I propose to call the Amendment in page 2, line 16, in the name of the hon. Member for Maryhill (Mr. Hannan) and his hon. Friends and 359 suggest that the Committee might also discuss the following Amendments:
§ In page 2, line 16, to leave out from "business" to third "the" in line 17;
§ in line 18, to leave out "other";
§ in line 20, to leave out "authority or";
in line 20, at the end to insert:
Provided that the carrying out by a local authority of their statutory powers and duties shall not be deemed to constitute a business of the authority for the purposes of the said enactments.
§ 10.45 p.m.
§ Mr. William Hannan (Glasgow, Maryhill)
I beg to move, in page 2, line 16, to leave out from the second "the" to "carrying" in line 17.
I wish to endorse what my hon. Friend the Member for Govan (Mr. Rankin) has just said. It is perhaps because of an act of voluntary co-operation that we have been able to reach this Amendment and the others to be discussed with it, which are, of course, important.
§ Mr. Rankin
Will my hon. Friend forgive me for interrupting him for a moment? Did I understand you to suggest, Sir Charles, that my hon. Friend would also be moving the Amendment which stands in my name and in the names of some of my hon. Friends?
No. I called the hon. Member for Maryhill (Mr. Hannan) because I think his Amendment was down first, even though the Amendment in the name of the hon. Member for Govan (Mr. Rankin) comes before it on the Order Paper.
§ Mr. Hannan
Together with the Amendment which I have moved, I am discussing the Amendment in page 2, line 18, to leave out "other", the Amendment in line 20, to leave out "authority or", and that in line 20 to insert the words on the Order Paper.
The purpose of this Amendment is to exclude the application of Clause 2 from local authorities and, further, in order to avoid future litigation on the point which the Amendment tries to make, to make it clear that where local authorities are carrying out their statutory powers and duties they should not be deemed to be carrying on a business for the purposes of Purchase Tax legislation.
360 If these Amendments were accepted, local authorities would accordingly not be liable for Purchase Tax on chargeable goods resulting from their activities. It can be fairly contended, I think the Committee will agree, that where work is undertaken by a local authority in carrying out its statutory duties and powers, such work is done solely in the public interest. Since no question of profit arises, therefore, local authorities should not be asked to pay Purchase Tax. Under Clause 2 as it now stands such work would attract Purchase Tax.
Glasgow Corporation, and probably other local authorities which carry on similar activities, resent the fact that they are being drawn into this net because certain decisions have been come to in the Court of Session—of which at least the Financial Secretary is aware—which have laid it down quite clearly that up till now a grave mistake has been made.
We believe that the position of local authorities should be distinguished from that of commercial undertakings. All through the decisions of the Court of Session, the details of which I will come to in a moment, the Law Lords made it quite clear that the distinction should be made in the mercantile operations of private interests or commercial undertakings as distinct from local authorities.
According to the Court of Session's decision, it would appear that the purpose of present legislation, that is, before the introduction of Clause 2 of this Finance Bill, is to make commercial undertakings liable to tax and not local authorities, which are, of course, carrying out statutory duties placed upon them by Parliament itself.
If Clause 2, in so far as it applies to local authorities, is now considered by the Government to be necessary to resolve doubts on the previously accepted definition of the term "business," then surely this can only mean that Purchase Tax has been unlawfully charged against local authorities in the past. In our Amendments we are submitting that there is now no justification for altering the law to the disadvantage of the local authorities.
Indeed, on the Second Reading of the Bill the Financial Secretary said:Clause 2 is necessary to resolve the situation which arises out of the judgment of the Scottish Inner Court of Session. This has 361 cast doubts on the previously accepted definition of the term 'business' in Purchase Tax law and has left it uncertain how far local authorities are amenable to the Purchase Tax law."—[OFFICIAL REPORT, 12th May. 1958; Vol. 588, c.34.]In that decision it was being made clear that the distinction between local authorities and commercial undertakings had been there all the time, and it was by accident, if one cares to use that expression, that it was discovered that the local authority in Glasgow had been paying Purchase Tax on a vehicle part of which had been constructed in its workshop, and that Purchase Tax should not have been demanded or extracted from it.
Under the Clause a local authority applying a chargeable process even in the course of the performance of its duties is required to register in terms of Section 18 of the Finance Act, 1946, for the purpose of payment of Purchase Tax. The corporation resents this very much.
