§ I now come to Purchase Tax. My right hon. Friend the Member for Monmouth undertook to examine various apparent anomalies in this tax which were brought to his notice in the course of our debates on the last Finance Bill—an undertaking which I renewed. Before I come to the results of the general review which I have undertaken of the tax, I want to say a few words about a larger issue of which we have heard a good deal in recent months, namely, the possibility of substituting for the Purchase Tax a general sales or turnover tax imposed at a low rate over a much wider range of expenditure.
§ Since the last Budget this possibility has been thoroughly examined, in the light both of our own experience in this country over the seventeen years during which the Purchase Tax has been in force, and also of the systems of sales and turnover taxation employed in some other countries. Personally, I have always been attracted by the idea of a general tax at a low rate, as an alternative to the Purchase Tax in its present form. I certainly did not approach this subject with any prejudice in favour of the existing system. Nor, I fancy, did my right hon. Friend the Member for Monmouth.
§ But for all the attractions, I can see little prospect—at any rate, in the foreseeable future—of changing over to a retail sales tax. I will explain briefly why I have reached this conclusion. Let me, first, remind the Committee that Purchase Tax yields nearly £500 million a year. I have had to assume, while I have been considering this matter, that we shall have to go on looking to some form of indirect taxation on a wide range of articles to produce a yield on about the present scale.
§ First, what scope is there for broadening the base of the tax? Ideally, one may say that it ought to apply to all 71 consumer expenditure. But how would this work out in practice? Personal consumer expenditure in the United Kingdom is about £14,000 million a year. Breaking this total down into the main items we first have services at about £3,800 million. Theoretically, I know that this is a potential field for indirect taxation. But does it make sense? The biggest element in this total is the cost of house accommodation. Then we have travel, insurance, fuel, school fees, payment for the chimney sweep, for the undertaker, and so on. Could we really contemplate the complication and confusion of trying to tax these multitudinous ingredients of life in the modern world? I believe that the practical answer is no.
§ Next, we have between £4,500 and £5,000 million spent on goods which are already subject to Purchase Tax or to other revenue duties—tobacco, liquor, petrol, and so on. Another £4,500 million is spent on food. I do not personally recoil in absolute horror at the idea of taxation on at least some items of food. But it would surely be unrealistic to regard food as a major source of revenue.
§ We are left, therefore, with less than £1,000 million of expenditure on a variety of untaxed goods—young children's clothing, many textiles, books and newspapers, household soap and cleaning materials—in fact, a whole host of things which have at various times in the past been deliberately exempted from tax. Even assuming that all these goods were included in the scope of the present Purchase Tax it would require a uniform rate of tax approaching 20 per cent. of the wholesale value to produce the present yield. I believe, therefore, that the comprehensive sales tax charged at a very low rate but yielding the same revenue as the present Purchase Tax is for practical purposes something of a mirage. And the same is true of a turnover tax.
§ Turning from the scope of the Purchase Tax to the method of collecting it, many people have suggested that it ought to be imposed at the retail rather than at the wholesale stage. This would, I know, have some advantages from the point of view of traders. But it would also have serious disadvantages. At present, we collect Purchase Tax from about 60,000 72 manufacturers and wholesalers. If the tax were charged at the retail stage it would have to be collected from about a quarter of a million different points, if not more. It is not surprising that the view reached in 1940 was that it was much more efficient to collect the tax at the earlier stages on the smaller number of traders. I believe that that view is just as right today as it was then.
And it is not merely a question of the number of collection points. We all know the small village general store which sells cigarettes, groceries, ironmongery, clothing, newspapers, indeed practically everything one can think of. All the takings go into a single till, with few refinements of bookkeeping. It would really be unthinkable to try to insist on anything more elaborate. For all these reasons, I have little doubt that this type of indirect taxation is, in general, most effectively and economically collected at the wholesale stage.
