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laudable. A favourite way to explain undeclared income used to be to suggest that it arose, in the case of someone coming to this country to marry, from property brought in before the marriage. I notice that under the order such property would have to be declared. I want an assurance from my right hon. Friend that, under the parallel order--under the single market--there will be some way to check on what might otherwise be a false claim to explain otherwise unexplainable income.Thirdly, paragraph 16 of order No. 3193 deals with relief for scholastic equipment. I notice that students coming into this country are entitled to bring with them normal scholastic equipment, "including calculators or typewriters."
There is no relief for computers, although some students might be coming here to attend a course requiring their use. It would seem odd if they had to pay duty on second-hand computers with no great value when they do not have to pay duty if they bring in a separate calculator and typewriter. I should be grateful for reassurance from my right hon. Friend on that.
12.13 am
Mr. A. J. Beith (Berwick-upon-Tweed) : A fair amount of confusion will flow in the public mind from the orders. That is no fault of the Minister's, but he must be aware that he may have to take some steps to deal with it. Some of the confusion probably arises because, with all the publicity about the new arrangements for moving duty-free goods across frontiers within the Community, people have got used to the idea that they can buy large quantities of alcohol and other goods and have nothing to pay, so long as they are importing it for their own use.
However, people coming from outside the Community--as many people returning from holiday will be--are still subject to stringent restrictions. For example, even with the revalorisation, the allowance amounts to only £36 in respect of gifts. Officers at the ports will have quite a difficult time, at least initially, explaining to people coming from non- Community countries that they have grossly overestimated what they are allowed to bring in. There will also be a problem at some of the ports which have both Community and non-Community traffic. Take a port such as North Shields or Harwich, where the morning boat will come from Denmark and the evening boat from Sweden. I am not quite sure how Customs and Excise will manage the now very different requirements for staff in that situation, because the morning boat from Denmark will require only the sort of overview that customs officers will now take of people coming from a Community country, whereas the boat from Sweden will require the full application of all the provisions to which these orders refer, with the very strict limits that they include. Since one of the consequences of the changes has been a considerable transfer of staff to landward duties--with some argument about whether enough staff are available for those very different duties--I wonder how Customs and Excise will manage this very different pattern of operation at the ports, where some vessels will come from Community countries and some not.
Something else that people may not realise but which is underlined by the orders is the extraordinary range of exemptions and mystifying allowances which exist, like the allowance of up to £800 for a wedding present, or the fact that someone coming back as an official visitor--I am not
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sure how far that category extends beyond Ministers to other office-holders--can bring back without paying duty a gift from some oil sheikh who has very kindly bestowed it on him, as well as the scholastic items mentioned by the hon. Member for Bristol, North- West (Mr. Stern).A wide and mysterious range of exemptions already exists in our legislation and presumably will now be carried over into the new system, but I envisage considerable confusion. Confusion at the port of entry, when it gives rise to arguments with customs officers, can lead to frayed tempers in rather unhappy circumstances, not to mention considerable queues building up behind as other people wait to go through customs. I hope very much, therefore, that the Minister has these problems in mind.
12.16 am
Mr. Andrew F. Bennett (Denton and Reddish) : I raised on a point of order the question of the report from the Select Committee on Statutory Instruments, and the Minister conceded, perhaps a little grudgingly, that he was prepared to meet the point that the Committee had raised ; but he did not refer to the problem of the House having to scrutinise the order tonight, having only just had the report from Committee put before it. I accept that it is a very minor report, but I am concerned about the principle. It seems to me totally wrong that the Government should put an order down before scutiny by a Select Committee has taken place and before the Government can anticipate whether it will be an important or a minor report.
I simply ask the Minister to look at this problem. Repeatedly, the Chairman of the Committee, my hon. Friend the Member for Bradford, South (Mr. Cryer), other members of the Committee and I have argued that we should have the same Standing Orders in the House as in another place and that the Government should not be able even to put the order down until scrutiny by a Select Committee or a Joint Committee has taken place. If the Government are not prepared to accept that as a new Standing Order, however, it is incumbent on Ministers to try to ensure that instruments are brought forward by their Departments in a way which helps rather than hinders scrutiny by the House.
