HC Deb 24 June 1935 vol 303 cc892-914

(1) There shall be allowed from the duties payable on light hydrocarbon oils under Section two of the Finance Act, 1928, as amended by the Finance Act, 1931, and the Finance (No. 2) Act, 1931, a rebate at the rate of sevenpence per gallon on all light oils which are shown to the satisfaction of the Commissioners of Inland Revenue to have been used for any purpose other than as fuel for mechanically-propelled vehicles constructed or adapted for use on roads.

(2) This Section shall be deemed to have had effect as from the eighth day of August, nineteen hundred and thirty-five, and shall have effect notwithstanding the preference granted by the British Hydrocarbon Oils Production Act, 1934, to light hydrocarbon oils manufactured in the United Kingdom from coal, shale, or peat indigenous to the United Kingdom.—[Major Hills.]

Brought up, and read the First time.

7.35 p.m.

Major HILLS

I beg to move, "That the Clause be read a Second time."

If this Clause were carried, it would put the light oils in the same position in which the heavy oils are under the present Budget. Under this Budget, all heavy oils used industrially in Diesel engines, or in any engines that burn heavy oil, are given a rebate of 7d. a gallon off the Customs Duty. The Customs Duty is 8d. per gallon, and, therefore, heavy oils used industrially now bear a duty of 1d. per gallon. If my proposed new Clause were carried, it would put the light oils in the same position. I want first of all to mention to the Committee the industries that would benefit if this concession were made. It would benefit the paint, colour, and varnish industries, the painting and decorating trades, dyers and cleaners, boot and floor polish makers, and wallpaper makers. All of these industries are interested in two special sorts of hydrocarbon oils, namely, white spirit and turpentine. I will give in a, minute a description of the different sorts of light hydrocarbon oils. Other trades which are interested in industrial spirits are the chemical trades, the indiarubber trades, the seed crushers, and, lastly, the bone users.

There are four different grades of light oils to which this Clause would apply. In the first place, "light oils" are defined by the Finance Act, 1928, as having a flash point of less than 22.8 degrees Centigrade, that is to say, 73 degrees Fahrenheit. That means that at that temperature they give off an inflammable vapour. The first of these oils for which I ask the concession is the article known as white spirit. Its flash point is rather higher than that of petrol. Petrol has a very low flash point; that is to say, at a very low temperature it gives off an inflammable vapour. White spirit stands between petrol and paraffin, its flash point being 73 degrees Fahrenheit or over. It could possibly be used in an internal combustion engine, but it is not adapted for use in the ordinary motor car or lorry.

The second class of light oils to which the Clause would apply are the industrial spirits. These are of different qualities. Most of them are specially produced, and they are not similar to motor spirit, being easily identifiable. They are, however, oils of low flash point, and they could be used in the internal combustion engine. The third article is American turpentine, which is a different thing altogether. White spirit and industrial spirits are mineral oils, while American turpentine is a vegetable product with a high flash point of over 73 degrees Fahrenheit, and no one would think of using it in an internal combustion engine. The fourth class of article to which the Clause would apply is aviation spirit—the spirit that is used in aeroplanes. I do not plead specially for this, but it would come within the ambit of the Clause. As far as the Government Air Service is concerned, I take it that it is all one to the Government whether this spirit is taxed or not, for, if it is taxed, they gain more revenue to the extent of the taxation, while, if there is no tax, they get cheap petrol for the Air Service. I would point out, however, that the object of the Government is to encourage civil aviation, and a rebate of 7d. per gallon on aviation spirit would cost the comparatively small sum of £80,000 a year, which it might be worth the while of the Government to pay. This is especially the case because, as I shall show in a minute, all aviation spirit that is used on foreign flights outside this country is already exempt from duty.

I have stated the scope of the Clause; now a word about the cost. The cost is not light to the big trades of which I have been speaking, and which would receive a big benefit from the concession. The cost to the Exchequer would also be heavy. I am told that, if the Clause were carried, the cost in a full year would be £897,000, and during the present year, from the 8th August next until the 5th March, 1936, £578,000. Therefore, we are talking of a very substantial loss of revenue. The largest item would be white spirit, which would account for about £467,000, or more than half the total loss of revenue involved. The case that I want to make is shortly this: When the Petrol Duty was imposed in 1928, it was imposed for the purpose of financing de-rating. It was 4d. a gallon in 1928, it was raised to 8d. by the two Budgets of 1931, and it now stands at 8d., the figure of the Customs duty on light oils. I am going to contend that, since heavy oils used industrially and not on the roads are now given a rebate of 7d. per gallon, it is only fair, and it would be a good thing for the country and a great benefit to industry that light oils should be put in the same position. I know the arguments that will be used against me, and, with the permission of the Committee, I will just run through a few of them. The first thing that I shall be told is that, as this is a Customs duty, drawback is given on the export of the article, and no doubt that is true. If the article is exported intact, a drawback to the amount of the whole of the duty is given, but it is very cumbersome to get that drawback, and the drawback is not given when the identity of the article is lost. Take the case of the paint and varnish trade, which is a very big trade. If an article that contains paint or varnish is exported no rebate is given. As soon as the identity of the article is lost, no drawback is given. So much for that objection to the Clause.

