PURCHASE TAX (COMMERCIAL ROAD VEHICLES) (Hansard, 1 July 1957)

§ Mr. Gerald Nabarro (Kidderminster)
The subject I wish to raise tonight is, I think, one of considerable interest to every hon. Member. It has been regarded a rule of this House, on grounds of order, that matters affecting variation of Purchase Tax rates could not be dealt with on the Motion for the Adjournment, presumably on the premise that they involved legislation. In fact, as recently as 20th December last, the then occupant of the Chair intervened during a speech of the hon. Member for Coventry, North (Mr. Edelman), who was pleading for a reduction in rates of Purchase Tax on motor cars, and told him that he was out of order, whereupon the hon. Member desisted and passed to a different aspect of his subject. I am sure, with great respect, that the hon. Member was dissatisfied with that Ruling. Also, it recently became a matter of controversy at Question Time, and the right hon. Member for Huyton (Mr. H. Wilson) suggested that it would be out of 851 order for me to raise a matter of purchase tax rates on the Motion for the Adjournment.
I am grateful to Mr. Speaker for giving a Ruling in clear and unmistakable terms about this matter. It is to the effect that so far as Purchase Tax rates may be varied by Treasury Order—which is, of course, the fact under Section 21 of the Finance Act, 1948—it is in order for hon. Members to plead for such a Treasury Order to vary the rates of Purchase Tax during the Adjournment debates.
So far as my researches tell me, this is the first occasion since 1948—in nine years—that any question relating to Purchase Tax variation has been raised on the Adjournment. Therefore, I create a precedent this evening happy in the knowledge that there will be innumerable hon. Members in the years ahead who will similarly plead for Purchase Tax variations on the Motion for the Adjournment, especially as the Treasury has the unhappy habit of drawing Resolutions in such a way as to make it impossible to raise many such matters during the passage of the Finance Bill. We now have the alternative recourse of doing so on the Adjournment.
The particular Purchase Tax to which I refer tonight is a large one, namely, the Purchase Tax on commercial vehicles. It will be recalled that the tax on commercial vehicles chassis was imposed by Sir Stafford Cripps in the Finance Bill of 1950. At that time the rate applied was 331 per cent. On 15th April, 1953, it was reduced to 25 per cent., and on 27th October, 1955, it was raised to 30 per cent., where it now stands.
This is a unique facet of Purchase Tax, because the only item of industrial capital equipment which is subject to the tax is the chassis of commercial vehicles. As these vehicles are used by industry solely for the purpose of transportation of goods and to provide distributive services in all parts of the country, I think it may be claimed that it becomes a direct charge not only upon the capital assets in industry but also upon the cost of distribution
I mentioned earlier that it is a large item of Purchase Tax. In justification of that, I would mention that the tax raised on commercal vehicle chassis has amounted to no less than £69.1 million 852 over seven years since it was imposed in 1950, and while the yield in the first full year, 1950–1, was at the modest rate of £4.1 million, it has now become £12½1 million in a full year. That shows the growth in the rate of revenue from this source.
When the tax was imposed, opposed by the whole of the Conservative Party then in opposition, it was claimed that it was necessary for two reasons; first, to discourage investment in industry at home, and, second, to stimulate the export trade. I doubt whether seven years later either of those reasons may be held to be valid. First, with regard to the question of investment in industry, the economic and fiscal policy of my right hon. Friend, as I understand it, certainly does not consist of discouraging investment in those classes of equipment which can give the greatest possible assistance to improved and increased efficiency, and transport, with land, labour and capital, is an essential ingredient in production of every kind in the United Kingdom. In fact, how could this form of Purchase Tax have discouraged investment when we consider that the number of commercial vehicles operating in this country in 1950 when the tax was imposed was about 843,000 and has increased in only seven years to the phenomenal figure of about 1,175,000, an increase of approximately 35 per cent.? It is evident, therefore, that the imposition of this heavy Purchase Tax has done nothing whatever to discourage investment in new commercial vehicles. On the contrary, the rate of growth is, so far as I am aware, greater than at any time in the history of commercial motor vehicles.
As to the export trade—and a second reason given at the time of the imposition of this tax was that it would help to increase exports of these vehicles—the rate of growth has been dubious to say the least. In 1950, we actually exported 164,909 commercial vehicles out of a total production of 262,702. In other words, we exported 62.8 per cent. of all the commercial vehicles produced in this country. In 1956, the last full year for which figures are available, we actually exported 130,593 commercial vehicles out of a total production of 298,609, or 43.7 per cent. So, the facts are that when the tax was imported we exported 50 per cent. more vehicles than we exported last year.
853 Thus, not only has this tax failed to discourage investment in new vehicles at home—the first reason given for its imposition—but it has also failed to increase exports; the second reason. In fact, the rate of shipments of these vehicles has substantially declined as between 1950 and 1956, and I claim that it is stupid to tax one type of capital equipment for industry which is used for the transportation and distribution of goods when we fail to tax, say, a railway locomotive or wagon, or a Bristol freighter aircraft. They, after all, are only alternative means of transporting goods around this country. It would be just as stupid to tax a railway locomotive or a transport aircraft; or a railway wagon.
Secondly, no person or company engaged in industry or in the processes of transportation buys a commercial vehicle for fun. It is not an article used for pleasure purposes. It is an essential article for trade and production needs and for distribution, and there is, therefore, no parallel between it and a private car; and on that ground as well the matter should be considered at an early date.
Thirdly, there is no unfilled export demand for commercial vehicles. Manufacturers assure me that they are very anxious to sell overseas but that they are already selling all they can. Fourthly, this tax represents a serious burden on the cost of production at a time when, despite every kind of vicissitude, we are trying to hold prices and costs stable. The large figure of more than £13 millions, which is the estimate of the yield from this tax this year, has to be added to the costs of production in industry, and distribution.
Furthermore, the withdrawal of this tax would go a long way towards encouraging newer and more efficient vehicles being produced; and tend to bring an end to the temptation to overwork vehicles beyond the period of their normal, efficient and useful life. In that context, it can be pointed out that the withdrawal of this tax would be an aid to road safety.
The House might have some regard for these words which are important, bearing as they do on this heavy tax on commercial vehicles. The words are quoted from a debate of 15th June, 1950, and summarise the arguments which I have 854 been putting in different form this evening. The passage reads: I agree with the Economist in this matter. It said: A heavy and damaging fiscal bludgeon is brought into play which, it is hoped, will re-establish the Divine rightness of planned guesswork at the mere incidental cost of making transport of goods more expensive.' The tax is certainly clumsy. It is an utterly indiscriminate tax. It includes every type of commercial vehicle, broadly speaking, and it makes no distinction between those which are essential and those which are less essential, those which have an export market and those which have not an export market. It taxes the little milk trolley. Why we should want to tax a thing of that kind I do not know. It taxes it just as much as the £10,000 special type of vehicle far carrying frightfully-needed export goods to the docks. It is a vicious and vindictive tax which is calculated to hit at the small man particularly. The monopolies will manage all right, but they are busily engaged in squeezing out the small man. The tax will help to smash competition, and it will be passed on to the consumer in higher charges. It is a tax on capital goods. We say that a tax on capital goods in this country at the present time is thoroughly evil. It imposes a special and distinctive burden upon the industry of this country rather than upon the industries of other countries. The tax is designed to increase the cost of distribution at a time when Ministers of the Crown have the hypocrisy to talk about the importance of bringing down the cost of distribution. The tax has been roundly condemned by all sections of political opinion. We ask the right hon. Gentleman and hon. Gentlemen apposite to stop talking about the importance of bringing prices down and to start taking action to bring them down. The most effective way to do that would be to vote in favour of the Amendment tonight. These words bear the characteristic imprint of the utterances of my right hon. Friend the present Chancellor of the Exchequer, who was at that date leading the Conservative Opposition in attacking this tax. My right hon. Friend was supported amply on that occasion by the present Economic Secretary to the Treasury and was also supported by my hon. Friend the Financial Secretary to the Treasury. He was also supported in a speech which I was privileged to contribute on that date to an Amendment of the Finance Bill which was lost on that occasion by the meagre margin of ten votes—295 to 285.
The right hon. Member for Battersea, North (Mr. Jay), the then Financial Secretary to the Treasury, said in column 581: particularly when it is remembered that this tax is not intended to be permanent—[Laughter.]—but is needed only as long as the necessity for restraint on our investment programme and the maximum of exports are paramount. 855 That is what we in the Conservative Party were attacking. This is a unique facet of Purchase Tax. There is no other article so taxed in this country.
I claim that though the Chancellor may not be able to afford the loss of revenue of £13 million in a full year, he must give urgent consideration to the matter at an early date with a view to relieving the whole of British industry of what I believe to be a pernicious burden inimical to the interests of our entire economy. I plead on the Adjournment Motion, as you, Mr. Speaker, have so kindly ruled that it is proper for a Private Member so to plead, that a Treasury Order be introduced at an early date to bring this Purchase Tax on chassis of commercial vehicles to a timely and unlamented end.

