PURCHASE TAX (JEWELLERY) (Hansard, 21 March 1958)

§ Mr. Victor Yates (Birmingham, Ladywood)

The subject I am raising is the black market in jewellery and the evasion of Purchase Tax. It would appear to suggest that a large number of manufacturers or traders in the jewel industry are not honest, but I wish to dispel at once any such impression. I represent a large number of jewellery manufacturers; the great majority are honest working manufacturers who have no wish to evade their responsibilities. They are of no worse calibre, moral or in any other way, than people in other walks of life.

The fact remains that the goods they manufacture are very small items, often unidentifiable. It is easier to copy them, to evade Purchase Tax and to be involved in illegal practices than in some other industries. This statement applies to toys, furs and other small goods. A tax like the Purchase Tax is always difficult to apply to them. In the past, we have seen taxes on petrol and food evaded by the creation of a black market.

The extent of the black market in jewellery is very considerable. The matter was raised in the British Jeweller of last October. A writer suggested in that jewellery industry publication: It is not unusual nowadays to hear ordinarily irreproachable people assert in despair that unless this large-scale illicit trading is scotched they will be forced to lower their own standards to preserve their business. They are under pressure continually from customers who stressed the advantages to be gained by ordering from firms willing to sell for cash without invoice, or to invoice new goods as second-hand. In this article an example is given. It says: A retailer whose shop is in the heart of large Midland city says he is called on several times a week by representatives of London manufacturers who offer to sell him as many cases as he wants, each of three stone diamond rings, all of one price and in patterns which are all repeatable. In other words, if having sold them he cares to order again, he can get them replaced without difficulty on the same convenient terms: the replacements will be second-hand and tax free. This kind of trade 1671 has grown to such proportions that some makers no longer find it worthwhile to purchase rings costing over £10. In support of this, a manufacturer in Birmingham came to see me in London. He first wrote to me saying: Up to 1939 certain districts in London and during the summer at large seaside resorts, it was a pleasure to visit and obtain business. He points out that since 1946 it is quite hopeless to visit certain places without one can do grosses and grosses off the invoice. I asked him if he could give me some information, and he came to see me here. He assured me that he could take me to one street in London where this kind of trade is going on to a considerable extent. The article to which I have referred said: Customs and Excise know of these practices. They are told of them repeatedly. Always their answer is, 'Give us names and we will investigate.' Sometimes they are given names, but their enquiries are rarely fruitful. The thorough-paced black market operator is nearly always too sharp to be caught. That is what I have found from investigations. By manipulation of invoices and selling for cash it is easy to evade the law. On 31st January, the Manchester Guardian published a letter from a Mr. Herbert Steier, a director of the firm of Hill and Company in Birmingham. A paragraph in that letter said: Some time ago, I had an interview with a prominent member of the Government who was in a position to know all the facts about purchase tax. During that conversation, he made the following statement which I quote verbatim… This was a member of the present Government. I have seen the writer of the letter, and he told me the name of the hon. Member. The letter went on: There is no dispute by Customs and Excise as to the wholesale evasion of tax in your trade and as to their inability to enforce the law'. It seems that the authorities know this problem exists. I shall quote one more example. This is from a letter from a manufacturer's agent in Manchester. I shall be glad to give full particulars to the Financial Secretary. This agent of Wilmslow, Manchester wrote to a Birmingham manufacturer: it is well known in the trade that many transactions take place without the tax being charged or paid. Over two years ago I opened a 'Gift Shop' in order to provide my daughter with an interesting occupation and 1672 she managed it until her marriage some nine months ago. I can state that on many occasions she has mentioned, when discussing the day's happenings that a 'traveller' called and offered to sell jewellery without tax and without invoice for cash. Once when I happened to be in the shop a man called and offered to sell to me on the same terms, but when I said that we were well stocked and asked him for the name and address of his firm he said he could not leave it but would call again. I might mention that this evasion was very prevalent in the brass trade some years ago. At that time when many brass articles such as wall plaques were subject to 100 per cent, purchase tax vans from the Birmingham area used to tour the shops offering to sell the merchandise for cash, and it was, to put it mildly, most exasperating to find ones customers could buy very much cheaper if they wished from these people who were not interested in doing legitimate business. Another manufacturer wrote: …if I personally have been asked not in a few but in a great many instances, to supply my product in a manner designed to evade Purchase Tax, if many customers have stated quite bluntly that they were in the habit of obtaining supplies that way quite regularly and with negligible risk, surely, although this is not legal proof, it must point to a certain state of affairs, I must also make it quite clear that many people not only in my own but in other trades, have boasted to me regarding their financially profitable Black Market activities. I have told you before that I am prepared to prove to the Chancellor or his legal advisers, how easily a registered trader can sell goods without paying the full rate of tax and I regret very much that this offer has not, so far, been taken up. I do not believe that I put that to the Chancellor, but I certainly put it to him now to see whether he will investigate it.

