HC Deb 07 February 1955 vol 536 cc1686-98

10.28 p.m.

The Financial Secretary to the Treasury (Mr. Henry Brooke)

I beg to move, That the Purchase Tax (No. 1) Order, 1955 (S.I. 1955, No. 100), dated 19th January, 1955, a copy of which was laid before this House on 21st January, be approved. This is the first occasion on which I have had the distasteful duty of asking the House to approve the imposition of a tax, and that makes me all the more regretful that the task should fall to me.

I want, in as few words as possible, to explain the necessity for this Order, and I hope to convince the House that the Chancellor of the Exchequer is acting in no vindictive spirit nor from any desire to extract the uttermost farthing from the hard-pressed taxpayer. He is simply animated by a desire to remove what otherwise might have become a most awkward anomaly.

My right hon. Friend the Chancellor of the Exchequer, replying to a Question by the hon. Member for Dartford (Mr. Dodds) on 25th January, said: The Purchase Tax Orders which have just been laid before Parliament"— of which this is one— are in each case designed to deal with special situations which have come to my notice and which need to be rectified without delay."—[OFFICIAL REPORT, 25th January, 1955; Vol. 536, c. 8.] I think I can best help the House by seeking to explain what the special situation was which necessitated the imposition of Purchase Tax at the rate of 25 per cent. on motor attachments for pedal cycles.

The House will be aware that motor cycles and pedal cycles are subject to Purchase Tax under group 35 at the rate of 25 per cent. Up to 24th January, however, there had been no tax on those attachments which one can buy if one wishes to help oneself along on one's push bike. I have every reason to sympathise with those people who wish to buy something of that kind, because my constituency is on a hill, and as a boy I learned to ride a bicycle in north-west London. I think all who can assist themselves in getting about north-west London by attaching one of these motor appliances to their push bikes are lucky.

The reason why these attachments have hitherto been free of tax is that when Purchase Tax was first imposed, during the war, 13 or 14 years ago, to all intents and purposes there was no manufacture or sale of these appliances in this country. Consequently, they were not covered by the Purchase Tax Schedules. Up to the present, indeed, people who have bought them have been fortunate, because if one looks at the general principles and general shape of the Purchase Tax one can see that these would normally have been expected to come within the field of the tax.

But they were not then on sale, and no action was taken in the years after the war to bring them within the taxable field. Complaints arose from time to time from those people who manufactured and sold motor cycles and auto-cycles that this was unfair tax discrimination against them. Nevertheless, the gap between the two seemed so wide that it was hard to accept the argument that unfair competition was thus created.

In recent months, however, the situation has somewhat changed. Manufacturers have begun to make and put on to the market a new machine, a factory-assembled pedal cycle with the motor attachment as an integral part. No longer need one buy separately the push bike and the motor attachment. Now, for the first time, one can purchase the whole thing in one. This brought to the fore a Purchase Tax difficulty. What was to be the Purchase Tax treatment of this new factory-assembled article?

At first it was thought that it should be taxed only as a pedal cycle, and that the motor attachment, which of course was the most expensive component of the whole, could remain free of tax, but on further examination it became perfectly clear that that was a misreading of the law, and that, under the law as it stood, it was essential to impose tax on the whole article. That being so, a new form of anomaly was liable to arise.

If a person buys a factory-assembled article, he will have to pay tax at 25 per cent. on the whole thing, but if no action had been taken by the Chancellor of the Exchequer, the alternative course would have been open to anyone to buy the pedal cycle, subject to 25 per cent. tax, and then to buy separately the motor attachment, which would have remained free of tax, and to fit the two together, and thus obtain a tax advantage of about £5.

There is no doubt that the manufacturers of the integrated machine—which, I think, everybody will agree was likely to be a more workmanlike product of British industry in its entirety in comparison with the alternative, which was for the purchaser to fit the bicycle and the attachment together—would have had a genuine complaint against the tax structure in that they would have incurred an extra tax burden of, say, £5 per machine. This was the special situation to which my right hon. Friend referred in his answer to that Question. Clearly, the situation could not be ignored, and a decision of some kind was needed.

Three different courses were open to us. One would have been to do nothing at all, but that would have led to perpetuating the anomaly whereby the factory-assembled machine would have suffered the extra £5 tax burden which would have been avoided if the customer had bought the bicycle and the attachment separately. That would have been a clear and undeniable tax anomaly.