The case to which the Financial Secretary referred was one in which the corporation was sued in the Court of Session by the Lord Advocate acting on behalf of the Commissioners of Customs and Excise. He was suing it for the sum of £160 which was alleged to be due following operations carried out by the employees of the corporation on a motor van. The corporation had purchased a Ford 10 cwt. chassis and cab and then added to it a van specially constructed for the purpose of inspecting the lights. The vehicle was of no use to anyone else. It was for the corporation's own employees. There was no seating capacity in it; no passengers were carried. It was used for carrying the plant for the inspection of lights. Despite this, the Treasury wanted Purchase Tax. The corporation was sued. Its case was sustained, and on appeal it was again sustained. The van was used exclusively for carrying out the local authority's duties.
It would appear from the Clause as now before us that the Treasury is no longer going to argue that the functions of local authorities will attract Purchase Tax, but on the other hand, as from 16th April, 1958, local authorities will be required to pay Purchase Tax on chargeable processes carried out by their own departments for their own use and convenience and not for commercial 362 purposes; and that, of course, is the principal reason why these Amendments are tabled.
As we understood it, the original purpose of Purchase Tax was to curb spending, though in more recent years it has been used by the Government for revenue purposes. But local government finance is now one of the major problems of our times and it has not been made any easier in Scotland by the Local Government and Miscellaneous Financial Provisions (Scotland) Bill.
To bring local authorities within the net of Purchase Tax in respect of these other activities is a retrograde step. They are not operating for gain. I should like the Committee to examine the conditions in the printing and stationery department in Glasgow, which the Treasury now has its eye on. At the moment another case is pending, where the local authority is seeking to have repaid to it about £163 which it has paid in past years in Purchase Tax in respect of that department. In the financial year ended 31st May, 1957—the last period for which figures are available—the total expenditure of the department, including depreciation, was £272,000 and its total revenue was £276,000, leaving a surplus of £4,000. Its accumulated surpluses to date amount to about £7,726. The point is that this is a direct local department. It may be that the Government are seeking this method of making an indirect attack on a direct department of a local authority.
No profit is made. The department prints the minutes and documents for the corporation, and it makes for speed and efficiency in the corporation's business. Its policy is simply to see that its revenue balances its expenditure. The Financial Secretary suggested that, while a local authority would be liable for tax on certain goods which it makes for its own use, it would have the right to tax relief where it purchases taxable goods for the manufacture of tax-free goods, but the amount of relief would be very small compared with the liability.
I have here a letter from the town clerk depute, who points out that:The principal raw material used by the Printing Department is, of course, paper, and paper supplied in bulk is not subject to Purchase Tax. It is only in relation to binding materials that the Corporation purchases raw materials liable to tax for purposes of manufacture, and it would appear that the value of such taxable goods purchased is at present 363 in the region of £1,500 per annum. The effect of registration, therefore, is to relieve the Corporation of paying purchase tax on this amount—a figure unlikely to exceed £400 per annum"—that is, £400 out of an expenditure of £1,500—On the other hand, the Corporation would require to pay something over £25,000 per annum in purchase tax on taxable goods manufactured in the Printing and Stationery Department.If my informant is correct, what the Financial Secretary is doing, in Scots terminology, is spitting out a sprat to catch a whale.
§ Mr. Hannan
It may be a mackerel down south, but I will stick to the whale.
The Government have been posing to the nation as its saviour in the battle of inflation. They have been assiduous in calling on local authorities to exercise economy and to carry out duties at the least possible cost to the community. Here they are taking steps to nullify and frustrate the local authorities which have sought economy by the use of direct labour, and the benefit to the revenue here is going to be small, but to the local authorities concerned the extra burden on the ratepayers will be substantial.
If, as a result of Clause 2, the cost of carrying on work such as printing and stationery is made excessive, local authorities with similar activities may find it necessary to discontinue it, and that will mean, in turn, disorganisation, loss of convenience and loss of speed and efficiency in the preparation of minutes and documents. I hope that the Committee and the hon. and learned Gentleman who is to reply for the Government will deal fully with the case I have tried to state in support of these Amendments.
