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Finance Bill

I am delighted to be able to make a few points on clause 9. I shall focus on three main areas—many of these points have been much discussed in today's debate—the first of which is the amount of the reduction, which is 2.5 per cent., and the importance of that figure; the second is the issue of the date when the rate reduction ceases; and the third is the cost of the 2.5 per cent. reduction in VAT. The Financial Secretary to the Treasury makes an interesting point when he says that such a change can be an effective instrument in stimulating demand, but I am curious about how he came up with the 2.5 per cent. figure. What sensitivity analysis did he carry out about the effects of a 2.5 per cent. decrease as opposed to a 5 per cent. or 10 per cent. decrease in trying to drive demand and the volume of trade? The cut is an attempt to kick-start an economy, but in the two or three debates that I have attended on the issue I have heard that the instincts of retailers and consumers were that it would not suddenly drive people to go out and purchase more. When the 2.5 per cent. cut came into effect, did the Financial Secretary rush out and start buying more retail goods? Now that the VAT rate is down to 15 per cent., what has he gone out and bought that he would not have bought at the 17.5 per cent. VAT rate? Perhaps he can tell me how his shopping patterns changed. It was also interesting to hear the discussions and observations about some of our continental competitors. It was interesting that the French attacked the reduction as a not particularly effective way of stimulating demand. We heard similar criticisms from the Germans and the Dutch, and even from the IMF—I think that it was the IMF chief economist who had no confidence whatsoever in the 2.5 per cent. VAT cut. As I said earlier to my hon. Friend the Member for South-West Hertfordshire (Mr. Gauke), was it some sort of jealousy on the part of our European competitors? Were they suddenly nervous that huge volumes of trade would shift across continental Europe and across the channel, and that the Germans, French and Dutch would suddenly begin moving their trade from Germany, France and Holland into the UK to buy our goods merely because of this 2.5 per cent. cut in VAT? Somehow, I think not. I think that they were making an objective assessment that the 2.5 per cent. was not enough to move the dial with respect to individual buying patterns. The proof of the pudding can be found in the evidence of experts—that is, the evidence of the people who run some of the big retailers. We have heard Justin King's comments. Retailers are cutting their prices by 15, 20, 30, 40 and sometimes even 50 per cent. to try to drive trade into their shops. As people wander down the street, wondering which shop they should go into, a sign in the window of a shop that says, "2.5 per cent. cut in VAT", across the street from a retailer advertising a 30 per cent. cut in the price of its goods will not drive people in to the shop with the 2.5 per cent. cut. We should focus on talking to some of the smaller businesses, as I did in Braintree and Witham, two of the towns in my constituency. I did not get a sense from any retailers there that the 2.5 per cent. cut would drive up volumes of business, but those volumes need to be driven up, because I have seen some major retailers in my town centres—particularly in Braintree—simply shutting down and leaving because the business was not there. The 2.5 per cent. that the Government chucked at them to try to drive up trade did not really work, I am afraid. My next question for the Minister concerns what analysis he, his civil servants and the various people from consultancies who work for him have done. What uplift in the volume of retail trade can be attributed directly to the 2.5 per cent. VAT cut? How has it affected growth in the retail sector? Has it led to a sudden growth in our GDP, a point raised by my hon. Friend the Member for Henley (John Howell)? Those are pertinent questions, but my main interest is to know whether the Minister and his family rushed out and started to buy more as a result of the VAT cut. What goods did he end up buying? My next question concerns the date on which VAT will return to its original rate. In our previous debate on these matters, my hon. Friend the Member for Bournemouth, East (Mr. Ellwood) said that the 31 December date was very inconvenient—[Interruption.] From a sedentary position, my hon. Friend the Member for Ludlow (Mr. Dunne) reminds me that he made the same point, and retailers around the country agree. My hon. Friend the Member for Bournemouth, East has observed that 3 January would be more convenient, and better than attempting to get retailers to change their VAT system at a peak time when they are trying to drive up sales. I am curious to know why the Minister is so keen on the 31 December date. Has he chosen it because it is the end of the calendar year? The end of the year for retailers is usually later, as I suspect that my hon. Friend the Member for Ludlow will explain in more detail when he gets the opportunity. The 2.5 per cent. cut has not really worked. I have been persuaded by the argument from my hon. Friend the Member for South-West Hertfordshire that it has not been a big success and that we should cut our losses and go back to the 1 December date. That would be better than extending the misery for another 31 days—[Interruption.] The hon. Member for Glasgow, North-West (John Robertson) is saying something from a sedentary position. Does he want to make an intervention, or is he just talking to himself? He is clearly talking to himself. I am not persuaded by the Minister. I hope that he will explain why adding the extra 31 days will be so important. Why has he chosen 31 December as opposed to, say, 3 January? As I and other hon. Members have pointed out, it is probably the worst day of the year to choose to change the rate back up to 17.5 per cent. from 15 per cent. The third area that I want to spend some time on is the issue of cost. A number of figures have been thrown around, and it is clear that the process could be quite expensive for retailers. It has been estimated that it will have cost them about £90 million to implement the 2.5 per cent. cut, and that it will cost them another £90 million to change the rate back up to 17.5 per cent. Does the Minister have any figures that will help in estimating the cost to retailers of implementing both changes in a fairly short period? Is £90 million an accurate figure? My hon. Friend the Member for Henley mentioned a much bigger figure—£300 million—for the cost to retailers, simply to meet the costs of compliance, let alone consulting fees and so on. What does the Minister think of that figure? Is it reasonable? It is important to consider the expense for retailers, because it is not only the big retailers who are affected; they can probably handle issues of compliance and implementing systems to deal with the changes. It is the SMEs who struggle to deal with the constant shifting of the goalposts on VAT. It is inconvenient to them. They want to spend their time, not dealing with compliance and other regulatory issues, but improving their trade. The cost of having to hire more people, perhaps half a day extra a week or even a month, is a meaningful amount to them, because, as we all know, retailers work on very thin margins. I am trying to gain an understanding of the costs to retailers. I would be interested to know what homework has the Minister done on that question. Moving from the cost to retailers to the cost to the Exchequer, a figure of £12.5 billion has been quoted. Is that figure accurate? What does the Minister think? Does he think it is less than £12.5 billion or more—£15 billion? Have patterns of buying changed, thus changing that £12.5 billion figure, which is constantly bandied around? Clearly, the right hon. Gentleman will be unable to give me an immediate answer on changes in buying patterns, as he has just left the Chamber. I have asked the Financial Secretary several questions. One is to do with the amount of the VAT reduction—2.5 per cent. Why not 5 per cent.? The second is to do with the date of the change. Why has 31 December been chosen—perhaps one of the most inconvenient dates in the calendar year? Why not 3 January? What is his real objection to the suggestion made by my hon. Friend the Member for South-West Hertfordshire, that the Government should stick with 1 December? My third question is to do with the costs. We have heard several figures, including £90 million for the costs of implementation, doubling to £180 million when the rate is shifted back; and my hon. Friend the Member for Henley talked about £300 million in costs. What does the Financial Secretary think of that figure? In the words of my right hon. Friend the Member for Witney (Mr. Cameron), it certainly appears that the Prime Minister's VAT cut was an expensive failure. That is why the Conservatives propose keeping to the date of 1 December.