A second course for my right hon. Friend would have been to submit to this House an order that would somehow have exempted from taxation the motor part of the integrated bicycle. It would have been an extremely difficult order to draft, and indeed it would have been a most unusual application of the Purchase Tax. Moreover, that would have perpetuated another kind of anomaly. Undoubtedly, there would have been criticism from the manufacturers of light motor cycles and auto-cycles that the Purchase Tax was discriminating against them and giving an undue favour to this new machine, which is in effect a strengthened pedal cycle with a motor attachment built into it. So that seemed to be no satisfactory solution either.

The third course open to my right hon. Friend was the one which he adopted. That is to say, he came to the conclusion that the right course was to treat these motor attachments as, there can be little doubt, they would have been treated had they been on the market at the time Purchase Tax was introduced: that is, to impose on them the same rate of tax as is imposed on pedal cycles and on motor cycles. This will have the effect of removing all the anomalies. It will also—and no one regrets it more than myself—have the effect of increasing, by sums that seem likely to range from £3 10s. to about £5 10s., the cost of buying a motor attachment to one's own push bike.

I have said that this step is proposed through no desire to increase the revenue at the expense of those people who, very reasonably, wish to buy and use these attachments. What I must say in fairness is that those who have bought them in the past have made a good bargain. They have been fortunate, and the manufacturers have also been lucky. I say nothing whatsoever against them. Quite rightly, they have taken advantage of their good fortune. But I hope that what I have said will convince not only the House but all those would-be purchasers or would-be manufacturers that a situation has arisen which the Chancellor could not ignore, and that it was necessary to take some action now that would remove all risk of tax discrimination for the future.

Before it approves the Order or otherwise, the House is entitled to know the tax yield. At present the tax yield from motor cycles and pedal cycles is about £5 million a year. The estimated additional revenue from bringing these motor attachments within the tax field is £200,000 a year, or an increase of only about 4 per cent. on the tax from that source. I hope that I have made a somewhat complicated and technical subject as clear as I can to the House in a short time. Although this tax is undoubtedly a burden which both the purchasers and the manufacturers will be reluctant to contemplate, nevertheless my right hon. Friend feels convinced that in the circumstances it is the only course that can be taken. I hope that I have said enough to convince the House that no other solution would have been permanently satisfactory.

10.42 p.m.

Mr. A. Blenkinsop (Newcastle-upon-Tyne, East)

It is always agreeable to the House when a Minister appears in a white sheet and apologises for introducing a new tax. But while the Minister was explaining in a great deal of detail all the different courses which the Government might have taken in this difficulty, it passed through my mind that the one course which I should have thought would have leaped to his mind first, as it certainly did to the minds of those of us on this side of the House, was that of getting rid of the Purchase Tax on bicycles altogether.

Although the Minister explained the three other courses which had been discused in the Treasury, it appeared that that course had not been discussed. Therefore, I think it is fair that we should invite the Minister to consider this matter with a view to seeing whether or not the Treasury can afford the concession of this sum of £5 million a year which we are told the Treasury at present receives from the taxation of pedal cycles and motor cycles.

I am raising one or two questions on this subject largely because of the representations which I have received from constituents and others about the application of this tax. It is extraordinary that this rather miserable Order should have been presented, when one looks back upon the great pressure that was exerted by hon. Members opposite for the abolition of Purchase Tax in the years when the revenue from it was vital. Indeed, I should have thought that there was still great pressure on the subject from hon. Members opposite.

After all, this tax means that many workpeople who are today buying these contraptions—for perhaps that is all we can describe them as being—are now being forced to pay £5 or £6 more because of the tax which is being imposed. Although we have been told that anomalies exist—as obviously they do at present—it is quite wrong to assume that the Order gets rid of those anomalies. There is still the anomaly that if one goes to the trouble of assembling the bicycle by buying the untaxed parts separately, the one item which will be subject to tax will be the motor which is added to the self-assembled cycle.

So, although the Financial Secretary can claim that he has got rid of some anomalies by adding this new tax, he certainly has not got rid of the lot; because there is this remaining anomaly that, of all the items which a man can use for the purpose of assembling his own machine, the motor is now to be the only one which, by itself, is to be taxable. There we have a remaining anomaly which is particularly harsh to the people using these little machines.