It is very odd that this set of orders came forward on, I think, 17 December, which makes it most difficult for the House to carry out its scrutiny. It seems to me that it was all done for the convenience of people in the Department, to get the order laid before Christmas, with no thought for the possibility of scrutiny by the House. I hope that the Minister will say that, in future, his Department at least will try to make sure that orders are not put down for debate in the House until scrutiny by a Select Committee has been completed. 12.19 am
Sir John Cope : As the hon. Member for Denton and Reddish (Mr. Bennett) said, the order was laid on 17 December. We would like to have laid it before the House earlier, but as he will probably know, negotiations on the single market continued until late last year, into December. That meant that we were unable to lay the order as early as we would wish. However, as soon as we could, we laid all the orders and others involving the single market, as we were anxious for them to be known about and in operation as soon as possible--on 1 January where possible.
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The issue that gave rise to the worries of the Joint Committee on Statutory Instruments is--as I said, and as the hon. Member for Denton and Reddish acknowledged--a small and highly technical point on legislative drafting, about which there is room for disagreement. Had it been a significant issue that went to the heart of the order, I would have hesitated to lay it before the House until the matter had been cleared up. However, I thought that it was a highly technical issue. If it turns out to be necessary for us to correct it, we shall do so. Obviously, I hope that it is not--it is an abstruse point. The right hon. Member for Berwick-upon-Tweed (Mr. Beith) spoke of the possibilities of confusion under the new arrangements. Any such major change is likely to cause problems for the public, and we have also had to carry out training for the customs officials and others to ensure that the new arrangements are understood. It will take some time for the public to take them on board.We have produced and, I think, sent to hon. Members, a small guide for travellers that has been widely distributed on aircraft and by travel agents. It assists people with the changes. It is intended for the ordinary reader and does not go into nearly as much detail as the order on matters such as what one can bring to the UK after marriage, which is not necessary in such a leaflet. If the right hon. Gentleman or anyone else finds the categories listed in the order mystifying, I can assure them that, I think without exception, they are the same as before. They are almost identical to the previous categories. Most of us do not have cause to use the provisions at any time in our lives, let alone regularly, and I do not think that the measures will cause too much difficulty.
The right hon. Gentleman and the hon. Member for Oxford, East (Mr. Smith) drew attention to the staffing considerations that will arise. The remarks of the hon. Member for Oxford, East went much further than the review, and I cannot confirm his figures off the cuff. Clearly, considerable differences have been required in the deployment of staff by customs. I can readily undertake to keep matters under the closest review, particularly in the early stages of the single market--indeed, we are already doing so. As I have told the House before, we are determined to ensure that smuggling, bootlegging and the resale of goods brought back without UK duty having been paid are pursued with the utmost vigour of the law by all the customs officers that it requires.
Mr. Andrew Smith : I welcome the right hon. Gentleman's commitment. Will he add to that an assurance that he will appoint additional customs and/or excise staff should it appear necessary in the light of that monitoring?
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Sir John Cope : Yes. The customs and the Government must determine how we define necessary, but we shall keep the position under review and see what we determine to be necessary in order to police such matters firmly. It is extremely important, particularly in the early stages, that we do our best to counter the opportunities for smuggling that might occur.
My hon. Friend the Member for Bristol, North-West (Mr. Stern) raised three points, starting with the definition of "normally resident" for the purposes of the order. He will find that paragraph 3 of the statutory instrument, No. 3193, to which he referred, sets out the rules for determining where a person is normally resident. They are not precisely the same as some in other parts of the taxing statutes, but those are the ones that apply in this case. My hon. Friend also asked about the bringing into this country of property on marriage by people coming from other countries within the EC. The order deals with people coming from outside the Community. People coming from within the Community can bring with them, not only on marriage but at any other time, any property on which the normal duty has been paid within the country from which it is brought.
Mr. Stern : The point that I was making concerned not so much the ability to bring in property as the laudable provision in the order that property should be declared on being brought in. There is some concern that within the EC no such declaration will be required.
Sir John Cope : That is true. As far as I am aware, no such declaration will be required, because we are in the process of getting rid of the fiscal frontiers, so that people can travel as freely as possible from one part of the EC to another.
