HC Deb 26 May 1954 vol 528 cc488-502
Mr. E. Fletcher

I beg to move, in page 5, line 6, after "registration," to insert: and set out in any public notice issued by the Commissioners.

The Temporary Chairman (Mr. George Thomas)

I think that the hon. Member has moved the wrong Amendment. The Amendment called is in page 4, line 45, to leave out from "Act," to "but," in line 1, on page 5.

Mr. Fletcher

With respect, Mr. Thomas, when your predecessor was in the Chair he intimated to me that he intended to call the second Amendment.

The Temporary Chairman

That is different from what I was advised.

Mr. Boyd-Carpenter

The matter is one for you, Mr. Thomas, and not for me, but my understanding squares with yours and not with that of the hon. Member for Islington, East (Mr. E. Fletcher).

Mr. Hale

In the circumstances, would it not be better to call both Amendments to avoid any possibility of misunderstanding, and then the discussion would be in order?

The Temporary Chairman

I think I had better abide by my first Ruling, which is to call the first Amendment, in page 4, line 45. That is as I have been advised.

Mr. Jay

If that course is followed may we take it that if my hon. Friend wishes to do so he will be able to discuss the points he desired to make on the Question, "That the Clause stand part of the Bill"?

The Temporary Chairman

Yes.

Mr. Fletcher

I must accept your Ruling, Mr. Thomas.

I beg to move, in page 4, line 45, to leave out from "Act" to "but," in line 1, on page 5.

In doing so, I would preface my remarks by saying that I am afraid it will inevitably involve a rather longer debate on the Motion, "That the Clause stand part of the Bill" than would otherwise have been necessary.

I think the Financial Secretary will agree that it is not only reasonable but necessary for us to spend a certain amount of time in discussing this Clause. During his Second Reading speech, the right hon. Gentleman apologised for the complexity of Clause 8, and although he gave some explanation, it was obvious that it was the kind of Clause which it would be more appropriate to discuss in Committee. Although this is a Clause of great complexity, we are a legislative Assembly and it is necessary that we should try to get this complicated and involved legislation—which affects so many traders—as clear and tidy as possible.

According to the Financial Secretary, the object of Clause 8 is to provide that … there may be done what has been assumed for some time might be done; that is to say, that a certificate of registration should be issued in respect of part of a business. This is a most curious situation because Purchase Tax has now been in existence for 14 years, and it is only now that the Government apparently take the view that under the present law it is not open to have a certificate of registration for part of a business. Hitherto they have acted on that assumption and they now desire to regularise their assumption. Not only that, but they also, by the most blatantly restrospective legislation I have ever seen, seek to validate all kinds of things, expresed in common language, which have been going on for the last 14 years.

This would clearly seem to be something which merits the closest examina- tion by this Committee, because obviously the legal problems which will result from this kind of legislation will be most involved unless we can get the matter straight. I am particularly delighted, as I am sure is the entire Committee, to know that we are to have the assistance of the Solicitor-General on this Clause.

May I read what the Government seek to do in subsection (2)? The operative words are that if before the relevant date, the Commissioners entered into any arrangement or agreement with him"— that is, the trader— as to the cases in which he should make representations as being the holder of a certificate of registration, or imposed any requirement to the like effect under any practice established for the granting of certificates of registration, and the arrangement, agreement or requirement is in force at that date, subsection (1) of the said section fourteen shall apply as if that arrangement, agreement or requirement were a requirement imposed in exercise of the said power. May I give an example to indicate the kind of problem which may arise? There are two obvious cases. The first was given by the Financial Secretary and concerns the person who is partly a wholesaler and partly a manufacturer and who has to be registered as a manufacturer, but need not necessarily, looked at from his wholesaler's aspect, be appropriate for registration. It must be highly inconvenient for a trader, whether a limited company or otherwise, to be registered for one part of his business and not registered for another part of his business. It must be difficult for him to know exactly how the legal requirements in respect of Purchase Tax apply to him.