§ Mr. Rankin
As I cannot move the remaining Amendments on the Order Paper, I shall simply say what I had intended to say if I had moved them. It would appear that the Government have been caught out on this matter and that at some stage some person has blundered. The Financial Secretary, on 12th May, made it perfectly clear that the decision of the Inner Court of Session had cast doubt on the previously accepted definition of the term "business" and, because 364 of that fact, Glasgow local authority was going to be exempted from the operation of Purchase Tax and, therefore, the Government had to take steps to put in the Finance Bill a Clause which would prevent that in future. I wish to ask the Financial Secretary whether or not the Clause will prevent Glasgow's claim maturing with regard to the money which was wrongfully collected in the guise of Purchase Tax prior to 16th April, 1958. It may be that that is a matter which the Solicitor-General will be good enough to speak upon, if he can, for there is a very large claim which is founded on the wrongful application of the Finance Act as it stands at present.
During the Second Reading, the Financial Secretary indicated that under the Clause the activities of local authorities and other non-commercial bodies are to be treated in the same way, for the purpose of Purchase Tax, as the activities of commercial bodies, and on that I am not going to comment at present. They will be liable for tax on certain goods which they make for their own use, and they will have the same right to tax relief where they use taxable goods for the manufacture of tax-free goods.
The Financial Secretary was seeking to paint what I think he regarded as quite a fair future for local authorities. If we take Glasgow as an example, it would have a relief of tax of under £400 as against £25,000 of tax for which it would be liable. It would seem that the Chancellor is going to get much more out of the deal than Glasgow Corporation. It may be that Glasgow is the only local authority which would be adversely affected by the operation of Clause 2. I think that improbable, but it will be for hon. Members on both sides of the Committee to make their contributions on that point during the debate. Glasgow, at least, opposes the terms of the Clause and wants to see the law continuing to be operated as it has been interpreted by the Court of Session. Glasgow is entitled to maintain the law. The Chancellor wants to break it. The Government cannot have severe things to say about people who want to keep the law while they themselves are seeking to break it.
We contend that when work is undertaken by a local authority in carrying out its statutory powers and duties this work is being done solely in the public interest 365 and no question of profit is involved. In our view it ought not, therefore, to attract Purchase Tax. The position of local authorities ought to be distinguished entirely from commercial undertakings. Further, if the liability to Purchase Tax is imposed on local authorities as proposed, the benefit to the Revenue will be comparatively small, but to the individual local authority concerned the extra burden on the ratepayers will be substantial. In view of that, it seems inconsistent that, while the Government who are urging local authorities to economise, they should be increasing the burdens which will prevent local authorities from carrying out those economies.
Finally, the Court of Session decision means that Purchase Tax has been unlawfully charged against local authorities in the past. For years the Government have been acting in an unlawful manner. The Government have acquired money by a process which is now determined to have been completely illegal. A private person who conducted himself in that fashion would have rendered himself liable to fine or imprisonment and, in fairness, would be expected to disgorge some of his ill-gotten gains. Equity would have demanded that. The Government do no penance of any kind. They merely pass a law saying that what was wrong is now right, keep their gains, and create a new situation to the permanent disadvantage of the local authorities. That is what the Tories miscall good government.
At the weekend—I quote from the Observer—the chairman of the Tory Party, a member of the Cabinet, and one of its distinguished Ministers—I think he is Lord President of the Council—referred to a group of people whom he called the "cardsharpers", and he had very harsh words to say about them. He said that they wanted to alter the rules of the game—a dirty thing to do. That is just what the Government are now doing. The Government of which he is part are in process of altering the rules of the game to the disadvantage of the local authorities.
The Lord President implied that that is a dirty dodge. He said:It is simply not honourable for a party to alter the system by the use of its Parliamentary majority.What will the Financial Secretary do tonight? Just the very thing that his 366 senior, the Lord President of the Council, says is dishonourable. Later on, the hon. and learned Gentleman will have to do just that.
The Lord President went a little further—and this is a most fearful warning. He said:The electorate would quite certainly punish us if they saw us quite deliberately doing something they regarded as a cheat.Well, there is a fearful future in front of all right hon. and hon. Gentlemen opposite if that is how it is to work out.
His Lordship divided the people of whom he was speaking into two groups the "jolly cricketers" and the "cardsharpers". I am quite sure that if he was thinking of the jolly cricketers he was not thinking of his own Front Bench. I think the word "cardsharpers" is quite wrong. He should think of one group as the jolly cricketers and the other as the "jolly Rogers" on the Front Bench—the boys who make the laws and break the laws just as they choose.
Tonight we are trying to prevent that happening. We are trying to leave the Government with a little shred of honour, and we are asking the Financial Secretary to assist us in the process of helping his own redemption, if he wants to do that he will support these Amendments which we are moving for his salvation.