My hon. Friend also asked about instruments usually used by students, particularly computers. If he looks, he will find that that part of the order refers to instruments normally used by students, including calculators and typewriters, but it does not exclude computers. If a computer is regarded as the sort usually used by a student, I believe that it will be covered, but I shall check that. If necessary, on that or on the other technical points that my hon. Friend raised, I shall write to him. He kindly gave me the opportunity to do so, but I hope that I have given him sufficient answers on the points.
Question put and agreed to.
Resolved,
That the Customs and Excise Duties (Personal Reliefs for Goods Permanently Imported) Order 1992 (S.I., 1992, No. 393), dated 16th December 1992, a copy of which was laid before this House on 17th December, be approved.
Resolved,
That the Customs Duty (Personal Reliefs) (Amendment) Order 1992 (S.I., 1992, No. 3192), dated 16th December 1992, a copy of which was laid before this House on 17th December, be approved.
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Value Added Tax
12.27 am
The Paymaster General (Sir John Cope) : I beg to move, That the Value Added Tax (Flat-rate Scheme for Farmers) (Designated Activities) Order 1992 (S.I., 1992, No. 3220), dated 16th December 1992, a copy of which was laid before this House on 17th December, be approved.
Mr. Deputy Speaker (Mr. Geoffrey Lofthouse) : I understand that with this it will be convenient to discuss at the same time the following motions :
That the Value Added Tax (Flat-rate Scheme for Farmers) (Percentage Addition) Order 1992 (S.I., 1992, No. 3221), dated 16th December 1992, a copy of which was laid before this House on 17th December, be approved.
That the Value Added Tax (Input Tax) Order 1992 (S.I., 1992, No. 3222), dated 16th December 1992, a copy of which was laid before this House on 17th December, be approved.
That the Value Added Tax (International Services and Transport) Order 1992 (S.I., 1992, No. 3223), dated 16th December 1992, a copy of which was laid before this House on 17th December, be approved.
Sir John Cope : The first two orders, No. 3220 and No. 3221, concern the flat rate scheme for farmers introduced in the Finance Act 1992. The first order specifies the agricultural activities that the scheme covers and the second order fixes the flat rate percentage at 4 per cent.
The House will have seen that the agricultural activities covered are wide- ranging and that the percentage is in the range that we forecast last summer and is calculated to compensate farmers overall for the VAT that they have spent on business purposes.
The third order, No. 3222, makes arrangements to continue into the single market the tax arrangements for blocking input tax deduction on business entertainment and motor cars and second-hand goods which are taxed only on the gross profit margin.
The order makes no substantive change in the arrangements. It may appear rather complex, because the opportunity has been taken to consolidate a series of existing orders, as well as making the changes necessary for the single market.
The last order, No. 3223, is about services, including transport. For exports to and imports from countries outside the European Community, there is no change--no VAT will be chargeable in such cases. For other services, there will be no charge to tax where, in future, the system provides for treating them outside the scope of United Kingdom VAT.
Input tax will still, subject to the usual rules, be recoverable if supplies would have been taxable if made wholly in the United Kingdom. If they would have been exempt, another order that is not before us--the Value Added Tax (Input Tax) (Special Provisions) Order 1992--provides for the recovery of input tax. Again, it is a slightly complex order but, without making major changes, it will help to implement the single European market.
12.32 am
Mr. Andrew Smith (Oxford, East) : The orders are fairly unobjectionable, but I have a few observations and questions. On the value added tax flat rate scheme for farmers, the Paymaster-General will be aware that we did not oppose the insertion of the scheme into last year's Finance Bill, and we acknowledge that its introduction as
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an option will be welcomed by those concerned with farming and related activities, who may derive some potential benefit from its provisions.The scheme is optional, and some farmers on the margin may get a headache calculating whether or not to join it, but at least they can choose what best suits them, given the nature of their business and customers, and the volume of paperwork in which they want to become involved.
The flat rate addition has been set at 4 per cent., which is at the lower end of the 3 to 6 per cent. band that the right hon. Gentleman indicated in our deliberations on last year's Finance Bill. The method of calculating that 4 per cent. and its selection remains something of a mystery. When the Paymaster-General replies, perhaps he can explain the basis of that calculation and reveal the outcome of his discussions with the European Commission.