In the ordinary way a person who is registered has certain rights. He can buy from another registered trader and, within the circle of registration, there is no obligation to pay tax. If for some purposes he is within and for some purposes he is without the registration, I should have thought there would be problems in knowing precisely what goods he can buy in his capacity as a registered dealer and what it is suggested that he should not buy.

The way in which the Customs has sought to deal with this in practice in the last 14 years has been to qualify his licence in some way. I assume—and I hope the Solicitor-General will correct me if I am wrong—that it has now been recognised that there has been no legal warrant for that at all. The Customs has assumed the power to do it and traders, as a matter of convenience to themselves, have also assumed that the Customs and Excise had the power to do it.

The first question which arises on the Clause is whether it is intended by subsection (2) to give legal effect retrospectively to all the cases in which the Customs has endorsed the trader's certificate or has imposed some qualification as to the area in which he can deal as a registered trader and as to the area in which he cannot deal. Secondly, I should have thought that it was desirable to know what are these arrangements, agreements or requirements referred to in the Clause and what is meant by the words any practice established for the granting of certificates of registration.

Mr. Boyd-Carpenter

On a point of order. I do not want to interrupt the hon. Gentleman's argument in such a difficult matter, but I cannot see how his observations relate to the Amendment. I wonder whether it would be more convenient if we disposed of the Amendment aid took the debate on the Question, "That the Clause stand part of the Bill," as I thought the hon. Member intended. I do not make the point of order in an obstructive sense, but I think that what I suggest would be more convenient.

The Temporary Chairman

I think the Minister is reasonable in that request. I have already indicated to the hon. Gentleman that we could discuss his second Amendment on the Question, "That the Clause stand part of the Bill."

7.45 p.m.

Mr. Fletcher

Perhaps I may come to that Amendment later.

May I break off the argument which I was making and deal with the point concerning the words in line 45? The object of the Amendment is to delete the words has been registered at all times since that date. It will be appreciated that in introducing this retrospective operation the Government seek to protect the position of certain people who have acted bona fide in the past. On Second Reading, the Financial Secretary said that the position of existing registrations is safeguarded by subsection (2), which provides that existing registrations shall not be affected in so far as this Clause regularises what has been done in their particular case; that is to say, it confirms the part registration but it will not enable registrations to be withdrawn in the case of a firm already registered. …"—(OFFICIAL REPORT, 3rd May, 1954; Vol. 527, c. 32.] I want to ask whether that undertaking is carried out by these words in subsection (2). It looks to me as if the subsection protects only a person who is both registered at the date of the passing of the Act and has also continued to be registered at all times subsequent to that date. We have heard in an earlier debate today that the Government have the power, under Section 12 of the 1944 Act, to de-register at any time. Let us, therefore, take the case of the trader who has been deregistered after the passing of this Measure—contrary to his will—and may have been reregistered subsequently.

He will be a person who was registered at the date of the passing of the Measure but will have lost the benefit of that registration through no fault of his own. He may subsequently have been reregistered. Why should such a person lose the protection which I should have thought the Government intended to give by subsection (2)? It is the purpose of the Amendment to put that matter right.

Mr. Boyd-Carpenter

The hon. Member is correct in describing the effect of the Amendment, which is to extend the protection of the subsection to the case of a trader who, having been previously registered, ceases to be registered and is subsequently reregistered. There is a good deal of force in what the hon. Member says as to the desirability, in those circumstances, of giving this protection to such a trader, and, if the Committee so wish, I will certainly recommend my hon. Friends to accept the Amendment.

Mr. Fletcher

I am very much obliged.

Amendment agreed to.

