PARLIAMENTARY DEBATES

HOUSE OF COMMONS

OFFICIAL REPORT

First Standing Committee on Statutory Instruments, &c.

VALUE ADDED TAX (PAYMENTS ON ACCOUNT) ORDER

Tuesday 26 October 1993

LONDON: HMSO

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1

The Committee consisted of the following Members:

Chairman:Dr. John G. Blackburn

Barnes, Mr. Harry (Derbyshire, North-East)

Beith, Mr. A. J. (Berwick-upon-Tweed)

Brandreth, Mr. Gyles (City of Chester)

Burden, Mr. Richard (Birmingham, Northfield)

Byers, Mr. Stephen (Wallsend)

Campbell, Mrs. Anne (Cambridge)

Clelland, Mr. David (Tyne Bridge)

Cope, Sir John (Paymaster General)

Duncan, Mr. Alan (Rutland and Melton)

Garel-Jones, Mr. Tristan (Watford)

Grant, Mr. Bernie (Tottenham)

Jackson, Mr. Robert (Wantage)

Lait, Mrs. Jacqui (Hastings and Rye)

Mackay, Mr. Andrew (Lord Commissioner to the Treasury)

Mates, Mr. Michael (East Hampshire)

Rathbone, Mr. Tim (Lewes)

Smith, Mr. Andrew (Oxford, East)

Thompson, Sir Donald (Calder Valley)

Dr. P. C. Seaward, Committee Clerk

2
3 First Standing Committee on Statutory Instruments, &c. Tuesday 26 October 1993

[DR. JOHN BLACKBURN in the Chair]

Value Added Tax (Payments on Account) Order

10.30 am

The Paymaster General (Sir John Cope): I beg to move, That the Committee has considered the Value Added Tax (Payments on Account) Order (S.I., 1993, No. 2001). I welcome my right hon. Friend the Member for Watford (Mr. Garel-Jones) to our deliberations. The close interest that he takes in such matters has been concealed until recently by other ministerial responsibilities, so I am pleased to see him here now. The order puts into effect the updating of the VAT payments on account scheme. Its provisions were announced in outline in the March Budget and in detail in a written parliamentary question in July. Primarily, it rolls forward the scheme by bringing forward the qualifying year and the reference year for payments on account by the largest VAT payers and will affect payments from the end of November. We have taken the opportunity to refine the scheme so that those whose VAT liability has fallen or increased can be excluded or included in the scheme respectively and the amounts adjusted. We have also put into law the extra-statutory concession that gives businesses that pay by credit transfer an extra seven days in which to pay, as with normal VAT. I hope that the previous explanations and the explanatory note make the provisions sufficiently clear. They are a response to representations made to us in the House and outside, and I commend them to the Committee.

10.32 am

Mr. Andrew Smith (Oxford, East): It is good to see the Paymaster General. It seems only five minutes since we were here debating the Finance Bill. I hope that he had a refreshing summer recess because he and his colleagues are facing a gruelling time, especially if they persist in the unfair folly of imposing VAT on domestic fuel, to say nothing of any other extensions of VAT that may come in the Budget. It is appropriate that the right hon. Member for Watford is present because the order arises from the creation of the European market and his expertise in such matters will be invaluable to our deliberations, although the previous Bill with which he dealt consumed a lot more time than we anticipate spending on the order today. The Order simply rolls forward the scheme, which was introduced last October, to compensate the Government for the loss of cash flow that will have resulted from the changed system of collecting VAT under the single market, which abolished frontier controls within the Community so that VAT became chargeable not on importation but on acquisition. The scheme was designed to apply only to the largest VAT payers, who would have cost the Treasury the most in terms of lost cash flow. 4 The purpose of the order is to change the reference year for calculation of the requirement to be part of the scheme from 1991–92 to 1992–93 so that participation is based on the most recent relevant figures. The Government will argue that that is all well and good, with no problems, but I have two or three questions, which are important to affected businesses. I should be grateful for the Paymaster General's answers because those points were covered in the parliamentary question or the Budget day press release to which he referred. First, the threshold for monthly payments on account has not been altered—it remains at £2 million. Any firm with an annual VAT liability of that amount is required to take part. Why has that threshold not been raised in line either with the trend in VAT takings for large firms or with inflation? What principle will be applied to this matter in future? Do the Government intend to consider each year whether to increase the threshold? Secondly, on the basis of the statistics available, how many additional firms does the right hon. Gentleman estimate will be scooped up into the net of the monthly payments scheme? Thirdly, can he put a figure on the extra cash flow benefit that will accrue to the Excise as a consequence of not uprating the threshold? I am sure that the Committee will appreciate that those are important questions for the businesses affected. Even in fairly large firms, the administration of VAT can be a nightmare. As we are all too painfully aware, the aftermath of recession continues to have a serious effect on business cash flow with business failures and bankruptcies still at an unacceptable level. I should hate to think of more businesses being forced under and jobs lost as a result of the order, which was originally introduced to allow the Government to gain cash flow. That gained income is matched pound-for-pound by losses in the businesses affected by the attenuation of their cash flow. Before deciding how to vote on the order, I shall listen carefully to the right hon. Gentleman's answers to my questions. To recap, they are: why is there no uprating of the threshold, how many extra businesses will be affected and what will be the effect on cash flow?

