For subsection (1) of section twenty-one of the Finance (No. 2) Act, 1940, there shall be substituted the following subsection:—
(1) The wholesale value of any goods in respect of which tax is chargeable shall be taken to be the price which in the opinion of the Commissioners the goods would fetch, on a sale made at the time when the tax in respect of the goods becomes due by a person selling by wholesale in the open market in the United Kingdom to a retail trader carrying on business in the United Kingdom only, if no tax were chargeable in respect of the sale and it were made in the circumstances specified in the Eighth Schedule to this Act:
Provided that, where goods are bought under a chargeable purchase from the manufacturer thereof, being a manufacturer who normally sells such goods to retail traders in the circumstances specified in the Eighth Schedule to this Act, but who does not regularly sell them to wholesale merchants or to retail traders registered by virtue of section twenty-six of this Act (which provides for retail traders purchasing on a wholesale scale to be treated as wholesale merchants) or to buyers other than whole-
sale merchants or retail traders, the wholesale value of the goods shall be taken to be the price (excluding any amount due from the buyer to the seller by reference to tax for which the seller may be accountable in respect of the purchase) at which that manufacturer is normally selling such goods to retail traders at the time when the tax in respect of the goods becomes due."—[Mrs. Castle.]
§ Brought up, and read the First time.
§ 10.15 p.m.
§ Mrs. Castle
I beg to move, "That the Clause be read a Second time."
This is a small technical matter, but its purpose, I think, is quite clear and straightforward. It is one which ought to appeal to all hon. Members of this Committee, because the purpose of this new Clause is to prevent consumers from paying more tax than they ought to pay. I am sure that we all agree that taxation is high enough in all conscience, and here is a chance for the Government, who have always declared themselves to be opposed to excessive methods of taxation, to prevent taxation from being higher than it need be.
Under the arrangements which at present operate, the consumer is giving a nice little gift to the Revenue authorities of an extra tax because of the way in which the wholesale value on which Purchase Tax is based is at present calculated. The present position is that the wholesale value for the purpose of calculating Purchase Tax, under Section 21 of the Finance No. 2 Act, 1940, is the open market wholesale value of chargeable goods.
Clearly where goods are sold to a wholesaler no argument and no difficulty arise. The wholesale value in that case is obvious. Nor did difficulty arise when the Utility price control was operated, because then the maximum wholesale price fixed by the Utility scheme was the highest price on which Purchase Tax could be calculated. It is when the manufacturer sells to a retailer direct that the trouble starts, because at that point Customs and Excise come into the picture with their calculations as to what the wholesale value is in such a transaction.
I suggest that what has gone wrong under the present arrangements is that Customs and Excise have assumed that a normal sale to a retailer by a manufacturer is through a wholesale merchant 1298 and, therefore, when goods go direct from the manufacturer to the retailer they are by-passing the normal channels; as though, in fact, something naughty was being done. Therefore, in order that the retailer who buys through the wholesaler may not be penalised, Customs and Excise laid down that the price at which the manufacturer sells direct to the retailer must be uplifted by prescribed percentages supposed to correspond with the wholesalers' market.
The result of this arrangement which Customs and Excise make is that Purchase Tax in this case is levied not on the price at which the goods are actually sold to the retailer, but on the notional wholesale price which Customs and Excise reach by uplifting the actual price. The justification which is given for this action is that it prevents the big buyer from by-passing the wholesaler and getting a tax advantage over the small man who buys through the wholesaler's merchant. I want to make it clear at the outset that this Clause gives no advantage to the big buyer over the small buyer. In this respect my Clause differs from that in the name of the hon. Member for Gillingham (Mr. Burden), which has not been called.
My Clause seeks to free both the big buyer and the small buyer from the unfair disadvantage from which they both suffer as a result of the interpretation at present placed on Section 21 of the Finance Act, 1940. I suggest to the Chancellor that Customs and Excise fail to realise that for a whole range of goods the normal channel of sale is direct from manufacturer to retailer. The obvious and outstanding example is furniture, but it is also true of a wide range of textiles, in particular men's and boys' outerwear and women's outerwear.
In the case of a large range of other textile goods the position is that the highest quality branded goods are always sold direct from manufacturer to retailer whereas the cheaper unbranded goods are usually sold to a retail merchant. These two extremes of trade run parallel and do not usually overlap. The main examples where this takes place are men's shirts and pyjamas and women's underwear, corsets and brassieres, and also knitted underwear and stockings, where branded goods are normally always sold direct from manufacturer to retailer.