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

Mr. E. Fletcher

May I resume the remarks which I was making when I was out of order in discussing the Amendment? Perhaps the Committee will allow me to pick up the thread. The point which I was making was the desirability of making quite sure what the legal effect will be if the Clause is passed in this form. What really troubles me is whether or not this Clause is intended to have legal effect. In that context I should like to refer to some very curious observations in the Report of the Purchase Tax (Valuation) Committee, in paragraph 136 of which, dealing with this particular subject, they say: It has, therefore, been found necessary, in order to prevent the administration of the tax from putting an intolerable handicap on the carrying on of distributive trading, to make a large number of agreements between the Department and associations of traders or individual traders under which the traders know what the amount of liability for tax will be at the time when chargeable purchases are made. … the agreements between the Department and traders give effect to different considerations in different cases; they are based on assumptions of varying soundness, and in many cases they are of a rough and ready description. All this seems to us to be inevitable, and the system of having such agreements, though they do not have, and in our opinion ought not to have, any legal force, is advantageous both to the Department and to traders and indeed is necessary. This is from the Grant Committee Report (Cmd. 8830), page 27. That Committee, set up by the Government to analyse the operation of the Purchase Tax, drew attention to the fact that the whole machinery of the Purchase Tax is so unworkable that it only operates at all because of some very vague agreements, as they are called, between traders and the Department "of a rough and ready description" which, according to the Grant Committee, do not have and ought not to have any legal force.

I fear that that is what has been happening in the last 14 years. All kinds of customs and practices have grown up, and traders have been acting upon them. To take one case about which we have heard, one result has been that very large sums have been paid by traders to the Treasury for which there was no legal liability at all. I have not the slightest doubt that the result of our passing this Clause will be that a lot of traders will be tasking themselves, and asking their legal advisers, whether or not they have a right to reclaim from the Government those sums which have been paid without any legal obligation at all.

It is no use our pretending that this is not a serious matter. It is a serious matter when this legislative Chamber seeks to give retrospective legislative approval to vague arrangements which have grown up as a result of some practice established by the Government. I would not mind that if there was some way of finding out what these arrangements or practices are. May I take an illustration? The Committee will be aware that, for the practical convenience of everybody in the operation of Purchase Tax, the Customs issue a notice, and the notice which I had was called Notice No. 77, and that, presumably, was because it followed Notice No. 76.

This notice comprises several pages of printed matter dealing with the Purchase Tax and setting out all the arrangements about payment, deposits, records, sales, relief, evidence, and so forth. The curious thing is that there is not a word in this document as to the arrangements which govern the operation of traders registered in regard to part of their business but not registered in regard to the other part.

Let us take a case in the class with which we are now dealing—the case of a bespoke tailor who may be registered. He has his certificate endorsed with a condition limiting it to the business of bespoke tailoring, which means that he can buy cloth without paying Purchase Tax. He can make a suit, charge the customer the Purchase Tax when he sells the suit, and then pay the tax to the Treasury. If his certificate is so endorsed, it is not open to him to use the benefit of registration for other business.

There is nothing whatever in the law as it now stands which gives any legal sanction to any person registered for any purpose who may refuse the benefit of a registration certificate for a particular purpose. He would have to observe the requirements if he so used it, but he would be entitled to do so. There may well be cases in which persons may so use it. There may be a number of people who may have entered into it some rough and ready arrangement with the Customs, but who may, nevertheless, now want to rely upon their strict legal rights.

We are here dealing with a bunch of cases which, acording to the Government, and quite rightly, I think, are designed to prevent tax evasion, which is a legitimate object which we all support, but, in doing so, we must protect the honest trader. I am concerned about the position of honest traders who have been carrying out the law as it has existed for years and as it is known today, and who are now to be told that, when this Bill is passed, they will be bound retrospectively by Clause 8, through this almost unintelligible subsection (2), which is expressed in the vaguest possible form, that retrospective validity has been given to any and all arrangements made with the Commissioners under a practice established with the granting of these certificates. This seems to me to be most undesirable and I hope the Committee will examine it very critically before we pass the Clause.

Mr. Boyd-Carpenter

The hon. Member for Islington, East (Mr. E. Fletcher), through no fault of his own, divided his speech into two instalments, and we are now discussing the part of it which relates to this Clause.

It is clear from his speech that he and the Committee understand fully the effect of this Clause. It is the fact that, for some time past and—without seeking to make a party point—going back before the time of this Administration, it has been the convenient practice to grant certificates of registration to traders who agree to exercise the rights given by these certificates in respect of certain parts of their businesses only.

