does he accept that there could be very real difficulty in collecting duty from travellers on a flight going to a European Union destination and then on to a non-European Union destination? How does he imagine that Customs and Excise will ensure that the correct duties are applied at the correct time?

Edward Leigh (Conservative, Gainsborough)

My hon. Friend made that point in his excellent earlier comments. It certainly has not been made clear, to the House or the public, how that problem will be resolved. Clearly, different rates will apply according to whether a flight or sea journey originates from a European Union destination or from a non-European Union destination. However, a part of some air or sea journeys originating in a non-European destination will be made in the European Union. What tax will people pay on those journeys? The public could be very confused. The situation is not acceptable. We should also consider the potential for the Exchequer to lose revenue because people in Dover and the Heathrow area will lose their jobs as a result of the loss of duty-free concessions. We now hear that such has been the profit margin of many duty-free shops that they can apparently afford to ensure that the public buy their whisky or cigarettes for the same prices as before. That may be the case, but the Government cannot rely on it. They must come clean and explain the revenue implications.

Michael Fabricant (Conservative, Lichfield)

Does my hon. Friend share my concerns and those of my hon. Friend the Member for Spelthorne (Mr. Wilshire) about the confusion in the collection of duties between EU and non-EU areas, and the considerable doubt about the sums that will be collected, depending on whether the duties concerned are VAT duties or excise duties in the normal sense of the word? Does he agree that it will be interesting to hear whether the Paymaster General is able to answer my questions about the differentiation between the collection of excise and VAT duties?

Edward Leigh (Conservative, Gainsborough)

The differentiation between excise and VAT duties is very interesting. My hon. Friend the Member for Rochford and Southend, East (Sir T. Taylor) also referred to it. I hope that the Paymaster General will be able to enlighten us. I have certainly received no enlightenment so far.

Oliver Letwin (Conservative, West Dorset)

My hon. Friend's remarks bring to mind a further oddity. Does he agree that the clause to which this motion refers would reduce the revenue accruing to the Exchequer? Is it not odd to have such a Ways and Means motion?

Edward Leigh (Conservative, Gainsborough)

I am not sure whether it is very usual. I do not understand why the Government are apparently reducing the revenue coming to the Exchequer. I cannot believe that that is their intention. I am sure that there is some misunderstanding. What will be the effect of the revenue from duty free not being available for reinvestment in terminals and the transport network? That useful source of revenue will now be lost—

Alan Haselhurst (Deputy Speaker, Saffron Walden)

Order. I must counsel the hon. Gentleman that he is going far too far.

Edward Leigh (Conservative, Gainsborough)

I apologise, Mr. Deputy Speaker. All those points have implications for the Ways and Means motion. If that revenue is no longer available, the Government must make up the shortfall somehow. The motion is incredibly important and we should have a proper debate on it. It should not just go through on the nod as yet another Ways and Means motion. The implications for the Exchequer are enormous. The public are being made to suffer. The Government are introducing an underhand tax rise which the public did not ask for. It is incumbent on the Minister to explain the implications for Ways and Means.

Michael Fabricant (Conservative, Lichfield)

My hon. Friend is right to say that the issue should not go through on the nod. Was it not the Speaker's decision that up to 45 minutes should be allowed for debate on each of the Ways and Means motions? Would it not be an insult to the House if we merely nodded them through?

Edward Leigh (Conservative, Gainsborough)

We saw earlier that the Minister was trying to nod things through at the rate of an express train, moving motions formally. That is not acceptable. The British people demand explanations from the Government and we intend to get them in this short debate of a mere 45 minutes. The public are angry and want an answer. It is incumbent on the Minister to give an answer from the Dispatch Box. If she does not, we should vote against the motion.

Dawn Primarolo (Labour, Bristol South)

The new provisions, which the motion provides the way for, would bring into United Kingdom legislation directive 92/12 EEC, which allowed only until 30 June 1999 the continuation of duty free for passengers to take away at the end of an intra-Community flight or sea crossing. I am sure that at the heart of all the points that have been made is a concern for passengers. I am delighted to be able to tell the House that shopping at Gatwick was easier than ever this morning. Gone are the complicated restrictions for Community travellers, who can now purchase as much as they like, duty paid. The tax-free shops have risen to the challenge and created a marketing opportunity, as we knew they would. All travellers pay the same price for non-dutiable goods. Almost all prices have been held, emphasising what a good deal this is for the consumer. There is plenty of advice on hand, and travellers and retailers alike have adapted quickly to the new rules. BAA, for example, announced last week that it was holding at least 90 per cent. of all prices at exactly the same level.

Michael Fabricant (Conservative, Lichfield)

I am not sure whether the right hon. Lady's remarks are strictly on Ways and Means. However, will she clarify how those concerned at terminal 3 at Heathrow, or at the Gatwick terminals—where travellers go within and outside the EU—know what VAT or duties to charge or not to charge? How do they know the passenger's ultimate destination?

Dawn Primarolo (Labour, Bristol South)

It is up to the duty-free shop to ascertain whether the person is travelling within the EU or outside the EU. All travellers must produce their ticket to purchase at a duty-free shop, and the new technology in shops has been altered to cope with the arrangements.

David Wilshire (Conservative, Spelthorne)

I want to ask the hon. Lady about the figures for Gatwick, which are clearly important, as the sales post-duty free will determine the amount of revenue that the Government get. What proportion of the sales was to people travelling from Gatwick to the EU, and what proportion was sold to those travelling from Gatwick to destinations outside the EU? That will tell us how much is duty paid and duty free, and will enable this House to determine what income the Government will receive. The other thing that we need to know—

Alan Haselhurst (Deputy Speaker, Saffron Walden)

Order. The hon. Gentleman can make a brief intervention, but not a second speech.

David Wilshire (Conservative, Spelthorne)

I understand your point entirely, Mr. Deputy Speaker. What quantity of goods within those figures is being bought by individuals, so we know how much extra is being taken on aircraft?

Dawn Primarolo (Labour, Bristol South)

I intended to assure Opposition Members that airports and ports—I gave Gatwick as an example—were coping admirably with the new arrangements. Alas, I do not have responsibility for the commercial success or the figures of those shops, or for the flow of business through them. I was addressing whether things were running smoothly at our airports. Conservative Members asked me about the expected increase in revenue, and VAT in particular, following the change in arrangements. Last week, we discussed a statutory instrument that also amended our legislation, and I made it clear to the hon. Member for Spelthorne (Mr. Wilshire) and others that it is difficult to give a precise estimate, as the increase will depend entirely on the decisions of shoppers and those who provide the facilities for them. It is estimated—it is only an estimate—that there could be an increase of £120 million a year, but that depends entirely on how the companies providing the services seize on the new commercial opportunities that are now open to them. That is certainly outside the Government's control. I made it clear in Committee that we would monitor closely how the arrangements work and assess whether they continue to provide the best opportunities that we can secure after the abolition of duty free. The hon. Member for Spelthorne asked two specific questions, and I hope that it will be in order for me to answer them now. First, I can confirm that consumption on board, once the journey has started, will be free of both VAT and excise duty. Secondly, the territories involved outside the EC fiscal area are Andorra; the Aland Islands; the Channel Islands; Gibraltar; the Republic of San Marino; the Canary Islands; the overseas departments of France; and Mount Athos. I am sure that that will help the hon. Gentleman enormously when he takes part in the relevant debate later. My hon. Friend the Member for Crewe and Nantwich (Mrs. Dunwoody) asked about regulations, especially with regard to airports. I have not seen any. She asked about the preparation undertaken by the previous Government. There was no preparation, to my knowledge, and that made the task all the more difficult for the Government and the traders as my right hon. Friend the Prime Minister sought a deferment of the abolition of duty free, to enable us to get a good successor regime in place. We had very little time. There has been great co-operation between the traders, airport authorities, ferry companies and Customs and Excise to try to get the best result for everyone.