§ Although I am no lover of the Purchase Tax, and recognise its defects, I think that its shortcomings have been somewhat exaggerated in recent months. I know that there are anomalies. But whenever one classifies things into categories borderline cases arise which taken in isolation may sound rather absurd. I have come to the conclusion that the most helpful thing that I can do is to simplify the tax and to adjust it to a more sensible pattern. For obvious reasons, violent and abrupt change is not in the interest of trade, but, unfortunately, anything approaching major reform of the tax involves substantial changes, at least in some sectors. Having chosen to grasp this nettle now, I have sought, in the changes I will reveal to the Committee, to leave the structure of the tax in such a shape as to allow any further changes to be made smoothly and with the minimum of disturbance to trade.
§ Accordingly, I am reducing the number of rates from seven to four by abolishing the 90 per cent. rate, the 50 per cent. rate and the 10 per cent. rate; goods now chargeable at the first two of those rates will be chargeable some at 60 and some at 30 per cent., none being increased. Tax will be lifted altogether from wool cloth, now chargeable at 10 per cent., but clothing made from such cloth will, like other clothing, bear tax 73 at 5 per cent. I am moving down to the 30 per cent. rate a large selection of goods now chargeable at 60 per cent., including gas and electric appliances, such as washing machines, refrigerators, vacuum cleaners, and so on, cameras, jewellery, musical instruments, to name only a few items.
§ I am reducing the tax on wallpaper and garden furniture from 30 per cent. to 15 per cent., on ties and other minor articles of apparel from 30 per cent. to 5 per cent., and on hats from 10 per cent. to 5 per cent. I am also bringing the tax on hall furniture, office furniture and metal furniture, at present 15 per cent., into line with the tax on other furniture at present 5 per cent.
§ I am withdrawing certain exemptions, mostly of minor importance, which have proved anomalous, including, I will tell my hon. Friend the Member for Kidderminster (Mr. Nabarro), the threads with which one does up stays, about which he asked me the other day, but the only substantial new charge of tax which I propose is on domestic oil heaters. At present, they are tax-free while gas and electric heaters and fires are taxed at 60 per cent. In future, all will be taxed alike, at 30 per cent. As a small point, I am proposing to amend the law to make it clear that local government authorities and other bodies whose functions are not primarily commercial must be registered for the purpose of Purchase Tax if they manufacture or process chargeable goods. Last year a decision of the courts raised doubts on the point in some quarters.
§ The range of articles affected by these reforms is far too extensive for me to attempt to state it comprehensively now. Details will be shown in the White Paper. But with these changes the structure of the tax will be, effectively, a standard rate of 30 per cent. on a wide range of goods, a higher rate of 60 per cent. on a few big revenue producers, notably cars, wireless and television, gramophones and records, and cosmetics; and lower rates of 15 per cent. and 5 per cent. broadly as at present on the more essential domestic and personal articles.
§ With the exception of the changes affecting greeting cards, calendars, and so forth, where special considerations apply, these changes will be operative from tomorrow. They will cost £30 million this 74 financial year and £41 million in a full year. I am glad to think that they will make at least a small contribution to holding down the cost of living.
§ To sum up, the changes which I propose will cost £50½ million this year and £108 million in a full year. This leaves us, subject to the outcome of the present discussions on the financing of our Forces in Germany, with an estimated surplus above the line of £364 million and an estimated deficit overall of £236 million. I think that these are about right.
§ I hope that the Committee will consider that these measures taken together amount to a not inconsiderable step for ward in simplification and reform. Ther[...] is clearly no room for large relaxations this year, but my proposals do tighten some of the burdens on the taxpayer, as well as improving our fiscal system. They will also, I believe, help to strengthen our economy and, according to the best judgment I can make, should leave it balanced and poised ready to resume a steady rate of expansion just as soon as we can. I have done my best to produce a Budget this year that consolidates what we have gained and which is, at the same time, flexible and forward-looking. I hope that I have succeeded.