HEAT PUMPS (PURCHASE TAX) (Hansard, 11 November 1957)

§ Mr. Arthur Palmer (Cleveland)
The subject I am raising this evening is Purchase Tax in relation to a technical device known as the heat pump, and I am raising the issue for two principal reasons. First, because I think it important that we should consider every kind of device that will conserve the scarce energy supplies of the country, those energy supplies being fundamental to our existence as an industrial nation. Secondly, technical innovations with an export future should be encouraged, if possible, by the taxation system and not stifled at birth.
I feel that in this matter of Purchase Tax on the device of the heat pump, whose nature I will try to explain shortly, the Treasury bears a great responsibility. Because of its refusal to understand the special nature of the appliance, and its startling performance as a fuel economiser, I believe that it is placing itself across the path of technical progress.
I do not know whether it is necessary for me to explain the principle of the heat pump. Its practical application takes many forms, though the idea itself is simple. According to Macaulay anything could be explained to every schoolboy. It may be a little more difficult to explain the heat pump to hon. Members, but I will do my best.
The idea was first worked out by Lord Kelvin and it was then lost sight of until 1929, when an eminent British electrical engineer, Mr. Haldane, read a paper before the Institution of Electrical Engineers pointing out that the idea had many modern possibilities, particularly because of the development of modern refrigeration techniques. In fact, the heat pump can be best understood as a kind of relation of the refrigerator. It is a sort of hot first-cousin of the refrigerator. A refrigerator aims to make things cooler; the heat pump aims to make things warmer. It extracts heat from some low temperature source, a lake, a stream, or even the soil itself, using the heat thus 740 extracted for any convenient purpose, directly or indirectly.
The motor of the pump is, of course, driven by electricity and the increase in efficiency is obtained because against the debit of the energy which is used by the motor can be set the credit of the heat energy taken from the external source—as I have said, a lake, stream, or, as is usual these days, the soil. The increase in practical efficiency, in the efficiency of fuel conservation, is very high indeed. The figure given to me is no less than an improvement of four to one, which means that for every unit of electricity used by the device one gets the equivalent of four units in heat form.
There is no doubt about the practicability of the idea. There has been a special installation at Norwich for about six years. A Sunday newspaper recently described it, the way it worked and gave some surprising figures of the fuel savings obtained. There is no need for me to enter into detail. Those figures are probably very well known to the Minister of Power, and if the Financial Secretary to the Treasury is in any doubt about the effectiveness of heat pumps as conservers of fuel he should consult his noble Friend.
As I say, this device is very well known and has been in special use in Norwich for a number of years, but many thousands of heat pumps are being installed in the United States of America each year. An enterprising British firm has now developed the idea in an extremely compact form; it is possible in this way for many gallons of hot water to be obtained for domestic purposes, while, at the same time, the pump will provide a great deal of refrigeration.
I have said enough to demonstrate that this device has a tremendous number of advantages. It is undoubtedly a good fuel conserver and once there is some kind of home market for it it will undoubtedly have great possibilities in the export trade. I should not think of mentioning a particular firm, but I imagine that many British electrical manufacturers would be anxious to consider the heat pump for export purposes if it were financially practical to develop it.
What stands in the way of the production of heat pumps on a large scale? The answer is the crippling Purchase Tax rate of 60 per cent. It can be demonstrated that the heat pump, used on the average 741 domestic installation, will save perhaps a ton of coal in a year, as against solid fuel for the same domestic installation. But the solid fuel appliance of an approved type bears no Purchase Tax at all.
On the other hand, the more effective fuel device, the heat pump, carries a tax of 60 per cent. It seems that the Treasury has it very firmly in mind that this is just another electric heater or refrigerator, and is completely overlooking the enormous savings of fuel consumption which it can make.
I believe that the issue has been raised at various times with the Chancellor of the Exchequer, but no concession has been forthcoming. I hope that the Financial Secretary will consider the argument that I am advancing tonight. One would not expect him to make any concession immediately. One would like to think it possible, but I am very doubtful whether he will make a concession. But at least I suggest that the Treasury should look far more seriously at the arguments than it has in the past.
As I suggested a little earlier, I believe that the hon. Gentleman or his right hon. Friend should consult the Minister of Power, because that Minister is definitely charged with the duty of conserving our fuel resources, and it is the business of the Treasury, by its taxation policy, to assist the Minister of Power and not to stand in his way.