§ The Solicitor-General (Sir Harry Hylton-Foster)
One much enjoys, inevitably, all that the hon. Member for Govan (Mr. Rankin) says, but I cannot help thinking that in meeting some of the indictment delivered against us we shall find some strange companions in the dock, because, truth to tell, Governments of every political complexion, from the very beginning of the operation of the Purchase Tax, have worked the law in the way that we have worked it until this final Inner House decision. Bad as we may be, there are others, I am afraid, tainted with the same hue.
I hope that it may take some of the anxieties from hon. Members if I detain them just for a moment to remind them why the meaning of the word "business" has become important in this field. I have heard tonight, and have heard before, and fully understand, the arguments that local authorities should be exempt from the Purchase Tax in respect of their activities because they are not trading for profit but are doing what they do in the public service. However, it is rather 367 late in the history of Purchase Tax to urge that. As everybody knows, in the field of indirect taxation, local authorities, both in regard to tax and to tax reliefs, have always been treated just as any other kind of taxpayer.
Purchase Tax has been no exception at any time. When it was first introduced, I do not suppose that anybody developed the argument that local authorities should not be subject to registration on some such ground as that. It worked then because the duty was leviable when goods were sold or appropriated by registered persons and this question of the word "business" did not matter then. But when it came to 1946, and the so-called "chargeable processes provisions" were introduced, it must be remembered that those were not introduced for the purpose of exempting local authorities from Purchase Tax. Nobody thought they were. In fact, they were introduced to prevent tax dodging.
It is the way in which Parliament introduced these provisions which has given rise to this difficulty. They were raised in a form which made the tax become due when the goods made resulted from a chargeable process applied in the course of business. The person was required to be registered, whether he sold the goods or not in the course of his business, and nobody, until recently, ever thought that those words were intended to have the effect of giving local authorities a way out in respect of some of the chargeable processes which they apply. Certainly the House of Commons did not think so in 1951, because when the chargeable processes provision was extended to stationery, everybody concerned, including the right hon. Gentleman the Member for Battersea, North (Mr. Jay), then Financial Secretary to the Treasury, treated this as applying to stationery made by local authorities as to stationery made by everybody else. The exact regulation is the Purchase Tax (No. 1) Order, 1951, and nobody thought otherwise until we heard about this vehicle Glasgow Corporation made.
It is true that the corporation produced a vehicle which, in the normal way, would have been taxable at 60 per cent. Purchase Tax and it is true that the Exchequer failed in its proceedings to secure 368 tax on the vehicle because the Glasgow Corporation successfully contended, and so contended up to the Inner House of the Court of Session, that it did not make its vehicle in its business, on the ground that the word "business" in this enactment, imports some commercial flavour. The idea that is being canvassed for the first time is that something is being imposed on local authorities. It is far from the truth and everyone has to face it. The result of this decision has been to create doubts, to say the least. The decision is applicable to the peculiar facts of that case and, as everybody knows, there are a great many differences between the activities of one local authority and another and between the activities of one department of a local authority and another. It would not work in the interests of either the taxpayer or the Exchequer to leave a number of doubtful cases outstanding which would cause recurrent litigation. That would not help anybody.
It has been said that the benefit to the Exchequer is merely trifling; and these are very relevant words in the case of so large an authority as Glasgow Corporation. Speaking as a humble Law Officer, I can only say that, as far as one can estimate, the cost of this kind of Amendment is of the order of £1 million, and if that is really to be regarded as a trifling matter from the Revenue point of view—
§ The Solicitor-General
If the hon. Member did not say it, I apologise. I thought I had got the phrase from somewhere. It is right that the Committee should know the cost to the Revenue of these Amendments as far as we can estimate them.
But there are other reasons which I would urge upon the Committee why it is right to get the law into the shape into which it was always believed to be, which is what this Clause does. Is it really very fair to other taxpayers, particularly in the context of commercial printers, that because the enactment in 1946 did not succeed in doing what Parliament meant it to do, therefore local authorities should escape?
There is the additional matter of relief. I am anxious to deal with the other points made. I think the words of my hon. 369 and learned Friend the Financial Secretary on Second Reading were a little harshly treated. What he was then saying was not that the relief would balance the tax—that would be rubbish—but that this was not a point which was going one way only, because there are a number of local authorities and other bodies which do avail themselves of their entitlement to get registered as manufacturers in order to get tax relief on goods which they buy, which would otherwise be taxed. They avail themselves of that provision. If the law were left in the state which the decision of the Court of Session leaves it, doubt would be cast on their entitlement to become registered and to get relief in that way.