The House should be told the Government's estimate of the scheme's costs to the Exchequer. I know that will depend in large part of the level of take- up, but it would be useful to know the assumptions used by Customs and Excise. It would be interesting to know also how many farmers have registered under the scheme so far and their response to it.
Can the Paymaster-General assure us that data relating to the scheme's operation will be comprehensively maintained, so that in future it will be known how many farmers fall within how many bands, in terms of the total amount they have levied under the scheme over the year? That will be especially relevant when the scheme is reviewed.
I should be grateful if the right hon. Gentleman will say how often the scheme and the rate will be reviewed. Article 25(3) of the sixth VAT directive states :
"Member States shall fix the flat-rate compensation percentages, where necessary, and shall notify the Commission further before applying them. Such percentages shall be based on macro-economic statistics for flat-rate farmers alone for the preceding three years."
Will the Government apply that by reviewing the percentage every year, with a rolling three years' macro-economic statistics, or by reviewing the rate every three years or some other interval? I shall be interested to know the Government's decision, as will flat rate farmers involved in the scheme.
My next point relates to the bloodstock industry. When the Minister of State, Treasury announced the introduction of such a scheme in October 1991, she explained that one of the Government's intentions was to help to put United Kingdom horse breeders on a more equal footing with the rest of the European industry. Since then, in correspondence with me, the Paymaster General has again pointed to the flat rate scheme as one of the measures taken by the Government to assist the bloodstock industry.
Yet it is clear from reaction in the industry, and in particular from the decision by Tattersalls to transfer this year's Houghton yearling sales to Fairyhouse in Ireland, that the introduction of the scheme as such falls far short of the industry's needs. In last week's debate on indirect taxation in relation to the European Communities (Amendment) Bill, I referred to what Tattersalls had said in a new release on 24 November last year :
"Additionally in the last few days an unexpected change has emerged from discussions with Customs and Excise. Previously we had been assured by HM Government that all
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horses coming to Newmarket from Ireland and France and being sold by UK Flat Rate Farmers would be sold free of all UK VAT"-- as Tattersalls had stated in a previous press release."Customs have now changed their previous interpretation so that all Yearlings, previously purchased with Irish or French VAT charged in either of these two countries, would have to be sold by Flat Rate Farmers with VAT in Newmarket or VAT would have to be charged on entry into the United Kingdom."
In his otherwise fairly comprehensive reply last week, the Paymaster General did not touch on that point. Will he tell us tonight whether Tattersalls was given the assurance that I have just quoted--that all horses from Ireland and France being sold by United Kingdom flat rate farmers would be sold free of all United Kingdom VAT--and whether Customs and Excise has changed that interpretation, so that even yearlings on which Irish or French VAT had previously been charged would have to be sold by flat rate farmers with a United Kingdom VAT charge, either at Newmarket or on entering the country? I hope that the right hon. Gentleman can make the position clear, because it seems that the flat rate scheme cannot meet the concerns expressed by the industry.
As I understand it, horses brought to the United Kingdom for sale which have previously been purchased in other member states, subject to VAT in those states--either by way of normal sale, or following dispatch, acquisition or distance selling arrangements--would be treated as acquisitions in the United Kingdom, and the flat rate farmer would be required to register for VAT in the United Kingdom once his acquisitions exceeded £36,000 in any one period of 12 months. Accordingly, virtually all the breeders at the important Houghton sale would not find it viable to sell as flat rate farmers. Another supposed potential benefit of the scheme was the option for United Kingdom vendors to deregister for VAT, and to become flat rate farmers themselves. That, too, is unlikely to prove an attractive proposition for bloodstock businesses : if they became flat rate farmers, they would lose the ability to recover input VAT on their expenses, and would have to finance an additional overhead. They would be better off staying registered, continuing to reclaim their input VAT and selling in Ireland or France, at the price of sending their horses to the sale rather than selling them here.
I appreciate that discussions with the industry are continuing, not least about the important question of allowing owners to register for VAT ; but I wish to emphasise that there is more than a little urgency in the present position. People in the industry, and those whose livelihood depends on it, are understandably concerned. I should be grateful if the Paymaster General would tell us when he expects to present new proposals.
