PURCHASE TAX (Hansard, 15 December 1948)

§ Mr. G. Lang (Stalybridge and Hyde)
I am sorry to have to detain the House tonight. As hon. Members know, I rarely trouble them on the Adjournment, and I would not do so at any time except on a matter of grave importance. I know that the Economic Secretary to the Treasury is aware of the considerable Feeling among manufacturers, especially n the light metal furnishing industry, about this subject. He has received delegations and replied fully and courteously to correspondence upon it. I do not suggest that I can put to him very much new in the way of facts, but I feel that the gravity of the situation is not fully realised. It has now reached a stage at which many manufacturers are gravely concerned as to the future of their industry and as to whether they will be able to carry on.
I know that at this moment I must not refer to questions of future legislation, but I have gone carefully into the matter of three factories in my constituency. I have not been content to receive representations but have gone fully into the whole matter personally, and I am satisfied that they cannot continue in these circum- 1348 stances until next April. Already, in one factory there have been discharges of 50 in one week and in another no employment. It may be at this moment that the people there discharged, can be absorbed into other employment, but one cannot bank upon the certainty of no depression in what is a staple industry—that of cotton. These light metal industries will be of great assistance in any time of depression, should such a time come again in this staple industry.
Many of these firms have spent vast sums of money in converting their machinery and preparing their factories for the export drive, and they have done magnificently. This furniture has always led the world and they have done excellently, particularly in countries where insects have attacked wood and where this light metal furniture is very valuable. Great efforts have been made to meet the Government's urgent demand for export. My hon. Friend the Economic Secretary to the Treasury knows the difficulties that these firms have to face due to regulations, licences and so forth. The export trade can be maintained only if there is a good home trade, too, so that there can be production on such a scale as to effect economies that would mean a reduction in the price level of existing goods. It is becoming more and more imperative that something should be done about the damage done to the home market by the imposition of Purchase Tax because it is making the position serious. It is becoming impossible for some of these firms to do anything like the export trade they did previously, and their factories are becoming stocked up. I hope something will be done to afford some relief.
With regard to the tax itself there has recently been an order reducing it on certain furniture from 66⅔ to 33⅓. For that relief we are very grateful, but it is far from sufficient. In any case, there is much difficulty over purely arbitrary decisions as to what is relieved of tax and what is not. I have here a lot of orders, and I doubt if anyone knows what article is taxed and what is not. One instance caused great concern to a factory in my constituency which was manufacturing basins and bowls with pedestals. These were very attractive, but the manufacturers were asked to remove the pedestal and produce the articles in larger numbers. The moment they did that, they were told that they must 1349 pay 66⅔ per cent. tax, because those articles, which were for a specific purpose, might be used for another. They might be used as ashtrays or something of that sort. These articles are completely wasted. People are not able to buy them at these inflated prices, much as they would like to have them.
There is a well-known firm in my constituency which had very large orders for forms for the waiting-rooms of hospitals. But there must be a tax on them—with the result that the market freezes up. I can give the hon. Gentleman information of other cases. I am sorry to bring to his youthful notice such things as small babies' garments known as napkins. There is a firm in my constituency which has produced a new form of them which will save much laundering. Each one has a label upon it. In the boxes there is a complete description of the uses, virtues and advantages of these particular things. But because of the small size it is said that they could be used for other purposes. There are piles of these boxes held up. These things drive manufacturers to desperation. I have gone into these things carefully, and for the life of me I cannot make sense of them, try as I will.
There is one other thing I wish to mention. Most of these light metal firms have converted their war-time plant, after doing splended service, into the manufacture of things for the home market, using material—aluminium in the main—that is easily procurable. They were not doing that before the war. The light metal industry was then a very small one. They have applied to the Board of Trade for licences to manufacture utility furniture. That is refused. In the last few weeks utility furniture has been given the advantage of reduced Purchase Tax. It will come into competition with these people again, and yet they are not able to manufacture these things although they are using material which is easily accessible. They have been told that if they made these things of wood, which has to be imported, there would be no difficulty.
That is the case I feel it right to put before the hon. Gentleman tonight. I am proud of the enterprise of these manufacturers. I am anxious for their welfare, not only for themselves alone, but because, bound up with it, is the welfare of 1350 large numbers of people whom I represent. I hope the hon. Gentleman can say something that will relieve the anxiety of these firms, who are racked with anxiety about the future. It will be too late soon to do anything. I hope he can take off some of the claws that are gripping them. Because of the season I may say that I hope he will be another kind of Claus altogether—a Santa Claus, who will bring some hope to these people who are desperately worried.