1299 In these cases uplift does not have the effect of preventing discrimination between the big buyer and the small buyer. It merely has the effect of discriminating against the consumer, who is forced to pay more in Purchase Tax than he would otherwise have to pay as a result of the actual selling prices being uplifted to a notional wholesale figure.
My Clause adds a proviso to the existing arrangements whereby in cases where goods are normally sold direct by the manufacturer to the retailer their wholesale value shall be taken, for Purchase Tax purposes, to be the price at which the manufacturer normally sells them to the retailer. The effect of this would be that where a manufacturer supplies, for example, women's clothing direct to the retailer, whether he be a large one or a small one, the Purchase Tax shall be levied on the price at which he actually sells and not on that price plus 7½ per cent. uplift as at present.
I suggest this is the only reasonable and sensible arrangement to make in those cases. Where the normal practice of the trade is direct sale from manufacturer to retailers of all types and sizes, we can justly say that the manufacturer is, in effect, doing his own wholesaling, carrying all the normal wholesale costs, having to employ travellers to go round the shops, having to carry sufficient stocks to repeat orders quickly, and paying the delivery charges to the retailer. In effect, he is running his own wholesale concern, and all those wholesale costs are reflected in the price at which he sells to the retailer.
It is monstrous that the cost should be reflected in the selling price of the retailer and that Purchase Tax can be levied upon that. It is monstrous for the Government through Customs and Excise to say, "You must add another 7½ per cent. on top of the selling price for the purpose of calculating Purchase Tax." All that that means is, in effect, that the Government are pinching a few more shillings or pence from the pockets of the already hard-pressed consumers.
The problem has not risen acutely up to now because it was not so urgent when Purchase Tax was payable only on a very small and narrow range of non-Utility textile goods. With the introduction of 1300 the D Scheme, however, Purchase Tax is now applying to a wide range of goods which, as Utility, were formerly tax-free. We now have the ridiculous situation that goods which, as Utility, were formerly free of Purchase Tax, now are not only carrying Purchase Tax, which is bad enough in this situation of unemployment in the textile industry, but are having what was formerly their maximum wholesale price under the Utility scheme, and the price controls which went with it, uplifted by this addition of 7½ per cent.
This means that there is in some cases a quite substantial increase in Purchase Tax, sufficiently substantial, at any rate, to be extremely alarming to those who are concerned with the recession in the textile industry. At the moment when we are trying to lift this burden of Purchase Tax to the maximum extent, the addition of even an odd shilling or two is, clearly, a tendency in exactly the wrong direction.
I should like to give one example of how the tax operates. Take, for instance, a woman's cotton dress which was sold formerly under the Utility scheme, under which its maximum price, up to 17th March, was £3 3s. When the D Scheme was introduced and the Utility scheme was abandoned, it still continued to sell at £3 3s. But along come the Customs and Excise, and say, "Oh, no. That is not good enough. Your Purchase Tax must now be calculated on that price plus 7½ per cent." That means a selling price of £3 7s. 9d. That frock is now taxed at 33½ per cent. on the excess of the wholesale value over the D figure of £2, and the result of the operation of the 7½ per cent. uplift is that the tax which is charged becomes 8s. 1d., instead of 6s. 7d. if Purchase Tax was levied on the actual wholesale price.
That is an absolutely ridiculous situation. If the Government allow it to continue, what they are in effect saying is that following the abandonment of price controls, which they justify by saying that there is now a buyers' market, there has been an increase in the open market wholesale price of that frock of 7½ per cent. Clearly, the Government would not argue that as a result of their beneficent operations there has been an increase of 7½ per cent. in the wholesale value of these garments; but if they do not argue in that way, how can they justify the uplifting of the wholesale price in this manner? It cannot be justified.
1301 This is one of those administrative anomalies which have come into the operation of the admittedly complicated Purchase Tax arrangements, but it is an anomaly which is now serious because it spreads over a wide range of goods instead of over the narrow range which formerly it influenced. It is because the incidence of this uplift is now so much wider that manufacturers are so much more concerned and are taking so much more notice of its effects. That is why it is important that the Committee should consider it.
We have spent many days urging for the maximum amount of Purchase Tax relief for textiles. What I am asking is that the Government, having been unable to give us the concessions in the Purchase Tax rates and the D lines for which we hoped, should agree not to take more than they are entitled to.
We now have a situation where in some cases goods whose wholesale price is below the D level are now, as a result of the uplift, carrying Purchase Tax. An example was brought to my attention of children's frocks bought by retailers at 39s. That is below the D level of 40s. for these garments, yet, as a result of this uplift of 7½ per cent., these frocks below the D line carry 3½d. Purchase Tax. That is an obviously absurd situation.