Alan Haselhurst (Deputy Speaker, Saffron Walden)

Mr. Oliver Letwin.

Oliver Letwin (Conservative, West Dorset)

Thank you, Mr. Deputy Speaker. I was going to try to intervene on the Minister, but she finished before I could. I want to ask—

Alan Haselhurst (Deputy Speaker, Saffron Walden)

Order. I apologise. I had not realised that the hon. Gentleman had already spoken. I called the Minister on the understanding that she was winding up the debate, so we must now put the Question.

WORKS OF ART, ANTIQUES, ETC.

Nick St Aubyn (Conservative, Guildford)

It is unusual for the House to discuss so many Ways and Means motions. That says a lot about the Treasury's lack of organisation. In the case of this particular motion, it has been known for a long time that certain provisions would have to be made in respect of the art market if the Government failed in their attempt to negotiate a better deal with our European partners. The fact that the motion has been tabled now raises the question of why it was not tabled earlier in the Bill's passage, so that we could have had a proper and detailed debate in Committee on the terms of the new clause that the motion is intended to support.

Michael Fabricant (Conservative, Lichfield)

Does my hon. Friend agree that there is a real difficulty under the terms of the Ways and Means motion in calculating the additional revenues that will accrue to the Government? Does he also agree that, far from raising funds, the measure would diminish the funds raised by the state by causing a deterioration of the art market in the United Kingdom, in which case, one has to ask why a Ways and Means motion has been tabled?

Nick St Aubyn (Conservative, Guildford)

I am grateful to my hon. Friend for bringing me to my next point, which is to question whether a Ways and Means motion is required. It is known that, when VAT at 2.5 per cent. was introduced on works of art, the volume of international sales conducted in London fell by 40 per cent. If that volume were to fall by a further 40 per cent. when the duty doubles to 5 per cent., which is the effect of the measure that we shall debate later this evening, the amount of revenue raised would go down, not up. Indeed, it has been intimated by those who know a great deal about that market that the level of sales will collapse to almost nothing, so there will be a serious shortfall in the amount that the Government expect to raise. Therefore, a pertinent question for the Paymaster General is, will she confirm how much money is being raised now from the current provision, and how much more or less is expected to be raised once the new provision has been implemented? I raised the issue of the future of the art market and the tax threat with the Prime Minister in the House a few months ago. I was told that his Government would use all the means at their disposal to ensure the right outcome. I was given to understand that the Government were prepared to use the Luxembourg compromise to force our partners in Europe to think more clearly about an issue wherein they have nothing to gain and we have everything to lose. Why have the Government failed to allow the House a debate on that subject until now? Why have they not been prepared to invoke the Luxembourg compromise in this respect? In the papers the other day, we read the spin about the Government having saved the art market from a new tax: we were told that the Government's negotiations had averted a tax called droit de suite, which would certainly have been another nail in the coffin of international art sales in London. Why did the Government claim to have saved the art market from a new tax only a few days before introducing a measure to double an existing tax on the art market in this country? We need to know why there are spurious definitions in the new clause, and what effect any relaxation of those definitions would have on the revenue to be collected under the Ways and Means measure. Why are limited editions acceptable, provided there are no more than eight—

Alan Haselhurst (Deputy Speaker, Saffron Walden)

Order. The hon. Gentleman is now straying into the territory of the new clause. If, when we come to debate the new clause, he is fortunate enough to catch my eye, he might be able to explore such points at that time, but I would suggest that he does not do so now.

Michael Fabricant (Conservative, Lichfield)

On a point of order, Mr. Deputy Speaker. I understand from my hon. Friend's arguments and the views expressed by others that the art market is to be diminished, so tax revenue will be reduced. Therefore, is it in order for us to debate a Ways and Means motion, which is primarily used to increase revenues?

Alan Haselhurst (Deputy Speaker, Saffron Walden)

There is nothing out of order about a Ways and Means motion in such circumstances. However, hon. Members will help the Chair if they try to maintain a strict distinction between the debate on the Ways and Means motion and the debate that they will have later on the new clause in the Bill to which it refers.

Nick St Aubyn (Conservative, Guildford)

I am grateful to you, Mr. Deputy Speaker. However, I understood that during a debate on a Ways and Means resolution, we could ask Treasury Ministers exactly what sums they expect to raise. I ask them what is their estimate of the revenue to be raised in respect of limited editions under the various categories listed. Have they given any thought to how much revenue they might lose if the definitions were rather more relaxed? They seem absurdly tight at the moment. Of all the definitions and restrictions, perhaps the most significant is that which relates to works of art imported into the EU or the UK and then exported outside the EU within 12 months. What is the impact of that provision on the revenue to be raised? What would be the impact if that period were extended to 24 or 36 months? Surely works of art of the kind that we are considering in this debate are typically held by collectors for long periods. If the intention of the measure is to exempt certain categories to help the international art market in London, surely it would be reasonable for the exemption to last for a period longer than 12 months that would take into account the very long time that it sometimes takes to negotiate the sale of a work of art. Such works of art could then still come through London; otherwise, sales will be lost to centres outside the European Union, such as Geneva and New York. The estimate that I gave the Prime Minister, with which he agreed, was that 5,000 jobs in our economy—mostly in London, but throughout the UK—are at risk because of this measure. Why, at this late stage, are the Government trying to spring on the House a proposal that will probably cost this country 5,000 jobs without giving us a proper chance to consider it and without sticking to the assurances that were given in the House only a few months ago?

Michael Fabricant (Conservative, Lichfield)

When the Prime Minister revealingly agreed with my hon. Friend that there could be a loss of 5,000 jobs in the industry, did he give an estimate of the money that will be lost to the UK in trade and revenue, which is relevant to the Ways and Means resolution? If he did not, will my hon. Friend do so?

Nick St Aubyn (Conservative, Guildford)

That is a matter best left to the experts. I have seen estimates, but I have learned during the proceedings on the Finance Bill that it is safer for us to ask the Government for their officials' professional estimates than to come up with our own. My hon. Friend asks a pertinent question, and I expect the Paymaster General to have the answer. However, there can be no doubt that a loss of 5,000 jobs is very serious for our economy, particularly as some of those jobs are very well paid and extend beyond the art market to the tourist industry. Many people who come to London to buy international works of art also visit places of historic interest, stay in London hotels and fructify the city's economy. All that will be jeopardised by the proposal.

Geoffrey Clifton-Brown (Conservative, Cotswold)

I listened with care to the answer that the Prime Minister gave my hon. Friend during Prime Minister's questions, and the right hon. Gentleman gave the House a clear impression that he would use all his personal authority to prevent this increase in VAT. Does not my hon. Friend think that the Prime Minister's authority in negotiating in Europe has been severely dented by the necessity to bring this Ways and Means resolution before the House?

Nick St Aubyn (Conservative, Guildford)

I am grateful to my hon. Friend. We have heard time and again how the Government, by engaging in what they regard as a more positive way with our European partners, would somehow deliver great concessions and achieve what we were unable to achieve when we were in government. Surely, this is a test case for that so-called new approach to dealing with the European Union, and the tabling of this Ways and Means resolution is an admission by the Government that their policy towards Europe has failed. No one in the European Union will gain from this increase in taxation, and our market will lose. Everyone agrees with that.

Desmond Swayne (Conservative, New Forest West)

Has it occurred to my hon. Friend that it is of little consequence to the Treasury should this largely transatlantic business be damaged and disappear on the ground that that will result in a level of convergence with the European continent that would not otherwise be achieved, which is the object of the Government's policy?

Nick St Aubyn (Conservative, Guildford)

I know that I should not be tempted off the issue, but there can be no doubt that the concerns expressed on the Opposition Benches are very much about an important, thriving London market. When I raised the matter with the Prime Minister, his Back Benchers—it is recorded in Hansard—thought it a laughing matter. They thought that the loss of jobs was a matter of hilarity, much to the Prime Minister's embarrassment. Indeed, Government Back Benchers are laughing at the moment. It is much to the Prime Minister's embarrassment again that this resolution should be before us. What will be the cost to our economy of the loss of those 5,000 jobs? When will the Prime Minister come to the House to explain why he was not prepared, as he indicated only a few months ago he would be, to invoke the Luxembourg compromise in order to protect a vital national interest?

