NEW CLAUSE.—(Amendment as to registration in relation to Purchase Tax.) (Hansard, 18 June 1941)

§ Mr. Riley (Dewsbury)
I beg to move, "That the Clause be read a Second time."
The purpose of this new Clause is to remove an anomaly which has developed since the Purchase Tax was introduced which was probably not anticipated when it was put on the Statute Book. The anomaly is that in certain circumstances Purchase Tax is charged twice upon the same article. It will not be denied, I think, that that is an anomaly; it will not be contended that it was the intention of Parliament that Purchase Tax should be charged twice over. It is in these circumstances that the anomaly arises. The provisions as to the Purchase Tax provide that a wholesaler who buys goods from a manufacturer and sells them to retailers shall be entitled, if his business exceeds £2,000 a year, to be registered as a wholesaler and to acquire his goods from the manufacturer free of tax. It is also provided that if a trader is doing business part of which is wholesale business and the other part retail, or if his business is entirely wholesale but does not reach £2,000 a year, then he is not entitled to be registered as a wholesale dealer, and when he buys goods from the makers he must pay Purchase Tax on them. As he is not a registered wholesaler, however, when he sells those commodities to another wholesaler he cannot recover the tax which he has paid providing that the wholesaler to whom he sells does a trade exceeding £2,000 a year and is therefore entitled to be registered. The second wholesaler is, however, under obligation to charge the tax to the retailer, and thus the circumstances arise under which tax is charged twice upon the same article. To show that there is no doubt about it I will read an extract from a letter from 714 the Secretary's office at the Custom House. It says: Under the provisions of Section 25, subsection (1) of the Finance Act, 1940, manufacturers and wholesale merchants whose gross takings from the sales of chargeable goods have not on the average exceeded £2,000 Per annum are precluded from registration, and as your client's turnover falls far short of the statutory figure registration has accordingly to be refused. If he purchases the substance called ' liquid fire ' from a registered manufacturer he will consequently be required to buy it at a tax inclusive price. Where he sells to unregistered persons no further tax as a wholesaler will accrue, but where he sells to registered persons such persons will be accountable for tax again when they resell the goods. It is therefore perfectly clear that under those circumstances Purchase Tax is charged twice on the same article. That cannot be disputed, and my point is that that is clearly a departure from the intention of Parliament. It cannot have been intended that a consumer should have to pay the double tax in the way I have described. My Clause is designed to remove that anomaly by providing that the fact that his trade as a wholesale merchant does not on the average exceed £2,000 a year shall not debar an applicant from being registered as a wholesale merchant if he satisfies the Commissioners that he is carrying on in the United Kingdom a business of selling goods not of his own manufacture to
(a) persons buying such goods for the purpose of selling them again; or (b) persons selling such goods as materials in the manufacture of other goods. In other words this Amendment seeks to place the wholesale trader whose business does not reach £2,000 a year on exactly the same footing as the wholesaler who is entitled to be registered because his trade exceeds£2,000. I submit that it is a reasonable Clause, securing equality among all classes of traders, and I hope that the Chancellor will see his way to accept it. In any case if the Government cannot accept the removal of the £2,000 limit may I suggest that it should be reduced to £1,000, which I think would be regarded as a suitable sum?

§ Captain Crookshank
The hon. Member for Dewsbury (Mr. Riley) has put his case clearly, and it is a good thing that the Committee should consider it, because it shows that we are prepared to consider big things as well as small things, for 715 while the hardship on individuals may be quite considerable, it is a very minute section of the community which is affected by the Purchase Tax and only a very small proportion of the manufacturers. But that is all the more reason why the position should be brought to our notice. The Committee will know that the £2,000 limit for the registration of manufacturers was not only called in question in the original Debates upon the Purchase Tax but that it has since then been the subject of considerable discussion. My right hon. Friend the Chancellor has received deputations on the subject, as I have, and the whole question whether £2,000 shall be the limit or whether it shall be reduced is now under the consideration of my right hon. Friend. I think the hon. Member would be the first to agree that this consideration is intimately bound up with that particular aspect of the problem.
The hon. Member has stated the case, and my right hon. Friend will certainly study it, in the light of his consideration of the other problem with which it is very interconnected. May I therefore ask that we should leave it at that and not proceed now with the proposed new Clause? I would add that, if my right hon. Friend decides to take action against the £2,000 provision or to do some other thing about the problem, the alteration does not have to be inserted in the Finance Bill. The general difficulty can be cured by Treasury Order, under Section 23 (9) of the Finance Act (No. 2) of last year, which Order is subject to the approval of this House. There will therefore be an opportunity at that stage for the matter to be further reviewed, should it be proposed to do anything further.