I say at once to the hon. Gentleman that, as I understand, and higher authority in matters of law will confirm it, there has been no legal basis for that very convenient practice. One of the purposes of this Clause is to put that thoroughly sensible practice on a proper legal basis, and what we are concerned with here is whether or not we should put that practice on a proper legal basis.

I submit that this is a practice which ought to be followed. I do not want to go over again the arguments on the general Purchase Tax registration question which we had on an earlier Clause and in relation to an earlier Amendment. but it is the fact that one of the great difficulties in this context is to keep the granting of new registrations and the continuance of old ones on a fair basis as between different traders. In my submission, it would be quite wrong to grant a certificate to a large wholesale business because, in respect of some small and ancillary manufacturing activity, it was necessary and proper that registration should be made, and that has been the practical view of the matter which has been taken for a good many years by different Administrations.

8.0 p.m.

The hon. Member appeared to be slightly shocked at what he described as "the retrospective provisions" of subsection (2). All that is done here is to deal with agreements freely and openly entered into by honest traders, and to put them on a proper legal basis. Nobody is being bound to do anything to which he has not in the past freely agreed, and I do not think, in the circumstances, that anybody is likely to object.

I ask the Committee to contemplate what would happen if we did not pass this Clause. We should have a state of affairs which has worked in the past, but which has now been found to have an unsound basis. Subsection (2) says that once a trader has entered into an agreement in the belief that it was on a proper legal basis, it shall be on a proper and sound legal basis.

The hon. Member referred to paragraph 136 of the Grant Report on Valuation with respect to agreements and arrangements entered into between traders and customers. I know what the Grant Committee said on the general question, but the hon. Gentleman will appreciate that those remarks were directed specifically to the question of uplift, which is quite a different question. It is perhaps straining the language of the Committee's Report to apply it without qualification to the totally different sphere of registration.

Unlike some of the other matters with which we have to deal, this one is of reasonable simplicity. I put it to the Committee that it is much easier to be reasonably free with new registrations and continuing registrations if we are not prevented from granting a registration limited to a part of a trader's business.

On occasions, it is difficult to know whether a registration should be granted or not. Anyone who has had to deal with these things knows that there are difficulties from many points of view. It is easier to grant a certificate in respect of that sphere of the business in which there is strong justification for doing so than to find oneself extending it over a very wide sphere of the business in which quite different circumstances apply.

I referred, on an earlier Amendment, to the somewhat freer attitude which we are adopting in this matter. The Clause is perhaps a little relevant to that, inasmuch as if we were to be prevented from carrying out the practice followed by other Governments of granting registrations to part of a business it would be much more difficult to adopt that freer attitude. These are the reasons which have led us, as we have been advised, to alter the law but not, as I understand it, to make any substantial change in the practice—the reasonable practice—which has been followed in the operation of this tax.

We are not concerned here with anything which is likely to make any serious change in existing arrangements. This is to a considerable extent a proposal to restore the position to what it was believed to be. It is unlikely to have any disturbing effects. I suggest that it is a thoroughly sensible practice which has been tried out and found useful both to the traders and to the officials responsible for administering this tax. It has been tried out in experience and it would be a pity to bring it to a close because the legal position has now been discovered to be unsound. I hope that the Committee can now, with a good heart and conscience, give us the Clause.

Mr. Hale

The Financial Secretary told us a few minutes ago that in his view the purpose of having a Committee stage was to permit elucidation of the discussion that took place on Second Reading, but what has happened this afternoon is something different. What has happened in every case on the last three Clauses, is that we have had from the Financial Secretary a totally different explanation of the Clauses from what he gave us on Second Reading.

