New Clause.—(PuacHASE TAX: REDUC TION OF RATE FROM 50 TO 37½ PER CENT.)

HC Deb 22 June 1960 vol 625 cc459-511

Subject to any order made by the Treasury under section twenty-one of the Finance Act, 1948, Part I of the Second Schedule to the Finance Act, 1958 (as amended by the Finance Act, 1959), shall be amended by the substitution in the percentage rates of tax specified throughout that Schedule, of the figure 37½ for 50.—[Mr. Nabarro.]

Brought up, and read the First time.

Mr. Nabarro

I beg to move, That the Clause be read a Second time.

No debates on the Committee stage of the Finance Bill could possibly be considered complete without an examination of the problem of Purchase Tax. Our debates on Schedule A were important, but they dealt with owner-occupiers and affected only about 40 per cent. of the population. This new Clause, in the names of the hon. Member for Birmingham, Northfield (Mr. Chapman) and myself, directly affects the lives and the livelihood of 100 per cent. of the population. It is, therefore, a supremely important aspect of taxation to which, even at this stage, the Committee on the Finance Bill should give careful consideration.

This year, the Purchase Tax will raise £535 million. The figure has gone up steadily in the last few years. I am sorry that my right hon. Friend the Chancellor of the Exchequer is not here, as I shall be continuously referring to him and what I regard as his fiscal iniquities in the last two or three years. In 1958, the Purchase Tax collected a sum of £494 million. I agree with my hon. Friend the Member for—is it Yarmouth (Mr. Fell)?

Mr. Anthony Fell (Yarmouth)

No.

Mr. Bernard Braine (Essex, South-East)

After ten years in the House, my hon. Friend ought to know that I represent quite the most important constituency in the whole of the south-east of England: namely, Essex, South-East.

Mr. Nabarro

I am grateful to my hon. Friend. When I first knew him ten years ago, his constituency was Billericay.

Mr. Braine

The caravan has moved on.

Mr. Nabarro

In the absence of the Chancellor of the Exchequer, I hope that my hon. Friend the Economic Secretary will make a careful note of the figures I give. I should not like him to refer, as he does customarily, to the inaccuracies of his hon. Friend.

In 1958, the Purchase Tax collected a sum of £494 million. In 1959, it collected a sum of £498 million and in 1960, the year ending on 5th April last, it collected a sum of £501 million. The estimate for the year 1960–61 ending on 5th April, 1961, is £535 million. It is, therefore, a trifle inconsequential for the Chancellor of the Exchequer to boast to the House of Commons that in 1958 and 1959 he was responsible for reducing the Purchase Tax by an amount of £120 million. He did nothing of the sort. What he did was to reduce and rationalise the rates of Purchase Tax. That, however, is an academic, though important, consideration with which I will deal. The thing which is fundamental and of overwhelmingly greater importance is the aggregation of sums extracted from the taxpayers' pockets in this form of taxation.

In 1958, at the conclusion of my first 100 Parliamentary Questions that year on Purchase Tax, recognising a few of the anomalies to which I had alluded, the Chancellor decided to reduce the number of rates of Purchase Tax from seven to four. They had been 90 per cent., 60 per cent., 50 per cent., 30 per cent., 15 per cent., 10 per cent. and 5 per cent. The four rates, as you will remember, Mr. Williams, were 60 per cent., 30 per cent., 15 per cent. and 5 per cent. In 1959, the Chancellor kept the number of rates at four, but reduced the amount of each rate, from 60 per cent. to 50 per cent., from 30 per cent. to 25 per cent., from 15 per cent. to 12½ per cent. and the fourth he left stet at 5 per cent.—the rate in respect of certain articles of clothing and certain articles of furniture.

Last year, the Chancellor was very explicit in defining his attitude and policy towards Purchase Tax. They are an attitude and policy which show a marked distinction from the views of hon. Members opposite about Purchase Tax. As I understand it, the Labour Party's view of Purchase Tax is that there should be steep differentials between such classes of goods as they are pleased to call luxuries and such classes of goods as they are pleased to call semi-luxuries and, at the lowest end of the scale, non-luxuries or essentials which they believe should be relieved of Purchase Tax altogether. That has been their view expressed over the last few years.

I am delighted that my right hon. Friend has now come into the Chamber. The only passage of importance in my speech which he has missed was my reference to his fiscal iniquities.

Mr. Amory

That is nothing.

Mr. Nabarro

I agree.

I deliberately delayed quoting policy statements of my right hon. Friend until he returned to his place and I hope that the Committee will bear with me now for quoting extracts from the Chancellor's speech of 12th May, 1959, when he made quite clear the direction in which he wished to travel when considering this important item of taxation in future. He said: As I think I indicated in a previous debate, there is a complete difference of view between right hon. and hon. Gentlemen opposite and myself about the pattern of the tax. They believe that articles which are necessities or even articles which enter widely into everyday use should be exempt, and luxuries, on the other hand, should be saddled with penal rates which, when they were in office, rose, I think, to 100 per cent. or more. My right hon. and hon. Friends and I think that the tax should be composed of certain moderate rates over a very wide range but not—I say to the hon. Member for Gloucester (Mr. Diamond)—a uniform rate. That is not our objective. We believe that such differentials as there are should be kept in perspective and not he unreasonable". I pause to say that I do not think that my right hon. Friend has kept faith with the final passage of that policy statement: …such differentials as there are should be kept in perspective and not be unreasonable. This year, he is not following what he did in earlier years, because he is maintaining differentials of a ratio of ten to one. For example, there is 50 per cent. Purchase Tax on gramophone records and 5 per cent. Purchase Tax on clothing, including luxury clothing and not only items of essential clothing. I claim that a differential of ten to one is much too big to give effect to the policy statement of last year from which I have just quoted.

5.45 p.m.