And who are the people using them? They are people who go some distance to work and who find these machines convenient. I have heard of curates using them for the purpose of getting around parishes, and of some schoolmasters using them in order to get to their schools. Is it desirable that we should add this rather petty nuisance to all the other taxes which people have to meet?

Then, I should like some answer on the major point. What does the introduction of this tax really mean; is it that the Government have no intention of removing the Purchase Tax on cycles and motor cycles for some time to come? I ask that because it would be ridiculous if, after the Government had introduced this new tax, they then announced, in a fairly short period of time that they were removing the whole tax.

I wonder whether we could ask the Financial Secretary to suggest to his right hon. Friend the Chancellor of the Exchequer that he should abolish Purchase Tax in this field? If he could do that I can assure him that he would get a much greater welcome from this side of the House than he will receive for this rather petty and miserable tax for which he seeks the support of his hon. Friends tonight.

10.48 p.m.

Sir Arthur Colegate (Burton)

There are one or two things which I should like to say about this Order, but, before I do so, I should declare that I am largely interested in the manufacture of bicycle accessories, although not this particular accessory. I have stated such interest as I have, and I would say that, so far as the Order is concerned, I think that there is a little more to be said than has been said about the origin of this new tax.

As I know the circumstances, the origin of it is that the makers of motor cycles, feeling that this little fellow might grow into a motor cycle, and fearing that they would be facing competition which, quite frankly, they do not suffer at the present time, decided to suggest action. I do not want to weary the House with technical details about these little motors, but they are of fifty cubic centimetres, or less, while the motor cycle is of a hundred cubic centimetres, or more—usually more.

The people who promoted this change are sorry now because they see that there would have been a very much better way of dealing with the matter than by means of Purchase Tax. All that had to be done was to limit these little engines, which have been tax-free for so long, to fifty cubic centimetres; and then there would have been no competition with the "built-in" motor cycle; and, what is more, there would have been great benefit to the working population.

We talk about the traffic problem and about the buses, the trams, and the trains, but is it realised that the majority of working people do not go to work by any of those means of conveyance? The vast majority go by bicycle. There are 26½ million bicycles in the country, and they form a very considerable factor in relation to the solution of the traffic problem. The attachments increase the speed of bicycles from 10–12 m.p.h. to 25 m.p.h., and if bicycles move at 25 m.p.h. instead of 12 m.p.h., that materially assists from the traffic point of view.

With regard to Purchase Tax, there is always the difficulty that one cannot consult the trade beforehand. Because of that, a large number of the little machines, in a half-finished condition, are waiting to be fixed. The manufacturers have received many cancellations of orders, and at the moment the position is chaotic. Yet the difficulty could have been avoided by limiting the cubic capacity of the engine.

I realise that the matter is now done and that one cannot expect the Treasury to alter the position. This manufacture is still a very small affair which has grown up without taxation. At a time when we ought to be thinking not of increasing but of reducing Purchase Tax, it is a bad precedent that a 25 per cent. tax should suddenly be imposed on this small manufactured article.

10.52 p.m.

Mr. W. A. Wilkins (Bristol, South)

I want, in a few sentences, to support what has just been said by the hon. Member for Burton (Sir A. Colegate)—that there might have been some possibility of imposing a limitation of the capacity of the motor attachments to bicycles. From what I have seen of them, they are an aid to cyclists for hill climbing more than anything else; cyclists do not get a great deal of assistance from them in level riding.

I rose principally to say that it is rather amazing that the Financial Secretary, on behalf of the Chancellor of the Exchequer, should appear almost to be rushing to impose this additional tax. We have, of course, come to regard the Government as a high-tax Government. The hon. Gentleman seemed to be rushing in because he wanted to ensure equity. We find many anomalies in the taxation system, and I could suggest to the Chancellor some anomalies still remaining to which his attention has been directed in succeeding Budget debates, and to which he will have his attention directed again in the forthcoming Budget discussions. There are, for instance, anomalies in respect of educational stationery, Christmas cards, and grave anomalies in all kinds of sport.

It is rather unfortunate that the announcement of the 25 per cent. tax on motor attachments to bicycles should be synchronised with the announcement of a reduction in the tax on mink coats from 75 to 50 per cent. I imagine that it did not go down well among ordinary working-class folk, especially those who find the use of a motor attachment to a bicycle of great benefit. After all, the attachments are very largely used as a means of propulsion for people to get to work. Generally speaking, they are not used for pleasure, as motor cycles or motor cars are. This is a tax upon the ordinary working people, and we ought to protest against it.