I understand that the practical effect of the Value Added Tax (Input Tax) Order 1992 is essentially to change the application of the exclusions of input tax from being reclaimed on the goods listed by the Paymaster General at the point of importation to being reclaimed at the point of acquisition in the case of goods from other member states. I should be grateful if the Paymaster General could confirm that my understanding is correct and that no significant change is being made which does not result directly from the operation of the single market.
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I understand that the changes made under the Value Added Tax (International Services and Transport) Order 1992, cover transport and associated services and result essentially from the application of the place of supply rules under the sixth VAT directive, so that activities are counted for tax purposes as happening, as far as possible, in the state or place where they in fact occur. However, there is a complication, in that, where the customer of a transport or ancillary service is registered for VAT in the same member state as the transport provider, VAT is charged and deducted under normal procedures, but where the customer is not registered in the same member state, VAT is not charged but is treated as reverse supply on the customer's VAT return, so that it appears there as both input and output tax. What is more, if the transport provider serves a customer who is not registered for VAT, he must charge and account for the VAT in the member state from which the goods departed. That may or may not be more straightforward in practice than it sounds in theory, but it seems bureaucratic nonsense in what is supposed to be a simpler VAT regime for trade within the single market to have essentially two systems of VAT operating alongside each other.There is particular room for confusion where the destination of cargoes is switched en route or where the customer for part of the consignment is registered for VAT in the same member state as the carrier and the customer for the rest of the consignment is not. I should be grateful for the Paymaster General's comments. Would it not have been simpler to stick to a zero-rating system, at least for as long as the present transitional destination system for VAT lasts, as I envisage complications arising from the operation by business of the terms of that order?
We do not oppose the orders, but it is important that the House receives answers to the questions that I have asked.
12.42 am
Mr. James Paice (Cambridgeshire, South-East) : I shall not detain the House for long, but I want to take up the points raised by the hon. Member for Oxford, East (Mr. Smith) about the bloodstock industry, which, as the House may know, is very dear to my heart. The hon. Gentleman is right to say that the flat rate scheme was heralded as the salvation of the bloodstock industry, given the widely varying rates of value added tax which would face the industry after the advent of the single market. In fact, they existed before then, but their significance was greatly enhanced by the introduction of the single market at the beginning of January.
The flat rate scheme will not work, partly because of the confusion over the status of horses sent in from Ireland and France, as the hon. Gentleman outlined. It also will not work because the fundamental requirement of getting back one's input tax is that one charges the 4 per cent. flat rate- -the rate that has now been decided--to the purchaser of one's horse, if he or she is registered for VAT. Of course, we know that the vast majority of purchasers are not registered for VAT. Putting one's horse into the auction ring at Tattersalls is quite a lottery--one does not know whether the successful bidder will be registered. Therefore, the scheme was not the salvation for which we had wished.
Registration is now the most important issue facing the Government. I realise that the hon. Gentleman might not
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have caught up with the written answer given today by my right hon. Friend the Chancellor to a question tabled by the right hon. Member for Manchester, Wythenshawe (Mr. Morris). The question dealt with registration. The answer stated :"Customs and Excise has drawn up a technical memorandum of understanding to be agreed with the industry as soon as possible." I welcome that step forward. It moves forward my proposition that racehorse owners should be able to register for VAT. I raised that proposition on 19 October when I initiated an Adjournment debate on the subject. I still believe that there is no reason why all racehorse owners should not be able to register under the sixth VAT directive. I know that the Government are not prepared to accept that position.
We must remember that we are trying to get round the problem of the differentials in VAT. The solution which we come up with must nullify that effect. As today's written answer suggests, it is clear that a solution which helps only some owners--we do not know the definition or proportion of "some"--is unlikely to solve the overall problem. Unless the vast majority of owners are able to go to Tattersalls and buy a horse without being concerned about the implications of VAT, they will not buy. If they do not buy, Tattersalls will have its principal sales at Fairyhouse and vendors will want to sell in Fairyhouse or at Deauville in France.
We must have a system of registration which deals with the vast majority of racehorse owners. I should like a system which covers all racehorse owners. The fundamental problem is that we need a system which is designed to help the industry and which is not so hedged with restrictions and criteria for registration that it rules out the vast majority. I fear that we may find that that is the case under the memorandum. I have not yet seen the memorandum, so I cannot comment in detail on it.