As to the "sprats and whales" argument of the hon. Member for Maryhill (Mr. Hannan), who unfortunately is not at the moment within my hearing, the Financial Secretary did not say that the relief would balance the tax. What he said in effect was that this was a point which did not go only one way. As to the stationery and printing department, this Bill, if it passes wholly unamended as it now is, will not change the existing practice with regard to the production of stationery by non-profit-making bodies for their own use. That, as the Committees knows, as a special matter has long been dealt with under those statutory provisions under which the Customs Commissioners have power to refrain from registering people if they think fit. If Glasgow Corporation complied with the conditions which are required in that context, they would not, any more than other non-commercial bodies would, have to be registered.
I do not propose to say anything about Glasgow Corporation's current claim for a declarator, as I think it is called in Scotland—"declaration", as we call it in England—in effect that they shall have back the tax that they paid on their printing and stationery department I do not say a word about that because it is sub judice and the outcome of that matter will depend upon the decision of the court and on what is done after the decision of the court is known.
In answer to the specific question of the hon. Member for Govan (Mr. Rankin), there is nothing whatsoever in this Clause which touches the past. The position will stand wholly unaffected by the Clause. The Bill deals only with 370 future matters. It is in no sense retrospective. That is the answer to his specific question to me.
I think that has covered all the points which were urged in support of these Amendments, and I hope also that I have indicated a wide variety of reasons why it would not be possible for the Government to accept them. All that the Clause does, if enacted as it stands, is to put the law for the future precisely in that state in which it has always been operated and believed to work up to the decision in this case in the Court of Session.
§ Mr. G. R. Mitchison (Kettering)
Can the right hon. and learned Gentleman give any estimate of the amount of the repayments which will be involved on the decision of the Court in Scotland? It appears that a local authority in carrying out its functions is not carrying on a business.
§ The Solicitor-General
There is a double question involved in the apparent single question which the hon. and learned Member asks. That direct single question, I confess at once, I cannot answer. I do not have the figures available and I do not think that I could get them with precision, at least in time to meet the hon. and learned Gentleman's question.
There is, however, a further question involved, because this Scots decision is a special case on special facts. It would be difficult to say which activities of which local authorities in respect of which they have paid Purchase Tax are affected as a matter of law or are governed by this decision. For that reason, it would not be possible to give a firm or sensible answer to the hon. and learned Member's question.
§ Mr. McInnes
I am not altogether satisfied with the reply of the Solicitor-General. He conceded in the first instance that the insertion of Clause 2 in the Bill was largely the result of the litigation which Glasgow Corporation has entered into in the Court of Session case and because of the decision given, as my hon. Friend the Member for Maryhill (Mr. Hannan) indicated, in respect of the lighting department van that there was grave danger of the corporation succeeding in its action. I candidly confess, however, that while the case is sub judice, I also realise that in law one seldom gets back money that one has paid.
371 The Solicitor-General set out to argue against the case submitted by my hon. Friend on behalf of the Glasgow Corporation. Then, towards the end of his reply, he made a somewhat remarkable concession, because he said that so far as the Glasgow Corporation's direct-labour printing and stationery department is concerned, he does not know that the Clause will have the impact or effect that we seem to imagine, because the Customs and Excise people in Glasgow have power to refrain from registering the Glasgow Corporation if they feel that the Corporation fulfils all the requirements concerning non-registration. I should like to think that that actually is the case.
Each of the five learned judges who gave their opinion in respect of the Court of Session case in Edinburgh centralised their opinion on the definition of the word "business." It is interesting to note that the original Act relating to Purchase Tax visualised only persons carrying on commercial enterprises. Each Section, particularly in the 1946 Act, refers to persons carrying on a business and "business" is clearly defined in a commercial sense.
Without possessing any legal knowledge, I should say that surely Purchase Tax was originally designed as a tax arising on the ordinary mercantile sale of goods. As has been pointed out, the word "business" as mentioned in the 1940 Act related exclusively to ordinary mercantile business involving the sale or the selling of chargeable articles.