My second quotation from the Chancellor's speech is: Why is this our view? First, a tax which must yield £400 or £500 a year"— I think that there is a typographical error in HANSARD which has gone un-noticed; it must be, "which must yield £400 million or £500 million a year"— I believe that that is what it must yield at present—must have a broad base. Secondly, if differences between one article and another are too great, the result will be that the tax will be riddled with fantastic anomalies. I claim that the differences are still far too great and that the number of rates is still far too great. That led to my second century of Purchase Tax Questions last year and my third century this year. I am not saying that boastfully—[HON. MEMBERS: "Oh."]—no, I am being perfectly serious about this. I have put Questions to the Chancellor bringing out absurdities and I have the third century of Questions arranged in the form of a typescript for any hon. Member to see and they reveal endless absurdities. That is due to the wide range of differentials and the fact that there are still four rates. Again, the Chancellor is not keeping faith with his policy statement of last year.

My third quotation is: We must remember, as my right hon. Friend the Paymaster-General said, that many of our high-quality products are of the very greatest importance to our export trade."—[OFFICIAL REPORT, 12th May, 1959; Vol. 605, c. 1192.] I have concentrated today on the 50 per cent. rate of Purchase Tax, seeking a reduction to 37½ per cent. largely because of the Chancellor's final statement which I just quoted in connection with the export trade.

The 50 per cent. rate of tax raises £222 million. I hope that the Economic Secretary will again make a note of that figure. It was given to me by the Chan- cellor in reply to a Question on 24th March. That £222 million from the 50 per cent. rate of tax comes out of a total yield of £501 million in Purchase Tax in the year ended 5th April, 1960. It will be seen, therefore, that the greater part of the Purchase Tax yield comes from the 50 per cent. rate, but it is that very 50 per cent. rate which covers those articles which form the bulk of our export effort among taxable articles in the Purchase Tax Schedules, notably motor cars.

I intend to speak at some length about motor cars because there are very mixed views about them.

Mr. Jack Jones (Rotherham)

And badges.

Mr. Nabarro

I pay Purchase Tax at 25 per cent. on all of them. I do not see why the hon. Member should object. That is the proper rate and I also pay 50 per cent. Purchase Tax on the motor car, and that is excessive.

In case the hon. Member for Rotherham (Mr. Jack Jones) has not recognised it, this happens to be a very important matter, in the context of motor cars. Last year motor oars accounted for exports of 540 million, being 17 per cent., in value, of the whole of our nation's visible export trade. In 1938 they accounted for only 5 per cent. of the nation's visible export trade. That is the extent of the increase—from 5 per cent. to 17 per cent. But everybody connected with motor cars and engineering knows that it is imposible to go on exporting motor cars to all parts of the world, where there is the fiercest possible competition in markets, unless the manufacturer bases his output upon a large, healthy and growing home market.

Mr. Maurice Edelman (Coventry, North)

The hon. Member for Kidderminster (Mr. Nabarro) has said that everybody knows, and presumably accepts, that principle. That is not the case. In 1946 it was established by Sir Stafford Cripps that it was possible to have a large and expanding export market, which would prove the basis of the mass output in order to keep down the price of cars, without the need for a large home market.

Mr. Nabarro

I do not wish to liken the hon. Member to a Rip van Winkle, but a lot of water has flowed under the bridge in fourteen years. To start with, in 1946 the Purchase Tax on motor cars was 100 per cent. Secondly, Britain had the whole motor car market of the world to herself, with no competition even from America. There was no German production, no French production, and no Italian production. The hon. Member is not engaged in engineering or, so far as I am aware, in selling manufactured goods abroad.

Mr. Braine

He writes fiction.

Mr. Nabarro

He writes very good fiction—"Who Goes Home".

Mr. Ellis Smith (Stoke-on-Trent, South)

Be fair; his constituency is involved.

Mr. Nabarro

I do not wish to be unfair. But my constituency makes all the floor coverings for motor cars.

The point is that today there is the fiercest competition overseas in the sale of all British manufactured goods, and, according to the Society of Motor Manufacturers and Traders, which is representative of the whole British motor car industry and, generally speaking, receives the support of the appropriate trades unions, it is a fundamental that until and unless the Purchase Tax rate on the home market sales of British motor cars is lightened it will not be possible for Britain to match the rate of expansion which has been manifested by Western Germany, France and Italy in the course of the last few years.

Western Germany is now a long way ahead of us in the sale of motor cars abroad.

Mr. Ellis Smith

Why?

Mr. Nabarro

There is a variety of factors. I am not saying that it is only domestic taxation, but the S.M.M.T. is undoubtedly right in saying that it is largely due to domestic taxation. I have the figures. I hope that the Committee will ponder them, because they are of immense importance. In 1954, Great Britain produced 769,000 motor cars; in 1959 we produced 1,160,000. That is an increase of 51 per cent. in five years. In Western Germany, production in 1954 was 561,000, and in 1959 it was 1,440,000. It had increased by 157 per cent. I repeat that last year—and the gap is bigger this year, on the latest available figures—the West Germans produced 1,440,000 motor cars against Britain's 1,160,000. In other words, we are about 20 per cent. behind the West Germans now, whereas five years ago we were about 40 per cent. ahead of them.

I will not weary the Committee by giving the other figures of production for France and Italy, but they show the same general trend. I will come to the much more important point which the Chancellor recognised in his speech last year, namely, the vital matter of exports. In 1954 the United Kingdom exported 374.000 motor cars, and in 1959 we exported 550,000—an increase of just 47 per cent. Western Germany exported 247,000 motor cars in 1954 and 720,000 in 1959—an increase of 191 per cent. Last year the West Germans exported 720,000 motor cars against our 550,000. That means that she exported roughly 30 per cent. more than did Britain.

Mr. F. J. Bellenger (Bassetlaw)

What was the value involved?

Mr. Nabarro

I do not think that the value is of critical importance, and I do not want to give too many figures. The value of a Volkswagen, sold in Africa, for instance, is not far removed from the value of a Morris Minor sold in Africa. and the value of a Mercedes-Benz, 220 Model, sold in South America. is not far removed from the value of a Rover sold in South America. The point is that the Germans are far ahead in motor car production today, and the gap is widening.