10.36 am

Mr. A. J. Beith (Berwick-upon-Tweed): It is instructive to recall that the order dates from a measure that was introduced by the then Chancellor to prevent any increase in the public sector borrowing requirement. Those were different times. It is also instructive to note that it is a product of consultation. The Government have moved from their original position—they had argued for monthly accounting for larger businesses—to one of monthly payments on account. They then decided to make substantial and valued changes in the criteria for eligibility and in the terms on which account could be taken of the circumstances of a business. During the consultations, Ministers received a reaction that was product of the recession experience—many larger companies could see how little use some of their earlier years' VAT records could be as the basis for any accurate projection of the coming months because of the adverse trading conditions. It makes one wonder what would have happened if the Government had undertaken a similar process of consultation on VAT on domestic fuel and what the first, second and third modifications of their proposals would have been. However, we welcome the consultation. 5 It is important to recognise that VAT, which poses considerable administrative burdens on business, including large businesses, and the paying up-front of large sums of money, can present serious problems to business at a time of severe reduction in profitability, if there is any profitability, and severe cash flow problems. I hope that the regime in its much modified form will work without dragging any businesses into bankruptcy. I take it that the Minister is satisfied that that will be the case.

10.38 am

Sir John Cope: The hon. Member for Oxford, East (Mr. Smith) was kind enough to refer to the aftermath of recession. That is of course the background to what we are discussing. I assure the right hon. Member for Berwick-upon-Tweed (Mr. Beith) that we have considered the matter further. We have received more representations since the proposals for rolling the scheme forward were first put forward in the March Budget. We have taken account of those and do not think that there will be any unduly disastrous effects as a result of the scheme. I acknowledge that, as the hon. Member for Oxford, East said, the order concerns the cash flow of companies and the cash flow of Government and the adjustment between them, following the changes resulting from the beginning of the single market. I cannot give the hon. Gentleman an exact figure for the cash flow as he asked because the further away from the start of the scheme we get, the more difficult it is to compare the two effects and the differences between them. We believe that the benefit to us under the new scheme, which we are discussing this morning, equates approximately to the previous change in the public sector borrowing requirement.

Mr. Andrew Smith: The cash flow effect that I asked the right hon. Gentleman to estimate was not the comparison between the situation in the 1992–93 base year and what 6 would have happened without the scheme, but the cash flow effect of uprating the base from 1991–92 to 1992–93 without changing the threshold—that must, by its nature, bring more businesses into the scheme and confer a cash flow benefit on the Government and a corresponding cash flow disbenefit on businesses.

Sir John Cope: I accept that. Whether to increase or change the threshold must be a matter of judgment year by year. No change was proposed in March this year, as the hon. Gentleman knows—we are implementing that Budget now. There has been some delay in the implementation, partly because of the Italian court case. I am happy to say that that does not, as it turns out, seem to affect our scheme. We shall keep the details of the scheme under review and I hope that the timetable next year will mean that we can deal with matters in a less unsatisfactorily compressed manner. Leaving the threshold where it is will bring in extra firms—our best estimate is approximately 300.

Question put:

The Committee divided:Ayes 10, Noes 2.

Question accordingly agreed to.

Resolved, That the Committee has considered the Value Added Tax (Payments on Account) Order (S.I., 1993, No. 2001).

Committee rose at sixteen minutes to Eleven o'clock.

AYES
Beith, Mr A. J. Lait, Mrs Jacqui
Cope, Sir John MacKay, Mr Andrew
Duncan, Mr Alan Mates, Mr Michael
Garel-Jones, Mr Tristan Rathbone, Mr Tim
Jackson, Mr Robert Thompson, Sir Donald
NOES
Barnes, Mr Harry Smith, Mr Andrew

THE FOLLOWING MEMBERS ATTENDED THE COMMITTEE:

Blackburn, Dr. John G. (Chairman)

Barnes, Mr Harry

Beith, Mr

Cope, Sir John

Duncan, Mr

Garel-Jones, Mr

Jackson, Mr Robert

Lait, Mrs

MacKay, Mr

Mates, Mr

Rathbone, Mr

Smith, Mr Andrew

Thompson, Sir Donald