§ Captain Strickland (Coventry)
I was very glad to hear the Financial Secretary to the Treasury make his announcement. This matter has been very seriously considered by various trades. It is not so insignificant in its incidence on the country as might possibly be conveyed by the speech of the Financial Secretary. The position at present is that an unregistered manufacturer or merchant who is also a retailer can sell his goods to the ultimate purchaser, either at an undercut price and less than that which the registered manufacturer must charge in putting his goods on the market, or he can charge the market price and put into his own pocket 716 the amount of the Purchase Tax which the other manufacturers have to charge.
A concrete case which illustrates this aspect of the question is the bicycle trade. It is a very important trade. The practice which I wish to describe to the Committee is in fairly wide use in the country. For comparison, let us take the figure of£4 10s. as the whole price of a complete bicycle bought from a registered manufacturer for sale to an unregistered seller. The manufacturer has to add 33⅓ per cent. Purchase Tax before he can sell that bicycle at the wholesale price, and that would make the cost price of that bicycle £6. To that figure has to be added in due course the profit of the retailer, which we can, for the sake of comparison, call£1. A customer buying the complete bicycle would therefore have to pay £7, because it was bought from a registered seller. If a rival retailer likes to buy those bicycle parts and assemble them himself, he avoids the Purchase Tax charge which would have been imposed upon him, and he can then sell the bicycle to the customer, less the Purchase Tax which his rival has to charge. Alternatively, he can charge the extra 33⅓ per cent. sell at the market price and put into his own pocket the balance, which would, in the ordinary way, have gone to the Treasury. This can happen, always providing that the trade of the assembler does not exceed £2,000 a year.
The effect of the reduction foreshadowed in the Clause—which I do not think goes far enough, because the figure should be reduced to about £ 500 — applies to other trades as well. We may take the printing and stationery trade as a case in point. Not more than about 20 per cent. of the printers in this country have to be registered, but they nearly all can deal in articles which come under Class 21. I need not go very deeply into this illustration, but it should be obvious that when an unregistered seller wants to place an order for printing which includes chargeable goods, he is more likely to go where he can get the things cheaper, that is to say, by buying from an unregistered printer whose total output in the particular sales does not reach £2.000.
Another trade affected very considerably is that which deals in silk and rayon. There is a custom in that trade by which the yarn producer sells yarn to a weaver. The yarn producer is not a registered 717 manufacturer because his yarn is not among the chargeable goods. By the custom of the trade he guarantees his yarn in the weaving of the cloth. If there should be a fault in the cloth, by virtue of a fault in the yarn supplied, the weaver, whose goods are registered and chargeable, returns the faulty cloth to the yarn producer. As the latter is not registered, the weaver has to charge the Purchase Tax back to the yarn producer. The yarn producer then has to sell the cloth which has a fault in it, and when he sells to an unregistered person he has to charge that Purchase Tax on his sales, in competition with those people whose trade in faulty cloth does not come to £2,000, and he is bound to bear that first Purchase Tax himself if he hopes to sell his cloth.
Having "borne that first Purchase Tax, when he sells to an unregistered purchaser he has to charge Purchase Tax. Therefore, two Purchase Taxes are charged on exactly the same material and the Treasury gets the benefit. This is a very serious matter. I am glad that we have had an assurance this afternoon. The permission in Section 23 (9) has been in operation for 12 months and the Treasury have been aware of the increasing tendency of sellers to go to people who have not to be registered. This is to the detriment of the registered manufacturer. Deputations have waited on the Treasury about the matter. This is a good opportunity to ask the Treasury to expedite the inquiry and, if possible, to concede the point which was put so well by the hon. Member for Dewsbury (Mr. Riley). The proposal should appeal to the common sense of the Treasury as an adjustment that ought to be made forthwith, with as little delay as possible.

§ Mr. Riley
In view of the statement made by the Financial Secretary to the Treasury that the matter will have further consideration, I beg to ask leave to withdraw the Motion and the Clause. There is a clear anomaly which results in the tax being charged twice on the same article and in the consumer having to pay double. This was never intended.