I do not wish my own views as an industrialist and businessman to be taken by themselves in this matter. Let us have regard to what is said by the paramount industrial organisation responsible for motor cars in this country. It said, in its representations to the Chancellor, after he had spoken about the export trade last year: The Motor Industry is faced with a further long period of rapid growth in world demand for cars. Competition will increase in severity, and the United Kingdom motor industry cannot hope to be successful under its present cost disadvantages. If the disability caused by the inequality of tax burden is removed, however, the Motor Industry will be able the better to meet overseas competition and in particular it will be able to win its way back into the vital European markets. I stress the words "win its way back." That was the choice of words used by a deputation from the Society of Motor Manufacturers and Traders after it had met the Chancellor a few months ago and put all these points to him. The S.M.M.T. then made a request that there should be a substantial reduction from 50 per cent. to not more than 35 per cent. in the present rate of Purchase Tax on cars in the 1960 Budget.

Why is our motor car industry so concerned about the inequalities to which I have drawn attention? It is because in Britain the consumer has to pay 50 per cent. domestic taxation on the wholesale price of a car. In France, the equivalent domestic taxation is 24 per cent. In Italy the equivalent domestic tax is 9 per cent. and in the case of our principal competitors, the West Germans, the rate of domestic tax is 12 per cent.

6.0 p.m.

Mr. Ellis Smith

And we won the war.

Mr. Nabarro

And we won the war—I am grateful to the hon. Gentleman.

In Britain, on an article which is responsible for £540 million worth of our exports—17 per cent. of our visible exports—we are imposing a level of domestic taxation four times as big—50 per cent. compared with 12 per cent.—as that imposed by our principal competitors, the West Germans. In my view that is an intolerable state of affairs.

Mr. Bellenger

These serious figures which the hon. Gentleman is giving to the Committee throw a lurid light on the great differentiation between foreign taxation and our own. But is he comparing like with like? He has referred to the Purchase Tax in this country in relation to cars. With what sort of tax in Germany is he comparing it? Has he taken into account the turnover tax?

Mr. Nabarro

I do not wish to go too far away from the terms of the Clause, but German domestic taxation is based on a turnover tax at source. It grosses at 12 per cent. after adjustment in order to bring it precisely into comparison with the British system of Purchase Tax, and that is four times as big after this adjustment.

Mr. J. T. Price (Westhoughton)

That is only one part of the argument. The hon. Gentleman is referring to the impact of Purchase Tax on the motor car industry. He must take into account other very serious factors. One is that about 75 per cent. of the motor vehicles sold in this country are chargeable wholly or partly to business accounts and carry with them a very heavy remission of taxation in relation to Schedule E assessments. When considering this matter we should not forget that, although the gross value of Purchase Tax may well be 50 per cent., a good deal of that tax is not paid by the purchaser. Initial allowances and other things reduce the actual tax paid by the purchaser. It makes the case a lot better from the point of view of the Chancellor's argument and worse from the point of view of the hon. Member's argument.

Mr. Nabarro

I am grateful to the hon. Gentleman. I feel that on this occasion I must decline to reply to the valuable point which he makes. I think I should be completely out of order in discussing Income Tax and capital allowances in connection with a Clause dealing with Purchase Tax. There is a certain amount of substance in what the hon. Gentleman says, but there is a relationship between the two systems of taxation. It does not derogate in any way from the fundamentals of how we are to enlarge our export trade in consonance with the recommendations made last year by the Chancellor.

I do not want to devote the whole of my case today to motor cars. There are four other categories of goods similarly heavily penalised by the 50 per cent. rate.

Mr. G. W. Reynolds (Islington, North)

The hon. Member for Kidderminster (Mr. Nabarro) has given the Committee a mass of figures—he reeled them off very quickly; I hope they are all correct—which prove how poor has been the development of the motor car industry in this country during the last few years compared with our foreign competitors. This was something which we on this side of the Committee maintained before the General Election and it was denied by the party opposite. I am glad that now it is being confirmed.

I sympathise with the case being presented by the hon. Gentleman but, apart from a direct quotation from the Society of Motor Manufacturers and Traders, he has not yet in any way proved lo me how the reduction of the rate of Purchase Tax on motor cars will make it easier for people in this country to purchase motor cars when, presumably, the manufacturers are unable to manufacture a great many more than they are producing at the moment. How will this increase the number of cars available for export? Can the hon. Gentleman go further and explain that to us?

Mr. Nabarro

I will reply as shortly as I can.

The price of a motor car, other than the raw material content, depends in large measure on the unit cost placed on the through-put of the works concerned. It is large-scale production, assembly lines and the remainder, and the larger the market, notably the domestic market on which the production of the factory is based, the lower the unit cost of production. That is the first argument—and I believe a correct one—for large-scale and rapid production. In this country we have, in the last few years, by an excessive rate of Purchase Tax on cars, damped down the home demand. I believe that has raised the cost and made us less competitive in the world market than otherwise we might have been.

Mr. Reynolds

I am sorry to interrupt the hon. Gentleman again, but I want to get this right. Theoretically I accept the argument which he is putting forward—theoretically. In practice, if one wanted any of the popular makes of cars one would have to wait five or six months. As I understand it, the motor car industry, with considerable assistance from public funds, is at present planning to extend its factories, but it will be two or three years before those factories come into operation. I still cannot see how a reduction in the rate of Purchase Tax on motor cars from 50 per cent. to 37½ per cent. this year would increase the number available. Presumably, the manufacturers are trying to produce as many cars as they can because they do not wish the customers to have to wait for them, but how will a reduction in Purchase Tax increase exports during the next twelve months?

Mr. Frederic Harris (Croydon, North-West)

Before my hon. Friend replies, may I remind the Committee that since the duty was removed from commercial vehicles the export of those vehicles has increased by about 15 per cent. in one year?

Mr. Nabarro

My hon. Friend the Member for Croydon, North-West (Mr. Harris) has made a point which I intended to make later.—[Interruption.] I do not mind him making the point, but after all, I did battle in this Committee for five years to get the Purchase Tax removed from commercial vehicles and so I am aware of the situation since the tax was removed. The export sales have gone up enormously, but I must leave that point.

I gave way twice to the hon. Member for Islington, North (Mr. Reynolds) and he took full advantage of that. Whether he is convinced by my argument or not, I can only ask him to read the perfectly factual statements, supported by a mass of statistics, submitted by the Society of Motor Manufacturers and Traders—which represents all the car producers in this country—in close alliance with the appropriate trade unions which draw attention to the dreadful effect on overseas sales of the penal level of Purchase Tax on cars.