Our system contrasts with the position in Europe. France has a system of restriction on registration, but the effect of it is that almost all owners can register. The restriction may be couched in words which are a double entendre, but the vast majority can register. I hope that my right hon. Friend will address those points.
We must ensure that the blodstock industry, which is pre-eminent in the United Kingdom, can compete with the rest of Europe, continue to have a sound basis in its stud farms and sell its stock at Newmarket and Doncaster. If the industry starts to consign abroad, the studs will soon follow. We know that that is beginning to happen, and the trend will accelerate dramatically.
The VAT order is the first bite at the cherry. The flat rate scheme is the first bite which the Government took. My right hon. Friend's initiative of distance selling--great credit must go to him for it--was the second bite at the cherry, and registration was the third bite. We cannot expect a fourth bite. We must get it right this time. The two earlier bites failed to solve the problem. I hope that we will succeed this time.
We should avoid a bureaucratic approach that so constrains registration that the vast majority are ineligible or feel that it is simply impossible to register because of bureaucratic nonsense. I hope that my right hon. Friend will ensure that the technical memorandum of understanding which is referred to in the written answer given only this afternoon provides ample opportunity for almost all racehorse owners in the United Kingdom to register for
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VAT. If it does not happen that way, the memorandum will not have the effect that we all want, which is to offset the differential that so besets our industry.I am grateful that a few of my hon. Friends have come into the House after seeing my name on the screen. I am surprised that most of them did not go home. It demonstrates the significant concern on both sides of the House about this vital issue.
12.54 am
Mr. Paul Tyler (North Cornwall) : I am grateful for the opportunity to speak briefly in this important debate.
The Paymaster General will recall that my colleagues and I warmly welcomed the introduction of the flat rate scheme for farmers. We continue to do so, not just because we believe that it may be helpful in particular cases. In that respect, I endorse wholeheartedly the comments made by the hon. Member for Cambridgeshire, South-East (Mr. Paice), whom we should really call the hon. Member for Newmarket. Hon. Members on both sides of the House are concerned about the bloodstock industry, and we hope that the Paymaster General will find a way to meet the proper anxieties that have been expressed. The flat rate scheme was introduced partly because the industry felt that it could be helped significantly by the removal of the piles of paper that seem inevitably to be generated by the normal VAT scheme. The scheme was introduced to try to educe the bureaucracy. I know that the industry has been widely consulted and is very enthusiastic about the scheme, but I want to express one or two misgivings about the way in which it has been presented to us. We know that schemes are available to farmers in all the member countries of the Community except Denmark, so we are taking a step forward in terms of harmonisation. It is, however, important to learn the lessons of the other member states. The critical issue with any exemption is to ensure that it is so easy to claim that there is an effective take-up. Without an effective take-up, there is not much point in trying to produce a scheme in the first place.
That brings me to the critical question of the selection of 4 per cent. As the Paymaster General will recall, there was much discussion, in the House and outside it, about that figure. During our debates in the Committee that considered the Finance Bill, it was suggested that the figure would be in the band 3 per cent. to 6 per cent. Clearly it is within that band. It is important, however, that the Paymaster General should tell us where that precise figure has come from. Has it been plucked out of the air? Is it a firm figure on the basis of which we can be clear that enough farmers will take up the scheme to make it really worthwhile and of real help?
It is by no means certain at this stage that there will be an effective take-up. The National Farmers Union and other organisations in the industry have no notion whether 4 per cent. is the figure at which the measure should be pitched, and so far there is nothing to suggest that the Government have undertaken a survey to establish whether there will be an effective take-up.
How will the scheme be reviewed? What mechanism will be used to monitor take-up and to try to ensure that, over the years of its operation, the scheme operates at optimum level so that we effectively produce for the farming industry a real concession with real take-up and real impact?
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I am sure that the Paymaster General will be able to answer those questions and satisfy me on those points. In the meantime, I know that the agricultural community will welcome the scheme.12.53 pm
Mr. Geoffrey Clifton-Brown (Cirencester and Tewkesbury) : My first question relates to statutory instrument No. 3220--the designated activities order. Can my right hon. Friend the Paymaster General confirm what he said in his reply to me regarding my constituent, Mrs. Anne Jenks-- that the flat rate scheme will apply to stud farming? Paragraph 1 of part I of the schedule refers to "General agriculture, including viticulture." Can my hon. Friend confirm that that description and the reference to "general stock farming" in part II of the schedule include stud farming, as he told me in his letter about my constituent?
