HC Deb 26 May 1954 vol 528 cc502-7

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

Mr. Jay

I have two reasons for inviting the Solicitor-General to give a short explanation of this Clause. One is that the Financial Secretary has made his fair share of speeches this afternoon and someone else on the Government Front Bench should have a chance. The other is that, to me, as a layman, the explanation of this Clause would appear to be very largely a legal matter.

In this case also the Financial Secretary gave a brief explanation on Second Reading, but to me that did not fully explain what the Clause implies. On Second Reading the Financial Secretary said: Clause 9 deals with operations which bring goods not liable to tax into a taxable class or change goods from one rate of tax to another. It follows logically from the somewhat similar, though limited, provisions with respect to vehicle chassis, which were enacted in Section 23 of the Finance Act, 1948. As Section 23 of the Finance Act, 1948, was introduced by the previous Government I am sure it is a very sound enactment, but in that Section I find no reference whatever to vehicle chassis. One immediately asks why the Financial Secretary introduced it like that in the Second Reading.

What Section 23 of the Finance Act, 1948, actually says is that … any treatment of goods which affects the get-up of the goods and which results in the goods becoming chargeable goods or becoming goods in respect of which tax is chargeable at a higher rate shall be deemed … to be the application of a process in the course of making the goods. And the term "get-up" is defined as … marking, labelling, packing or any other treatment adopted for identifying goods or presenting goods to the user or consumer. What the Section therefore tells us in effect is that any change in the get-up" … shall be deemed … to be the application of a process in the course of making the goods. Having got as far as that we return to the present Clause 9 where we find that Section 23 of the 1948 Act: … shall apply in relation to any treatment of goods here is a new form of words— which affects the goods themselves as it applies in relation to a treatment which affects the get-up of the goods. I think that so far I carry the hon. and learned Gentleman with me. So far as I can see the total effect of the Section and the 1948 Act is that any treatment of the goods which affects the goods themselves shall be deemed to be the application of a process in the course of making the goods, and hence shall have certain effects for tax purposes.

The ordinary man—the non lawyer—would have thought that the application of a process in the course of making the goods was treatment of goods which affects the goods themselves. Will the hon. and learned Gentleman tell the Committee what precisely is the distinction between these two forms of words? The Committee may then have some chance of understanding exactly what we are now doing.

Perhaps the Solicitor-General would also give an example of this operation with which we are concerned in this case described as … any treatment of goods which affects the goods themselves … On Second Reading the Financial Secretary spoke of the case of a ring which contained a jewel. The ring might be returned to the maker, one jewel removed—I take it after the tax had been charged—and a different and more valuable jewel inserted. It appears that, at the present time, tax can be avoided by that operation. I do not know whether the hon. and learned Gentleman can give us some other explanation of the type of thing he has in mind.

The Financial Secretary also said, at the end of his remarks on Second Reading, that these new powers which are being taken under this Bill … will be exercised in the same way as changes in the rate"— that is, the rate of tax— and will be subject to the control of this House by the affirmative Resolution where the effect of a change is Ito impose tax."—[OFFICIAL REPORT, 3rd May, 1954; Vol. 527, c. 32-33.] Where any change has the effect of imposing a tax on some new class of goods there should obviously be an affirmative Resolution of this House, but will the hon. and learned Gentleman tell the Committee the precise sort of resolution which we may expect under these new powers? We are not here concerned, apparently, with an order which would impose a tax or raise the rate of tax on a certain definite class of goods, which is the normal Purchase Tax order with which we are familiar. This is apparently to be some new form of resolution which will presumably apply to certain specific operations such as the alteration of the form of jewellery contained in a ring or other ornament.

What precisely are these resolutions which will come forward under the Clause is a little obscure. We shall be grateful if the hon. and learned Gentleman, after such consultations as he may find appropriate, can give us some answer to these questions.

The Solicitor-General (Sir Reginald Manningham-Buller)

I will certainly do my best to answer the right hon. Gentleman's questions. I think that in his observations he was dealing both with Clause 9, which is now under consideration, and with Clause 10. For clarity it is desirable to keep the two separate. The instance which he gave of the stone in the ring being replaced is an instance appropriate to Clause 10, but not to Clause 9.