The second objection is that when the tax was imposed in 1928 it was for the purpose of financing de-rating. It will be said that it was not intended to confine that tax to petrol used on roads; that it was not intended that that tax should be only a tax on locomotion. It will be said that it was to be a general tax upon the use of all spirit, light or heavy, and that it was imposed for the purpose of financing de-rating. A large part of that argument disappeared when the tax was increased, first of all, to 6d. a gallon, and then to 8d. a gallon in 1931. A large part was taken away then, but the whole basis of the tax was taken away when the heavy oils used for industrial purposes were given a rebate of 7d. a gallon, while the same heavy oils used on the roads still continues subject to the Customs Duty of 8d. a gallon. Surely the Chancellor of the Exchequer cannot now say that the tax was imposed for the purpose of de-rating, for the heavy oils were just as much taxed at that time for de-rating purposes, and yet for very obvious and good reasons the industrially used heavy oils are not subject to that tax. It is equally good for the country to help the industries concerned by a similar rebate of the Customs Duty on the light oils. So much for the first two objections to be raised against the Clause.

I come to a very important point. I have no doubt that the Chancellor of the Exchequer may think—and he may have grounds for thinking—that if he exempts certain light oils, it will be very hard to prevent those light oils being used in motor cars, therefore escaping an important and proper duty. I agree that unless I can show him that evasion will not take place, I cannot justify my Clause. I hope, however, that I can show him that evasion can be avoided. The same difficulty to exactly the same extent arises on the heavy oils. You have a totally different duty upon the heavy oil that is used on the roads from that upon heavy oil used in industry, and you have an elaborate scheme under the present Finance Act under which powers are taken to discriminate between the two. I submit with great force that if you can escape evasion in one case you can escape evasion in the other. I am convinced that the scientific experts at the Treasury can produce a scheme which would prevent evasion. I would point out that in 1928 the tax of 4d. a gallon extended to all light hydrocarbon oils and paraffin, and at once there was a great outcry that the paraffin tax affected the poor very heavily, and a strong claim was made for the remission of the tax. At first that seemed to be impossible, but when the scientific experts of the Treasury got to work, it was found that it was possible, and a formula was arrived at. Paraffin escaped the duty, and what was done for paraffin can be done for these light hydrocarbon oils. Hydrocarbon oils are all made by licensed refiners. They refine under licence, and I am told that they would assist the Treasury. Since they are licensed, it is an assistance for which the Treasury can ask and upon which, I believe, the Treasury should rely. Consumers would receive only under licence, and all consumers are willing to submit to any conditions. The supply would be under licence from the supplier, and the consumer could not receive his requirements except under licence.

May I pray in aid the case of industrial alcohol? Industrial alcohol is free from duty. The duty upon alcohol is something like 100 times the duty on light hydrocarbon oils. Is there evasion there? I do not believe that there is, and I believe that the same sort of thing could take place with regard to hydrocarbon oils. Germany, the United States and Ireland all tax petrol used in motor cars, and yet find it possible to exempt light hydrocarbon oils used in industry. I am told that discrimination and avoidance of evasion is easier in the case of heavy oils than in the case of light oils. Already you have a large degree of discrimination. Motor spirit for aeroplanes on foreign flights is free, and for aeroplanes on home flights is taxed 8d. a gallon. Is there evasion there or a fraud on the Revenue? There is a case where the same article is taxed at different rates, and yet I do not believe that there is any fraud on the Revenue. Fishing boats and coastal vessels get their oil free, and vessels that are ocean-going do not get it free. Is there evasion there? If there is not, if I can show that at present you can discriminate and can be sure that the oil which gets a rebate of Customs duty is not used wrongfully for other purposes, I think that I shall have made a great part of my case for the exemption of hydrocarbon oils.

I will end on two points. The British Hydrocarbon Oils Production Act, 1934, gave a preference of 4d. a gallon upon all oils made from coal, or shale or peat. At present, since there is no Customs duty on those articles and no Excise duty, those substances escape duties. They are absolutely free. I mention that for this reason. I do not want it to be said by the Chancellor of the Exchequer that I am asking for a Customs rebate which implies that the article that comes in is a foreign article and that thereby we shall be giving a cheaper article to the trade than can be produced at home. I do not indeed do that, because under this Clause the duty would remain at a 1d. a gallon on the foreign article. The home-produced article is free now, and there is also the assurance under that Act that, if ever a Customs duty is imposed, the preference on home-produced oils from coal, shale or peat shall never be less than 4d. a gallon. I am told that the home production can supply some products required, and I should like to think that it could, but it cannot produce the white spirit which the trade wants. It cannot produce it, for a very simple reason. No one yet has found any way of getting rid of the smell. Oil produced from coal, or shale or peat has a very strong smell, and that makes it quite impossible for distillation into white spirit, even if that were a commercial proposition. Turpentine, another of the substances for which I make a plea, is a vegetable oil. It is quite a different matter altogether from mineral oil and cannot be distilled from coal, or shale or peat.