John Townend (Conservative, East Yorkshire)

Will the Paymaster General confirm that it should always be a principle of Ways and Means resolutions that tax increases are to increase revenue? In the resolution before us, tax is being doubled. Does she agree, however, that there is no possibility of the revenue doubling? I suggest to her that the proposals could, as my hon. Friend the Member for Guildford (Mr. St. Aubyn) has said, reduce revenue. Will she give a firm estimate of what proportion of the art market she thinks will leave this country for New York or Switzerland? Will she also give an estimate of the cost of the resolution not only in loss of jobs, but in corporation tax on profits of a very much reduced art business? Does this not show that European tax harmonisation is not a good thing and will very often hit individual countries? If the Conservative party is proved right and the art market substantially contracts, causing an important loss of jobs, will this not be a very good example of how this House of Commons will not be in a position to take remedial action to restore the position and to bring back the art market? London, as an international art centre, might be destroyed for ever. If this is being at the centre of Europe, it is a disaster for Britain.

Peter Brooke (Conservative, Cities of London and Westminster)

I declare an unremunerated interest as president of the British Art Market Federation, which derives from my presidency of the British Antique Dealers Association—which I declare in the Register of Members' Interests, along with its agreeable but uncovenanted excellent Christmas present, on which I declare tax. Between 1985 and 1987, when I was Paymaster General, I was responsible for answering for Customs and Excise in this House and understudying my noble Friend Lord Lawson, as he now is, in ECOFIN, the latter of which I continued to do until 1989. Having wrestled with exactly the same issues that are in front of us, I have sympathy with the Treasury. I remember the difficulty that they caused us then. The difficulty, as my hon. Friend the Member for Guildford (Mr. St. Aubyn) has said—I think that it is familiar to everybody who is participating in this debate—is that the introduction of this tax on works of art entering the European Union will result in a significant amount of trade not ending up in London. It will be sold in New York or Geneva instead—indeed, in due course perhaps, in Tokyo as well. In 1994, when the legislation which we are revising came in, a reasonable question was how we were obliged to take it through if EU tax changes had to be conducted unanimously. The answer was that the Commission had threatened to take us to court under different legislation, on the ground that a nil rate of VAT represented a potential distortion of trade. I had a leper's squint at that issue in my capacity as the then Secretary of State for National Heritage, as, prior to the creation of the British Art Market Federation, which was stimulated by the previous Government, I used regularly to meet representatives of the art market trade, although VAT remained a matter for Treasury Ministers. My right hon. Friends at the Treasury made it clear that they would give way on VAT, on that subject, only provided that the art trade agreed. However, both sides realised that there was a genuine possibility that the British Government would lose in the European Court against the potential threat. Had they done so, they would have found themselves with a 17.5 per cent. tax rate. I realise the difficulty with which the present Government have had to wrestle. I am disappointed in the quality and, indeed, the timing of publication, of the European Commission report examining the effects of VAT on the art market. I hope that the Paymaster General will say a word or two about that when she replies. I realise that the Government had to concede. However, I am grateful for the decision contained in the new clause, to which my hon. Friend the Member for Guildford did not refer—probably quite properly, given the rules of order: that there will be a poultice and a palliative in that VAT on works of art created after 1973 will now be taxed at 5 per cent. rather than at 17.5 per cent. I understand that the money resolution is needed to introduce the relevant new clause. You would rule me out of order, Mr. Deputy Speaker, if I were to dilate at any length on the subject of droit de suite. However, it did come up in the speech of my hon. Friend the Member for Guildford. I congratulate the Government on the robust manner in which they are fighting this issue at present, but I should be grateful if the Paymaster General will repeat that the Government's robustness will continue—although I realise that we are discussing a Department of Trade and Industry matter. It is no good merely to delay the matter; we must win. To lower the temperature of the debate, I point out to my hon. Friend the Member for Guildford that the 5,000 jobs relate to droit de suite as well as to VAT; they are not merely a VAT casualty.

Andrew Tyrie (Conservative, Chichester)

I agree with everything that was said by my right hon. Friend the Member for Cities of London and Westminster (Mr. Brooke). I am relatively new to the House, but I am surprised by all these Ways and Means motions on the Order Paper. I do not understand why they are there. Will the Paymaster General give me the precedent for producing an Order Paper laden with such motions at the Report stage of the Bill? I shall confine myself to the revenue aspects of the matter. Everyone agrees that the increase in VAT will be damaging to the UK art market—that is not in dispute. We do not need to look into the crystal ball; we can read the book. The increase from 0 to 2.5 per cent. had a deleterious effect on the existing art market. Labour Members seem to find that a matter for levity—as they do whenever we debate the subject; I find that deeply regrettable. In the light of the imposition of an increase in VAT from 2.5 to 5 per cent., how much will revenues fall? We are debating a Ways and Means motion. What estimate have the Government made of the fall in their revenues that is likely to result from that imposition? If there is no fall, how much will the increase be? My guess is that it will be extremely small. I reinforce the point made by my right hon. Friend the Member for Cities of London and Westminster as to the European Commission's report. We were promised a thorough study of the matter, but we have not received one. If the report has been published, it must have come out quietly, because I have not seen it. If it has been published, what does it say and what is the Government's reaction? Is there any succour in it for the UK art market? Finally, did the Government argue forcefully for an extension of the derogation, or did they capitulate? Did the Government seek to find any allies for the approach that they took?

Geoffrey Clifton-Brown (Conservative, Cotswold)

I am glad to catch your eye in this debate, Mr. Deputy Speaker. This is the first chance that the House has had to address this issue since we had the news that the Government had been obliged to concede on the increase in VAT from 2.5 to 5 per cent. on certain works of art. The way in which the Government have introduced the Ways and Means resolution is a disgrace, for two reasons. First, the Government must be in a certain amount of chaos or they would not have had to produce so many Ways and Means resolutions tonight. Why on earth had they not thought of all this during the Bill's many weeks in Committee? The Government should have been able to think about some of these matters. The subject of the resolution that we are now debating may have caught them unawares, but they should have been able to set many of the others before the House earlier. Secondly, it is an utter disgrace that, only a few weeks ago, the Government were telling us that they had saved the art industry from the need to introduce this Ways and Means resolution. That was typical spin by the Government. Time and again, when something dreadful is about to occur, they say, "Do not worry; we have prevented it"—and at the end of the day, when everyone has taken their eyes off the ball, lo and behold: they come to the House with a Ways and Means resolution. You would rule me out of order if I went into any more detail, Mr. Deputy Speaker, but it bodes very ill for a much more serious matter—the withholding tax. I cannot understand why the Luxembourg compromise was not invoked, given that the harmonisation of VAT across Europe is so much against the interests of the whole European Community, not just of this country. If it had been invoked, the Ways and Means resolution would not have been before the House tonight. It is essential that, when the Paymaster General replies, she tells us in some detail what negotiations took place with the Commission, and through the Council, that caused the resolution to be before us tonight. I have some questions for the Paymaster General; I should be grateful if she would answer them. The very helpful notes on clauses tell us that this measure applies not only to works of art—to which we have confined our debate this evening—but to antiques and collectors' pieces. It would be useful for the House and the trade to Know—obviously, the Government would not introduce the resolution if they had not made the calculations—how much extra tax the Paymaster General expects the increase to net the Government, first from art and, secondly, from antiques and collectors' pieces. It would be interesting to know what projections the United Kingdom Government have done on this matter—whether they really think that they will net an increase in VAT as a result of passing the Ways and Means resolution. Like my hon. Friends, I have a strong suspicion that there will be a net loss of VAT, but let us hear the Government's predictions. My right hon. Friend the Member for Cities of London and Westminster (Mr. Brooke) mentioned the amendment to section 21 of the Value Added Tax Act 1994 to decrease the rate of VAT for those works of art created after 1 April 1973 from 17.5 to 5 per cent. It would be interesting to know how much VAT that will lose the Government. What figures have they calculated in that respect? It has been calculated that the changes will lose the UK 5,000 jobs. In introducing a Ways and Means resolution to the House, the Government should be able to tell us—it would help the trade—how many jobs are likely to be lost as a direct result of this measure and how many are likely to be lost as a result of the combination of this measure and the introduction of droit de suite. It would be useful to know how many jobs the Government reckon will be exported from the European Community; after all, it is the European Community that is forcing us to introduce the measure. Are all those jobs to be lost to the UK and the European Union, or will some of them be redistributed around the European Union? Will there be an increase in the art market elsewhere in the European Union? If that were the case, it would make some sense for the Commission to insist that the UK introduced the measure. If none of those jobs is to be reclaimed in the European Union, it seems daft.

