CLAUSE 6.—(Amendment as to duty on oils used in refineries.) (Hansard, 27 November 1945)

§ Viscount Hinchingbrooke
This interesting Clause extends over three pages. It has seven Subsections, eight provisos, two exceptions, three declarations and six separate references to various Acts of Parliament. I think the Committee should look for a fairly lengthy explanation of this rather lengthy Clause. What purpose does it fulfil in the Finance Act? There has been no Debate on Second Reading or on the Budget Resolutions, or anything in the Chancellor's Budget statement in regard to it. It is the kind of Clause which finds its way into the Finance Bill sponsored by outside organisations by direct negotiations with the Chancellor of the Exchequer, and hon. Members of this Committee are confronted with it for the first time during the Debate on the Finance Bill. Because there has not been any public discussion of the point and the newspapers have not taken any notice of it, and the Chancellor does not think fit to comment on it in any way in his Second Reading speech. Here we are, on the Committee stage, presented with our first opportunity of looking at it to see what it does and what effect it has on His Majesty's subjects, whether beneficial or otherwise. It is very difficult to tell, from the legal language of this Clause and from all the provisos, sections, declarations and references to other Acts of Parliament, whether this Clause has a beneficial effect on society or not, and whether our constituents are in any way aided or impeded through its passage into law. I, therefore, think we are entitled to have some explanation from the Solicitor-General.

§ The Solicitor-General
The hon. Gentleman who has just spoken is, I think, under a misapprehension with regard to this Clause. The object of the Clause, I can say right away, is to give effect to the recommendations of what is known as the Ayre Committee. It has not been sprung upon the House in any sense. It starred with a speech by the right hon. Member for the Scottish Universities (Sir 1166 J. Anderson) on 24th April of this year, when, in the House, the right hon. Gentleman said he proposed to give effect to that Report. That Report, as I will indicate to the Committee, recommended that hydro-carbon oils which are required by chemical manufacturers for use in the process known as chemical synthesis should come into this country free of duty. The Report contains certain other recommendations, but that is the primary one. The right hon. Gentleman the Member for the Scottish Universities, on 24th April, said: The Committee which we set up was presided over by Sir Amos Ayre, and hon. Members will find a full disquisition upon this important and intricate subject in the Committee's most able and useful Report which was published as a White Paper on 11th April. I propose to accept the recommendations of the Committee. That was my right hon. Friend's predecessor, and the present Chancellor, in his Budget statement, said this: Hydro-carbon oil is a most important substance for the future of our industry, and the Finance Bill will include provisions to give effect to the recommendations of the Hydro-Carbon Oil Duties Committee, whose Report was published as a Command Paper last April, that imported hydro-carbon oils should be free of duty when used as raw materials in chemical synthesis, as it is called, and that an equivalent allowance should be made in respect of oils produced in this country and used for a similar purpose."—[OFFICIAL REPORT, 23rd October, 1945; Vol. 414, C. 1887.] This is the object which Clause 6 is designed to effect. I quite agree that it is not easy at first sight to indicate how that is brought about, but I will, if the Committee will allow me, endeavour to state how it does come about. The subject is, I am afraid, an intricate one, because it involves hydro-carbon oil duties generally.
If hon. Members will look at Clause 6, they will see that Subsection (1) repeals the provisions of Section 2 of the Finance Act of 1934. Having repealed that, it then proceeds to bring in some provisions of its own. If I might, starting with that, I would like to say what happens when we repeal the provisions of that Section of the 1934 Act. What was the position with regard to hydro-carbon oils, apart from that Section? If we repeal that Section, we, of course, go back to that position, and it is material to ask what the previous position was. The 1167 position was this. Hydro-carbon oils, on importation into this country, are liable to an import duty of 9d. in the case of light oils and of 9d., subject to a rebate of 8d., and, therefore, a net duty of id., in the case of heavy oils. Actually, to complete the picture, heavy oils, which are used for road fuel, are liable to the duty of 9d. Therefore, the net result of that is that, apart always from the Section of the 1934 Act, on importation, light oils pay 9d. and heavy oils pay 1d., but, if used for road fuel, they pay 9d.

§ Mr. C. Williams
Is there any difference between 4he substance used for roads and that used for agricultural purposes? Gould the learned Solicitor-General tell us the position with regard to heavy oil for fishing vessels?