Indeed, the whole ambit of chargeability to Purchase Tax under the original 1940 Act was directly connected with the mercantile operations of business in the category of wholesale merchants or of manufacturers, in which case an undertaking such as the Glasgow Corporation could not be classified and under no stretch of imagination could come within that category. There is reference to the word "business" in Sections 18, 23, 25, 26 and 41, where it relates purely to business in the mercantile or commercial sense of the word. I want to ask what interpretation the Solicitor-General places on the word "business" now as contained in Clause 2. Would he agree with me that 372 "business" in Clause 2 could rightly be defined in that context as someone engaged in gainful or commercial rather than in purely public service activity?
I should like to have clearly defined what is implied by the word "business" in Clause 2. As far as I can find, there is no indication that a public authority, such as Glasgow Corporation, would be in any way excluded or indeed be included. Therefore, there is a sort of status quo position, and the indefiniteness of Clause 2 does not catch up even with Glasgow Corporation in its printing and stationery department. I should like to have made clear what was meant in the reference from the Front Bench opposite to Customs and Excise in Glasgow refraining from registering Glasgow Corporation if it conformed with certain standards and qualifications. Would the Solicitor-General say what qualifications are involved in non-registration?
§ The Solicitor-General
Over all the years, Scots counsel and, as far as I know, with the exception of the ultra-wise Glasgow Corporation, all local authorities, Customs and the Revenue, and Governments of all political complexions have held that business in this context covered as a word the activities of local authorities. The very wise counsel who advised Glasgow Corporation have now been justified, certainly as far as the Inner House of the Court of Session is concerned, in their view that it does not.
As to what the terms of business mean in Clause 2, being merely an English lawyer and therefore diffident about offering definitions across the Dispatch Box in Committee, it is sufficient for me to know what the Clause does if we have "business" meaning what the Inner House has now said it means—something with a commercial element about it. I do not remember the exact words. What the Clause does is to widen the meaning by saying that these activities should be deemed to constitute a business of the authority or body in this context. Therefore, the Clause widens the ordinary meaning of the word sufficiently to work for the purpose with which we have in hand.
I would be willing to give the Committee—and will in a moment—a detailed explanation of what I meant by saying 373 that Customs would, in certain circumstances, have the right to refrain from registering the stationery and printing department of Glasgow Corporation. I did not develop the matter because there is on the Order Paper an Amendment in the name of my hon. Friend the Member for Dover (Mr. Arbuthnot) which involves going into detail on that, and I thought it best to do it then.
§ Mr. Mitchison
I am no Scot and I am no Scots lawyer, but I am bound to say that I think the present state of affairs is most unsatisfactory. Purchase Tax was, of course, originally a tax on sales, and the provisions about a chargeable process, with which we are concerned today, were introduced in 1946 for one purpose and one purpose only. That was to prevent certain dealings with goods which resulted in their improvement and, in effect, enabled an evasion of the Purchase Tax.
There really ought to be no doubt whatever about this. The right hon. and learned Gentleman's predecessor in office and my right hon. and learned Friend the Member for Newport (Sir F. Soskice) spoke on this matter in the debate on what is now the Finance (No. 2) Act of that year. On 19th June, 1946, he said:The whole object of the Clause"—and this, of course, is the Clause we are now considering—is to prevent just those transactions"—of which I have been talking—which, in large measure at any rate, would be dealt with by the Amendment.My right hon. and learned Friend was speaking of an Amendment to vary the Clause. He was well aware, of course, of the importance of the word "business. Later in the same speech he said:I accept the argument that there may be hard cases. The hon. Gentleman mentioned one which may or may not be within the terms of the Bill. The person to whom he goes to have the parts put together and made into a oar would have to be a person who applies a chargeable process for the purposes of his business; that is to say, it must be part of his regular business to put those parts together, otherwise it would not be within the Bill."—,[OFFICIAL REPORT, 19th June, 1946; Vol. 424, c. 332–4.]It seems to me to follow from that, that at the time when this legislation was introduced it was introduced for one purpose only, and that was in connection with this treatment of partly finished objects, and the importance of the use of the word 374 "business" was fully recognised. It is said that the Department of Customs and Excise has been collecting tax for some time past, to an amount which we have not heard, on the footing that local authorities were conducting a business. I am told that there is something peculiar in the opinions of the Lords of Session since everybody else apparently who has considered the matter has come to an opposite conclusion.
I hesitate to form that opinion of the Lords of Session, the more so since this matter was considered by four Scottish judges in the Court of First instance and in the Inner House where there were unanimous decisions by the three Scottish Lords who considered the matter. I want the Committee to consider for a moment what was not the legal nicety but the real basis of the decision.