The explanation he gave us on this Clause on the Second Reading was a little shy and reserved. He introduced his observations with an apology, which is rather rare for him. He said: I apologise for the complexity of Clause 8, which deals with registration for Purchase Tax. It permits what I am advised in strict law the present law does not in terms authorise, the issue of a Purchase Tax certificate of registration in respect of part of the business of a firm."—[OFFICIAL REPORT, 3rd May, 1954; Vol. 527, c. 31.] We have now reached, during your absence from the Chair, Sir Rhys, what must be the most amazing position that has ever been reached on any Finance Bill, or in the history of this body or of any other body. Nobody is a more unreserved admirer of the Financial Secretary to the Treasury than I am. I admire his resilience, ebullience and elasticity, a well as his confidence when he is explaining that he is now about to say something which has not been said before, or to disclose some rather dark secret that has been concealed up to the last moment.

Having lavished that praise on him let me say that I do not think that politics is his precise sphere but a wider, latitudinarian church in which it is unnecessary to come down to details. I am sure that he would then reach a deserved eminence. What has happened is that the Financial Secretary has said, "All we are talking about is an agreement"—the Clause actually says, "arrangement or agreement"—"freely negotiated between honest traders and honest commissioners."

Up to 10 minutes ago he was telling us that the Commissioners of Customs and Excise had said to these poor, wretched traders, "Either you agree to this or you lose your registration." If you lose your registrations we shall illegally exact Purchase Tax from you on the whole of your stock, which we know we are not entitled to do." That is what the Financial Secretary calls a freely negotiated agreement, negotiated as a legal agreement.

Now he says that we must accept his present explanation because he has full confidence in his advisers. In this House, one does not discuss the advisers. That is a tradition that has existed for centuries. In this respect, they are probably the same advisers who advised on the Finance Act, 1944, which we are now told is meaningless. The Financial Secretary said that it was late in the war when the 1944 Act was passed, and early in the war when the 1940 Act was passed, and obviously people were then preoccupied with more important matters.

At that point there was an interjection from, I think, the hon. Member for Gillingham (Mr. Burden), who said that there was no discussion of the Clause in 1944. I do not know Whether there was, but if so, it was done in my absence and I do not know whether the explanation was right or wrong.

We are up against the fact that the Financial Secretary has said, in 1954, "I never understood the Clause until a few months ago. He was most explicit in addressing my hon. Friend the Member for Islington, East (Mr. E. Fletcher), and most emphatically repudiated that the Clause was understood a couple of years ago, as my hon. Friend had suggested when he said: "We have known about this for a long time." "No, no," said the Financial Secretary; "I deny that. Neither I nor my advisers understood this Clause until a few months ago." Then light suddenly came upon them unexpectedly, as it came to St. Paul. The candles were brought in.

They decided that something had to be done. They had to introduce three new Clauses, one retrospective, politically, in certain circumstances, to provide the law which they thought had existed since 1944. On Second Reading, they provided three explanations of that, so that it would not all come at once. There seemed to be a feeling that had there been a disclosure all at once that these Clauses were meaningless, there might be some lack of confidence in the 1944 Act. Someone might well ask whether Purchase Tax had ever been legal up to this day.

We are now called upon to discuss a Clause consisting of three subsections and which for difficulty of interpretation is, I would say, about as bad as any I have seen in a Finance Bill. My hon. Friend expressed delight at the presence of the Solicitor-General who, in due course, would be able to elucidate the Clause. In the circumstances, I do not blame the Solicitor-General for remaining seated for the time being. It seems to me that anyone who rose to speak on this matter, particularly with the precedent of the last two hours behind him, might be showing courage rather than discretion.

The first subsection, as I understand, is tolerably clear. It says: At the end of subsection (1) of section fourteen of the Finance Act, 1944 … there shall be added the words 'or that he shall make representations as being the holder of a certificate of registration only in such circumstances or as respects such classes of goods as the Commissioners may from time to time direct, or both of those requirements'. I only want to say, on that, before we pass the Clause, that there was a time when Parliament was very gravely concerned about these things. There was a time when there was an Executive and a judiciary, and a Civil Service subservient to the Executive. It may well be, of course, that in a democracy one has to abandon a certain amount of democracy in the first month or two. But this is now 1954.