John Bercow (Conservative, Buckingham)

Will my hon. Friend give way?

Chris Leslie (Labour, Shipley)

Will the hon. Gentleman give way?

Geoffrey Clifton-Brown (Conservative, Cotswold)

I shall give way to my hon. Friend and then to the hon. Gentleman.

John Bercow (Conservative, Buckingham)

Is my hon. Friend aware, in the context of the motion, that the habitual refrain of Ministers is that they eschew the cause of tax harmonisation within the European Union despite appearances to the contrary? Does my hon. Friend agree that it is of the utmost importance that, in responding to the debate, the Paymaster General should explain to us how she distinguishes the words "to harmonise" and "to co-ordinate", given that page 898 of the "New Shorter Oxford English Dictionary" defines "to co-ordinate" as to place or class in the same order, rank or division"? What is the difference?

Geoffrey Clifton-Brown (Conservative, Cotswold)

My hon. Friend raises an interesting point. However, I am sure that, if I strayed too far down that path, you would rule me out of order, Mr. Deputy Speaker. We on the Opposition Benches believe in tax competition, not tax harmonisation. On this matter, the Government are entirely inconsistent. When I raised at some length the question of tobacco taxes, the Government were all for having a tobacco tax at a different rate from that of the rest of the EU and losing a huge amount of revenue thereby. However, when it comes to the issue that is before us, which will result in the loss of many jobs, the Government seem to want harmonisation. I do not understand why the Government cannot be more consistent on this matter. If they were, at least everyone would know where he stood.

Chris Leslie (Labour, Shipley)

Will the hon. Gentleman explain why, in 1994, the Conservative Government gave a legal undertaking to increase the value added tax on imported works of art to 5 per cent?

Geoffrey Clifton-Brown (Conservative, Cotswold)

If the hon. Gentleman had been present—I am not sure whether he was—to listen to my right hon. Friend the Member for Cities of London and Westminster, he would have heard that, if we did not agree to an increase from 2.5 to 5 per cent., albeit that we had a derogation for 20 years, we would be subject to a threat to take us to the European Court, and the European Union could have imposed a 17.5 per cent. rate of tax. That would have been far more damaging. I am saying that the Government are dealing with the circumstances as they arise, and they are that the derogation is to end in June or July. The Government have to deal with that. It is their stewardship that we are under, whether we like it or not. They appear to be intent on decimating our art market because it seems that they cannot put an appropriate argument to our European partners that the increase in tax is disastrous for us and for them as well. It is daft. If the increase would benefit the EU as a whole, there would be some sense in it, but that is plainly not the position. As my right hon. Friend the Member for Cities of London and Westminster has said, business will be driven away. It will go not to Paris, Berlin or anywhere else in the EU, but outside it. It will go, for example, to Geneva, New York or Tokyo. The EU will lose jobs, balances of payments will be adversely affected and tax revenues will be lost. The Prime Minister put his personal authority on the line when he said that he would do something about this tax increase. He said, in effect, that he would convince our European partners that it did not make sense. At the end of the day, he failed in that respect. If that has happened, how many more times will he fail in Europe, and how many more times will the United Kingdom be disadvantaged thereby?

David Heathcoat-Amory (Conservative, Wells)

Like a number of my right hon. and hon. Friends, I do not think that the motion should be nodded through, notwithstanding that we can debate the substance of new clause 14 at a later stage this evening. We need to know from the Minister now what the anticipated yield will be from doubling valued added tax on imported art. We are talking about a most important industry. Labour Ministers seem somewhat dismissive of the art industry as a whole and they should be reminded that it is not based only in London. There is an extensive network of dealers and galleries throughout the United Kingdom and there are many ancillary industries such as framing, conservation, insurance and shipping, all of which feed off the international market, which is based in London. The motion would double the rate of VAT on imports. We know that it derives from a directive passed in 1995, from which the United Kingdom had a limited derogation. As so often happens with the European Union, the boomerangs return. The Government may remind us this evening that they have postponed the separate threat represented by droit de suite, the levy on the resale of contemporary art. It would be useful to know on what terms that has been postponed, and whether it may turn out to be a boomerang as well. In the 1995 agreement, it was agreed that, by 1999, when the British derogation ended, there should have been a study into whether VAT on imported art was damaging the European art market. That report has been produced. It was late—it should have been produced last year, but it was made available only a few months ago. It is interesting that, although the report was commissioned by the European Commission, and to that extent is not wholly impartial, it nevertheless paints a good picture of the damage already caused by VAT, even at present levels. As regards the impact on the United Kingdom, the report states: Between 1994 and 1997"— during that period, VAT at 2.5 per cent. was imposed— the United Kingdom went from being a net importer … to being a net exporter of art, so VAT even at that lower rate clearly caused damage. The report also records—this is dangerous—the views of the New York dealers, whom it states are all very excited at the prospect of import VAT rates being increased in the UK (which they see as their main competitor). The report concludes that high value buyers and sellers are increasingly choosing New York over London as their preferred venue because of the 2.5 per cent. differential. That happens even at the present VAT level, which we are about to double.

Geraint Davies (Labour, Croydon Central)

Will the right hon. Gentleman give way?

David Heathcoat-Amory (Conservative, Wells)

Will the hon. Gentleman forgive me? I want to give the Minister an opportunity to respond. The Commission's own study shows conclusively that damage has been caused, so it was—I choose my words carefully—mendacious of the Commission to assert in its press release that the report had provided no evidence of damage to the European art market. That was flatly untrue. The Minister will probably remind us in a moment that the Commission has agreed to reduce the 17.5 per cent. VAT rate that at present applies to contemporary art painted or created since 1973. That is a welcome development, but it does not offset the damage that will be caused by the doubling of the 2.5 per cent. rate. The Commission, which after all has a duty to promote the economic interests of Europe as a whole, even if it is dismissive of the UK's interest, should not have ignored the evidence of its own study, which showed damage not simply to the UK, but to the entire European art market. The only people who will be pleased by the motion are competitors outside Europe, in Switzerland, the United States, Japan and elsewhere. It will simply transfer business—

Chris Leslie (Labour, Shipley)

Will the right hon. Gentleman give way?

David Heathcoat-Amory (Conservative, Wells)

I shall give way very quickly to the hon. Member for Shipley (Mr. Leslie); I apologise to the hon. Member for Croydon, Central (Mr. Davies).

Chris Leslie (Labour, Shipley)

I am grateful to the right hon. Gentleman. Can he confirm whether, when he has Paymaster General in 1994, he was in any way involved in the discussions or negotiations about the move from 2.5 to 5 per cent?

David Heathcoat-Amory (Conservative, Wells)

I was not Paymaster General in 1994, so I had nothing to do with the negotiations. I conclude with a request to the Paymaster General. If the motion goes through—it looks as though it will—and if the Commission's own study turns out to be correct and damage will be caused, will she ask it to produce a further study in due course so that it can return to this matter and reduce the minimum mandatory rate?