What is the Chancellor's attitude? I have put questions to him about this and on 4th February I asked him about the nature of his official inquiries into black market activities. His reply was: It would not be in the public interest to disclose this information."—[OFFICIAL REPORT, 4th February, 1958; Vol. 581, c. 975.] He later wrote to me to say: Despite the widespread allegations from the jewellery trade that their industry is being undermined by the activities of tax evaders, there seems to be a conspiracy of silence, affecting innocent and guilty alike, when it comes to bringing forward evidence which might help to bring the evaders to book. If there is a conspiracy of silence—and I do not accept that there is—why are the firms making complaints every day? On 6th March, I asked how many complaints 1673 had been made to Purchase Tax officers. The Chancellor replied that that information …could only be obtained with disproportionate effort and expense."—[OFFICIAL RFPORT, 6th March, 1958; Vol. 583, c. 1324.] At one time the Chancellor says that there is a conspiracy of silence, but when I ask him how many complaints have been made, he is not prepared to say.

I have one example of where a complaint was made more than three months ago and where inquiries are still proceeding. One of the firms I have mentioned has had many of its designs copied. One was of a monkey bracelet which the firm sold at 32s. 6d. and which it suddenly found to have been copied and to be on sale at 5s. 6d. Inquiries are still proceeding about a trader at Birkenhead. There has been another copy by a trader in Birmingham and it is extremely difficult to see how tax could be paid with a charge as low as 5s. 6d.

Does the Chancellor expect those in the trade themselves to appoint inspectors? Does he expect a kind of jewellery "Gestapo"? If we had that, we should have absolute chaos in the industry. In the days of prohibition in the United States of America, when practically everybody had their own private bootlegger or other illegal source of supply, it was often impossible, even dangerous to supply evidence. It would be equally impossible for the manufacturers, wholesalers and retailers in this trade to appoint inspectors to chase competitors so as to get evidence that would stand up in a court of law.

I would refer the hon. and learned Gentleman to a suggestion made in this month's British Jeweller, in which the same writer says: In Germany, it is said, the copying of patterns is illegal and punishable on the same terms as other kinds of theft. It is enough for a manufacturer to report an offence, as he might report a burglary, and it is then the task of the authorities to find and prosecute the guilty party. In this country, the burden of discovery and litigation rests on the victim, who is unable as a rule to afford the time, cost and risk of protecting himself. Even though the Financial Secretary may not think that this illegal practice is as widespread as the industry believes, I can assure him that the British Jewellers' Association, comprising more than 2,000 firms, is very deeply disturbed 1674 about these activities. Even though those activities may not be on such a large scale, nevertheless they are on a scale that is poisoning the atmosphere in the trade, and disturbing the confidence existing between manufacturers, wholesalers and retailers.

The real solution, of course, is to abolish Purchase Tax, but I fully appreciate that the hon. and learned Gentleman cannot deal with that question today. I should be told that I was asking him to anticipate the Budget. Whatever the solution may be, I do ask him once again to consider some kind of wider inquiry into this matter. That would not be necessary if his right hon. Friend the Chancellor decided to abolish Purchase Tax, but, failing that, there should be some inquiry to assist all the very fine and honest traders that there are in this industry.

In the past, Birmingham, London and the other centres have exported these articles of fine jewellery and other work of craftsmanship. I know that it is said that this is a luxury trade, but homes without adornment, and persons without adornment would be very poor indeed. The fine jewellery manufacturers have sent their produce to the ends of the world, into royal palaces and into presidential and other homes. The industry wants to continue to export its goods.

I therefore hope that the Minister can give an assurance that he will make some inquiry; will meet representatives of the industry to discuss this matter more fully than it has been discussed so far in order to see whether they can help the Government. I hope he will inquire how he can assist them to establish better relationships within the industry, and thus be able to produce more of this jewellery for export, and thereby assist the general trade of the country.

§ The Financial Secretary to the Treasury (Mr. J. E. S. Simon)

The hon. Member for Birmingham, Ladywood (Mr. V. Yates), who represents the jewellery industry of his city so ably and vociferously, if I may say so, has paid a tribute to the craftsmanship of the industry and to the honesty of the great bulk of the traders working in it. It is certainly no part of my duty or of my brief to gainsay him in either of those matters.