The point they had to consider—and the only point, as they regarded it—was: is a local authority carrying on a business when carrying out its functions? The functions in this case were looking after street lighting. That was all that this vehicle was required for. The conclusion that they came to as I read their decisions—and I have read them—was that a local authority in carrying out its functions is not carrying on a business because in their opinion "business" in this Clause means same form of commercial conduct or transaction—"commercial as a commercial flavour" as one of them put it. That opinion I understood the right hon. and learned Gentleman to share—to this extent at any rate, that he regarded that as la substantial ground for the decision.
What seems to me to be so wrong about this, apart from any legal decision and apart from any legal opinion about it, is simply that the tax when first introduced clearly could not have applied to this type of dealing. It clearly could not have applied to the particular case, and it clearly could not have applied to a corporation putting the heading on stationery for its own purposes in order to write to its ratepayers or contractors. It is perfectly clear that when the modification was made it was not intended to do anything to bring within the ambit of Purchase Tax a particular type of transaction that has nothing whatever in common with what we are considering today.
I say it with all respect to my right hon. Friend the Member for Battersea, 375 North (Mr. Jay) who has been charged with accepting some other version of the matter in 1951. I have not read the report of that debate, and it may be that something or other was said at the time, but the essential point seems to me to be that when this Clause was introduced it was not the intention of Parliament to penalise local authorities by introducing it, and it is now being used to penalise them, and has been used, according to what we are told, for very many years past. Therefore, so far from putting in a Clause to carry out what was the intention of Parliament, we are doing the exact opposite. We are putting in a Clause to negative what was the intention of Parliament at the time when this Clause was introduced.
I admit—we would all admit—that Governments from time to time make mistakes and have to put them right. I fully understand that, but it seems to me that the substantial question is not that at all. The real question is: ought one to charge ratepayers with the tax levied on local authorities solely in respect of what they are doing as local authorities to carry out their functions? I do not want to introduce any unnecessary heat into this debate, but we have had far too many cases lately of a transfer of burdens from the taxpayers to the ratepayers, and this is just a case in question. It seems to me that it is not right.
More than that, it will result in a very difficult position indeed with regard to the past. The Government, at any rate since this Bill was introduced, are rightly averse to retrospective legislation, even in cases where a warning has been given. There is no question of a warning here, and there is no doubt that the Clause is not retrospective. Consequently, all the corporations which have been charged with this tax in the past will be faced with the question whether it is their duty to their ratepayers to take a hand in collecting it back from the Government.
We are told by the right hon. and learned Gentleman that this was a very peculiar case. It may have been a very peculiar case, but, as I read the decision, the general principle was perfectly clear. It was that a corporation, when carrying out its functions, was not carrying on a business. I see that the Financial Sec- 376 retary is puzzled by that remark. There is no commercial activity in it; that is why it was said not to be carrying on a business. Therefore, in the vast majority of these cases, a large, undefined sum will be recoverable from the Government. I would have thought that the Government might very well have said, "Well, if you will say nothing about the past we will not go on being so naughty in the future."
I have known that to happen between individuals. A farmer near where I happen to live discovered that he had the fishing rights in a river which had been constantly let by a neighbouring duke—there is no prejudice on my part about his being a duke—and he wrote to the duke and said, "What about my river?" The duke wrote back, "All right; it is your river and I will admit it, if you say nothing about the past," The right hon. Gentleman is the duke, and he is doing the opposite; he is saying, "Well, I am now going to put myself in the right and take over the river, but you will be able to recover from me if you care to embark on litigation," in what appears to be the right hon. and learned Gentleman to be a very difficult and doubtful matter.
That is a very unsatisfactory state of affairs. Surely the right thing to do in this case is to have regard to what the Purchase Tax was really intended to deal with—which was not the ordinary function of local authorities, as the Scots courts rightly held—and to free local authorities from this burden. It will do no harm. It may cost the Exchequer a little more, but considering the amount that the Exchequer has been collecting from local authorities lately—I must not mention the Local Government Bill, or there will be trouble—it could easily afford one or two million pounds out of it.