Geoffrey Clifton-Brown (Conservative, Cotswold)

Does my right hon. Friend agree that the people responsible for the measure are officials sitting in highly paid jobs in the Commission who do not care about job losses even though 17.5 million people are already unemployed in the European Union?

David Heathcoat-Amory (Conservative, Wells)

My hon. Friend is entirely correct. The measure is a bureaucrats' charter and the people in the Commission who introduced it will not lose their jobs. Our constituents who rely on the vitality and success of the trade will lose their jobs—not the people in the big auction houses, which will simply transfer their auctions to New York. The little people—the porters, the packers, the office staff, the experts, the framers—will lose their jobs. They have been abandoned by the Labour party, but they have not been abandoned by us, as my hon. Friend the Member for Cotswold (Mr. Clifton-Brown) says. I understand the constraints under which the Paymaster General has been negotiating, but, even at this late date, I ask her at least to ask the Commission to study this matter and return with other proposals if the damage, as reported, occurs.

Alan Haselhurst (Deputy Speaker, Saffron Walden)

I call Mr. Fabricant.

Michael Fabricant (Conservative, Lichfield)

rose—

Alan Haselhurst (Deputy Speaker, Saffron Walden)

Order. I apologise to the House; I was distracted for a moment. Has the right hon. Member for Wells (Mr. Heathcoat-Amory) given way or has he concluded his remarks?

David Heathcoat-Amory (Conservative, Wells)

I have concluded.

Alan Haselhurst (Deputy Speaker, Saffron Walden)

In that case, I should call the Paymaster General to reply to the debate in the remaining time.

Dawn Primarolo (Labour, Bristol South)

I shall try to deal with all the points that have been raised within the short time that remains. If I cannot, I shall certainly deal with them in the later debate. I remind the House of the context of this matter. The previous Government—I understand that the right hon. Member for Wells (Mr. Heathcoat-Amory) was Paymaster General from 1994 to 1996—committed us to an absolute legal obligation to raise VAT on works of art from 2.5 to 5 per cent. The then Government asked the Commission to undertake an independent study, but they unfortunately did not have that written into a directive. The agreement was political and therefore not enforceable in law. The right hon. Member for Cities of London and Westminster (Mr. Brooke), who is very well informed and follows these issues closely, referred to the delayed report. He is quite right: the independent report should have been available at the end of December, but it was not available until March. The Commission made its response as late as 28 April and the Government's view is that it ignored the recommendations. In our opinion, the Commission's recommendations did not properly recognise elements of the independent report, which we then pursued vigorously with the Commission and other member states. The hon. Member for Chichester (Mr. Tyrie) asked about the Commission's report. I can tell him that it and an explanatory memorandum were put before the House along with the Government's view. Although the report was lodged with us, the Commission unfortunately did not make it generally available and, under the agreement undertaken by the previous Government, we could not require it to do so. However, we at least obtained a copy for ourselves and were able to scrutinise the details. The Government were faced with the Commission's insistence on the implementation of the absolute legal requirement. As hon. Members know, the consequence for the Government of not complying with our legal obligations would have been infraction proceedings and things could have been considerably worse. None the less, we continued to pursue the Commission to seek either an extension of our derogation or the setting of 2.5 per cent. as the rate for the rest of Europe. Only one other EU country—Denmark—applies the 5 per cent. levy, and the others apply higher rates. The Government faced an absolute legal agreement and had no room for manoeuvre because the independent report had not been written into the directive. The Commission refused to move, and other member states did not agree to reopen the matter. At present, income to the Government is around £10 million, and the increase in VAT to 5 per cent. on goods currently taxed at 2.5 per cent. will yield around a further £10 million in a full year. The offset resulting from widening the scope of the new 5 per cent. rate to include imported works of art previously taxed at 17.5 per cent. will, however, leave the overall package effectively revenue neutral.

Andrew Tyrie (Conservative, Chichester)

Will the Minister give way?

Dawn Primarolo (Labour, Bristol South)

Forgive me, but I have been left little time to reply to the debate. I shall be happy to return to the point in later debates. The Government have continued to work closely with the art market, recognising its valuable contribution to a global art market centred on New York and London. The European Union should see London as a European centre of excellence, but we have not been able to win that argument at this stage. In a press release, the British Art Market Federation welcomed the Government's decision to provide for the reduction on imports of contemporary art, saying that that decision and the Government's equally robust opposition to the Artists' Resale Rights Directive, —not relevant to this debate, and not part of my responsibilities— will we believe, enable us to maintain the UK's competitive position in the international art market. The federation recognises what we have done, and recognises that we were bound by legal obligations because of the previous Government's commitments. It has congratulated the Government on vigorously pursuing the best interests of the art market. Despite what some Opposition Members say, the Government are committed to ensuring that the British art market gets a fair deal.

Edward Leigh (Conservative, Gainsborough)

I am sorry that the Minister was unable to give way during the debate. Clearly, she had time to do so. What can she say about new subsection 6(a), which sets out items accepted for definition—

Alan Haselhurst (Deputy Speaker, Saffron Walden)

Order. I am afraid that the Minister will not have an opportunity to answer that question.

VALUE ADDED TAX (PREPARATIONS ETC OF MEAT, YEAST OR EGG)

Oliver Letwin (Conservative, West Dorset)

I am not clear about the meaning of the motion. Nor am I entirely clear about the guidance on Member's interests, so, for the avoidance of any impropriety, I declare a possible interest in that a pet shop may have been a client of the bank of which I am a director. The motion is the most vexed of those before us this afternoon. I have a few straightforward questions that Ministers may wish to answer now so that we do not have to deal with them when we reach the considerable number of substantive questions to be debated later. I am not clear—the notes on clauses do not make it clear—whether the situation is as I envisage it, which is that up till the time when the lacuna that gave rise to the substantive change was spotted, pet shops were paying VAT.

Dawn Primarolo (Labour, Bristol South)

indicated assent.

Oliver Letwin (Conservative, West Dorset)

I am glad to see that I am right in that. In that case, this Ways and Means motion cannot possibly have the effect of changing the revenue that was extracted or would now fall to be extracted from those who were previously operating under the mistaken assumption that the law was correctly constructed and that Customs and Excise had the right to levy the VAT that it was levying. The motion must therefore relate to the future and to the question of how much can be raised in the future. Will the Paymaster General give us an estimate of the effects on the Revenue of that change in the future? What will be the immediate effect—the first-round effect? What additional VAT revenue will be raised assuming no demand elasticity? What will be the second-round effect—the long-term effect—assuming that things change and people use less pet food as the price rises? I take it that the Treasury has done an analysis of both those effects. For reasons which I do not want to dwell on now—it would intrude into the substantive debate—I do not want to go into detail about why I think that this is an important question to answer. However, I hope that the Paymaster General can clear up the factual point and give us an idea of those two projections, which I presume the Treasury has made. Will the Paymaster General give us some guidance? Has it been normal practice in the past to have a Ways and Means motion when an uncovenanted error has been discovered ex post? That would be instructive for the future ordering of parliamentary business.