I admit that to ask for a remission of something approaching nearly £900,000 a year is a very serious thing, but I do so because I believe that whatever is given in remission of taxation will go to the encouragement of trade. The Chancellor of the Exchequer has shown by his rebate of 7d. a gallon on heavy oils used in industry that he wants to help industry. I am certain that he does, but cannot he go a step further and help it here? I know that I am asking for a big thing, but the trade of the country is also a very big thing, and the Chancellor of the Exchequer has shown on many occasions that he does not merely regard himself as a collector of revenue, but that trade is very near to his heart. Here we have the case of industries which are severely hit. The drawback which is spoken about so much does not apply to the home trade. All the home-sold products have to pay the whole of the duty. The petrol tax was imposed to finance de-rating, but it has gone a long way beyond that. Even if it were possible to say that the tax was imposed not only on the users of motor cars but on industry, the effect of it on the trades for which I plead is far heavier. I am told that in the paint and varnish trade four times more is paid in this tax than is obtained in relief under de-rating. For these reasons, I plead very strongly on behalf of many hon. Members of this House who speak for many industries up and down the country, for the consideration of my Clause. If the Chancellor of the Exchequer cannot go the whole way, will he not go part of the way? Cannot he do something to help us? It is a very real demand which is felt in many parts of the country, and I hope that I have not pleaded in vain.

8.0 p.m.

Mr. HANNON

It is difficult to add anything to the comprehensive statement that my right hon. Friend has submitted, but I should like to summarise some of the leading industries which are affected by this tax. A whole series of enterprises, all affording considerable employment are interested in this proposal and, as the Chancellor of the Exchequer himself knows, and indeed has said in some of his speeches in the House, the demand for the removal of the taxe deserves sympathetic consideration in the interests of the industry. There are not fewer than 10 different branches of trade which are intimately concerned for their future progress and prosperity on the repeal of the tax. In making this appeal, my right hon. Friend and I are supported by the National Association of Paint, Colour and Varnish Manufacturers. It may be said that this branch of industry is at present in a fairly flourishing condition, but the point is how much more flourishing it would be if relieved of the incubus of this tax.

There is the National Federation of Painters and Decorators of England and Wales, who are considerable employers of labour, and the National Federation of Dyers and Cleaners. In the dying and cleaning industry the use of light oils is of considerable consequence to the success of their work. Then we have the Association of British Chemical Manufacturers, the Indian Rubber Manufacturers Association, the Boot and Floor Polish Manufacturers Association and the wallpaper manufacturers. I am sure the hon. and learned Gentleman opposite, who is always so interested in anything affecting the decorative side of political life, will at once appreciate the importance of some consideration for the Wallpaper Manufacturers Association. There are several other bodies, each in its respective way making a substantial contributions to the industrial life of the nation, which have joined in the plea to the Chancellor that this tax should undergo some modification.

In all the Debates that we have had in years gone by on this tax there were always two questions brought forward as to the difficulty of making any change. The first was the provision of machinery at the instance of the Treasury for the collection of the tax. Surely the Treasury has had in the past to adopt various devices for the collection of taxes and has never been found wanting, and in this case it ought to be able to make arrangements in favour of the industries that make this appeal. The second is the question of evasion. The Government have had considerable experience in dealing with evasion and full powers have been granted under this Bill which can be expanded to cover light oils. This is a case in which, if my right hon. Friend cannot go the whole way, he can at all events go some distance to meet the difficulties in which so many industries find themselves and give them some measure of relief. This is a practical proposal in the interest of industry to which the Chancellor has during his whole life given so much thought and constructive energy and purpose.

8.6 p.m.

Mr. ROSS TAYLOR

When my right hon. and gallant Friend the Member for Ripon (Major Hills) gave a list of the industries which would benefit if this Clause were accepted, there was one that he did not mention. My constituency is almost exclusively agricultural, but there is in it a factory which, with its complement in London, is the only one of its kind not only in this country but in the British Empire. It is run by the British Xylonite Company and in it xylonite, or celluloid, to call it by its more usual name, is manufactured. I believe it is the only factory in the Empire which makes celluloid from beginning to end. For the manufacture of celluloid camphor is a necessity. Camphor is also used for medicinal purposes, and, I believe, for religious rites in India. Camphor in commerce occurs in two kinds. First of all, there is natural camphor, which comes from a tree that grows in Japan and Formosa. That source of supply is the monopoly of the Japanese Government, and, owing to the very great increase in the manufacture of celluloid in Japan, that source of supply is diminishing very quickly, and Japan is a very serious competitor of the celluloid trade in this country.