My hon. Friend the Member for Newcastle-upon-Tyne, East (Mr. Blenkinsop) said that he was doubtful whether the Chancellor realised just what he was doing in this case. I do not share my hon. Friend's optimism. I believe the Chancellor knows quite well, and realises he cannot make reductions of Excess Profit Tax or Income Tax, or even tax on mink coats, unless he recovers the money from some other source. There are many millions of working men and women who use bicycles, so it offers itself as a very ready source of revenue to the Chancellor. It may help him to make more bountiful gifts to his own friends. [HON. MEMBERS: "Oh!"] Well, that is what I believe, and I hope that the Financial Secretary will listen to the pleadings of the hon. Member for Burton, and will take this Order back and have another look at it, because, as the hon. Member said, it would be a comparatively simple thing to put a limit on the capacity of the engine, and remove such motors from tax altogether.

10.57 p.m.

Mr. T. L. Iremonger (Ilford, North)

I share the regret which this Order will inspire in the breasts and pockets of those who are to be hit by it. They will be hit to the extent of three or four pounds for a cycle, and will be deprived of some of the enjoyment of the poor man's jet-propelled Rolls-Royce. They will be hit in a peculiarly unpalatable way, because they have for some time, since the first appearance of these machines, been perfectly legally getting away with something, and there is nothing more unpalatable than to have been doing that and then to be stopped.

It will be to them a very rueful reflection that they are the victims of clearing up a tax anomaly. Those who are hit are an extremely valuable and worthy section of the community, for they are relieving the strain on public transport and, quite properly, enjoying the rising prosperity of this nation, for which my hon. Friend and his right hon. Friend are so largely responsible.

But at the same time I think we must be fair. I am not a representative of the bicycle manufacturing or motor manufacturing industries, but I cannot help seeing what a hopeless muddle and what hopeless inequities would arise if one tried to distinguish between the taxable "assembled" and the untaxable "unassembled" motor bicycle. Therefore, I feel that if one is to accept Purchase Tax at all one must accept it, lock, stock, and barrel—a pretty sticky lock, a pretty cracked stock, and a pretty crooked barrel. But one must accept it for what it is.

So I believe that this Order can be criticised, but that the criticism must go beyond the detail. The criticism is properly aimed at Purchase Tax as a whole, which my hon. Friend's colleague, the Economic Secretary to the Treasury, has called the traders' curse and the Treasury's cow. I identify this as the logical and sustainable line of criticism with some diffidence, because I think it would become me better if I were able, while doing so, to offer a painless alternative to the tax that I am condemning.

One has to recognise that £300 million a year raised by Purchase Tax makes a substantial contribution to the extra social services which the people of this country are enjoying now—

Mr. Deputy-Speaker

I do not think we can go further than motor bicycles now.

Mr. Iremonger

I naturally accept your Ruling, Mr. Deputy-Speaker, and I am glad to have got away with as much as I did. I think we must recognise that Purchase Tax, however much we may have to acquiesce in the details of it, is the least acceptable and the least equitable of taxes.

Mr. Deputy-Speaker

Order. The hon. Member cannot get away with anything more.

Mr. Iremonger

In that case I will now resume my seat, merely saying that I hope that successive Chancellors of the Exchequer will no longer have to rely on devices of this kind, although we must accept this one on this occasion.

11.1 p.m.

Brigadier Terence Clarke (Portsmouth, West)

About 20 per cent. of my constituents go to work every day on this type of assisted cycle. They pay Purchase Tax on the cycle, Purchase Tax on the tyres, and a very high tax on the petrol that they use in these machines. The small amount of assistance and pleasure they get in going to work easily should not be denied them by this new and unnecessary tax, which will yield very little money to the Exchequer. I hope that the Government will rescind this tax, which is not a good one to impose.

11.2 p.m.

Mr. H. Brooke

I take no exception to the fact that criticisms have been expressed from all sides of the House, because I myself regard the general level of taxation as far too high, and I should feel that the House of Commons was indeed at fault if it allowed any imposition of tax to go through without searching criticism. I owe it to the House to make a few remarks in reply to the points raised.