§ The Solicitor-General
I can tell the hon. Gentleman the position with regard to agricultural use, but I am extremely 10th to do so because I will digress from my point, which is difficult to follow. Perhaps I may continue with it and answer the hon. Gentleman afterwards. If I may continue with the history which I am trying to give, we started with that general position, but there is a complication which we have to superimpose on it. Oil that was used in a refinery was not charged on importation at all, but was charged under a different system set up by the 1928 Finance Act, and this was called the bonded refinery arrangement, which means that, when hydro-carbon oil is brought into the country and put through a refinery, it does not have to pay a duty when it is imported, but a duty is charged upon the product in which it emerges from the refinery. Hydro-carbon oil may be imported and go into a refinery and be converted partly into light oil and partly into heavy oil. The light oil pays 9d. when it comes out of the refinery and the heavy oil 1d., and that started with the 1928 Act. The different rates of duty prescribed by the 1928 Act were amended by the Acts of 1935 and 1938, and they finally assumed the form I have just mentioned, which was 9d. and 1d.
In the early 3o's a fresh factor had to be taken into consideration, and this was that many hydro-carbon oils were used in a refinery but did not come out of the refinery in the form of light or heavy oils at all, but in the form of various gaseous 1168 products, and, therefore, as they came out in the form of gas products, they would not be subject to the import duty paid in the bonded refinery arrangement, and so we got this 1934 Act, which was designed—I warned hon. Members that it was a difficult matter to follow—to bring into the scope of the duty these gas products which were produced in the refineries. That Bill is designed to bring the making of these gas products under the terms of the duty, but to enable chemical manufacturers to import hydro-carbon oils into a refinery and use them for synthetic processes without having to pay the duty, and, in that way, to give effect to the recommendations of the Ayre Report. What was then decided was that the position should be left in statu quo—that it should be brought about that hydrocarbon oils which went into a refinery, and were used by chemical manufacturers for processes of synthesis, were not to be subject to duty.
What have the draftsmen of this Bill done? Hon. Members will realise that it is extremely difficult to bring all this about, and I assure them that the draftsmen have not endeavoured to be obscure, but rather to be as simple as they can. The way they did it was this: they repealed the section of the 1934 Act so that they went back to the previous position. They then said, "We must bring in the gas but we must leave out oils which we want to use for synthetic processes." They did that in Subsection (2) because they said, "When you get any dutiable hydrocarbon oils upon which Customs Duty has not been paid because of the bonded refinery arrangement, if it is to be used for generating heat, light or power or for producing gas outside the refinery"—that is the phrase which refers to gas products—"you have to pay duty on it." But they make no reference to the oil which you are going to use in the refinery for the purposes of chemical synthesis. Having done that, what is the net result? The net result is an equation which achieves the object they want to achieve. You leave as they were the bonded and refinery arrangements in respect of oil coming out of the refinery in the form of light or heavy oil, so that is still subject to 9d. or 1d. per gallon as the case may be. Then you bring it about that the gas products are subject to tax—they are the ones described in the phrase "used for heat, light or power or pro- 1169 ducing gas outside the refinery." They are brought into the sphere of Customs Duty, but you have not referred to the oils which are to be used for chemical synthesis. The result is that they are not brought into the terms of the duty and they do not have to pay tax under bonded refinery arrangements. That is what is sought to be done in Clause 6, Subsections (I) and (2).
Subsection (3) introduces a further very subtle complication which is not immediately germane to the point I was trying to make as to the direct object of the recommendations of the Committee. Therefore I do not propose to trouble the Committee with it because that would mean some considerable explanation.
When one turns over the page and looks at Subsection (4), the object of that is to give effect to the other part of the recommendations of the Ayre Committee, namely, that hydro-carbon oils produced from indigenous material in this country, used for synthetic processes, should be given a preference equivalent to the amount of duty, that is to say, 9d. or 1d. as the case may be. If one analyses that Subsection, one sees that it does that. Again I do not propose to trouble the Committee by going through the paragraph, because it would need some considerable study to see exactly how it does it, but that is what it does. Then one gets to Subsection (5), which is simply a machinery subsection; it is a regulation-making subsection, which gives power to make regulations. Subsections (6) and (7) arc clear on their face. So the net result of this complicated apparatus is to give effect to the recommendations of the Ayre Report, namely, that chemical manufacturers shall be entitled to have their oil for the purpose of chemical synthesis, and chemical synthesis only, free of import duty charged in any way, whether under bonded refinery arrangements or on import; and also that there should be the preference which forms the subject matter of the second recommendation of the Ayre Report. In so doing, the Clause reflects what was promised by the right hon. Gentleman the Member for the Scottish Universities, and which was repeated in his Budget statement by my right hon. Friend the Chancellor of the Exchequer.

§ Mr. C. Williams
I think the Committee owes the hon. and learned Gentleman 1170 very sincere thanks for the way in which he has made this statement. I would have asked one or two questions, but he has taken such pains with the Committee, and as I see the Financial Secretary here, I hope he will pass on to those concerned that it is a good thing there is at least one Law Officer who understands his brief.