I suggest that the Government ought to think about this matter again and consider whether it is not better, in the circumstances, to try to come to some agreement with the local authorities about it, and at any rate not to justify the Government's malpractices in the past by a Clause which simply says that something must be deemed to be something, thereby implying that it has not been what it is now deemed to be. It is a pretty queer bit of business altogether. The Government would really do better to drop this provision, and I hope that 377 they will accept the Amendment, which has been so ably and convincingly moved with reference to Glasgow but which will, of course, affect local authorities all over the country.
§ Amendment negatived.
§ Mr. Arbuthnot
I beg to move, in page 2, line 17, to leave out from the second "authority" to "shall" in line 19.
§ The Deputy-Chairman
Perhaps it would be convenient to discuss at the same time the Amendment in page 2, line 20, to leave out "or body".
§ Mr. Arbuthnot
The purpose of the two Amendments is to exclude bodies other than local authorities from the provisions of Clause 2. The sort of bodies we have in mind and whose position we are anxious to preserve are bodies such as sports clubs or groups of persons who comprise trade associations, and people of that kind. From some of the comments made by my right hon. and learned Friend when speaking about the previous Amendment, I begin to wonder whether the position of such bodies is not already preserved as it is, but I should like to have an assurance from him that the position of sports clubs and trade associations will be made no different under Clause 2 than it is at present.
The fear we have about their position under the Clause is, for example, that if a trade association or sports club uses die stamps to provide itself with letter headings, that becomes a chargeable process, and if it does, the body will be in contravention of the law, unless it applies for registration. That would seem to us to be unnecessary, particularly because the amount of paper used by such bodies is comparatively small. I hope that my right hon. and learned Friend will be able either to accept the Amendment or to give an assurance that bodies such as sports clubs and trade associations will not be affected adversely by Clause 2.
§ The Solicitor-General
I think that, from the terms in which my hon. Friend moved this Amendment, what he has particularly in mind is the stationery activities—that is, stationery with an "e" in the appropriate syllable—of these non-profit-making bodies. I am able to 378 give him the certain assurance that if the Bill is enacted as it stands, without Amendment, it will not affect in any way the existing practice with regard to such bodies. It is not an enactment to impose any new requirement as to registration.
The position about die-stamping and the like by non-commercial bodies is that the Customs have a statutory power to refrain from registering persons applying a chargeable process if they think fit, and the way in which that power is exercised in this context is set out in a public notice, which is No. 77D. Paragraphs 10 and 11 of that notice make it quite plain that such persons need not apply to be registered, provided they comply, or their goods comply, with two conditions.
The substance of these is, first, that all the paper that they use in the production of their stationery and other printed matter is bought tax-paid. That works out all right for the Revenue, because although they lose the tax on the value of the completed stationery they get the value of the tax on the paper material used for the printing matter, which otherwise they would not get. The other condition is that the stationery which results from the process applied to it is used solely for the business of the organisation in question.
Most of them, as far as I know, operate on that basis wholly satsifactorily. I do not know that it has caused any difficulty and the provisions of this Clause as it stands unamended will not alter that position in any way. As my hon. Friend was dealing only with the stationery, I do not think I need pursue the other reasons why it would not necessarily be to the advantage of the other bodies—and certainly would not be to the advantage of the Exchequer—to adopt the Amendment which he proposed.
§ Mr. Mitchison
Now that the Government have succeeded in giving local authorities a business and therefore perhaps bringing them within the possibility of exemption under this Clause, may we take it that local authorities, however largo or small, and whether situated in England or Scotland will be exempted in the same way and on the same conditions as, let us say, sports organisations? I hope the right hon. and learned Gentleman will be able to answer that question.
§ The Solicitor-General
If the hon. and learned Member will look at the notice—I am not surprised he has not done so unless he is a person who is die-stamping his own stationery for the use of his own business—he will see that it is quite unqualified for the persons concerned, provided they are not in the printing trade, and the terms are as I have summarised them. The size of the activities of the persons does not affect the qualifications, provided they comply with the conditions and are not in the printing trade.
§ Mr. Mitchison
May I thank the Solicitor-General for that answer and point out that the notice could not have applied previously because, according to the decisions in the Scottish courts, a local authority was not carrying on a business and, therefore, could not have complied with the conditions.
§ Mr. Arbuthnot
I thank my right hon. and learned Friend for the explanation he has given, which is extremely satisfactory. In view of what he has said, I beg to ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ Clause ordered to stand part of the Bill.
§ To report Progress and ask leave to sit again.—[Mr. Amory.]
§ Committee report Progress; to sit again Tomorrow.