Michael Fabricant (Conservative, Lichfield)

I am a little surprised that the hon. Member for Burton (Mrs. Dean) is not present. The headquarters of Bovril and Marmite are located in Burton, which is close to Lichfield. The House will know that Bovril and Marmite make use of beef extract and yeast, which are the substances referred to in this Ways and Means motion. My hon. Friend the Member for West Dorset (Mr. Letwin), who leads from the Front Bench so expertly and fluently, asked about pet foods. Will VAT be applied only to products used in alcoholic beverages, such as yeast and egg—which I suppose is used in egg nog or advocaat—or will it be applied to Marmite and Bovril? We need an assurance that VAT will not be applied to Bovril. [Interruption.] As my hon. Friend the Member for West Dorset says, we must make a plea for Bovril and Marmite to ensure that they remain exempt. If VAT were applied to those products, employment in Burton would be affected, and it is conceivable that people in Lichfield work in that factory, which is only a few miles down the A38. More importantly and more directly related to this Ways and Means motion, we need an assurance that this small measure does not mean that VAT will be put on human food. Will the Paymaster General give a clear and unequivocal assurance that VAT will not be applied to Bovril or Marmite as a precursor to VAT on foods generally? It would be utterly hypocritical if the hon. Lady could not give that assurance. Many of us remember the scares that the Government caused before the last general election when they were in opposition. They asked for such guarantees, even without the Ways and Means motion which spurs me to ask this practical question. If Bovril and Marmite are not to be exempted, will other products also not be exempted? If so, will the Paymaster General list those products? It is not just the hon. Member for Bovril—or the hon. Member for Burton—who ought to be present; others should be here, given that food industries in their constituencies may now have to pay VAT and other duties on food under the present Government, for the very first time. I dare say that the Paymaster General will say that this is just another example of tax co-ordination with Europe, where VAT on food is the norm; but what will be the annual value of transactions affected by the change? How much of the tax will be on food, how much on pet food and how much on alcoholic beverages, particularly advocaat? Mr. Clifton-Brown: Is this not yet another example of the Government's hitting the poor with regressive taxation? Are they not taxing basic foods in the worst possible manner?

Michael Fabricant (Conservative, Lichfield)

I take exception to that. I always like Marmite on my toast, and, while there is nothing wrong with being poor, I would be mendacious if I said that I was. What consultation has the Treasury had with food and drink manufacturers? I am not talking just about Bovril, and I am not talking just about beer manufacturers, which are also based in Burton. What consultation has taken place about the amount that would be raised? What evidence exists to suggest that the current tax regime unduly benefits this part of the food and drink industry, to the detriment of other parts? Why has the measure been introduced? The House needs to know. What are the ulterior motives? The Paymaster General looks at me in surprise and horror.

Dawn Primarolo (Labour, Bristol South)

rose—

Michael Fabricant (Conservative, Lichfield)

I give way to the Paymaster General. Perhaps we shall hear an answer as well as a question.

Dawn Primarolo (Labour, Bristol South)

Does the hon. Gentleman realise that we are talking about pet food?

Michael Fabricant (Conservative, Lichfield)

The Paymaster General says that we are talking about pet food, but that is not at all clear from the motion. If we are, can she give us a firm undertaking that VAT will be imposed on neither Marmite nor Bovril, and that a Labour Government will never—I repeat, never—impose VAT on human food? If she will not give that undertaking, will she withdraw the disgraceful remarks that she made when her party was in opposition, and when she posed similar questions to my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), who was then Chancellor of the Exchequer? If the change—I refer to the amendment provided for in the motion—be deemed always to have had effect, what will be the "retrospective effect"? How far back does the Paymaster General mean to go—three years, six years, nine years? What will be the clawback? If it applies only to pet foods, what will be the implications for major manufacturers and major employers such as Pedigree? The Paymaster General laughs, but Pedigree is the largest pet-food manufacturer in Europe. Based in the east midlands, it employs hundreds of people, who could lose their jobs as a direct consequence of this measure. I do not need to tell you, Mr. Deputy Speaker—I have raised the issue on the Adjournment, and in questions—that the last tax harmonisation introduced by the Labour Government of which I was conscious involved the introduction of water regulations. The regulations seemed innocent enough in themselves, but, as a result, Armitage Shanks in my constituency was taken over by a United States company, and jobs were lost—simply because the Government thought that co-ordination in Europe would put us at the heart of Europe, notwithstanding that loss of jobs. That, of course, has nothing to do with the motion that is under discussion. We need assurances today. We are not just talking about Marmite and Bovril, but about the entire food industry. The Paymaster General may proudly say, "It affects only pet foods" but what are the job implications for firms such as Pedigree and others? How many years back will the retrospective action go?

Peter Luff (Conservative, Mid Worcestershire)

As I listened to the apocalyptic comments of my hon. Friend the Member for Lichfield (Mr. Fabricant), I wondered whether Nostradamus had in mind the motion when he prophesied all kinds of things for this period in July; somehow, I suspect not. Like my hon. Friend the Member for West Dorset (Mr. Letwin), I have racked my mind to think of an interest to declare. I cannot think of one, except that, having heard my hon. Friend the Member for Lichfield speak, I should declare that my son is a prodigious eater of Marmite and that my dog eats large quantities of Bonio dog food. As Chairman of the Select Committee on Agriculture, I thought that it was an issue on which I should perhaps detain the House for a few moments. The motion seems to be one of the more regrettable of those on the Order Paper, principally because it is retrospective. The Minister may argue that it corrects an error by the previous Government and is therefore not retrospective, but it has not been law for the past five years and the Government intend to make it so, first by the motion and then by the new clause, which we will debate later. That is of some concern. It is not a great matter of party controversy. If it was an error—the notes on clauses tell us that it was, and who are we to disagree?—by the previous Government, it should be corrected, but I cannot help reflecting on the fact that, in my experience, if errors relating to VAT on pet food are committed by ordinary citizens, their correction is rigorously enforced. However, according to the motion and the subsequent new clause, Customs and Excise will be given the benefit of the doubt if it is found to be responsible for the fault and is likely to lose revenue. A year or so ago, I had a case in my constituency of a pet shop owner who decided to sell his products by breaking bulk purchases and splitting packets. There was a huge dispute as to the VAT liability that flowed from that decision, which could have put that pet shop out of business. Fortunately, after an unsympathetic Customs and Excise inspector, a more sympathetic one came along and the matter was put right, but, often, disputes over VAT on pet food can have important consequences for small businesses. Therefore, the Paymaster General owes us a clear explanation of exactly what is going on in the new clause, bearing in mind how strongly retrospective errors by Customs and Excise are enforced. I am concerned about the details of the new clause that are provided in the notes, which say: The practical effect of the amendment will be to restore taxation to certain foodstuffs, principally pet food, and to restrict the zero-rating to non-alcoholic beverages made from extracts of meat, yeast or egg. I recognise weasel words when I see them.

Michael Fabricant (Conservative, Lichfield)

I am grateful to my hon. Friend for pointing that out. He was here when the Paymaster General pointed out rather pompously that the measure applied only to pet food. He has pointed out that it applies principally to pet food. In any event, that is what is said in the explanatory notes, not the measure itself. As Chairman of the Agriculture Committee, does he agree that the motion might, either on purpose or inadvertently, apply to foods? Therefore, it would be nice to hear a reassurance that the Government will never introduce VAT on any human foodstuffs.

Peter Luff (Conservative, Mid Worcestershire)

My hon. Friend makes a good point. It is clear from the explanatory notes that the Government understand that the measure involves the extension of VAT to human foodstuffs. The notes refer to certain foodstuffs, principally pet food". The Paymaster General shakes her head. If the measure does not refer to human foodstuffs, why do the notes on new clauses say that it does? We need a clear explanation of precisely which foodstuffs are affected and which are not. Why the urgency? The error has gone uncorrected for five years. When was the error spotted by the Paymaster General's officials? It must logically have been spotted some time in the past week; otherwise the measure would surely have been dealt with earlier in the proceedings on the Finance Bill. What brought the error to the Paymaster General's attention? What is the problem that has caused her the great concern? Why has it not been left for next year's Finance Bill? Why is there a great ragbag of motions before the House today? My hon. Friend the Member for Lichfield made great play—understandably, in view of the possible effects on Marmite and Bovril—of the absence of the hon. Member for Burton (Mrs. Dean), but I say in her defence that the precipitant way in which the Government have brought the motion to the House today may have meant that she was not aware of the possible implications. If she were, I am sure that she would wish to explore them with the Paymaster General. That leads to the more important question: what consultation have the Government had with the sectors of the pet food and other food industries that are likely to be affected by the motion and the substantive new clause? Specifically, what pet foods will be affected by the motion? We do not know what the measure's practical effect on ordinary pet owners will be. It is important that, before the motion is nodded through, we hear what practical effect it will have on pet owners. We know that some pet owners are among the poorest members of our society—those who the Government claim they wish to help. An extension of VAT on pet foods is not an inconsequential matter, but of great moment for some of those people.

