§ 2.24 p.m.
§ The Financial Secretary to the Treasury (Mr. Peake)
I beg to move,That the Purchase Tax (Suspension of Registration Limit) Order, 1945, dated 3rd May, 1945, made by the Treasury under Section 23 of the Finance (No. 2) Act, 1940, a copy of which Order was presented on 10th May, be approved.551 I think that very few words from me will be necessary to commend this Order to the House. As hon. Members are aware, Purchase Tax is payable only by persons who are registered for that purpose. Since 1941, there has been an exemption from registration of persons whose annual turnover was less than £500. This exemption has certain administrative conveniences, but that was the sole defence which could be put forward for it. There is no doubt that it operates very unfairly between the man whose annual turnover is less than £500, and the man whose annual turnover is £500 or more. In the latter case Purchase Tax may be payable at the rate of 100 per cent., whereas in the former case no Purchase Tax is payable. Owing to market conditions each of these two manufacturers or wholesalers can command exactly the same retail price for his goods.
The effect, therefore, is to confer a very substantial benefit and an enormous rate of profit, on the man who is exempted from registration, and, therefore, also exempted from tax. This is leading many retailers, and others not hitherto engaged in manufacturing, to take up manufacturing within the £500 limit, and they are doing it as a very lucrative sideline, particularly in the luxury lines of trade, where the rate of tax is 100 per cent. As supplies of raw materials for making up cosmetics, for example, become easier, owing to the relaxation of war-time shortages, the number of people going in for these very lucrative sidelines tends steadily to increase. In addition to the growth of manufacturing, which I have described, there is a tendency for manufacturers to clip their businesses, where the annual turnover exceeds £500, into two or more separate businesses, to obtain exemption. There are other methods of avoiding the tax, which I had better not describe in detail, for fear of putting ideas into people's heads. Clearly, small manufacturers are reluctant to forgo a privilege, however unjustifiable, which they have enjoyed.
It may be argued that the small trader deserves relief, in much the same way as he enjoys partial relief from direct taxation—Income Tax, for example. But the Purchase Tax is a tax on goods, and not on income, and it is only fair that the 552 small trader's goods should bear the same tax as those of his larger competitor. The small tobacconist is not allowed to import cigars free of Customs Duty, nor is the small distiller allowed to distil free of Excise Duty. I think that the House will agree that, on grounds of equity, this Order is fully justified. From the point of view of the General Election, it may be said to come at a rather inconvenient moment. But the Order was made before an Election was in contemplation, and I think that to withdraw the Order at this stage would create a very unfavourable impression of our democratic system.
§ 2.30 p.m.
§ Mr. Turton (Thirsk and Malton)
I hope the Financial Secretary will reconsider this Order. To its object no one in the House will have any objection. Any method of preventing business over the limit avoiding the tax would certainly be supported by the House, but the effect of suddenly sweeping away the suspension of registration that has lasted for five years will produce very grave consequences to many bona-fide small businesses in country districts. The position is now rather different from that when the Order was made. This Order was, in fact, made before the war with Germany was ended. Now we have got to a stage in the war when we hope there will be a relaxation of burdens, but one effect of this Order is, I regret, that certain businesses believe that the Purchase Tax is on for ever. I hope that is not the case.
If I may deal with the case of which I am thinking, I will do so by way of illustration. My right hon. Friend talked gaily about cosmetics. I do not know as much about cosmetics as he does. Take the case of the chemist at every seaside town. In these coming months he will have in his shop a sunburn lotion—"Mr. Smith's Sunburn Lotion." We have all seen them. As a result of bringing in these small businesses, every one of these small chemists will have to be registered as a manufacturer, will have to keep books, for which they have not got the staffs at present, and will have to pay Purchase Tax. That is a very regrettable result; but my real opposition to this Order is the effect on the arrangements made by these small chemists throughout my constituency who are at present exempt from registration, who have contracted to supply drugs to local doctors 553 for use in their practices. They have made up drugs, not for any particular patient, but in order that a doctor might use them when he is prescribing drugs for his patients. It is regrettable that, through the Government proceeding by Statutory Rule and Order, there is no possibility of legislating to exempt such chemists from registering under the Finance Act, 1940. I am sure that no one in this House, including the Financial Secretary, wants to force chemists to give up this business of making up drugs for the local doctors, or to become registered. Unfortunately, the definition of a manufacturer in the Finance Act, 1940, makes it clear that the only exemption is for the making up of drugs according to a formula prescribed by reference to the needs of a particular patient. It is, perhaps, unfortunate that the House, when passing that Act, defined the position so delicately that all these other people are left out. The reason was that there is a suspension limit of £2,000 which covers the small transactions in the country.