I therefore suggest to the Committee very seriously that, in view of the new situation, the textile recession, which makes it imperative for us to examine the effect of Purchase Tax on textiles, in view of the buyers' market, and the D Scheme spreading the uplift problem over a wide range of essential articles, the Chancellor should be asked to look at the problem and, at least, to say that, although he may have to be very rapacious as far as taxation is concerned, he will not take more than he is entitled to.
§ Mr. Gerald Wills (Bridgwater)
I should like to follow the hon. Lady the Member for Blackburn, East (Mrs. Castle) in dealing with the uplift of prices and the discrimination between the large and small trader on rather a narrower and different point, in that the Clause does deal with many questions which affect the wholesale price of goods.
In this Clause, there is an anomaly which arises out of the provision which 1302 states that, for the purpose of computing the wholesale price of goods on which Purchase Tax is charged, the cost of such things as postage, insurance, packaging and other things is to be brought in before the percentage is charged. That is another form of uplift and extra charge which is really anomalous, and which should be done away with. It means, in fact, that the tax is not based on the true price of the goods, but on a price to which is added the cost of carriage between wholesaler and retailer, and I think this is a false basis. It places the small shopkeeper who is at some distance from his wholesaler at a disadvantage against one living close to his wholesaler.
I have had many examples of people who live a long way from their wholesalers, to whom they send for goods, on which they have to pay the cost of packaging and postage, which can add up to a fair amount, and on which is charged the Purchase Tax at 33½ or 66⅔ per cent. This is added to the price which the purchaser has to pay, and there are many examples. Either the extra cost is added to the burden of the small shopkeeper or to the burden of the person who buys the goods.
This seems to me to be unnecessary and anomalous, and I think that the true wholesale price should be used as the basis for the charging of Purchase Tax. It was in 1950 that I asked the then Chancellor if something could be done about this, and he said that the practical difficulties were great and that the majority of traders liked the present system best. That may be, but there is a minority of small traders who find it most unhappy for them, and who do not like it.
It seems to me that it would not be impossible, and, indeed, it might almost be easier, to make this charge on the true wholesale cost rather than on the cost to which is added the charges for insurance, packing and postage. I do not think that it would mean a tremendous loss to the Treasury, but I am sure a number of small traders would be very much happier about it. It may not be a large point, but perhaps, when considering all these things, the Chancellor would bear it in mind.
§ Mr. Grimond
I wish to support the purpose of the new Clause, and I also agree with what was said by the hon. 1303 Member for Bridgwater (Mr. Wills). Surely it cannot be intended that Purchase Tax should be raised when freight charges, for instance, are increased. On the last new Clause the Government, seeing the hardship caused to retailers when Purchase Tax was reduced, have promised some action to rectify it. I do think that the Committee should press the Government for similar action to rectify other anomalies in this tax. It may be that in the long run the arguments advanced on this, and the previous Clause are arguments against the nature of the tax altogether. It is an extremely difficult tax to administer, and we all hope that sooner rather than later it may be totally removed.
But, in the meantime, there are these serious anomalies. Now the Chancellor of the Exchequer has been offered enough work for the coming year. He has been asked to look into all the proposals in the Budget to see whether they cannot be changed for the next year. His own supporters have been as anxious as anybody on this side about it. This particular point concerning uplift may be a point on which it is difficult to do anything immediately, but he might be able to say that he agrees with the substance of what has been said. There are of course difficulties: justice between big businesses and small businesses if you remove uplift and there are difficulties in disentangling the costs of freight and insurance from the wholesale cost of goods.
But I would suggest that at least if the Government cannot accept this Clause, or something like it, might not the Committee they are going to set up to consider the effects on retailers when Purchase Tax is reduced, look into this point as well? I do not know whether this will place too great an additional burden on that Committee, but these are similar points. It is sometimes argued that Purchase Tax can be used as a means of stimulating or reducing consumption, that is an argument used by the right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell).
But it is to some extent invalidated by the fact that if it is intended to reduce Purchase Tax so as to increase demand some of the effects of the reduction may be cancelled by fortuitous circumstances, such as traders holding back from purchasing because they see a change 1304 coming, or because of increases in freight charges or an alteration in the scheme such as the introduction of the D Scheme, in which many goods not chargeable are brought within the provisions of purchase tax. These are reasons which can stultify the intentions of the Government if they wish to reduce the tax. I would ask them to look at these points as matters which the proposed committee, or a similar committee, might review.
