HC Deb 26 May 1954 vol 528 cc485-8

Motion made, and Question proposed, "That the Clause stand part of the Bill."

Mr. Geoffrey Stevens (Portsmouth, Langstone)

I am a little puzzled about this Clause. It seems clearly directed to deal with manufacturers who make goods, not for sale but to be let out on hire. As I understand it the name of this tax is "Purchase Tax." I am puzzled that one can apply a tax called Purchase Tax to goods which are not in fact purchased.

Perhaps the best example of the sort of thing at which this Clause is directed is that of radio and television manufacturers in a big way—I do not want to mention names—who make wireless receiving sets and, instead of selling them to the public, let them out on hire. Quite obviously if there is no sale there is no purchase and, if there is no purchase, how can Purchase Tax be properly applied? I am also puzzled because, as subsection (1) indicates, Purchase Tax was imposed 14 years ago. For 14 years these goods have been free of Purchase Tax and the manufacturers have let them out on hire to the public and been free from the necessity of registration.

Why is something which has been right for 14 years suddenly discovered to be wrong? I am not in a position to know whether the manufacturers who make wireless and television receivers for sale to the general public have complained that their business is being undermined or undercut in some way. I should not have thought that was likely, but I am not in a position to say.

I am puzzled to find that Purchase Tax can be applied to something which is not purchased and that some omission which has been perfectly satisfactory for 14 years should suddenly be found to be wrong. I shall be very grateful to the Financial Secretary if he can say a word or two in explanation of these points.

Mr. Boyd-Carpenter

I gladly respond to the request of my hon. Friend the Member for Langstone (Mr. Stevens). The purpose of this Clause, as he has quite correctly diagnosed, is to secure that Purchase Tax is payable by a manufacturer of goods who, having manufactured them, does not sell them but hires, or rents, them out. My hon. Friend asks how Purchase Tax can be applied to this, inasmuch as there is. as a matter of definition, no purchase? "Purchase Tax" is not a term of art. It is a common expression used to describe this well-loved impost, and in fact there are other transactions where it can be said that it is appropriate.

Under the existing law a rather curious position arises. If someone manufactures more than £500 worth of goods for sale he requires to be registered. If he manufactures both for sale and hire, provided that his sales limit exceeds £500, he also requires to be registered. But if he manufactures solely for hire, however large may be his manufacture, he does not require to be registered, and therefore his product is not exposed to tax.

7.30 p.m.

There is therefore a loophole in the law advantage of which is now being taken, in particular—as was referred to by my hon. Friend—by the radio and television trade. Indeed, it has gone so far as to have had attention drawn to it in a trade paper last year. It is clear that so long as Purchase Tax endures it is unfair that a person who manufactures and sells to someone else, who then rents out, should find the apparatus attracting tax whereas a person who manufactures and rents directly should be wholly immune from tax. I think that is unfair, and that is also the view of the sections of the trade concerned with manufacture for sale.

Mr. Jay

Can the Financial Secretary tell the Committee if this is another case where, contrary to the law, tax has been collected for some years past, or is it a case where the taxpayers did not discover that this loophole existed and that no tax has been collected?

Mr. Boyd-Carpenter

The second alternative of the right hon. Gentleman is right. This is a case in which the loophole in the law had not been observed by those who might have gone through it until recently. No tax has been imposed, but the position now is that use is being made of this loophole. I think that the Committee will agree that this is inequitable as between those who manufacture for sale and those who manufacture for hire, and I suggest that it is reasonable and right to remedy it.

That is also the answer to my hon. Friend's question about why it is necessary to do this 14 years after the tax was enacted. The position has only recently been discovered and taken advantage of.

Mr. E. Fletcher

The Committee will welcome the explanation of the Financial Secretary. This is not a Clause on which we on this side of the Committee wish to spend much time. That is not because we have not examined it carefully to see if we could improve it. It is a Clause which we regard as thoroughly meritorious, and our only concern is to see that it is sufficiently widely drawn to close up the loophole to which the right hon. Gentleman has drawn attention. For that reason we put down an Amendment, which has not been called, by which we proposed to insert some words. But on reflection I came to the conclusion that it was not necessary to make the addition, and I assume that the right hon. Gentleman is of the same opinion.

Mr. Boyd-Carpenter

If, without being out of order, I may refer to an Amend- ment which has not been called I would say that I agree with the right hon. Gentleman.

Sir W. Darling

May I take it that this will apply to sporting requisites? It may also apply to clothing and even to cars. I take it that these are covered by the Clause and that it does not refer only to radios.

Mr. Boyd-Carpenter

No. It applies, as it is drafted, to all goods generally. I referred to radios because that happened to be the direction in which the problem has arisen.

Clause ordered to stand part of the Bill.