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Value Added Tax

Thank you, Madam Deputy Speaker, I shall do my best. I greatly welcome the contributions that have been made so far, which include contributions from those on the Conservative and the Liberal Democrat Front Benches, with their slightly different perspectives on the solution. Without wishing to put him in an invidious position, I also include the contribution made by the right hon. Member for Birkenhead (Mr. Field), who offers both his frank and trenchant analysis and his readiness to consider alternative solutions, which will impress us all. It happens, coincidentally, that on this occasion I agree with almost every word that he said about what should be done. I hope that I can indulge the House for a moment and take hon. Members back down memory lane. In the early 1970s, in the days when VAT was being conceived, I happened to be the head of the economics section at the Conservative research department and was, as it were, party to some of those initial discussions. Without going into the details of those discussions, I can tell hon. Members that two things were clear in principle: first, that any tax should have a broad coverage at a relatively modest rate; and secondly, that the rate should enjoy a degree of stability, which meant that we could not keep chopping and changing it. That was essentially a wise judgment and, in fairness to Governments since, that practice has continued. Since that period, there have been virtually a handful of changes in the VAT rate, until now, when we are, in effect, committing ourselves to two changes in one year. The measure should be called the Value Added Tax (Changes of Rate) Order—one change down and one change either back to the existing level or, as is more likely, in view of what we have been told by accident, upwards from that level. Let me make another point in parentheses. The history of the '70s, which was not very happy for Labour Governments, as has already been adverted to, shows a regular recourse to the fiscal regulator. Taxes were increased or decreased by 10 per cent. at a time by order. Those changes were designed to stimulate or curtail growth in the economy, but their effects were always well below the expected level of efficiency. That, I fear, will be the fate of today's measure. My other point goes to the politics of the thing. My political mentor, the late Iain Macleod, who sadly died before the introduction of VAT, always used to say, in his generous way, that he was not inclined to shoot even a one-legged Santa Claus, which is both a seasonal and, I hope, a material political reference. Of course it is difficult to cast oneself as the person who wants to say no to a proposal to cut taxes. The question is whether that proposal will help the economy. Is it the most effective way of stimulating the economy to deal with the consequences that the right hon. Member for Birkenhead was so right to mention or not? That is the real test of the measure. I want to say a couple of things about the detail of the order, because I was so impressed by representations that I received this week from a constituent—I have his permission to quote from his letter to me. His representations encapsulate in detail exactly the kinds of problems that will arise. Andrew Overton runs a company in my constituency called Overview Mapping Ltd, which provides vehicle tracking solutions for big fleets of vehicles and employs some 15 employees. In fairness, I do not wish to give all the details of the company's commercial situation, but it is fairly easy to derive from that a turnover, the amount of tax revenue that Mr. Overton is already paying and the scale of his business. Mr. Overton quotes me a figure for the decline in new sales for his business from pre-existing levels—that is, pre-credit crunch levels. In general terms, new sales have fallen by an order of magnitude, going from a rapid expansion to a virtual standstill. That will give the House some indication of where Mr. Overton stands. My concern, which he illustrated to me in figures, is about the likely cost of the change. His business model relies on monthly direct debit payments, on about 3,000 monthly collections. They are collected by a firm called Eazipay Ltd and processed for him. In affect, Mr. Overton acts as a conduit for VAT. Let us look at Mr. Overton's costs. The cost of one man-week of time to effect the changes is £500. The cost of amending 3,000 direct debits, at a standard charge from Eazipay of £1.50 a throw, is £4,500. The cost of accounts software changes, at one man-week, is £500 and the cost of sending letters to all customers is £500. The total cost is £6,000. That is backwards for the business, not forwards. We need to reflect on that.