The other kind of camphor is manufactured by a commercial process from oil of turpentine. It is commonly called synethic camphor, but I understand that the process is not synthesis and the adjective is not correct. This manufactured camphor was first produced in Germany in 1904. Its manufacture was tried in this country in 1910 and 1911 but was abandoned. After the War there was intensive research by the British Xylonite Company, and in 1926 they put up this factory. It cost them something like £100,000, and at that factory they make less than half the camphor that is required for their celluloid making purposes. Camphor can only be made commercially from oil of turpentine, which is a light hydrocarbon oil and is, therefore, subject to duty. That means that the cost of British camphor is increased by 10 per cent. The largest producer of this manufactured chemical is Germany, but it is also made in the United States and in Italy, and these three countries are the biggest manufacturers of celluloid. Oil of turpentine being subject, to a duty, these other countries have an advantage over the home producer, Japan because of her natural supply, and the United States, Germany and Italy because they have this supply of duty-free turpentine. If this Clause is accepted, this advantage will to a very great extent be removed, and the home producer will be placed in a position more or less of equality with his competitors. There is a special case for the Chancellor's consideration here. In the first place, the manufacture is unique. It is a very special process, and it employs a number of men. In the second place, there would be no administrative or practical difficulty in supervising and safeguarding the use of oil of turpentine in the manufacture of camphor. Alcohol is used duty free in industry, and it happens that in this factory where the camphor is manufactured they use industrial spirit, and the same people who supervise the use of that spirit could supervise the use of turpentine for the manufacture of camphor.

When we come to consider the question of the revenue involved, the argument for the reduction of the duty is much stronger. Of the total amount of revenue raised by the hydrocarbon oil duty in 1933, the amount contributed by oil of turpentine used for the making of camphor was only.008 per cent. That is in value something under £3,000, and, if the whole of the requirements of the British Empire were met in this country from duty-free oil of turpentine, the loss to the revenue would be somewhere in the neighbourhood of £10,000, which is, of course, a mere bagatelle compared with the revenue which the Treasury foregoes on alcohol supplied duty free to British manufacturers. At present it is cheaper for this company to buy camphor from Germany rather than manufacture it here, though it continues the process because it does not want to lose the use of the process. Without the duty on turpentine it could supply the whole of the requirements of camphor for the British Empire which would, of course, give additional employment and encourage a home industry. I hope the Chancellor will give this his favourable consideration.

8.13 p.m.

Sir HERBERT SAMUEL

If I detain the Committee for a few moments on this question, it is because in my constituency there is a, large manufacture of wallpaper, and also of paint and varnish. My constituents feel that they have a very real grievance in the matter, and it is because I share their view that the present taxation imposes undue hardship that I am pleading their cause to-day. The trades directly affected by this taxation of light oils used in industry employ from 400,000 to 500,000 people, so the question is one of considerable national importance. The tax is one upon a raw material of industry, and is, therefore, wrong in principle. There is no student of public finance but will agree that a State which imposes upon the raw materials of its industry a tax for revenue purposes is doing a foolish thing. Every writer on public finance would condemn any form of taxation on raw material, and, when there is a tax upon raw materials, the burden of proof lies on those who defend it rather than on those who attack and criticise it. This tax upon oil was largely imposed in order to provide revenue to meet the cost of the de-rating of industry, and it was represented, truly, that it was an immense advantage to British industry that manufacturers should no longer be subjected to a heavy burden of rates upon their premises. A tax upon raw materials is also a tax upon industrial processes. So far as the paint and varnish manufacturers are concerned, for every pound they get in advantage from the de-rating of theeir premises they lose £4 through the tax which they have to pay on oil. Consequently, every argument that may have been used in the case of this industry to justify and applaud the de-rating of industries is really an argument which would condemn the continuance of a tax which has a fourfold disadvantage for the sake of the advantage which they gained.

The matter can be summed up in a few words to make it perfectly clear to every hon. Member who has not familiarised himself closely with the facts of the case. Both light and heavy oils are used for transport and for industry. The two classes of oils are used for the two purposes. Heavy oil is taxed for transport 8d. a gallon, and will now be taxed for industry 1d. a gallon. Light oil is taxed for transport 8d. a gallon, and will now be taxed for industry also 8d. a gallon. That is the whole matter in a nutshell. Heavy oil in this Budget will for the first time be taxed only 1d. for industry and 8d. for transport, but light oil will still be paying 8d. for industry because it is paying 8d. for transport.

