§ The next item is the difficult and complex one of the Purchase Tax. Almost my first experience of my present office was the widespread demand for a comprehensive review of the Purchase Tax. The criticisms of the present tax fall under three main heads. First, it is said that the tax classification is unduly complicated, and gives rise to many anomalies; second, that the tax falls unduly hardly on necessities, and therefore has an inflationary effect; and, third, that the legal provisions governing the rate of tax are difficult to follow, being scattered among a number of schedules to different Finance Acts. There is a good deal, I think, in all these criticisms, and, anyway, I am sure that it is necessary to re-arrange the whole incidence of the tax and to make it more easily intelligible.
§ I must, however, continue to look to the tax for a very substantial revenue, especially in existing circumstances. Yet I am, at the same time, most anxious to make some contribution to a lowering of prices, and, what is more important still, to provide some relief for the hard-pressed housewife, who feels the incidence of this tax very keenly. We must certainly continue the exemption of those broad classes of goods which must be regarded as absolute essentials for the individual and for the maintenance of the home.
§ I accordingly propose to continue the exemption of all food and fuel, and of utility clothing, with one exception to which I will refer in a moment. Similarly, utility furniture, sheets, towels, pillow cases and so on, cups and saucers, saucepans, buckets and so forth, and the various kinds of household brooms, brushes, soap, and similar cleaning material, will all continue to be exempt. One of the great complexities of the present tax is the diversity of rates in force—33⅓ per cent., 50 per cent., 66⅔ per cent., 75 per cent. and 125 per cent. I propose, therefore, to reclassify the 68 whole field into four categories—exempt, 33⅓ per cent., 66⅔ per cent., and 100 per cent., all percentages being on the wholesale value.
§ Experience has shown that above 100 per cent. evasion is widespread, and goods are driven on to a black market. The goods to fall within the new 100 per cent. category will be substantially those hitherto in the 125 per cent. and 75 per cent. lists. The rest of the field of chargeable goods will be divided between the 33⅓ per cent. and 66⅔ per cent. rates. Practically all the articles at present charged at 33⅓ per cent. will remain in that category, and I shall add to that list one or two articles, at present exempt, which for special reasons can be moved up. Children's non-utility clothing was made tax free before utility clothing was being produced for children, and it is right that, as with other garments, the exemption should be limited to the utility types. I, therefore, propose to put up children's non-utility clothing into the 33⅓ per cent. class, and also utility fully-fashioned stockings, which can bear the lowest rate of tax; this may, indeed, make it a little easier to meet the demand. Refrigerators will also be moved up to the 33⅓ per cent. class.
§ The main reductions will come about by moving down a large range of articles from the present 50 per cent. class to the 33⅓ per cent. rate. The principal classes of goods that will thus benefit by a reduction of tax are: Headgear, gloves and haberdashery; carpets, rugs and matting; lighting fittings and hand lamps; vacuum cleaners, carpet sweepers, washing machines, sewing machines and ironing boards; knives, forks and spoons; stationery; toilet and shaving soaps; razors and razor blades; tooth brushes and tooth paste; and toys and sports goods. The rest of the group at present chargeable at 50 per cent. will go up to 66⅔ per cent. This list will include cloth, excluding utility kinds; non-utility furniture and soft-furnishings; clocks, watches and radio sets; trunks, etc., except the leather ones chargeable at the top rate; cameras and photographic films; smokers' requisites; and musical instruments. Organs, however, I propose to add to the list of exemptions, in view of the fact that the tax falls chiefly upon church finances.
§ All the existing schedules of goods liable to Purchase Tax will be repealed 69 and the new list of chargeable articles at the respective rates will be enacted in a new form, which I am certain will prove far more convenient and comprehensible. Fuller particulars of the new scheme will be found in the White Paper, which will be available in the Vote Office when I sit down.
§ The tax in its new form will apply to goods delivered by registered manufacturers and wholesalers on and after Friday next, 9th April, and there should, therefore, be a quick reduction in the price of a number of articles corresponding with the reduction in tax. The total effect of these changes in the field of Purchase Tax will be to reduce the yield by a net amount estimated at £24 million for a full year and £18 million in 1948–49.
§ I should add that I am now working out, with my right hon. Friend the Minister of Health, proposals for widening the scope of the present exemption for essential medicines. Hitherto, the exempt list has been restricted to certain more costly preparations; but we propose to extend it to include a much wider range of non-proprietary articles. A provision with this object will be included in the Finance Bill, and a Resolution is being tabled for this purpose. In the figures that I have given, allowance has been made for this extended exemption of medicines.
§ On balance, therefore, this rearrangement of the Purchase Tax will make a contribution at the rate of £24 million a year to price reduction. The actual reductions, in the range of necessary goods like carpets, cutlery, haberdashery and so on, will amount to about £50 million, but will be offset by some increases in tax on less necessary articles. This will, I hope, be some encouragement to the housewife, who is such an essential factor in creating the necessary morale for high industrial production. I hope, too, that the reduction on stationery of all kinds will be of help to the educational world. The £50 million reductions of tax should mean a price reduction of approaching 10 per cent. spread over rather more than £500 million worth of goods this year.