§ The Financial Secretary to the Treasury (Mr. J. Enoch Powell)
The hon. Member for Cleveland (Mr. Palmer) has drawn the attention of the House to a very interesting and important new development in the borderland or common land between heating and refrigeration. He has raised it, however, within the context of Purchase Tax, and has put the question whether the peculiarities of this device do not merit or justify a special treatment for purposes of Purchase Tax.
Although it would be quite improper for me to anticipate decisions to change or not to change various rates and incidences of Purchase Tax, there are a number of general considerations which I can properly put to the House and to the hon. Member. The relevant provi- 742 sion under which the heat pump—which. I understand, in all known forms is operated by electricity—attracts Purchase Tax is that which applies the tax to appliances and apparatus of a kind used for domestic purposes, including cooking, heating and refrigerating appliances designed for operation by electricity or gas. I do not think that it can be questioned that this is an apparatus of a kind used for domestic purposes, including heating and refrigeration, and designed for operation by electricity.
The question therefore is whether the nature of the appliance is such that it would be proper, within the scope of Purchase Tax law, to give it a special exemption, and to make a distinction between this electrical appliance and other domestic electrical appliances for heating and refrigeration, or either.
The hon. Member would probably agree that he mentioned three possible criteria. The first was that this is a new development which deserves encouragement and which it was important should not be strangled in its cradle; the second, that it had important export potential, and third, that it was valuable as a means of conserving fuel, and that its potential, if not its actual economies in a very important field, were substantial.
I think the House will recognise that the attempt to apply any of these three criteria as a means of distinguishing between different appliances of the same class for the purposes of Purchase Tax would be quite impracticable and would lead to anomalies and distinctions which no one could defend, even if they could be administered.
Let me take them briefly in order. The proposition is that this is a new appliance. Suppose it were decided that it would be a good thing for new appliances to be exempt from Purchase Tax, when do they cease to be new? At what point does Purchase Tax become payable? At what point can they be considered sufficiently to have established themselves to cease to be relieved of Purchase Tax? It will be seen that the task of definition of a new appliance in such a way as to form the basis of exemption or even partial exemption, from Purchase Tax would be quite impracticable and even indefensible.
The second criterion mentioned by the hon. Member was the export potential. 743 This is a matter of degree. I imagine that most articles which attract Purchase Tax, certainly most articles in this group, are potential exports, and many of them enter substantially into our export trade. What proportion of the total would have to be exported to qualify the article to be distinguished from its fellows of the same kind and be given a tax advantage? Here again, we are in fields of definition which, in the nature of Purchase Tax, would be quite undefinable and unadministrable.
What the hon. Member emphasised most was the fuel conservation aspect. He said that here is an appliance which, potentially, at any rate, will serve the national interest by conserving our sources of power and we should give it a tax preference in order to encourage it.

§ Mr. Palmer
Precisely in the same way in which the solid fuel appliance has been encouraged.

§ Mr. Powell
But there is no distinction for Purchase Tax purposes between the more or less efficient solid fuel appliances. The proposition of the hon. Member is that as between different types of heating appliance designed to be operated by electricity there should be a distinction based on their degree of efficiency.
Here once again one has to face a suggested basis for differentiating which would be quite unworkable. Most heating appliances and refrigeration appliances operated by electricity can claim a varying degree of efficiency in which they could compare very favourably with alternative forms in their conservation of fuel and it would be quite impracticable to set out to make a kind of tariff of Purchase Tax 744 varied according to efficiency. If we are to single out one appliance, which I admit is both a heating and refrigerating appliance, and say that it should take preference because of its fuel saving efficiency, we shall find other appliances within the range for which it would be possible to make greater or less claim to exemption or preference.
I put it to the hon. Member that it is not within the field of Purchase Tax that assistance for these appliances is to be sought. Indeed, if his arguments in favour of it were sound, as I believe them to be, there is no doubt that the advantage of this new development, its great economy, will, other things being equal, as they are, under the same tax conditions give it an advantage over alternative forms of heating. This is not a question of discrimination between this appliance and a solid-fuel appliance, but between this type and other types of electrical appliance.

§ Mr. Palmer
The hon. Gentleman will appreciate that that is the discrimination which the potential purchaser makes.

§ Mr. Powell
Yes, and that also applies to the potential purchaser of other electrical heaters. We are considering whether one should make a distinction between this and other electrically-operated heating and refrigerating appliances. I do not believe that a means can be found within the field of Purchase Tax for making the kind of distinction which would give a special preference to this type of appliance.