It is said that this is necessary in order to avoid evasion. I remember that for many years a controversy went on in this House and in the country with regard to the taxation of industrial alcohol. Our industries, especially the chemical industry, complained that they were prejudiced very greatly in their competition with the industries of Germany and other countries because alcohol was taxed for industrial purposes but not taxed in the competing countries. The late Lord Haldane took up the matter with great energy and again and again brought the matter before the House. We were always told that the concession could not be made because the taxation of alcohol was an important item of revenue, and that it was impossible to free industrial alcohol from taxation without running the risk of grave evasion. Therefore, year after year, this reform was refused on the advice of the experts of the Treasury and the Board of Inland Revenue. At last a Government came into office in which Lord Haldane took a, leading part. He used his influence as a Member of the Cabinet to secure the concession that industrial alcohol should be free from taxation. That was done, and it was found that the threatened evasion did not take place, and, so far as I know, no detriment has been caused to the revenue from alcohol used for drinking purposes through the freeing from taxation of industrial alcohol.

With regard to petrol, while it is taxed for industrial purposes in this country, I am informed—my information comes entirely from the trades concerned and there may be an answer—that in Germany, the United States, in Ireland and other countries exactly what we are pleading for is in fact done, and that while petrol is taxed as in this country if it is used for transport, it is not taxed when it is used for industry. Therefore, the difficulties of evasion have apparently been overcome in other countries. We well know that Britain is subject to extreme competition with industries all over the world, particularly by such countries as Germany and the United States, and we ask why our manufacturers should be handicapped in this way while competing manufacturers in other countries are not so handicapped. What is the reason? Can it be justified that British industry, fighting as it is almost for its life and fighting for the prosperity of this country in competition with all the countries of the world, should so far as these processes are concerned be subject to heavy taxation while their competitors are not so taxed? Although in the other countries petrol used for transport purposes is taxed it is found possible that for industrial purposes it need not be taxed. That is the clear case which we wish to place before the Committee and the Government. It seems to me to rest on incontrovertible argument, and I shall await with great interest the reply of the Chancellor of the Exchequer.

8.21 p.m.

Mr. CLEARY

I rise to say a few words on this subject primarily because it is a question of great concern to many firms in the city of Liverpool. The interests represented in the very long list read by the right hon. and gallant Member for Ripon (Major Hills) includes firms operating in depressed areas like Liverpool, who are endeavouring to carry on under adverse conditions. I have in mind the workpeople as well as the employers. The concession that is asked for would be an encouragement to the industries represented by those firms, and would be an incentive to them. Any morsel that can be thrown out by the Treasury to the depressed areas and to the firms who are remaining true to the northern parts of the country are to be welcomed by the Members of Parliament who come from those constituencies. Not only would this concession be a help to firms operating under such conditions but it would, I am informed, obviate what may happen, and that is a reducwhich depend more or less upon the tion of the very large establishments prosperity of these undertakings in the city of Liverpool and elsewhere. It is for these reasons, and not that I pose as an expert or as one who has any technical knowledge on this matter, that I support the plea for this concession. I support it on behalf of the interests in my own city and in my own constituency. I deem it to be my duty on behalf of those interests and in the interests of the thousands of workpeople affected to do anything that I can, even by merely rising to say a few words in this Debate.

8.23 p.m.

Miss GRAVES

Many facts have been put before the Committee which it would be unnecessary to repeat. May I add a few words from a particular angle. Last week, thanks perhaps to the most farsighted financial policy of this generation, the Chancellor of the Exchequer was able to hold out a helping hand for the development of transport in London. In regard to the matter that we are discussing to-night I suggest that the moment may have come for a similar helping hand to be held out. An industry in my constituency which is vitally concerned in the results of this discussion is that of paint and varnish. Perhaps I may be allowed to point out that the use of white spirit and turpentine in paint and varnish, as also certain distillates in the manufacture of rubber, is an essential without an alternative. No paint can be produced without white spirit and turpentine. Paint, as the Committee knows, consists of a pigment and an oil medium, usually linseed, but neither of these two can form paint for commercial purposes without the addition of what are known as thinners, and the thinners are white spirit and turpentine. No pot of paint or varnish can be sold without the addition of white spirit or of vegetable hydrocarbon oil of turpentine. In the case of the rubber industry certain distillates with a flash point below 73 degrees Fahrenheit are equally essential.

If the Chancellor of the Exchequer were able to hold out his hand at this juncture to the paint and varnish industry in the way suggested, and I speak also of the indiarubber industry, it would be an immense gain in regard to employment in the East End of London, where employment is very hard to come by. In venturing to point out that these light hydrocarbon oils are essential to the commercial products I have described, I hope that I may have sufficiently endorsed all that has been so well said by other hon. Members.

8.26 p.m.

