VAT: women’s sanitary products

Part of Finance Bill – in a Public Bill Committee am 12:00 pm ar 7 Gorffennaf 2016.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of David Gauke David Gauke The Financial Secretary to the Treasury 12:00, 7 Gorffennaf 2016

Clause 115 makes provision to ensure that women’s sanitary products will be zero-rated for VAT as soon as possible after the Finance Bill receives Royal Assent. Introducing a zero rate of VAT on sanitary products has been an issue raised and supported by hon. Members from all parties in the House. The Government have listened to their views, and we accept the argument put forward by many hon. Members that we should not apply VAT, even at the current 5% reduced rate, to these products.

We have been active in pursuing this change in the European Union. In the autumn statement in 2015, the Chancellor announced that while the UK sought to change the rules for the application of VAT zero rates with the EU, £15 million a year—an amount equivalent to the revenue accrued from VAT on these products—would be spent on supporting women’s charities. So far, this fund has supported 25 charities that are making a significant impact on the lives of women and girls in the United Kingdom.

The Chancellor announced in the autumn statement that initial donations from the tampon tax fund, totalling £5 million, would support the Eve Appeal, Safelives, Women’s Aid, and the Haven. Further grants totalling £12 million were announced at the Budget this year to support a range of charities. This included £5.2 million allocated to Comic Relief and Rosa to disburse over the coming year to a range of grassroots women’s organisations across the UK.

The Prime Minister took this issue to the European Council in March and secured the agreement of all EU Heads of State, who welcomed Commission action in this area, including giving member states the option of zero-rating sanitary products. In May, ECOFIN unanimously agreed that the Commission should bring forward proposals as soon as possible to allow member states to apply a zero rate to women’s sanitary products. The next step in the process is for a proposal to be published by the Commission, which it has committed to do before the end of this year. We are working with the Commission to expedite that process, so that the proposal is brought forward as soon as possible. To ensure that there is no delay in zero-rating women’s sanitary products for VAT at the earliest opportunity, we have included this clause in this year’s Bill.

Let me turn to amendments 1 and 2, the case for which was argued today by the hon. Member for Aberdeen North. She proposes that the provisions in the clause be extended to pads used to absorb breast milk and other products. The Government have taken decisive action to gain agreement across the EU on bringing forward a proposal on VAT on sanitary products, but it needs to be remembered that VAT applies to the vast majority of purchases of goods and supplies, including everyday items such as toilet paper, and it makes a significant contribution to the public finances. Extending the relief in the way that the amendment proposes is not possible under any feasible proposal from the Commission. Seeking to extend the scope of any new zero rate would introduce further complications to what are already delicate and complex discussions with the European Commission.

Our fundamental aim must be to ensure that we can apply a zero rate of VAT to sanitary products. Seeking to widen the scope at this point could compromise our capacity to deliver on what we have promised. I think all sides of the House would agree that while we remain a member of the European Union—of course, that will change in future—we have to comply with European Union law. We are making good progress when it comes to women’s sanitary products, but trying to extend the scope at this point would, I fear, jeopardise that progress.

That brings me to amendment 5. As I have stated, we are supportive of the introduction of a zero rate for sanitary products and would like to see that as soon as possible, which is why we have legislated for it in clause 115. We have been working hard to ensure that the Commission agrees that member states should be able to apply a zero rate to sanitary products if they wish, and we want that proposal published as soon as possible. The Prime Minister secured agreement in the March European Council conclusions with leaders of all member states that the VAT action plan would signal an intention to allow member states to apply a zero rate to women’s sanitary products. The action plan published on 7 April did not include any proposals but set out options for future discussion.

The Commission has yet to publish its legislative proposal on sanitary products. I wrote to European Commissioner Pierre Moscovici in May, seeking the early publication of a proposal that would set a date for introduction. He confirmed that a proposal would definitely be provided before the end of the year. Discussions continue between ourselves and our EU partners to ensure that a proposal is published as soon as possible, and we are confident about those assurances. Although the clause provides the power, I understand the concern to ensure that we have an end date. I am optimistic that we will have the measure in place by 1 April 2017; I am happy to put that on the record.

There is no disagreement between the Government and the Opposition on this issue. We all recognise that the UK remains bound by European obligations. We will pursue introducing a zero rating as soon as possible. Had the UK voted to remain in, I think our influence in these discussions might well have meant that we could have brought in the measure much earlier than 1 April, but we are where we are.

I note that the hon. Member for Salford and Eccles does not propose to press her amendment but may well come back to the issue on Report. By then, there may be further developments. Let me be clear that the Government have an open mind as to whether we would accept the amendment on Report, when we hope to have greater clarity. We are confident that by 1 April there should be no reason why the measure is not in place. It is possible that the Government will come forward with our own amendment, but we may well simply accept amendment 5.

I hope that I have provided some reassurance that we do not wish to kick this issue into the long grass. We think that the negotiations are leading to a satisfactory conclusion, and we do not wish to complicate the process. That is why I urge the hon. Member for Aberdeen North not to press amendments 1 and 2, but if she does, I urge hon. Members to reject them. We are, of course, sympathetic to the arguments she made. In the light of the new situation, a future Government may wish to return to this issue.

On the point raised by the hon. Member for Salford and Eccles about support for charities, I have explained the circumstances in which we introduced the £15 million fund when we were not in a position, legally, to introduce a zero rate. The Chancellor committed to that fund continuing for the duration of this Parliament, or until we could introduce a zero rate for women’s sanitary products. We are in sight of introducing a zero rate for women’s sanitary products. Once the measure is introduced, the Chancellor will decide whether to continue funding women’s charities in that way.

I cannot provide any more clarity than that, as the decision will have to be made in the future. I hope that is helpful to the Committee. The differences between the various parties are not particularly significant. I think that there is an acceptance that we want to introduce a zero rate for sanitary products and that we need to do so in a way that is compliant with EU law. There is every prospect that we can do both things by 1 April next year. I hope that clause 115 will stand part of the Bill.