May I now turn to the other four categories of goods which fall within the 50 per cent. rate of Purchase Tax. First, there is radio; second, television; third, cosmetics and toilet preparations, and fourth, gramophone records. There are five categories in all—motor cars, radio, television, gramophone records and cosmetics and toilet preparations. I have dealt with motor cars and I wish to deal briefly with the other four.

Is radio a luxury to be taxed at ten times the rate of, for example, furniture or clothes—ten times—50 per cent. compared with 5 per cent.? Why should radio, which after all is an electrical appliance, be taxed at double the rate of other electrical appliances such as electric irons and carpet sweepers?

Mr. John Hall (Wycombe)

It is a masochistic streak in the British character.

Mr. Nabarro

Yes, a masochistic streak in the British character. My hon. Friend is a fine advertisement for his furniture manufacturing constituency of Wycombe. He gets away with a 5 per cent. Purchase Tax on furniture—

Mr. John Hall

Perhaps that is due to more subtle advocacy.

Mr. Nabarro

I should not have thought that. He gets away with 5 per cent. on furniture compared with 50 per cent. on radio. The tax on radio is ten times the amount on furniture, and that amount of tax is twice as much as the Purchase Tax contributed by any other electrical appliance. I wonder why.

Mr. Braine

Utterly illogical.

Mr. Nabarro

It is utterly illogical. I have asked the Treasury this question several times in the course of my Purchase Tax Questions and the reply has been, "My right hon. Friend cannot anticipate his Budget statement." When we get to the Budget and have the debate, the Whips sit glowering at me and wanting me to get on with my speech and not raise these matters, but today they are going to be raised.

I have no doubt that the Economic Secretary will fall bank on England's last hope and say that, for revenue reasons, we must tax radio at 50 per cent., which is twice as much as the tax on any other electrical appliance and ten times as much as the tax on furniture, notwithstanding the fact that the cabinet of a radio set is furniture. If the Treasury were fair, it would tax the cabinet at 5 per cent. and the innards at 25 per cent. Those who have transistor sets would have a rate of Purchase Tax very much lower than 50 per cent. My hon. Friend the Member for Essex, South-East (Mr. Braine) was perfectly right in saying that it is utterly illogical.

The third category is television. I shall not weary the Committee with a lot of figures. Suffice it to say that exports of British television sets are negligible. We export hardly any television sets at all, but the Germans export them.

Mr. Raymond Gower (Barry)

My hon. Friend is on the wrong lines.

Mr. Nabarro

If my hon. Friend the Member for Barry (Mr. Gower) is so knowledgeable on television matters, he might perhaps allow me to continue and to say that the Germans overwhelmingly concentrate on the production of a 21-inch screen while the British overwhelmingly concentrate on the production of a 17-inch screen. The difference in Britain between a 17-inch and a 21-inch television screen is very substantial, as anyone who has compared prices will know. Those sales on the home market of 21-inch television sets do not justify laying down production lines to attract export sales, and Germany has the European market very much to herself.

The hon. Member for Islington, North is shaking his head vigorously. I shall never convince him for he is dogmatic and bigoted in these matters. Let him go away after this debate and this time consult not the Society of Motor Manufacturers and Traders, but the appropriate trade organisations ofthetelevision industry, for again they have made representations to the Treasury.

That deals with motor cars at 50 per cent., radio at 50 per cent., and television at 50 per cent. I shall now say a few words about the typist's lipstick. The hon. Member for Gloucestershire, West (Mr. Loughlin) seems indignant that I should talk about it.

Mr. Charles Loughlin (Gloucestershire, West)

On the contrary, I think that lipstick would improve the hon. Member for Kidderminster (Mr. Nabarro).

Mr. Nabarro

Be that as it may, that did not strike me as a very subtle riposte, but the hon. Member is notorious for his use of a blunt weapon. The hon. Member's ignorance of Purchase Tax Schedules is manifest.

Mr. Loughlin

Have a shave.

Mr. Nabarro

Razors and razor blades are taxed at 25 per cent., not 50 per cent., and it would be out of order to talk about shaving when discussing this Clause.

Perhaps I might get back to the fourth category, cosmetics. The cosmetics industry of this country is quite a large one. It is doing very well and covers a lot of exports, but they labour under another subtle disability. One cannot sell cosmetics and toilet preparations abroad unless they are highly attractively packaged. That, of course, is one of the strengths of the French and the German export trade in these commodities. [Interruption.] Does my hon. Friend the Member for Barry wish to say something?

Mr. Gower

indicated dissent.

6.15 p.m.

Mr. Nabarro

The fact is not generally known that not only do we apply Purchase Tax at 50 per cent. to cosmetics, but we apply it to the expensive packages as well. We thereby create a situation—the Economic Secretary should write hard, for he or his predessor admitted this—in which the 50 per cent. rate is applied to the bottles, the aerosols, the cardboard boxes and all the attractive frills and fittings which go into the presentation of these articles. That is highly derogatory to our export trade and it is a disability under which neither the Germans nor the French suffer.

I now come to the fifth category. There is probably more intensity of feeling, although the front is narrow, on this than on any of the other four. This category is gramophone records. In 1940, when Sir Kingsley Wood brought into this House the Purchase Tax for the first time—twenty years ago—he called it a wartime impost and presented it to the House as a means of so inflating the price of consumer goods as to dissuade consumption and cause diversion of essential raw materials and labour to war factories. That was a very laudable purpose. I doubt whether the few hon. Members in this Committee to-day who listened to Sir Kingsley Wood twenty years ago—the right hon. Member for South Shields (Mr. Ede), the right hon. and learned Member for Montgomery (Mr. C. Davies), my hon. Friend the Member for Rugby (Mr. Wise), who then represented Smethwick, and one or two more—

Mr. E. Shinwell (Easington)

One or two more.

Mr. Nabarro

This is the first time I have seen the right hon. Member for Easington (Mr. Shinwell) hiding his light under a bushel. I did not notice him before. Yes, the right hon. Member for Easington and one or two more. I doubt whether they thought that twenty years later we would still be in the throes of this dreadful iniquity of Purchase Tax.