Brigadier-General NATION

I desire to support the case presented by the right hon. and gallant Member for Ripon (Major Hills) and other hon. Members who have addressed the Committee. The constituency I represent is very interested in this duty on light hydrocarbon oils. Nearly all the industries which have been mentioned are found in my constituency. Last week I said a few words with regard to the new duty on soya beans in connection with the seed-crushing industry. There is much to be said on the seed-crushing industry considered in respect to the duty on light hydrocarbon oils. It is vitally affected; and, if the duty is maintained, and also that on soya beans, the inevitable result will be an increase in the price of cattle food in this country. I also want to deal with the varnish and paint industry. I have a number of factories in my constituency which are deeply connected with this industry. The amount of hydrocarbon oils which are distilled in this country from raw materials obtained from abroad is very large in a full year. The object of the Import Duties when they were first introduced was to support manufactures in this country and not to inflict hardship on those who obtain their raw materials from abroad. But this is a Revenue Duty on manufactured articles in this country.

I doubt whether the Chancellor of the Exchequer could mention any other manufactured articles in this country which are taxed to the same extent as white spirit. The actual cost of white spirit in this country is 6d. per gallon, and the duty on white spirit is 8d., more than double the value of the article. It is sometimes said why use white spirit; why not distil it? It has properties similar to those of white spirit. In the case of paint and varnish, I can assure hon. Members that white spirit has properties which the other has not, and that the other cannot be used as an alternative. White spirit has drying qualities which are specially required, and distilled spirit is no good for that purpose. When the duty was first introduced it was on account of the bad financial position of the country. Revenue had to be obtained from all possible sources. Fortunately, we are no longer in that position, thanks entirely to the efforts of the Chancellor of the Exchequer, and now when the country is definitely on a secure financial basis the time has come, I think, when this duty, which was then described as an iniquitous duty on industry, should be removed and some relief given in order to encourage one of the chief industries of this country, the seed-crushing industry. I hope that the Chancellor of the Exchequer before the Report stage will give some consideration to this matter. I give my wholehearted support to the suggestion that there should be some reduction on the duty.

8.31 p.m.

Mr. SIMMONDS

I desire to associate myself with my hon. Friends who have put this plea so forcibly to the Chancellor of the Exchequer. It would be presumptuous for me as a junior Member for the city of Birmingham to endeavour to tell the Chancellor anything of the needs of industry in his great city. But Birmingham is a microcosm of the industries of the whole country; almost every industry is represented there. Therefore, when he hears pleas from hon. Members representing constituencies from the four winds, I hope he will bear in mind that this plea can be put forward on behalf of the many industries in the city of Birmingham. I do not propose to proceed further on the general lines. I want to express my regret, like some of my hon. Friends, that it was not possible for the Chair to alight on another Amendment with reference particularly to the duty on light fuels for civil aircraft. The Chancellor of the Exchequer may possible feel that this is becoming a perennial plant, but at the moment Governments both here and elsewhere are giving more heed to the question of aircraft, civil and military, than ever before; and it may not, therefore, be a bad opportunity to put certain points before the right hon. Gentleman which may have escaped his notice.

In the past I have heard hon. Members chiefly complain that aircraft were paying this tax on petrol in order that the money might be used for the Road Fund. I understand that the Chancellor of the Exchequer knows no intimate connection between the Petrol Duty and the Road Fund. Although there may not be for accountancy purposes, yet there is a great and historical connection, but we are proposing entirely to drop that particular issue in our plea to-night. If it is necessary to have a precedent in this connection, there is obviously the prcedent of heavy oils. An aircraft flying with a Diesel engine pays a duty at the low rate of 1d. per gallon; an aircraft flying with petrol pays a duty at eight times that rate. If it be said that these duties are for certain services granted to aircraft operators or owners, that plea clearly fails because in one case the owner of the petrol-driven aircraft pays eight times that which the owner of the aircraft with the Diesel engine is required to pay. I do not think that the Government can in fairness to aviation and their responsibilities to the country burke this question. They can support or ignore or cripple civil aviation.

During the last few years this tax has been crippling civil aviation in this country. The Committee may like to know to what extent that has been true. I have obtained figures carefully worked out, which show that were the Chancellor to remove this tax on petrol for civil aircraft it would reduce the operational costs, that is the cost of fuel, oil and the maintenance of the engine and other parts of the aircraft, by no less than 25 per cent. That is a very extraordinary figure, and it does show that if the Government desire to encourage civil aviation for whatever purpose—I could suggest several reasons why they should support civil aviation—there surely is a very good reason. But actually history is repeating itself in this matter. I would like my right hon. Friend the Chancellor, who has recently paid heed to this very question in connection with the motor car, to bear this point in mind with regard to civil aircraft. We have lost, if we ever had, the market in high-powered cars to America. My right hon. Friend in his wisdom and with the applause of every Member of this Committee agreed to reduce the horse-power tax in order to encourage higher horse powers and permit us to compete more favourably in foreign markets.