Michael Fabricant (Conservative, Lichfield)

Is my hon. Friend aware of the therapeutic value of pets, and that pensioners, old people and people with psychiatric problems all benefit from owning pets? Will they be able to afford to keep them if there is VAT on pet foods, or even more tax on pet foods, which will put prices up?

Peter Luff (Conservative, Mid Worcestershire)

Looking at you carefully, Mr. Deputy Speaker, I judge that I should probably not get too sidetracked down that alley, but I agree with my hon. Friend. We need to know the precise effects of the measure on pet foods. What will happen to retail prices as a result of it? What will happen to the Government's revenues? What sums of money are actually involved? What sums of money have been lost as a result of the mistake in 1994? What sums of money will be recouped in future years as a result of its correction? I know from bitter experience in the House that the simplest and most apparently innocent measure often is the source of the greatest concern to the House, or should be. Anything that begins casually with the words This new clause corrects an error in the consolidation of existing law puts me immediately on my mettle. The Paymaster General has said in an almost jocund tone, "It refers only to pet foods." It is potentially a serious measure for the House to consider. She needs to treat the matter with some seriousness, not levity, in her winding-up speech.

Michael Jack (Conservative, Fylde)

My eye is taken by the terms of the motion. The first point on which I seek clarification was raised by my hon. Friend the Member for Mid-Worcestershire (Mr. Luff)—the provision having retrospective effect. That also worries me. Retrospection in any tax measure is something of which Treasury Ministers always fight shy. I am intrigued to know why the law must go back to what it would have been had it been correct in September 1994. I should be grateful if the Minister could spell out more clearly than the notes on clauses what the measure means for companies. I am unclear as to the financial impact of retrospective VAT legislation on those enterprises. What I am clear about is constituency cases where VAT problems of immense complexity drag on for some time, where it is sometimes difficult or, indeed, costly to unravel the consequences of what to the citizen is retrospective activity. However, here we are talking more seriously about a change in the law. How was it that that particular error in transcribing a cross-reference from the Value Added Tax Act 1983 came to occur? Some people may think that the motion is part of a wider exercise by officials, admittedly and understandably, combing VAT legislation to close loopholes and protect the Government from perceived revenue loss. However, is the motion being proposed for other reasons? Hon. Members should be told why the error—which has lain dormant since 1983—has suddenly been resurrected, just as the century ends. How did that occur? The motion, intriguingly, deals with "preparations". I am not sure which definition of preparation is being used in the motion. I appreciate that VAT legislation has long ensured that the manufacture of foods—the bringing together and further processing of certain ingredients, adding value—such as biscuits and sweets has always attracted VAT. I should also tell my hon. Friend the Member for Lichfield (Mr. Fabricant) that those foods are for human consumption. Nevertheless, I do not fully understand how the word "preparations" is being used in the motion. Does it entail the bringing together of raw ingredients without further processing, or bringing together some of the ingredients that would be affected by the proposal after they have been further manufactured, cooked or processed in some other way? Ministers should give the House some clear and detailed explanation of what they are inviting us to agree. The motion, taken at face value, does not assist us in our voyage of exploration, but its import may be greater than it seems.

Teddy Taylor (Conservative, Rochford and Southend East)

Will the Minister answer one brief question? Is there any way at all that the Government could mark on the Order Paper matters about which the House has no power to do anything? Perhaps I should first declare an interest: I have a dog of my own, called Corrie. When I get back from the House, he likes me to take him for a walk. Sometimes, however, I am detained in the Chamber, not because hon. Members talk too much, but because we spend our time talking about things about which we can do nothing. I know that you will be well aware, Mr. Deputy Speaker—because of the great interest that you take in public affairs—that the House has recently spent hours and hours debating matters that we can do nothing about. We have had a great deal of discussion, for example, about genetically modified foods, about which people get very excited and agitated. However, because of European law, we can do absolutely nothing about GM food. We also had a long debate—for a whole day—on the age of homosexual consent, although Parliament could do nothing at all about it.

Alan Haselhurst (Deputy Speaker, Saffron Walden)

Order. The hon. Gentleman is a very experienced hon. Member. One example by reference perhaps; but he must not go on, ad infinitum, on matters that are nothing to do with motion 7.

Teddy Taylor (Conservative, Rochford and Southend East)

I am sorry, Mr. Deputy Speaker; but it is everything to do with the motion. I simply want to ask Ministers whether, in light of Article 28(2)(a) of the EU sixth directive, they have any power to do anything about the substance of the motion? We may all think that retrospective taxation is ridiculous, and agree that the Government should withdraw a motion that would unfairly apply taxation—and carry the can for it. However, my understanding of the situation—you may not think that this is relevant, Mr. Deputy Speaker, but it is—is that, even if all 635 hon. Members said, "Let's agree that we will not backdate tax on dog food", and voted accordingly, it would have no impact at all. The Government would have to levy the tax, simply because of the sixth directive. I know that you, Mr. Deputy Speaker, and other people do not like me talking about these things, but it is time that Parliament woke up to the fact that we spend hours and hours talking about things about which we can do absolutely nothing. I simply wish that Parliament would wake up to the fact that a democracy is dying every single day, and that—on this issue, as on so many others—we are wasting our time talking about something about which we can do nothing. Will the Minister say if, by any remote chance, I am right about that point? If, by any remote chance, I am talking a load of rubbish, as the Deputy Speaker seems to think, will the Minister say—

Alan Haselhurst (Deputy Speaker, Saffron Walden)

Order. The hon. Gentleman has made a disgraceful suggestion. I am here merely to try to keep the House in order, and believe that the hon. Gentleman was straying into generalities too far beyond the scope of motion 7. I hope that he will consider very carefully what he said.

Teddy Taylor (Conservative, Rochford and Southend East)

I am sorry—it is simply something that I feel very strongly about. I was asking a simple question. I hope that the Minister will tell us—to avoid my having a dispute with the occupant of the Chair, which I have never had in my 35 years in the House of Commons; and to help the House of Commons—whether the Government might consider having on the Order Paper a little map, circle, scroll, arrow, or something that would not be too controversial or cause a dispute in the House, to indicate those matters about which we can do nothing. That would save a great deal of the House's time, and give me more time to go back and take my dog out for a walk.

Edward Leigh (Conservative, Gainsborough)

The Minister, in an intervention on my hon. Friend the Member for Lichfield (Mr. Fabricant)—she obviously thought that it was a devastating intervention—asked whether he was aware that the motion applied to pet food. What she did not confirm was that the motion applies only to pet food. The Minister should realise that our suspicions and concerns have been fuelled by that intervention—although I think that the argument could be resolved very easily. The motion's implications for the Revenue are enormous: the political and revenue implications of launching any attack on the principle of zero-rating food are staggeringly important. I should really like the Minister, on behalf of the Government, to commit herself to the principle that we are not starting to renege on the pledge, which was given in the general election by her and the Government, that we shall not move away from zero-rating on food.

Desmond Swayne (Conservative, New Forest West)

Does my hon. Friend agree that the Order Paper does not mention pet food at all, but talks about "meat, yeast, or egg"? As a consequence of the measure, and to avoid the taxation increase, we may well have to eat unleavened bread.