Sir Kingsley Wood first put Purchase Tax on books. Notwithstanding the fact that it was only a few weeks after Dunkirk, the House of Commons still found time to protest in the strongest terms about a tax of that kind being placed on culture. Subsequently, Sir Kingsley Wood thought again and removed Purchase Tax from books, but he kept it on gramophone records at 30 per cent. From there it crept up to 60 per cent. and today it is 50 per cent. Purchase Tax on gramophone records is still 50 per cent. notwithstanding the fact that on musical instruments—with the exception of pianos, which are not taxed at all—it is 25 per cent. The tax on gramophone records is double that rate.

Surely that is a tax most largely on culture. Of course, there are "pop" records. We know all about that, but there is also pornographic literature. If. in 1940, the argument could be sustained by the Labour Party, warmly supported by the Conservative and Liberal Parties. that we should not tax books because, overwhelmingly, they make a contribution to culture and in a minority sense only do they represent rubbish, surely the same argument could be applied today to gramophone records, most largely representing a cultural product and in a minority sense only representing "pop". rubbish and trash.

The hon. Member for Walthamstow, West (Mr. Redhead) is shaking his head in dissent. It is his party which has supported me in this field more than my own party, and I have no doubt that many of his hon. Friends will rise to support me today on the issue of gramophone records. It is an absolute illogicality that the gramophone record should be singled out and taxed at double the rate of musical instruments, especially having regard to the fact that we have always recognised that books should not be taxed at all.

Those are the five categories—motor cars, at 50 per cent. Purchase Tax, which is gravely affecting our competitiveness against West Germany, Italy and France; television, the exports of which are nearly negligible from this country whereas West German exports are largely going ahead, and I believe, again, that that is due to this excessive rate of Purchase Tax; radio, where it is utterly illogical that the 50 per cent. rate should be maintained when the furniture of the cabinet is taxed at only 5 per cent. and the "innards" of the radio are being taxed at twice the rate of the tax on an electrical instrument; cosmetics, in which case the packages needed, particularly in the export trade, are of an expensive character and are also subject to tax; and gramophone records, where it is a direct tax on culture.

May I wind up with this single sentence to the Chancellor? I am sorry that this amuses my hon. Friend the Member for Barry. If I have spoken for too long, I apologise to him. After all, I am making a case on behalf of hundreds of thousands of workers in these industries. Whether they vote Labour or Tory is not of much consequence to me. They are behind me to a man in this campaign, because the tax strikes at their employment. I am interested to see that the hon. Member for Coventry, North (Mr. Edelman), who represents a motor car division, disagrees with me, because the opinion which he implies by his disagreement is not the opinion which I get when I go to Coventry.

Mr. Ellis Smith

In my view, the hon. Member for Kidderminster (Mr. Nabarro) has made a reasoned case and has quoted some very good statistical evidence to support it, but he has brought a number of my hon. Friends into the argument at different times, and it should, therefore, be stated and put on the record for historical purposes that the Labour Party was against Purchase Tax when it was introduced. We had several special party meetings during the war and we were uncompromisingly opposed to it. We reluctantly accepted it in the end, because we put the winning of the war before anything else. In our view, its main purpose at that time was to restrict consumption, and we believed that that should have been done in a more scientific manner.

Mr. Nabarro

I am grateful to the hon. Member. I am sure that he will wish to contribute to the debate later.

Mr. Ellis Smith

Much later—on another new Clause.

Mr. Nabarro

The hon. Member has a new Clause—Purchase tax: reduction of rate from 12½ to 5 per cent.—which seeks to reduce the rate of tax. The moment he talks about reducing the 12½ per cent. rate on pottery, I shall respond with a request for a reduction in the rate on carpets, because if the rate on pottery is to be reduced then the rate on carpets must be reduced. I did not mean to make that point now; I make it only in passing.

I want to wind up on this note: the Chancellor's reply to the debate will be in traditional bones and terms. He will say, "The reduction of the 50 per cent. rate of Purchase Tax to 37½ per cent. which my hon. Friend is seeking to make would result in a fall in revenue of one quarter of the estimated Revenue of £222 million, a figure which I gave my hon. Friend in my reply to his Parliamentary Question on 24th March." My right hon. Friend the Chancellor will undoubtedly say, "A quarter of £222 million is £55½ million".

Mr. Herbert Butler (Hackney, Central)

It is £55½ million, not £55 million.

Mr. Nabarro

That is what I said. I am sorry that I dropped my "h". My right hon. Friend will say, "The cost of accepting this Clause in the name of the hon. Member for Northfield and Kidderminster is £55½ million. The acceptance of a Clause at such a high cost would be inconsonant with the economic pattern and philosophy enunciated in the last Budget statement".

Let me shoot my right hon. Friend to pieces in advance. Every time he has reduced a Purchase Tax rate, the yield has gone up. If he accepted this new Clause, the yield of a 37½ per cent. rate of Purchase Tax would be higher than the notional yield of the 50 per cent. Purchase Tax, based on the experience of the last few years—and there was the same experience when the Chancellor reduced the price of beer by 2d. in the 1959 Budget. Everybody started guzzling bitter beer. The brewers have made record profits, the consumers have been appropriately lubricated and the yield for the coming year is estimated to be even higher than that for last year.

In 1958, the Chancellor collected £494 million in Purchase Tax. He reduced the rates. The next year he collected £498 million in Purchase Tax, notwithstanding the reduced rates. That was in 1959. In 1960, notwithstanding the reduced rates, he collected £501 million. Notwithstanding the reduced rates, this year, up to 5th April, 1961, he is to raise £535 million from Purchase Tax.

I therefore hope that we shall have no nonsense in his reply to the effect that he cannot afford to accept this new Clause because it would mean too much loss to the Revenue. On the contrary, if he reduces the Purchase Tax on these five categories—the motor car, radio, television, gramophone records, and cosmetics and toilet preparations—from 50 per cent. to 37½ per cent., the whole of the population will rejoice. They will consume more and the aggregation of the yield from a 37½ per cent. rate of tax will be greater than the notional yield from the 50 per cent. rate of tax.

6.30 p.m.