Precisely the same thing is occurring in civil aviation. America, without this tax on petrol, with petrol at a low price, it putting more horse power into her civil aircraft than we have thought it wise or possible to do. An example of that is to be found in the famous Douglas and Boeing type of aircraft. The Americans have thus in production these high-speed aircraft, running with greater engines than our own, largely because in this country we are starving our aircraft for power on account of the economic conditions which reign. If it is serious to starve motor-cars for power, for political reasons, it is even more serious to starve the civil air liner, because aircraft can only operate in many parts of the world where the aerodromes are high above sea level, if they have a considerable margin of power. For that very reason British aircraft are not to-day competent to compete in many markets of the world, and as a result the orders inevitably go to America. It may be said that the Chancellor could not be expected to give a rebate to aircraft, that it would be difficult of collection. I myself do not think that that is true. But if he could not give us this concession directly could be not give it to us indirectly? Could he not encourage the Government, by means of some airways board or some other corporate body, to organise the airways of this country? At the moment they are completely lacking in organisation. They are equipped completely neither for day flying nor for night flying. It has been suggested by the London Chamber of Commerce, the Federation of British Industries and others that this might well be a way in which he could utilise this tax. I have heard the Chancellor say in previous years, when we have put our plea to him on this subject, that this is not the place to encourage civil aviation; but I would suggest that as this stage it is in every way the place to encourage civil aviation, which needs encouragement because it is the veritable cement of Empire in this age. It needs encouragement because—

The TEMPORARY CHAIRMAN, (Mr. G. Macdonald)

I have allowed the hon. Member every latitude, but I must now call him to order.

Mr. SIMMONDS

I bow to your Ruling, but you will well understand that after my disappointment at a certain oversight I may have stepped rather far to the side. But I do submit that this plea can fall in very well with the whole policy of the Government on the Service side to increase our Air Estimates in order that we may be in a better position to exercise our functions in the new world of collective security. If, therefore, the Chancellor can see his way clear to assist civil aircraft by reducing the tax on petrol, he will be doing a far-reaching thing both for this country and for the Empire.

8.43 p.m.

Mr. CHAMBERLAIN

Everyone who heard my right hon. Friend who moved this new Clause must have been grateful to him for the care which he had given to the preparation of his case, and for the very exhaustive and persuasive way in which he put it before the Committee. He went so far as to supply the arguments which might be adduced against his proposal. In fact, I am not sure that I can improve on them. He did not attempt to minimise the fact that the proposal he was making was one which would put a severe strain on my financial arrangements. I must say that when a case is put like that it does in advance make one feel inclined to bestow all the favourable consideration possible upon it, and, if on this occasion I am not able to accept my right hon. Friend's Clause, I hope to show him that it is for reasons which I think are overwhelming. I must begin by putting a minor point, but one to which I must call attention. In this new Clause there are two Sub-sections, and the second Sub-section says: and shall have effect notwithstanding the preference granted by the British Hydrocarbon Oils Production Act, 1934, to light hydrocarbon oils manufactured in the United Kingdom …. I must call the attention of the Committee to the circumstances in which that Act was passed. It may be remembered that very prolonged negotiations were carried on with firms who ultimately embarked upon the hydrogenation process for the production of oil from coal. They only entered upon that undertaking because of an undertaking given by the Government that for a period of 10 years the preference extended to the home-produced oil would be not less than 4d. a gallon. As there is no Excise duty, if you are going to reduce the Customs duty to one penny, obviously you are transgressing the undertaking that was given that the preference should not, for this period of time, be less than 4d. and although this was an undertaking given by the Government at the time only so far as a Government can bind its successors, it would be impossible obviously for the Government themselves to consent to what I think would be fairly represented as breach of faith. For that reason alone it would be impossible to accept the Clause.

Even if that were not so, there are other and substantial reasons why I should have great difficulty in accepting my right hon. Friend's proposal. He said very truly that the tax upon these light oils was not, in its inception, applicable to transport. It was a general tax. It was a tax upon light hydrocarbon oils as such and no doubt it was, in the first instance, imposed in order to finance the de-rating proposals of my right hon. Friend the Member for Epping (Mr. Churchill). My right hon. Friend said the basis of the tax had been destroyed when the tax was raised, by which, I presume, he means that it could not longer be said that this tax was purely for the purpose of meeting the cost of de-rating. I am quite ready to concede that point. On the other hand, the tax was raised because more revenue was required and this was considered to be the most convenient way of supplying that increased revenue by the Chancellor of the Exchequer at the time. To-day the petrol revenue which is in the neighbourhood of £40,000,000 is a very substantial buttress and one which it would be extremely dangerous to undermine or interfere with very seriously.