I hope that he will not think that I am criticising him for dealing in part of his speech with the two Clauses at the same time, but for the purposes of clarity it is desirable to bear in mind that Clause 9 deals with operations which bring non-chargeable goods into the chargeable class, or chargeable goods into a class carrying a higher rate of tax. Clause 10 is meant to deal with cases where the rate of tax remains the same but a more expensive type of article is produced by the operation, or what is virtually a new article emerges from an operation on second-hand goods.

8.30 p.m.

Mr. Jay

Would the hon. and learned Gentleman not agree that the Financial Secretary's speech on the Second Reading appeared to bring the alteration of a ring under Clause 9? If he looks at column 32 of the OFFICIAL REPORT of that debate I think he will agree that that appears to be the case.

The Solicitor-General

I have not got that particular passage with me. These three Clauses can be dealt with together, because they are all designed to prevent loopholes and tax avoidance in the future. From the point of view of explaining in detail how this provision should operate, I think it is desirable to try to keep the two things distinct, and I will confine my observations now to Clause 9.

The right hon. Gentleman was quite right in his reference to Section 23 of the Finance Act, 1948, and, as he will remember, the problem which led to that Clause being inserted in the Bill was the fact that a wide range of medicines were exempted provided that they were marked with no proprietary brand name and the label was stuck on afterwards. They therefore passed the tax point without paying tax. That is what that Section was brought in to deal with. But while that Section was applied in terms to all classes of goods, as the right hon. Gentleman will sep, the only alterations to which it applied were alterations of the label or the get-up—that is to say, the appearance or description.

That Section did not include any alteration to the goods themselves, although, of course, if there is an alteration to the goods after they pass the tax point with the same object in mind as in the case of the bottle of medicine, there really is a stronger case than there is in the case of the bottle of medicine for treating that alteration as not affecting tax liability—that is to say, making the value of the article include the value of the alteration.

The real purpose of Clause 9 is to extend Section 23 so as to make it apply not only to an alteration of the get-up of the goods or the addition of the label, but to an alteration of the treatment of the goods. The right hon. Gentleman, I am sure, will recognise that in the Purchase Tax field it is impossible in some cases to avoid rather arbitrary borderlines, and it is sometimes easy to move an article across the borderline either by a simple alteration or by an improvement, and an alteration or improvement which clearly is not in all cases a process of manufacture.

One must recognise that there is scope for considerable tax avoidance by arranging that the goods pass the tax point in the state in which they attract the least tax, and then making an alteration which brings the goods into the more highly taxed class without paying the tax. To give the right hon. Gentleman a short illustration, let us take a 12-seater omnibus, which is wholly exempt. That can be easily converted into a chargeable vehicle by removing the distinguishing fittings of an omnibus. If that is done afterwards, we have a vehicle of a chargeable class but without any Purchase Tax being paid upon it.

I have given that one illustration in the hope that I shall satisfy the right hon. Gentleman and his hon. Friends that this really is a necessary extension which flows from the provision made in the Finance Act, 1948, to prevent avoidance of Purchase Tax where avoidance would clearly be wrong.

Mr. Jay

If it is true, as the hon. and learned Gentleman says, that Section 23 of the 1948 Act was mainly concerned with certain alterations connected with proprietary medicines, why did the Financial Secretary describe it as a provision with respect to vehicle chassis? We have had so many different explanations this afternoon of what these provisions were intended to do that I feel bound to ask the hon. and learned Gentleman whether the Financial Secretary was in error in bringing in the question of vehicle chassis.

The Solicitor-General

I am sure the right hon. Gentleman will not expect me to be cross-examined upon what my colleague has said. However, I do not object at all to being asked questions about it. The case of the vehicle chassis may well be another illustration of the same process of tax avoidance which this Clause is aimed at preventing. It is the case that Section 23 applied and does apply to all classes of goods but it was brought in primarily for medicines.

The words are wide enough to apply to all classes of goods, and my hon. Friend probably referred to vehicle chassis merely as one class of goods which comes within the purview of that Section, although, as that Section now stands, that class of goods would not be affected by the Section unless one altered either the label on the chasis or the get-up of the chassis.

Clause ordered to stand part of the Bill.