§ Mr. Maurice Edelman (Coventry, North)
As I was saying a few months ago when the Chairman of Ways and Means interrupted me, this is a thoroughly bad tax. I am obliged to the hon. Member for Kidderminster (Mr. Nabarro) for raising this matter tonight and giving me an opportunity of concluding a few sentences which I began on that occasion. He quoted the Chancellor of the Exchequer, and I would like to reinforce what he said by a quotation from the present Economic Secretary who, in the course of the same debate in 1950, said: …people do not buy lorries for fun but in order to carry on their business efficiently. …We consider this proposal "— to put Purchase Tax on commercial vehicles— to be basically wrong. The present Chancellor and the present Economic Secretary were replying to the argument then advanced by Sir Stafford Cripps. I shall quote briefly from what he said, namely: The point is, whether we rightly or wrongly have taken this view, that there is over-investment on this item "— commercial vehicles— and the proper method to stop over-investment is to apply fiscal methods such as we suggest.…We believe that markets will be found overseas for these vehicles, and that it will not be necessary to contract the industry."—[OFFICIAL REPORT, 15th June. 1950; Vol. 476, c. 572–624.] 856 In other words, the Chancellor was then suggesting that fiscal methods should be used as a technique of control in order to direct the commercial motor industry into the export markets and reduce investment at home.
I believe that the only really effective method, and the only appropriate method, of controlling the motor industry is to nationalise it either in whole or in part.