§ The Economic Secretary to the Treasury (Mr. Douglas Jay)
The hon. Member has raised questions of what he called the arbitrary decisions of Customs and Excise in imposing distinctions between one kind of article and another in the matter of Purchase Tax. I am afraid it is one of the disadvantages of Purchase Tax that we have to draw lines between one type of goods and another type and that, almost inevitably, this drawing of distinctions seems to be arbitrary. So long as we have this tax, I do not think we will entirely get rid of this problem. The hon. Member has mentioned some of the difficulties tonight and he has let me have specific cases; and I shall be very glad to look into these to see whether the distinction has been correctly drawn and whether it is not possible to improve it.
The hon. Member also raised the whole question 6f the relationship between purchase tax and employment, both in his own constituency and I think more widely. I think he was arguing, or was on the verge of arguing, that some sweeping changes should be made in this tax from the point of view of maintaining employment. Of course the primary purpose of Purchase Tax must be to raise revenue. I quite agree that it is also essential to consider the effect of tax on industry and employment, difficult though in many cases it is to predict just what it will be.
I should remind the hon. Member that when changes were made in Purchase Tax last Spring, we had two principles in mind. First of all, we wished to lower the cost of living on an essential range of goods, and, secondly, we deliberately sought to limit to some extent production, particularly for the home market, of the least essential types of goods. On balance, as the hon. Member will remember, we relinquished very much more Purchase Tax revenue than we imposed. I think it will 1351 be agreed that both these objectives were proper national objectives at the time, and, that to a considerable extent. we have succeeded in achieving them. As the hon. Member will know, the cost-of-living index is no higher today than it was at the time of the changes in taxation, although up to that point it had been rising. Therefore, I think we can claim that those taxation measures did assist, by absorbing some purchasing power, in stopping the rise in the cost of living. I think the rise in the exports of some of the goods my hon. Friend mentioned, and many others since that time, also shows that we had some success in diverting goods to export markets as well.
I also agree with him that we have to consider the effects on employment. I think he will remember that when certain concessions were made last summer, particularly in the purchase tax on goods such as clocks, watches, radio, and metal kitchen furniture, which he specially mentioned—and I would remind him that a reduction was made from 66⅔ to 33⅓ per cent. on the last item—we deliberately took account of the fact that those products were produced in considerable quantities in areas where unemployment existed. But we must also remember that in other areas, where there is a high demand for labour and a lot of essential work, discharges of workers such as he mentioned will probably not mean unemployment, but transfer from one type of work to another and possibly to a more important type.
The hon. Member's constituency is in the middle of the cotton-spinning area, and it is an area of, perhaps, the most intense demand for labour in the whole country, where unemployment is exceedingly low. As he knows, we have been trying by all means to increase the labour force in the cotton spinning industry, and we have achieved a rise in the strength of the labour force by more than ten thousand people over the first nine months of this year.

§ Mr. Lang
I should make it plain that in the light metal industry many of the people engaged are partly disabled men who could not work in cotton factories. I do not say there are great numbers, but there are many.

§ Mr. Jay
I recognise that, but of course, cotton is not the only important 1352 industry in the hon. Member's area. Therefore I think that, even though one may find some discharges of labour, as I said, from some of these firms in the hon. Member's constituency, one would expect that the total of unemployment in the area did remain exceedingly low. That is, in fact, what we do find. In the hosiery industry, in which one firm was mentioned by the hon. Member in the Stalybridge area, in November this year there was actually no one unemployed. In the furniture industry, which he also mentioned, only four persons were unemployed. Indeed, I find that in the whole exchange area of Stalybridge the total of unemployed in all industries in November this year was only 93 men and one woman, according to the official figures. In the surrounding areas, Ashton-under-Lyne, Glossop and so on, the figures are similar.
It seems to me that those figures should be not merely comforting to the hon. Member, but also afford some evidence that our policy of using these taxation measures partly for the transfer of workers into more important work without any increase of unemployment, have really had a considerable measure of success. After all, what we are aiming at I think we will all agree, is some redistribution of labour in favour of essential industries.
The hon. Member made an important point when he said that, looking into the future, it may be that the cotton industry will not always enjoy the exceedingly high-level of demand which it does today, and therefore it will be desirable to have light industries, engineering industries and a variety of work in these areas. I agree that that is an exceedingly important aim. As he knows, it is a key element of the Government's industrial policy to see that we do get this spread of employment. I think there is really very little danger that any recent rise in Purchase Tax, although it may limit production to some extent in some of the less essential industries, will have the effect of driving them out altogether. I do not think the hon. Member need fear that as a result of this type of measure the industries in these areas are going to disappear altogether.