I suggest that, on 1st July, local doctors shall not be burdened by being unable to get drugs from the chemists, and that the chemists who supply these doctors shall not have the additional burden, at a time when their job is extremely difficult, of having to be registered and pay Purchase Tax on all the drugs they supply to the doctors. If we cannot—as I hope we shall—get this Order withdrawn, and a new Order substituted, I hope the Financial Secretary will give an undertaking that, in the Finance Bill that we shall be discussing later, he will make provision to secure that small bona fide businesses will be excluded from the operation of the Purchase Tax Order, as amended by this Order.
I must say that I am suspicious about this Order. Who has suggested to the Treasury that this Order is necessary? It will affect small businesses of every nature, not only chemists; even the women who make socks to sell at a local fete during the summer will come into this unless some other arrangement is made. Every single small business, especially fancy goods business, in the country will have this additional burden laid on it. Who has suggested this? Is it the large combines in the country who are trying to oust the small businesses from the market towns? If so, I hope 554 the Financial Secretary, in his reply, will declare it.
§ 2.36 p.m.
§ Mr. Edmund Harvey (Combined English Universities)
I wish to support the hon. Member for Thirsk and Malton (Mr. Turton) in the earnest plea which he has made that this Order should be withdrawn. I think he put the general case against it exceedingly well. The fact that now, at this very late stage of the war, it is thought necessary to bring in this Measure is surprising and needs explanation, and the fact that so many small people will be affected by it ought to be considered. It is difficult to understand how the case imagined by the Financial Secretary could arise. I cannot believe that a big firm would split itself up into a number of little firms, each with a turnover of not more than £500 a year, in order to avoid registration. It is almost inconceivable.
The case which I want to make, however, is somewhat different from that of my hon. Friend. It concerns the effect of this Order upon craft workers in the country. There are still surviving, and I hope they will continue to survive, a number of craftsmen and craftswomen who are carrying on handicraft work of great artistic value which is of real importance in the cultural life of the country—fine carpentry work, examples of which we see in churches, in war memorials and in beautiful pieces of domestic furniture, hand weaving and pottery. All these are of great value in themselves and even of value to the big industries that now want to crush them out. New ideas, new patterns and new forms have come from independent craftsmen, often working in quite small premises of their own. I remember, some 40 years ago, the Martin brothers doing the most wonderful-pottery work, and yet they were always poor and always working in very difficult circumstances. There are craftsmen to-day working in Very difficult circumstances who are doing fine work, and it would be a shame to have their life work destroyed. Surely these people, whose full turnover does not exceed £500 a year, and who, on that turnover, can only afford one apprentice, ought not to be crushed out of existence? They cannot employ skilled accountants to make returns, and a fine craftsman would not necessarily him- 555 self be a good accountant or an accurate bookkeeper.
The beautiful Stalingrad Sword was made not in a Royal Ordnance Factory, nor by one of the great combines, but by a team of skilled craftsmen, and when the British Council, at an earlier stage in the war, arranged an exhibition in America to illustrate the British way of life, they had a section of craftsmen's work to which contributions were made by people who were in quite small workshops. Surely we want that to go on. It has been part of our noble old English heritage, and I appeal to my right hon. Friend, who himself loves all these good things of the past, not to destroy it or make the work of these craftsmen more difficult, as he will if he insists on carrying the Order now.
§ 2.42 p.m.
§ Sir Herbert Williams (Croydon, South)
This Order, of course, is an inheritance from the Government recently deceased, and I realise the difficulty of their successors. It is creating great disturbance among a very large number of humble folk, as well as among a few people who, perhaps, are better off. We have had references to chemists, but there are people who make things in their spare time and put on the market toys and all sorts of things which the large manufacturers have not been able to produce, and, if the Order is approved, the only result will be that the Treasury will get little or no revenue but production will cease. The object of the Order is to stop an alleged black market of which we have very little evidence. If there is a black market to be stopped, let us have a considered Clause in the Finance Bill. My appeal to the Financial Secretary is not to press this Order. It does raise all sorts of difficulties, and I have had many representations about it. I would like to move, if I have your permission, Mr. Deputy-Speaker, that the Debate be adjourned in order that the Government may have the week-end to consider whether they shall pursue this Order in its present form or not.
§ 2.43 p.m.