Under this proposal the Commissioners can say, "Well, my lad, if you want this registration, you must sign on the dotted line there. If you argue, then you do not get it. You have the chance of writing to your Member of Parliament, and if your Member has the time he will look up the Finance Act, 1944, and the 1954 Finance Bill and the reports of the various Committees, and will try to master the subject and tender some advice. But by the time he does that, the registration will have gone."

It places the matter completely in the power of the Commissioners who can say yea or nay to the wholesaler who has no appeal and who really has no status to argue it. The decision is made administratively, and this is a grave matter. I remember the latter stages of the war, when I was not in the Armed Forces, when we had the concentration of industry and when firms were amalgamated and people were thrown out of business. In those days it seemed a small thing because better people were losing their lives, and the hopes and aspirations of all were submerged in the common chaos. But there was a system by which one came to Whitehall and wandered round the corridors until one came to a certain room in which a gentleman was sitting at a desk—an honest and sincere gentleman, no doubt—who decided whether one was to be ruined or not.

The whole job of this Committee is to examine these things and to say whether or not we can continue to trust the Executive with these almost unlimited powers. Having said that, we now find that it is proposed to make the extension retrospective. Subsection (2) states: The power conferred by the foregoing subsection shall not be exercisable as respects a person who is a registered person at the date of the passing of this Act and has been registered at all times since that date, but if before that date the Commissioners entered into any arrangement or agreement with him as to the cases in which he should make representations as being the holder of a certificate of registration, or imposed any requirement to the like effect under any practice established for the granting of certificates of registration, and the arrangement, agreement or requirement is in force at that date, subsection (1) of the said section fourteen shall apply as if that arrangement, agreement or requirement were a requirement imposed in exercise of the said power. 8.15 p.m.

The Financial Secretary may say, "What is the difference between an agreement and an arrangement, or an arrangement and a requirement?" I should have thought that a requirement was imperative in its meaning. If that is so, then it seems to me that the Financial Secretary's suggestion that it is a happy arrangement between little tradesmen, on the one side, and the Commissioners on the other, sitting in amity round a table with all the pleasure and mutual tolerance of an international conference is not quite putting it in its precise perspective.

Then, of course, we get the reference to the double charge under Section 15 of the Finance Act, 1944. The Financial Secretary says that he understands it, or, at least, that his advisers understand it. Having applied his undoubted talents to this matter with vigilance, and so on, he is able to tell the Committee what it means. He says, of course, that this does not agree with the Sections of the 1944 Act in respect of which he has been administering Purchase Tax for three years. He did not understand those at all and always felt that they meant something which they did not mean.

Now he says, "Have confidence in me because I know. Here is an explanation of the Clause. On the basis of that explanation, I am sure you will pass it. This is a useful addition to the powers of the Executive. It enables us to do things that we have been unable to do before." Then he adds a modest addendum to the effect that it also legalises what the Government have been doing for a long time.

I do not want to delay the Committee. Indeed, I speak more in sorrow than in anger. But it is a deplorable pass to which we have come. I do not wonder that so many of the Financial Secretary's colleagues on the Front Bench and so many of his hon. Friends on the back benches who normally support him have left the Chamber to hang their heads in shame while this debate takes place. I do not know what view my right hon. Friends will take on this Clause, but, so far as I personally am concerned, I feel that I have made my protest.

Mr. Jay

For the sake of clarity, will the Financial Secretary, who is a lifelong critic of retrospective legislation, confirm that what he has done by this Clause means that all manner of things which the Customs and Excise Department has been doing illegally for years past are now, by this Bill, made legal, although they were not legal at the time that they were actually carried out?

Mr. Boyd-Carpenter

Very nearly The position is that arrangements made without statutory sanction during this Government, and, of course, during the right hon. Gentleman's term of office, are now being given that statutory sanction.

Mr. E. Fletcher

Will the Solicitor-General tell us whether payment of Purchase Tax due to be made under these illegal arrangements which are now being retrospectively validated is to be legalised and whether the effect of this Clause is to legalise and validate all payments of Purchase Tax that have been made in the past?

Clause, as amended, ordered to stand part of the Bill.