Mr. Donald Chapman (Birmingham, Northfield)

It is not very often that I find myself with my name to an Amendment or new Clause sponsored by the hon. Member for Kidderminster (Mr. Nabarro). I should like to say two things to him. In the first place, much as is the affection which many of us have for him and the speeches which he makes in Committee and in the House, I beg him to realise that if we all treated the House and the Committee with the same strident advocacy as he uses, we might reduce the House to a much worse place than it is now. I say to him in all friendliness that it would be a good thing if he took a tip from his hon. Friend the Member for Wycombe (Mr. John Hall) about subtle advocacy.

Secondly, I congratulate him on what was a considerable tour de force today. I am particularly glad to be supporting what he said, because it was so brilliantly put. If he realised the enormous effect which he can have when, as he did in parts of his speech, he puts his point quietly, effectively, even damnably straight, then he would be held in even higher esteem than that in which many of us hold him. He would do well to continue in that line in the House instead of the more strident advocacy which often irritates many of us. Nevertheless, he has left me with very little to say in support of the brilliant case which he has put over today.

The hon. Member will be the first to admit that what he said about motor cars is exactly what I said when I put this case on 8th April, 1959. That is one of the reasons why I am particularly glad to support him. Another reason why I shall be so glad to support him in the Division Lobby today, if need be, is that I, too, am beginning to find in this Committee that unless we go in for some of the hon. Member's strident advocacy we get no change whatsoever, not even an answer to our arguments from the Treasury Bench.

Mr. Nabarro

Hear, hear.

Mr. Chapman

I want, in my own defence, to quote one passage from what I said last year, because it has gone another year without being answered. We are having to rehearse it all over again tonight. We shall be very surprised indeed if the Economic Secretary, contrary to what has been done by any of his right hon. Friends, makes even an attempt to answer it in economic terms. I said last year: Over the last four years, while we have been raising home consumption of cars by about one-quarter or one-half of our 1954 figure, the home consumption of the three competitors which I have mentioned"— they were France, Germany and Italy— has gone up 65, 75 and 100 per cent. Their production is up 100 to 150 per cent., while our production has risen by one-quarter to one-half. Their exports are up 150, 200 or 250 per cent. while again ours have risen only by one-quarter or one-half of the 1954 figure".—[OFFICIAL REPORT, 8th April, 1959, Vol. 603, c. 319.] That was the burden of my case last year. My bitter complaint is that neither then nor since, nor at any time in the last five years when we have been talking about the motor car industry in this Committee, have we ever had a proper analysis from the Treasury Bench of the factors facing the industry. I hope that today for the first time the Economic Secretary will give us that analysis.

I want to complete the picture painted by the hon. Member for Kidderminster. What he failed to add to his significant argument was that the frightening situation in the motor car industry is not in our global exporting position but in our exports to Europe. In Europe there is a potential car-owning population of considerable magnitude. It is calculated that in four or five years' time another half a million people in Europe will be buying cars every year.

In this market, which will expand in the next few years, we have been losing ground. We were exporting 120,000 motor cars to Europe. It fell to 90,000. It has just crept back to 100,000. This has happened while all our competitors in Europe have been striding ahead on a scale which has to be seen to be believed.

It frightens me to see the position which we have now reached in Europe. As I said last year, four or five years ago France and Germany produced one-half or two-thirds of what we were producing. Italy was not anywhere in the market. Germany is now way out ahead of us. France will lick us this year, much to our shame, unless I am very much mistaken. From being a negligible competitor five years ago, Italy now produces and sells half as many cars as we do. This is happening in the market in which, above all, we must get going in the next few years.

Only yesterday I read in The Times and other newspapers that the position in the Canadian market is such that they may start putting higher import taxes on our motor cars. For some years it has been thought that the years of expansion in the North American market are coming to an end and that we shall do well to hold our position there.

The only other market is the British Commonwealth, particularly Australia and New Zealand. The prospects there are that we shall be in greater difficulty in years to come, because they are now producing their own motor cars. Again and again we come back to the potential market in Europe as the mainstay of our possible advance in this industry in the next few years.

I am desperately anxious that the Treasury should not face this issue with total unconcern. The Treasury seems to think, "The figures come out right every year based on the flourishing American market. What is there to worry about? We can postpone any economic argument and decision for another year". The situation in Europe is becoming worse and worse all the time. Once the tables turn in the other two markets, America and the Commonwealth, it will be almost too late to start capturing Europe. That is the position today, as neatly as I can put it.

I want to deal now with two or three points which the hon. Member for Kidderminster did not make. Why is it important that we should have higher production here in order to secure such an economy in cost? One of the reasons is the cost of labour in Britain compared with that of our competitors in France, Germany and Italy. According to the index of wages for semi-skilled workers, on which the industry depends, and treating the United Kingdom as 100, semi-skilled wages in France are 83, in Italy they are 75, and in Germany they are 71.

There has to be an enormous headway in technological advance, scale of production. and so on, to compensate for a 25 per cent. disadvantage in wage costs. It is terribly important that we should realise that.

Mr. Denzil Freeth

Do the figures for our competitors include payments by employers to social services?

Mr. Chapman

As far as I know, they do. They are comparable figures. They are based on an Italian study which I cannot quote today, but it is a fair comparison. It is important to realise just how much the crisis is looming ahead and how much disadvantage we have to make up.

It is said by the Treasury that we shall lose Revenue by a tax concession. The Society of Motor Manufacturers and Traders Ltd. does its best to be impartial in these matters, as well as pleading its own case, because it has to stand up to careful criticism. It has estimated that if we could get taxation on motor cars down to about 35 per cent., while we might lose £40 million in Purchase Tax revenue the revenue from licences and fuel tax would completely compensate us for that loss. It is further estimated that if Purchase Tax could be got down even further—I am sure that the hon. Member for Kidderminster will be delighted with this argument—the revenue from fuel tax and licences would more than counterbalance the loss of Purchase Tax revenue.

On the narrow fiscal argument, I do not believe that, considering the effect of two or three years' expansion in the motor industry, the Treasury has a leg to stand on in terms of revenue.

Each year when we have made this case on the motor car industry we have pleaded that something more than fine words, congratulations, and complacent optimism should come from the Treasury Bench, but every year we have been faced only with a blank refusal to do anything very much. Last year was the one exception. It was based on a general reduction of taxation. What we want to say to the Treasury Bench today is that it is now becoming so important to help the motor car industry in competitive markets that we cannot wait until another year of general reduction in taxation before relief is given in this field.