I echo the words of my hon. Friend the Member for Cambridgeshire, South- East (Mr. Paice). Although in principle the scheme is welcome to one or two very small horse owners, it is so limited in scope that it is totally inadequate. It seems to me absolutely crazy that horse owners can send their horses over to the Republic of Ireland or France, sell them and bring them back again and so avoid paying VAT. The southern Irish and French Governments help their industries to a considerable extent by having a rate of VAT significantly lower than ours.
I am sure that it is not beyond the wit of my right hon. Friend's civil servants to find a way round this problem so that this industry, which has been pre-eminent here since the 17th century, may retain its position. Otherwise, the studs and the rest of the business will simply go to southern Ireland and France. I cannot see in European law any reason why owners should not be allowed to register for VAT in the same way as any other trade and thereby be enabled to reclaim all the input taxes. Of course, output taxes would also have to be taken into account.
I urge the Paymaster General to consider these points carefully. Otherwise, this industry will just disintegrate, to the country's great detriment.
12.55 am
Sir John Cope : I should like to deal first with what the hon. Member for Oxford, East (Mr. Smith) said about matters unrelated to the flat rate farming scheme. The hon. Gentleman asked whether I could confirm that there is no change that does not arise from the single market. I can. Indeed, I believe that in my opening remarks I said something along those lines.
On the question of transport--services and so on--everything is related to the place-of-supply rules. The matter is very complicated, and, while I hesitate, after a single hearing, to confirm the hon. Gentleman's summary. I can say that it sounded broadly correct. The hon. Gentleman drew attention to the difficulty arising from individual countries having different VAT schemes and from travel between countries. As he said, it would be simpler if every member state were prepared to zero-rate all transport and other related services. However, we come back to the question whether it is desirable to have identical VAT systems in all countries. No doubt that idea appeals to the tidy-minded, but this country and the
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other countries in the Community have expressed the view that the finance Minister of each state should enjoy flexibility. Matters are, of course, discussed, and there are many agreements. Indeed, these orders take account of harmonisation agreements. Nevertheless, we retain the right to flexibility. While that leads to some complications, it is right in principle.Most hon. Members have referred to the flat rate scheme for farmers and to related matters--in particular, registration in the context of horses, especially racehorses. I was asked how the 4 per cent. had been arrived at. The VAT-carrying goods and services purchased by farmers have been examined, and it is estimated that the figure that has come out will give back to the farmers who choose to become flat rate payers the VAT that they spent on business purchases--what, in ordinary circumstances, would be the input tax. As this is a brand-new scheme, we have had to do much estimating.
I was asked when the rate of 4 per cent. would be reviewed. It should not be necessary to review it annually. As the hon. Member for Oxford, East said, when we are in a position to do so we shall have to consider how the scheme has worked out over a period of three years and whether it is working in the way I set out. I hope that we shall not need to alter it frequently, though we shall have to monitor the scheme in the early years. The figure will not rise and fall with inflation, and it is dependent on the working of the parameters over the years. I hope that 4 per cent. will prove to be a stable figure.
Not many farmers have so far registered for the scheme. As hon. Members have pointed out, it is desirable that registration should be optional. Indeed, that is an important feature of the scheme.
Mr. Andrew Smith : How many is "not many"?
Sir John Cope : I cannot give the figure offhand. I will find out. It has not been very high so far.
It has been suggested that I thought, or some people thought, that the flat rate scheme was, by itself, the solution to the problems of VAT and the horse racing industry. I cannot recall claiming that or others making such a claim. When the present Secretary of State for Employment was doing my job, there was not much enthusiasm for the scheme. By the time I took over, a certain amount of enthusiasm for it had built up.
It was not announced in the Budget, but it was introduced in the Finance Bill last year at the request of people involved in the horseracing industry, particularly on the sales side. I recall pointing out at the time that part of the exercise was to reassure Irish flat rate farmers--breeders and so on--who seemed remarkably reluctant to register for VAT in the conventional manner, that they could make use of such a scheme if they came here.
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