We have had proposals of this sort before us from time to time in the past, and it has always been the practice of the Chancellor of the Exchequer to resist such proposals on the ground that he could not consent, in principle, to exemption by use. That is, that where you have an article used for one purpose, which is indistinguishable from an article used for another purpose, you must not attempt to say that that article is to be taxable when used for the one purpose but not taxable when it is used for another purpose. I think that has been the principal argument used against proposals of this kind—the meaning of it being that when you attempt to make such a distinction and to say that an article is to be taxable or not taxable according to the way in which it is used, you are at once opening up a great temptation to people to say that they are going to use it for the purpose for which it is not taxable and then to use it for the purpose for which it is taxable. The question arises whether it is possible to devise machinery by which you can control evasion of this kind. The Customs Board have always held that it was not possible, or at any rate that they could not themselves devise any way of satisfactorily controlling evasion of that kind in the case of these light hydrocarbon oils. I think, on the whole, that argument is the one which has been accepted by the House of Commons in the past and which has induced them to refuse proposals of this kind even when those proposals have been moved so convincingly as my right hon. Friend moved this new Clause this afternoon.

A new argument has been given to my right hon. Friend by the fact that we have made a breach in this principle of not allowing exemption by use and that in fact in the case of the heavy oils we are going to make such a distinction. My right hon. Friend says, and in this he was supported by the right hon. Gentleman the Member for Darwen (Sir H. Samuel) and others, that it is inconsistent to have one argument in the case of the heavy oils and another in the case of the light oils and that the light oils should be placed in the same position as the heavy oils. On the face of it, that proposition does, I must say, sound plausible and even convincing, but the analogy is not as close as might at first sight appear to be the case. You cannot as a matter of fact put light oils in the same position as heavy oils for this simple reason, that in the case of the light oils 5 per cent. only is used for non-road purposes and 95 per cent. for road purposes whereas in the case of the heavy oils the position is almost exactly the reverse. In that case, 94 per cent. is used for non-road purposes and only 6 per cent. for road purposes.

I do not like this exemption by use in the case of heavy oils and if one could only find some way of defining heavy oils used for non-road purposes that would make them distinguishable from those used for road purposes, I should much prefer that to the arrangement which we have. Nevertheless it is a fact that you can concentrate your whole attention upon this very small proportion of the heavy oils which is going to be used for road purposes. It is only 6 per cent. of the whole and we do think that it is possible for us to keep effective control in regard to it. On the other hand, when you consider that of the light oils 95 per cent. is used on the roads it seems practically impossible so to exercise control over the enormous number of small car-owners and commercial users, who would have this temptation put in their way, as to be sure that there was no serious evasion of the tax. It is no use for the right hon. Gentleman the Member for Darwen to say that they do this in America or Germany. I have not information and he evidently has not information as to the results. We have no idea as to whether there is evasion in those countries. It may be that the amount of revenue there is trifling, compared with the revenue which we derive here. You cannot argue from one country to another without a great deal more detailed information than is in our possession.

As to the case of industrial alcohol which the right hon. Gentleman has also brought up in support of his contention, that all happened a very long time ago. I do not know whether my recollection is any better than the right hon. Gentleman's of the circumstances in which it was alleged that it was impossible to find a differential definition of alcohol used for industrial purposes and alcohol otherwise used. But I do know this, that the exemption which he ascribed to the fact that Lord Haldane who had been interested in the subject but had always met with opposition on the part of the authorities at last came into office and was in a position to exercise his opinion in favour of the alteration—I do know that the alteration took place four years before Lord Haldane came into office at all.

Sir H. SAMUEL

My recollection was wrong there, but Lord Haldane led the agitation for it.

Mr. CHAMBERLAIN

I do not think one can go back so long ago as to that precedent without a good deal more information than we have before us at the present time. These various oils, with one exception, are really all usable as motor fuel, as my right hon. Friend himself candidly admitted. They are therefore capable of use, and in fact some of them are now used, in combination with petrol in various kinds of fuel. The one exception is the case of turpentine, which was made the subject of a plea for special relief by my hon. Friend the Member for the Woodbridge Division (Mr. Ross Taylor). Turpentine is not capable of being used as a fuel, and to that extent therefore there would be less temptation in the case of turpentine than in the case of the other kinds of spirit; but it is to be remembered that turpentine is a competitor with white spirit, and it seems to me that it is extremely difficult to tax white spirit and not to tax turpentine.

We have had very sincere and earnest pleas on behalf of various industries which are said to be severely handicapped by the continuance of this tax. I have had the curiosity to look up and see what has happened to these unfortunate industries that are fighting for their lives, as the right hon. Member for Darwen said, against foreign competition, and it was with a sense of relief that I found that the 10 companies which I took which were engaged as manufacturers of paint and varnish last year, made £128,800 more profit than they did the year before, whilst the wallpaper manufacturers increased their profits last year as compared with the year before by 14 per cent.—14 per cent. in one year. That is not so very bad, and although I am sure these pleas are put forward in all good faith, I feel that, in view of those figures, we need not feel that the situation is desperate and that if they have to go even a little bit longer without the relief for which they are pleading, these companies may possibly still survive.

Question, "That the Clause be read a Second time," put, and negatived.