Lord Forsyth of Drumlean is a former Secretary of State for Scotland. Speaking in the House of Lords yesterday, he asked the Government about the taxation of small businesses:
Whether their proposals to help small businesses maintain employment will include retaining after 1 April 2009 the staff hire concession, which prevents value-added tax being charged on the wages of agency workers.
Lord Davies of Oldham: My Lords, this year’s Budget announced the withdrawal of that administrative VAT concession from 1 April 2009. It was introduced as a temporary measure in April 1997 to correct a distortion of competition that no longer exists, and there is no basis in law for its retention. From April, normal VAT rules will apply to temporary staff suppliers. Most businesses will be unaffected as they can recover in full any VAT they are charged when hiring staff.
Lord Forsyth of Drumlean: My Lords, I thank the Minister for that very disappointing response. What does the Government’s rhetoric about helping small businesses and businesses to maintain employment in a recession mean if they plan to impose from 1 April next year a tax of 17.5 per cent on the wages of temporary workers? The Minister says that it will not affect many businesses but does he not realise that part-exempt businesses, which include financial services, charities, social care, education and social housing, will not be able to recover the VAT? I understand that even the Government think it will result in an extra £125 million being imposed on the costs of employing people. Should not the Government put their rhetoric into action and continue this concession, given the recession that we are about to face, which they have played such a part in creating?
Lord Davies of Oldham: My Lords, the Government will be translating rhetoric into action in the Pre-Budget Report on Monday. I hope at that stage that the Opposition’s rhetoric extends beyond the interests that
involve about 30,000 equivalent full-time workers when the country is facing difficulties for a very large number of the employed population. The noble Lord must recognise the magnitude of the issue we face; the Opposition—he is a significant figure in them—appear to be concentrating on an administrative concession that was granted by that Administration in 1997 on a temporary basis and which was declared in 2005 to be outside the law. Over the past three years, we have consulted and indicated that we intend to comply with the law. I hope the Opposition applaud that position."
It was disingenuous of Lord Davies to accuse Lord Forsyth and the Opposition of being obsessed about a minor detail. Asking a specific question at a specific time is not an indication that the questioner only cares about that subject. Labour have made a nasty habit of this kind of tactic throughout their time in office.
Lord Cope of Berkeley raised a thorny issue in the House of Lords yesterday:
Lord Davies of Oldham: My Lords, the Government generally support member states having the flexibility that would be allowed by the legislative proposal regarding reduced VAT rates adopted by the European Commission in July, including the elements to which the noble Lord refers.
Lord Cope of Berkeley: My Lords, I am grateful to the noble Lord for that reply, particularly as the noble Lord, Lord Mandelson, dodged the question the other day. Does he agree that the only reason why the anomaly of a zero rate on new buildings and 17.5 per cent on repairs has gone on for so long is the European directive governing VAT? Will the Government press very hard the few nations that object to a change, particularly Germany, to try to ensure that the Chancellor of the Exchequer has the opportunity to make such a change now that targeted tax cuts are back on the agenda?
Lord Davies of Oldham: My Lords, I am sorry that the noble Lord made that slighting remark about my noble friend Lord Mandelson, who was merely reflecting that the issue is not yet decided in Europe. Before making a judgment, Britain must await the normal budgetary process, which is the responsibility of the Treasury and not of the Department for Business, Enterprise and Regulatory Reform. On the noble Lord’s more general point, I have indicated that the Government are in favour of the changes proposed by the Commission. He is right that a number of countries are still to be persuaded, but we have considerable hopes of making progress on that and of the directive being passed shortly."
This debate has been raging for many years. It does seem to retard the cause of keeping our fine and old buildings in good repair to levy VAT. Does anyone have any good arguments in favour of the status quo?
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