The hon. Member for Newcastle-upon-Tyne, East (Mr. Blenkinsop) suggested that the right solution would be to remove tax altogether from bicycles and motor cycles. The right solution for many of our tax troubles would be to remove the tax altogether. But the Chancellor of the Exchequer at the present time has to raise some £4,500 million a year and if we start cutting £5 million here, we shall find that to avoid other anomalies we have to cut £10 million elsewhere, and so it will go on. There is no easy solution by saying this or that chunk of manufacture should be freed from tax, and I am sorry to have to say so.

Mr. Douglas Jay (Battersea, North)

Are we to understand that the national finances are in so precarious a state that the Chancellor of the Exchequer cannot afford £5 million for this particularly deserving object?

Mr. Brooke

The right hon. Gentleman is seeking to tempt me on to Budget ground. I said at the outset that the Chancellor of the Exchequer stated to the House that these limited tax proposals were to deal with a special situation which he felt should be rectified without delay.

My hon. Friend the Member for Burton (Sir A. Colegate) suggested that the right solution was to draw a dividing line and keep free of tax those cycles which carried engines of 50 cubic centimetres capacity, or less. That is a very interesting thought. It is, in fact, contrary to the policy, that has hitherto been pursued, of making no differentiation of that kind. My hon. Friend will be aware that, in the taxation of motor vehicles, these motor-assisted vehicles, however small, have been treated as motor cycles rather than as pushbikes. Moreover, his suggestion is not so simple in its practical working as perhaps he led the House to believe.

There is already a motor attachment of 75 cubic centimetres' capacity on the market; and starting, as it were, from the other end, there are also motor cycles, I am informed, with engines of 100 cubic centimetres fitted with pedals so that the rider may assist, with his own energy, the progress of the cycle up the hill. I mention that simply to show the House how right I was in indicating that there is no clear line of demarcation which can be drawn in this field and permanently held.

Sir A. Colegate

The fact that the size of a motor is defined by its cubic capacity is not affected by whether there are pedals or not. I do not mind whether there are pedals, or not. All I say is that 50 cubic centimetres and below is a reasonable line. The 75 cubic centimetre model has only just come on to the market and there are not many about. Now is the right time to fix the dividing line.

Mr. Brooke

Let me assure my hon. Friend that I do not myself mind whether there are pedals or not. All I am seeking to establish is that it is impossible to draw a line and say that everything on one side of that line is a motor cycle and everything on the other is essentially a pedal cycle.

The hon. Member for Bristol, South (Mr. Wilkins) accused me of rushing along. This seemed to me to be a direct contradiction of what the hon. Member for Newcastle-upon-Tyne, East said, because he described me as appearing in a white sheet. If I wanted to rush, the last thing I should do would be to start by putting on a white sheet. The hon. Member for Bristol, South described this Government as "a high taxation Government," apparently forgetting that since his friends went out of office this Government has reduced taxation by some £500 million a year.

The hon. Member spoke of fairness to working men and others who use these cycles. I hope that in my opening speech I showed full cognisance of what this Order may mean to people who want to use this kind of machine and have not much money; but there is, as I said, no option. Then he sought to import a bit of class prejudice by suggesting that there was a contrast between this imposition of tax and the reduction by 25 per cent. of the tax on furs; but he failed to mention that in the same Order which affected furs the Chancellor of the Exchequer was removing tax also from household mops, paper serviettes, paper doilies, and shelf papers. I did not know that they were used exclusively by the capitalist classes.

All these changes are designed to remove special difficulties. I hope I have made clear that there is nothing sinister about this Order, though I agree that it is unfortunate that anybody should be required to pay more. I regret that I have to move the Order, but I certainly do not appear in a white sheet in asking the House to approve it.

Mr. Blenkinsop

May I ask the hon. Gentleman, in view of the strong feeling which has been made clear on both sides of the House, whether he will at least say that the Government will consider the points put forward in some detail by the hon. Member for Burton and others, and see whether, perhaps by the time of the Budget, some further statement can be made.

Mr. Brooke

I will certainly say that the Chancellor keeps the Purchase Tax continuously under review, and has repeatedly made clear that changes in the tax can be made at any time of the year. This will be kept under review, like all the other Purchase Tax goods and Schedules.

Mr. Blenkinsop

And especially the points raised?

Resolved, That the Purchase Tax (No. 1) Order, 1955 (S.I., 1955, No. 100), dated 19th January, 1955, a copy of which was laid before this House on 21st January, be approved.