§ Mr. Nabarro
An absolutely ruinous suggestion.

§ Mr. Edelman
In the meantime, if fiscal methods are to be introduced, let them be efficient methods. The present tax is wholly inefficient, even by the standards advanced by Sir Stafford Cripps seven years ago, which have been defended by successive Chancellors ever since.
The hon. Member for Kidderminster quoted some interesting figures, and I shall reinforce them with one set of statistics. When the tax was introduced in 1950 the home production of commercial vehicles was 97,793. Bearing in mind what Sir Stafford Cripps said then—that the object of the tax was to discourage investment at home—let us consider what happened in 1956. In that year the relevant figure rose to 168,016. That shows that in the matter of home production and investment the tax has proved to be a lamentable failure. Let us turn to the question of the export market. In 1950 the export proportion was 62 per cent. Successive Governments slapped on a tax varying from 25 per cent. to 331/3 per cent., and back to 30 per cent., but the net result has been that in 1956 the export percentage had fallen from 62 per cent. to 43.7 per cent.
Those are very important figures. Whatever else they prove, they prove absolutely conclusively that Purchase Tax on commercial vehicles has wholly failed in the purpose designed for it by Sir Stafford Cripps and maintained by successive Chancellors since 1950.
Today the tax is wholly irrelevant as a technique of control. It is punitive, in that it lays a very heavy burden not simply on the producer of motor vehicles but, more than that, upon the consumer, because it is he who ultimately has to pay what amounts approximately to a tax 857 of £13 per annum on commercial vehicles used by relatively small distributors.
Considered from every possible angle this tax is irrelevant and inefficient—a source of revenue which can easily be replaced from other and more profitable directions. As far as the motor industry is concerned—and here I speak as one who represents a motor industry constituency, manufacturing commercial vehicles —the tax is wholly pernicious, and the sooner it is abolished the more quickly will the motor industry flourish and the cost of living, which is directly related to this tax, be brought down.

§ Mr. Harold Gurden (Birmingham, Selly Oak)
I wish to voice the point of view of the small business man. The Purchase Tax added to commercial vehicles has immediately to be paid back in part in the form of tax allowance for depreciation, so that the Treasury does not get the whole of this money and stick to it. Small businesses are affected rather than larger ones, particularly in this time of the credit squeeze. Large organisations can afford to find the money, but the small business man is hard put to it to find the money. That is what makes the position so difficult for him. The small business man is discriminated against, people like dairymen, bakers and laundrymen. I ask my hon. Friend to convey to the Chancellor the fact that this tax is discriminatory.

§ The Financial Secretary to the Treasury (Mr. Enoch Powell)
I congratulate my hon. Friend the Member for Kidderminster (Mr. Nabarro) on having successfully asserted his right to raise this matter on the Adjournment. I am not sure that his example will be followed by so many hon. Members over the course of the years as he appeared to anticipate when they consider the reply which I must necessarily give. I know that my hon. Friend realises that, for the very reason which makes it possible for him to raise this matter, namely, that Purchase Tax can at any time be adjusted by Treasury Order, it would be quite wrong for a Treasury Minister, or indeed any other Minister, at any time of the year to give the impression of anticipating any decision of the Chancellor by commenting in any way upon the case for or against any modification of Purchase Tax.
However, my hon Friend has, with his customary force and clarity, put the case in this instance very plainly before the House, and I assure him that the arguments which he adduced, and those offered by the hon. Member for Coventry, North (Mr. Edelman) and my hon. Friend the Member for Selly Oak (Mr. Gurden), will be studied carefully by my right hon. Friend.