§ Mr. Linstead (Putney)
I would support a Motion for the Adjournment, and I support, also, the remarks of the hon. Members for Thirsk and Malton (Mr. Turton) and for the English Universities 556 (Mr. Harvey). I feel that the House has not, fully understood all the implications of a very simple-seeming Order. We were told that this £500 limit was originally imposed for administrative convenience; in other words, the Customs and Excise Department had not enough staff at that time to do the administration thoroughly. I presume that the supply of inspectors is now easier, and that they feel now that for that administrative reason, and, so far as I can gather, for no other, they should now bring everybody who manufactures anything, even if the total turnover in a year is less than £500, into the Purchase Tax net. I do not feel that the Financial Secretary was right when he said that the Purchase Tax could not be regarded in the same way as Income Tax, as a tax on income, and therefore he is prejudicing the small man. I think he has overlooked the fact that when any trader buys goods and pays tax on them he is investing a certain amount of his money which will yield him no interest at all. He is paying tax; his money has gone out to the manufacturer from whom he buys, and he will not get it back until he sells. The introduction of the Purchase Tax means a substantial additional bill to very small businesses. We have not been told by the Financial Secretary to the Treasury what the expected yield is nor have we been told the number likely to be affected. These two figures are very relevant to the discussion we are having to-day. If the number is extremely large and the gain to the Treasury is extremely small, the disturbance that will be caused, and the additional work imposed on people already under considerable strain, and very understaffed, condemn the Order merely on those figures.
One can only assume that, because the Order has been made at this very late stage in the war, it is really the intention of the Treasury that the Purchase Tax should become a permanent feature of our taxation system. If that is to be so, it ought not to be dealt with in this way—by a side wind as it were. It is a major decision of policy which ought to be taken, with proper notice, through the Finance Bill and properly discussed. It is worth while inviting the attention of the House to the way in which a simple phrase passed by this House, in order to impose some taxation, can be developed, by departmental action, into something prob- 557 ably very much greater than the House ever intended. The Purchase Tax, for example, which was applied to drugs and medicines, was applied in a charge occupying three lines. Those three lines were then interpreted by the Department in a pamphlet which runs to 10 pages, and, in fact, it is not the three lines that were passed by this House but these 10 pages of Departmental interpretation of what those three lines meant, which is, effectively, the law of the land to-day. That is why I am expressing the view that it is gravely unsatisfactory that a major taxation decision of this kind should be brought in by a side wind. The effect, without doubt, on the small manufacturer is that he is just going to give up hope, shrug his shoulders and buy the goods which he used to make with his own hands from the big manufacturer. I have very little doubt that it is the big manufacturer who has been putting pressure on the Treasury to cast the net completely round everybody and—I will not say primarily, but incidentally—squeeze out the small, and the intelligent and imaginative, competitor of the big man. I would assure the House that in the section of the industry of the country with which I am familiar there is very grave concern about the application of this tax and I believe it would be worth while the Government having another look at it before they go forward.
There are two small practical questions I would like to put to the Financial Secretary, because a statement from him about them would be of assistance. Some of these small men, when they are buying the materials out of which they manufacture their goods, pay Purchase Tax on those materials. In future, if this Order is carried, they will also have to pay Purchase Tax on the finished materials. It does not seem to toe equitable that they should be required to pay Purchase Tax twice over on the same goods. I hope, therefore, that some machinery can be devised whereby a rebate of tax already paid on the material can be secured when the finished article is sold. The second question is this: If you are creating out of the retailer, a manufacturer because he is making £500 worth of his own goods, in addition to selling other people's goods, does that make him a manufacturer for all purposes, and does he, therefore, have to account for Purchase Tax to the Treasury on everything 558 that he buys? It is a very important point. A man may be doing £5,000 worth of business in other people's goods and £500 worth in his own goods, and has he in future to pay Purchase Tax and account for it on the whole £5,500 worth of goods?
§ Mr. Linstead
I am very grateful to my right hon. Friend for that reply. Enough has been said already to indicate that those Members of the House who are here are very strongly in favour of there being some delay in applying the Order, and I hope that the Financial Secretary will be able to accept the Motion which my hon. Friend the Member for South Croydon (Sir H. Williams) has indicated.
§ Motion made, and Question proposed, "That the Debate be now adjourned."—[Sir H. Williams.]
§ Mr. Speaker
Perhaps I had better warn the House that once we come to debate the Motion "That the Debate be now adjourned," the only point we can discuss is whether the Debate is to be adjourned or not.
§ 2.57 p.m.
§ Mr. Peake
As you have just observed, Mr. Speaker, I am rather handicapped in dealing with the speeches of my hon. Friends because I am, in fact, precluded from addressing myself to the merits of the arguments which they have adduced. But perhaps I might content myself by saying that I disagree entirely with the case they have put. At the same time, there does seem to be little unanimity in the House about the desirability of proceeding with the Order at the present stage. I think it is generally understood that we can only proceed, between now and the date of the Dissolution, with matters upon which there is a very large measure of agreement. I would like, in the circumstances, to report what my hon. Friends have said to my right hon. Friend the Chancellor of the Exchequer, and give him an opportunity of considering whether or not it is essential to proceed with this matter before the House dissolves. I think, therefore, without in any way prejudicing the position of my right hon. Friend, in view of what has been said, that I ought to accede to my hon. Friend's Motion.
§ Question put, and agreed to.
§ Debate adjourned; to be resumed upon Monday next.