1675 The main subject that the hon. Gentlemant has raised today is the extent of a black market designed to evade Purchase Tax on articles of jewellery. He made is perfectly plain that the real purpose of the complaint, and the background to it is an appeal to lower the rate of Purchase Tax on the articles produced in this trade. It has been a constant refrain for some time, and renewed lately, in the jewellery industry that there has been evasion of Purchase Tax; and, of course, if it' were established that that was widespread, it would be a matter to be taken into consideration in deciding whether the rate should be in any way reduced. I cannot help relating the generality of the allegations that have been made on the one hand, and the absence of specific evidence on the other, to that campaign.

The hon. Gentleman asked that my right hon. Friend the Chancellor of the Exchequer should meet representatives of the industry. May I say that I have met representatives of the industry myself. I had a very agreeable discussion with them, and I begged them to bring forward specific evidence. It really is no good just making a general allegation. If the evidence is as has been represented to the hon. Gentleman and as he so fairly reported it in his speech, there must be the possibility of traders, the honest traders in the industry, coming forward with quite specific evidence of travellers seeking to embroil them in a conspiracy to evade Purchase Tax. Unless the Customs and Excise are helped in that way their hands are very much tied in the drive that they make in the course of their duties against evasion of Purchase Tax.

I would today reiterate what was said by my right hon. Friend in his various replies to the hon. Member for Lady-wood and what I myself said to the representatives of the industry when I had the pleasure of meeting them. That is that if there is specific evidence it is the duty of honest traders that they should come forward with that evidence; and, indeed, it is necessary for their own protection. There is no question of a "Gestapo"; it is the perfectly legitimate self-defence of the honest trader.

I find it difficult to believe that there is the wholesale evasion that is repre- 1676 sented. I do not believe that our industry in collecting specific evidence would be so barren if there were indeed the widespread evasion which has sometimes been, alleged.

I cannot avoid thinking that there is significance in the case which the hon. Gentleman himself mentioned of a firm—I will not mention the name—which very properly complained that goods which it had produced had been copied and, so it alleged, were being sold in Birmingham and Birkenhead at prices which indicated that, in the firm's view —and I think the hon. Gentleman tended to take the same view—Purchase Tax could not have been paid. We investigated the sales of these articles in Birmingham, and as the hon. Gentleman knows from my letter to him, our inquiries showed that Purchase Tax had been paid on them. Whether some other offence under the Design and Trade Marks Acts had been committed, is another matter; the Customs and Excise officials were quite satisfied, that, whatever else might have been done which was not legitimate trade practice, Purchase Tax had been paid.

It was alleged also that these articles had been sold even more cheaply in Birkenhead. Inquiries are still being prosecuted there. The hon. Gentleman knows the difficulty there owing to the rather transitory nature of the operations of the trader-in question. We are quite specifically pursuing that as well, although again we have no reason to think that Purchase Tax was not paid.

I will, however, consider with my right hon. Friend the suggestion that there should be wider inquiries made on behalf of the Customs and Excise, but I must repeat that if Customs and Excise are to operate effectively against any black market which may possibly exist, or even something very far short of a black market—any evasion of Purchase Tax—honest traders must place at their disposal the information which they allege is available to them.

I do not myself believe that there is this widespread black market. Nor is this just my opinion. I think it might be worth while to quote to the House the leading article in the Watchmaker Jeweller and Silversmith of this month. It is headed "A case without evidence," 1677 and, in the course of the article, the journal says: We are reluctant to revert to the black market again. … We are not completely out of touch with the trade, yet we have seen no outward signs of a universally degenerating morality among our retailer friends in recent months. But even if this is not considered a convincing rebuttal, there is always the question, 'Why should the trade suddenly lose its last vestige of moral sense?' to be answered. A body of people does not become suddenly less honest without cause, and an 8 per cent. interest rate at the bank would hardly seem a sufficient one. …The costume jewellery industry has been having a struggle, but the trade generally has been flourishing gently. So the trade stands accused; but no one will stand up and provide the authorities with a shred of evidence. No one offers even a plausible argument to convince us that their accusations are based on probability. The article ends by saying: We hope most sincerely that we are wrong, but the only outcome we can see to the great black market scandal is not a decrease in our taxes, but an increase in the surveillance of Customs and Excise. 1678 As the hon. Member for Ladywood recognises, I cannot say anything about the rate of tax; but, whatever the situation is, as long as we have indirect taxes, there is obviously a temptation to evade paying them. This is a very law-abiding country and, on the whole, there is remarkably little tax evasion. In order to stop what there is and see that, in the case of Purchase Tax, an unfair burden is not thrown upon the honest trader, we all depend upon that honest trader coming forward to protect himself. This is really no case for squeamishness. It is his duty and right to come forward. If we are provided with the evidence, I assure the hon. Gentleman that we shall follow it up with all the skill at our command.