§ Mr. R. A. Butler
I am the last one to try to stop hon. Members from talking, but I think it might help if I intervene now. The hon. Lady the Member for Blackburn, East (Mrs. Castle) and others have explained the nature of the system of uplift, and, therefore, I do not want to go into it in detail, except to say that this method of assessing the tax was widely discussed with all sections of the trade before it was introduced in 1940.
It was accepted that the differences which existed, for example, between the big store and the village draper in their methods of acquiring articles for sale should be evened out by assessing the tax on a common price level, which as the hon. Lady suggested was called the wholesale value, that is, the price as between the wholesaler and the retailer at which smaller shopkeepers typically buy. There is a basis for the system, and on the whole I would not say it was working extremely badly, but I am coming to some of the points of principle which the hon. Lady and others have raised.
Tomorrow is the Derby, and it is normal, when all horses carry the same weight, that the lighter jockey shall be uplifted. I only wish we could finish the Bill tonight—but I do not want to be cruel to the Committee—so that some of us could go to the Derby. This system of uplifting prices is not dissimilar to the objects of that great horse race, in that it ensures all traders start level and carry the same weight.
The hon. Lady and others have failed to point out that there is a deduction in certain cases. A deduction occurs in certain cases. Instead of always having uplift, there is also, if I may use the term, a "downfall"; and in a revivalist significance, the uplift follows the downfall. I have, today, between more important 1305 and lesser matters, spent odd minutes in having training in uplift, and I hope that it has done good for my soul.
Therefore, as in the D scheme, this is a minimum on which the selling prices are based. Reverting to the analogy of the Derby, instead of 30 runners, we have about 70,000 registered traders, and that is why there is a system of standard uplifts—to which the hon. Lady referred—of 7½ per cent., which evens out the scheme and makes it easier to operate. A number of associations of the textile trades have claimed that many of these uplifts are out of date and the Revenue authorities have been in consultation with those associations.
But let us look at her suggestion. This proposes to continue the present rules for assessing Purchase Tax and introduce a special rule for cases where the goods pass direct from the manufacturer to the retailer. The hon. Lady brought out a good point in indicating that where a manufacturer does his or her own wholesaling there is a case for a different system because there is a duality of function. So there is a germ of an idea here, but I do not think that her suggestion would work.
The Clause excludes retailers like the chain stores, which buy in wholesale quantities, and they would continue to pay tax on the uplifted prices. We consider that the Clause would give rise to practical difficulties, even if its principle were accepted. Assessment should be on "normal" prices, but, as in so many other things, normality in price is not always easily recognised.
§ Mrs. Castle
Might I point out to the right hon. Gentleman that, clearly, a reference to "normal" sales is a reference to the level at which the manufacturer sells to all types of retailers and this is an attempt to avoid discrimination between the large and the small; and, therefore, the big buyer getting a "cut" price would not be helped.
§ Mr. Butler
I am glad for the explanation, but I thought it would help the big stores. It is our interpretation that it would particularly benefit those, but if that is not the case, she will be interested, I think, to hear that the matter is to be further examined.
1306 Furthermore, there would be difficulty in dealing with imported goods; because goods bought direct from the foreign producer would be taxed at a lower level than the home supplies of the same article, and the home manufacturers would hardly be likely to welcome this intrusion which would result from the operation of the Clause.
The hon. Lady spoke about the D scheme, and I agree that, technically, it is possible under the scheme for the uplift to operate so that, if a price is just below the D level, the uplift would bring it just above the level, and tax would be paid just above that level. Therefore, there are certain sound points and, I think, certain deficiencies, about the proposal made in this Clause.
I am informed that in one matter the hon. Lady is not correct, and that is that children's frocks, when described as young children's garments, do not pay tax, or uplift, as was suggested by the hon. Lady. If I am wrong we can argue about it afterwards, but I think I am right. Leaving that aside, on the main issues raised it is clear to me that not only should these discussions take place with the associations mentioned, but that we should follow up the point raised by the hon. Member for Orkney and Shetland (Mr. Grimond), and have this matter properly investigated in the light of the circumstances prevailing at the moment.
I have said enough to show that the Government support the main idea of equalising out the selling price and the tax on it. But we consider that we should appoint an independent inquiry, and I do not think that the hon. Member for Orkney and Shetland is right in suggesting that it should be the same inquiry as we have already decided on. Therefore, I propose to appoint an independent committee, under an independent chairman, to look into the question in the immediate future and to consult the different interests.