Edward Leigh (Conservative, Gainsborough)

I am not sure about the need for unleavened bread. However, I am sure that, so far, we have not received a commitment from the Minister. My hon. Friend the Member for New Forest, West (Mr. Swayne) was right to say that Back Benchers can go only by what they are told in the explanatory notes—which should be helpful. The notes that we have been given today are not at all helpful—except, as my hon. Friend the Member for Mid-Worcestershire (Mr. Luff) has made clear, in fuelling our suspicions. If we were supposed to be reassured that the motion would apply only to pet foods, why does paragraph 2 of the explanatory notes state—as my hon. Friend the Member for Mid-Worcestershire said—that the measure will apply "principally" to pet food? Why do the notes not say that it will apply only to pet food? The House deserves a reassurance on that matter. It would be the utmost hypocrisy for the Government—under the guise of a seemingly innocuous measure concerned only with pet food—to increase their revenues by extending VAT to ordinary foodstuffs. We want a commitment that they are not attempting to do that. We also want to know precisely which grocery items will be affected by the measure. What are the measure's revenue implications? What will be the annual value of transactions affected by the change? What will be the net effect on Treasury revenues? What consultations have the Government had with food and drink manufacturers and with retailers? We want to be reassured that, as a consequence of the negotiations, the principle of zero-rating food will not be abrogated. We also want to know what evidence there is to suggest that the current tax regime is unduly benefiting that part of the food and drink industry to the detriment of others. Unless we get all those reassurances, we are perfectly entitled to be suspicious of what is going on this afternoon.

Dawn Primarolo (Labour, Bristol South)

I hope that I shall be able to reassure the House on this modest and sensible measure. There is no extension to foodstuffs that are currently zero-rated. The hon. Member for Lichfield (Mr. Fabricant) can have his Marmite soldiers and drink his Bovril this evening in the sure knowledge that there is no challenge. While legal issues arising from an appeal to the VAT and duties tribunal earlier this year—but after the Budget—were being examined, it was discovered that a transcription error had been made in the Value Added Tax Act 1994. Throughout the relevant time, VAT has been raised on those products. No new VAT is being imposed and there is no extension. The manufacturers, the Government of the day and their officials believed that VAT on pet foods could be charged and collected, as it had been since 1973. We collected the tax because that was the position before the transcription error was made in 1994. We now have to correct the law.

Peter Luff (Conservative, Mid Worcestershire)

Is the hon. Lady saying that the Government have collected tax revenues illegally and are now seeking retrospective sanction for having done so?

Dawn Primarolo (Labour, Bristol South)

No. The items had never been zero-rated. The previous Government supervised the changing of the 1994 Act, when the transcription error occurred. They were fulfilling their legal obligations under the requirements to impose VAT. We are committed to maintaining zero rates on food. They are not affected in any way.

Oliver Letwin (Conservative, West Dorset)

rose—

Dawn Primarolo (Labour, Bristol South)

I should like to make this point first. The explanatory notes make it clear that the zero-rating of foodstuffs is not affected. The grouping covers pet foods primarily, but there are certain other preparations—

Oliver Letwin (Conservative, West Dorset)

rose—

Dawn Primarolo (Labour, Bristol South)

I should just like to deal with this point. The other preparations are extracts of meat, yeast or egg, such as advocaat and yeast products intended for use in home brewing. That was the law as we had all understood it. I have also been asked whether there is a precedent.

Oliver Letwin (Conservative, West Dorset)

rose—

Dawn Primarolo (Labour, Bristol South)

I should like to deal with this point and get all the facts on the table before hon. Members work themselves up into a lather again about the problems. I was asked whether there had been errors before. Unfortunately, there have. The previous Government had to make a correction to the Finance Bill in 1995, because the starting date for earlier changes to bad debt relief was omitted when the provisions for consolidation into the Value Added Tax Act 1994 were made. The measures are not retrospective because—

Oliver Letwin (Conservative, West Dorset)

rose—

Dawn Primarolo (Labour, Bristol South)

I will give way in a minute. Hon. Members should be patient. It will help to have the facts. This is not retrospective taxation because the legal liability to tax has not been changed contrary to the expectation of the taxpayer. The taxpayer had been paying the tax. If the House voted against the motion, it would cause chaos. Manufacturers and the Government believed that the law gave cover. I am sure that a test court case would show the intention of the legislation before 1994, but it is better to correct legislation when an error is found.

Oliver Letwin (Conservative, West Dorset)

I am grateful to the Paymaster General for giving way. That is the point on which I have been trying to intervene, without being in any kind of lather. The hon. Lady said a moment ago that it had not been illegal to levy VAT during the intervening period when the mistake was in force. Is that not because my hon. Friend the Member for Rochford and Southend, East (Sir T. Taylor) is right and the sixth VAT directive is in force, meaning that in law VAT could be levied on the products? Is this not merely a tidying operation with no effect on the outcome of cases?

Dawn Primarolo (Labour, Bristol South)

That is my point. There is no change. If we did not make the alteration, the Government could be left open to a loss of revenue, which would be unwise. Any prudent Government would act. This is a simple proposition. An error was made; taxpayers and the Government have behaved in good faith. The law will now be corrected. There will be no refunds, no additional charge and no increase in food prices for pet lovers. I am sorry that the hon. Member for Rochford and Southend, East (Sir T. Taylor) feels that his time may have been wasted. There is no extension on foods; those are the simple facts.

DISCOUNTED SECURITIES ETC.

Nick St Aubyn (Conservative, Guildford)

I rise to point out that, yet again, we have a motion with retrospective effect. In Standing Committee, we raised several objections to the phrasing of clause 61 and others. There was a great deal of consternation among Ministers, and they had to go away and think again. The Government new clauses on Report propose significant changes to the way in which they hope to address the highly technical problem of tax leakage resulting from the current legislation. I should be grateful if the Minister would confirm that. Before we pass the measure, will the Minister confirm that the retrospective effect will not mean that companies that have honestly, but ingeniously found a way to minimise their tax liability will see an increase in their tax bill? I have no truck with tax evasion, but it is right that businesses should be able to plan their tax affairs with some certainty. Clauses should not be sprung into Finance Bills, retrospectively changing the law, to deny companies exemptions or advantages in the tax system that they legitimately believed that they could make use of. If we breached that principle, we would undermine the rule of law on which the whole tax system is based. If taxpayers feel that the Government will introduce retrospective legislation every time that they find a legal way to use the tax system to their advantage, they will eventually feel that they are unable to challenge the Government through the court of law on the tax system. The costs of doing so may be great, but we could lose an important constitutional test and a brake on the power of the Executive to raise tax at their whim. That is what is at stake. Will the Minister confirm that the problems that we highlighted with the original phrasing of the clause, in terms of the ordinary call provisions for securities, and the possible effect of the introduction of a withholding tax are dealt with by the new phrasing of the clause? I look forward to her response.

Barbara Roche (Labour, Hornsey and Wood Green)

I am surprised by the remarks of the hon. Member for Guildford (Mr. St. Aubyn), who gave his version of what happened in Committee. It was an interesting version, and there are always many different historical interpretations of what has happened. In Committee, I said that when we had consulted on this complex proposal, we received representations from the financial sector. It appeared that the way in which the clause had been drawn went too wide and was taking in some matters that we did not wish to be included. Therefore, in consultation with the industry, we made some new proposals and we have had a favourable reception. That is another example of how this Government listen—unlike the previous Government. I remind the hon. Member for Guildford that the Tory Government tried to introduce this measure, and that this Government, once again, have had to deal with some unfinished business that the Conservative Government were unable to get through. The hon. Gentleman asked why the resolution was retrospective. Clause 61 was founded on retrospective resolutions, and operates from 15 February 1999, when it was announced—a few weeks before the Budget. In that sense, it is technically retrospective. The Conservative Government did this on many occasions to stop tax avoidance, which was the right thing to do. If the hon. Member for Guildford wants to honour the pledge of the shadow Chancellor on public spending, making sure that proper tax avoidance measures are in place is the right thing to do. I had hoped that he would give us some credit because we propose to make the clause—which takes effect from 15 February—less wide ranging. As to the other matters that he raised—yes, I can assure him on both those points.