If one looks ahead, the prospects for 1961, based on today, are that we shall not be in for an easy Budget. The boom is only just getting under way, the curb has just started, and there are rumours of more curbs to come. Presumably, if the position does not right itself, they will come in the autumn. If they do, next April will be too early for a sudden lightening of the burden of taxation, based on present trends. That takes us to 1962 before there is any chance of any lightening of the burden of taxation.

If that should be the case, I say again to the Economic Secretary, "You cannot wait for another big reduction of general taxation before doing something to enable the motor car industry to continue to be competitive". It will not be good enough much longer to congratulate the industry, to talk about its £500 million of exports, to go to the dinner of the Society of Motor Manufacturers and Traders and congratulate its members all over again with honeyed words. The time may come when it will be too late to get back into Europe and when other markets become more difficult, and if the Treasury wait for a general reduction in taxation the whole situation will get out of hand.

I hope that the very good case put by the hon. Member for Kidderminster will be supported. If he wants to press his new Clause, I shall be very glad to support him in the Division Lobby unless we have overwhelmingly convincing economic arguments, for the first time in five years, from the Treasury Bench.

Mr. Denzil Freeth

I am very glad to follow the hon. Member for Birmingham, Northfield (Mr. Chapman), because I think that to a very large extent the arguments for reduction here must inevitably depend on the advocacy of the motor industry. It is unfortunate that we cannot debate the whole question of the Common Market, because when one looks at the future of the motor industry—particularly in Europe, on which the hon. Gentleman laid a good deal of emphasis—what happens to the tariffs that face us and to the tariffs that do not face our competitors must be very important indeed.

When one comes to the proposition—which I think we all accept—that in producing mass-production consumer goods for export one must have a strong home market, one has to ask oneself whether or not the present level of Purchase Tax is a deterrent to that strong home market. Having read the information sent out by the Society of Motor Manufacturers and Traders, and having listened to the speech of my hon. Friend the Member for Kidderminster (Mr. Nabarro), I am unable to convince myself—as I think the hon. Member for Islington, North (Mr. Reynolds) by his question showed that he was not convinced—that Purchase Tax today is having an effect upon the home market that prevents that home market from being a healthy one.

Until a month or so ago, waiting lists of five or six months were not uncommon for popular models of cars and I therefore find myself unable to accept the proposition that the Government's level of taxation is preventing the motor manufacturers having a reasonably strong home market—

Mr. Chapman

I must apologise for not having dealt with this. When my hon. Friend the Member for Islington, North (Mr. Reynolds) made his remarks I passed him a note of explanation. I think that the answer is that a year ago there was no waiting list. If the present boom is followed by another credit squeeze, then, again, there will be no waiting list. Taking a period of years by and large, there is no rational justification at the moment for motor manufacturers to jack up their production to a much higher level, because there will be periods of no waiting lists and, in fact, periods of redundancy. If the Purchase Tax, which is a constant factor, were reduced, the case would be different.

6.45 p.m.

Mr. Freeth

I take that point, but there is another. Can we be certain that if sales at home are stimulated by a reduction in tax we shall not find the home market drawing in too great a proportion of production, bearing in mind that, at present, any greater production of motor cars must also entail an import of sheet steel from which to make them? For that reason, I find it equally hard at present to accept an argument that Purchase Tax should be reduced.

There is a third reason. We have agreed that there is a danger of prices starting to rise again. There is a very grave danger of imports rising faster than exports. They are doing it already, and exports are not showing the same tendency to rise.

During an earlier stage of our proceedings, I said one or two rather cruel things about my right hon. Friend the Chancellor of the Exchequer in relation to bank advances. I said that I thought that bank advances to mid-May would rise. I am happy to say that I was proved wrong. Bank advances fell quite substantially—according to this morning's newspaper reports the increase in bank advances was only £3.1 million. I therefore have the triple pleasure of being wrong, finding that my right hon. Friend's measures are working better than I thought they would, and of apologising to him most sincerely.

The fact is, however, that bank advances are still rising, and are £655 million higher than they were a year ago. If one believes, as I do, that this policy is right, namely, that for balance of payments reasons one has to try to dam home demand, I cannot see how one can support a Clause that would further increase demand for the goods contained in this Schedule of Purchase Tax.

Mr. Edelman

The hon. Member for Kidderminster (Mr. Nabarro) had all my sympathy when he referred to the desirability of reducing Purchase Tax on gramophone records, but as he was obliged by the exigencies of the rules of order to include that reduction in an omnibus provision that included motor cars—to which he gave his major attention—I fear that I cannot support him.

My concern tonight is not with the memorandum of the Society of Motor Manufacturers and Traders which constituted the essence of the hon. Member's speech—in fact, I can say that I had the advantage of reading the hon. Gentleman's speech before he made it—but with certain wide, non-parochial interests that go far beyond those of the motor manufacturers.

I am concerned with full employment in the motor industry and with the place of that industry in the nation's economy. That is why, although, in principle, quite obviously, like everyone else, I am in favour of a reduction of taxation, and of a reduction in Purchase Tax as soon as possible, I believe that the time has not arrived for a reduction of the Purchase Tax from 50 per cent. to 35 per cent.—[HON. MEMBERS: "37½ per cent."]—recommended for the motor industry by the hon. Member. It appears that he has added 2½ per cent. to the recommendation of the Society of Motor Manufacturers.

When I referred to Sir Stafford Cripps, the hon. Member said that much water has flowed under the bridges—or used some such cliché—since Sir Stafford dealt with the motor industry. Although that is so, the motor industry—and by that I mean the motor manufacturers—still preserves the same pattern of thought as it did in 1946.

The hon. Member may recall, and the Committee will certainly remember, that when, after the war, at a dinner of the Society of Motor Manufacturers and Traders, Sir Stafford Cripps recommended that the industry should henceforward concentrate on exports, and gave those present the target at which it should aim, he was literally howled down.

That grave act of discourtesy, at a dinner at which he was a guest, made a profound impression on all those who were present; not merely because of the discourtesy, but because it impressed on the minds of all present the argument advanced by Sir Stafford—

Mr. Gresham Cooke

I intervene just for the sake of historical record. I was not present at the dinner that year, although I was present at the following one, but from what I was told afterwards I understand that the shouting was done by the motor traders, who were dismayed by the thought of the lack of a home market for the sale of cars. I do not think that there was opposition from the responsible motor car manufacturers themselves.