To give an outline of its terms of reference, its functions will he to examine the need for ensuring equality of treatment for comparable goods, with particular reference to the question of uplift. If there are any other matters which I feel have arisen in this debate I will enlarge the terms of reference, and that is not a drafting version of them. If the committee of inquiry can pay attention to all 1307 the arguments raised, not only in this debate, but also among the trade associations and the traders concerned, we might find a system which not only was fair, but seemed to be fair, as between large and small traders, and as between manufacturers performing their own wholesaling and others, and really take into consideration all the matters mentioned.
The hon. Member for Gillingham (Mr. Burden) will, I daresay, have a word in this debate himself, and the hon. Member for Bridgwater (Mr. Wills) who also has something on the Order Paper, might like to know that the question of carriage can also come under the consideration of the committee which we have decided to set up. Under the circumstances, I hope that the Committee will agree that the Government realise there are points to be looked into on this important question, and that that is the best way of dealing with the matter.
§ Mr. Gaitskell
We are all indebted to my hon. Friend the Member for Blackburn, East (Mrs. Castle) for raising this matter, and I think we should congratulate her on the response which has come from the Government. As the Chancellor says, it is a very difficult issue and takes some time to master. The Chancellor has spent several hours today being instructed about uplift and I am sure he would agree that my hon. Friend must have spent several days, because she showed herself a mistress of uplift in the exposition which she gave to the Committee.
The real issue is primarily one of equity. As I understand, the difficulty has always been that if Purchase Tax is charged simply on the price charged by the manufacturer when selling direct to the retailer, then in fact, the retailer who bought direct paid a smaller absolute tax on the same article than the small retailer who bought from the wholesaler. Whether that is a very important argument in favour of the principle I am bound to say I rather doubt.
Unquestionably, the whole system of uplift involves a great deal of administrative trouble, and if we can get rid of it on those grounds it is strongly to be supported. As my hon. Friend pointed out, we have to consider the interests of the consumer and undoubtedly the addi- 1308 tion of uplift is imposing an additional burden on the consumer. It is, indeed, discouraging to more efficient methods of distribution if there is to be a special uplift imposed.
On these grounds, I am sure that my hon. Friend was right to raise this matter. I think that she made a good case, and I am glad that we are to have this inquiry. I take it that it will be an inquiry by a Departmental committee, or something of that kind, which will hear evidence and publish its report in the normal way. We would all wish, as in the case of the other committee, that its report should be made as quickly as possible. In the circumstances, I hope that my hon. Friend does not feel too downcast by this debate, and possibly she may feel that it is not necessary to press the matter further.
§ Mr. F. A. Burden (Gillingham)
I should like to congratulate the hon. Member for Blackburn, East (Mrs. Castle) on having the Clause selected, and on her manner of putting over a case which most hon. Members on both sides of the Committee felt ought to be aired. We all agree that the Chancellor has taken the right course in setting up a committee. It is a difficult question. It has been made more difficult by the changes in the market situation. There has been abolition of price control, and there is now a buyers' market again. That, in effect, must make more difficult the question of fixing the uplift level. At best, I think that most people in many trades consider it to be a hit and miss procedure; and it even caused a High Court Judge in 1949 to remark that evidently an opinion must be reached by some method. He also remarked, "They are not spinning a coin, or anything like that."
I think it is wrong that power should be delegated in many cases to some junior officials of the Customs and Excise to fix the notional values, which after all, are purely imaginary wholesale values. I believe that it has been an example of delegated legislation at its worst. It cannot be said that it has been, or can be, in the least clear, or capable of exact definition. I feel sure that the industries concerned with uplift will welcome the Chancellor's offer to set up a committee. Will the Chancellor now take steps to ensure that if there are any cases in which uplift causes tax to be charged on goods which are below the D level, that tax will 1309 be relieved? It clearly is not the intention that anything below the D level should be charged Purchase Tax, either through uplift or direct tax.
§ Mr. Harold Davies (Leek)
As the case has been put so well by my hon. Friend, I do not want to weary the Committee by iterating some of the arguments; but despite the fact that some hon. Members want to come to the next Clause, I must emphasise that this also affects the narrow fabric industry and the rayon industry. I specifically studied the problem from the point of view of those industries. Because of the reasonable approach of the Chancellor, I would only ask him, when he sets up the committee of inquiry to see that opportunity is given to the narrow fabric and rayon industries in the Leek area to present their views on the administrative anomalies which may exist so far as this Clause is concerned.
§ 11.0 p.m.
§ Mrs. Castle
In view of the Chancellor's offer of a very full inquiry into the matter I beg to ask leave to withdraw the Motion.
§ Motion and Clause, by leave, withdrawn.