Mr. Edelman

The hon. Member was not present and I was, so I can say, by looking back on that period, that what, in fact, happened was that the motor industry as represented at the dinner of the motor manufacturers and traders was antagonistic, I will not put it higher than that, to the recommendations made by Sir Stafford Cripps. I want to emphasise that that antagonism has found expression in the brief which I hold in my hand of the S.M.M.T. Its argument was that the British motor industry could not have a high export performance unless it had a long-scale run of production for the domestic market, and although, at that time, Sir Stafford Cripps was able to argue that the Swiss, as the principal exporters of watches, had only a small domestic market, that argument did not carry weight.

Eventually, the Labour Government were obliged to apply physical controls which were established primarily to deny to the motor manufacturers the supply of sheet steel if they were unwilling to apply themselves to the export market. I recall these historical facts merely because the pattern is reproducing itself today. Finally, the motor manufacturers were obliged, by the physical fact that they were not getting the steel unless they were prepared to go into the export market, to go into the export market, with results which were to the great benefit of the country as a whole.

I should like to pay tribute to those technicians, designers and workers in the industry who applied themselves to the task given them by the Government and who succeeded in raising the performance of production of the motor industry. Despite the gloomy prognostications of those days, the industry, putting the emphasis on exports, was able to become for a short period, at any rate, the chief exporter in the whole world. Although the motor manufacturers constantly said that there must be a large majority home market, where they could have their long lines of production, it was established that, irrespective of whether there was a predominating production for the home market over the export market, it was possible to have long lines of production which were able to cheapen the cost of the unit to which the hon. Member for Kidderminster referred.

I notice that in debates of this kind the arguments always advanced—and I do not exclude my hon. Friend from this charge—in favour of the motor industry are the arguments put forward by the Society of Motor Manufacturers and Traders who, of course, have a special interest to defend and promote.

Mr. Nabarro

I quoted a few figures to give the ring of authtenticity in the matter of motor cars from the statement of the S.M.M.T. to the Chancellor because I thought that was the most authoritative reference. It is really untrue to say that I made my speech briefed by the society. Take what I said about the other four categories—radio, television,cosmetics and gramophone records. I was not briefed by anyone. I looked up the figures for myself.

Mr. Edelman

I can only say that the hon. Member's speech followed in close detail the memorandum of the S.M.M.T. which I hold in my hand. That is not to denigrate its quality.

I believe that the S.M.M.T. has put forward a case which has to be answered and that is what I seek to do tonight. The hon. Member for Kidderminster very properly pointed out the staggering increase in exports by the Germans and the French. Indeed, the figures are remarkable. Between 1954—if I may recall two of those figures—the Germans increased their exports by 191 per cent. and the French by 385 per cent. I do not want to draw too dramatic conclusions from the fact that the principal firms making cars in Germany and France were nationalised concerns, Renault in France, and Volkswagen in Germany.

I do not want to dwell too much on it, but there is a significance in the fact that there were two major nationalised industries in France and Germany engaged in the making of motor cars. They were producing the minimum of models and were able to produce those models with precisely those long lines of production to which the hon. Member referred as being essential to reduce the unit cost. If I may quote the memorandum of the S.M.M.T. to the Chancellor, the society says, talking about the inescapable fact that Continental producers have forged ahead in the home market: On the basis of a large and growing home market they have been able to achieve high total production which, in turn, has brought a spread of fixed costs and a sizeable reduction in unit costs which has enabled them to undercut the British producer in export markets. They were able to reduce the price of a unit by the simple fact that they kept the number of their models to a minimum, they had interchangeability of parts, and they were able, by means of this simplification and rationalisation, to produce long lines of vehicles at a relatively cheap cost.

Before the war—and the bon. Member for Kidderminster may recall it—there was great anxiety among the workers in the motor industry, who are my principal concern in this matter, because of the notorious pattern of seasonal employment and unemployment. Sometimes I am astonished that people should wonder why it is that, despite the fact that today the motor industry is booming, there is a malaise inside the motor industry which expresses itself in wildcat strikes, sporadic strikes and even authorised strikes.

The reason is that the motor workers have a profound psychological anxiety, dating from the years of seasonal unemployment before the war, when the motor manufacturers, profiting from perhaps an inflationary phase to the benefit of the home market, were taking the pickings out of the season and then turning their men off when the season's advantages had expired. That anxiety still exists. Because of it the workers in the industry are concerned that there should not be a return to that period. Therefore, I believe that the great necessity today is for the motor industry to use the home market not simply as an orchard where they can go picking the ripe fruit, but, if I may change the metaphor, as a buffer against the possibility of unemployment when the export market which should be maintained on a permanently high level may perhaps run into difficulties.

Mr. Chapman

I think that my hon. Friend is being a little unfair. I do not want to contradict him completely and whitewash the motor manufacturers, but there would be nothing easier for them to do than to starve the export market and flood the home market, with the waiting lists as they are today.

Mr. Edelman

The point that I am making is that Purchase Tax—and the hon. Member left it out of his list of reasons for the application of the tax to our fiscal arrangement—is a form of fiscal control for shaping the pattern of the economy. I believe that today the motor manufacturers, were they suddenly to abandon the emphasis which they have traditionally been obliged to place on exports, would not only find it inconvenient and difficult, but would properly arouse the resentment of Members of all parties who would feel that the motor industry was not playing the national part which it should do and which it has hitherto done.

7.0 p.m.

I believe that there are great opportunities for the motor industry and that our own motor industry is capable of meeting the competition which exists from abroad, but to meet that competition I do not believe that it should be offered the soft feather-bed of tax remissions which would enable it to rely comfortably on the home market. Our motor industry has the talent and the technicians, but it has not the management which is necessary to reduce unit costs.

There is in the memorandum produced by the S.M.M.T. an item of considerable significance and even, I might say, of sinister significance. In a comparison of costs between Britain and her Continental competitors the memorandum refers to the fact that our material costs are competitive, but that the labour costs are not. I must say that I see a certain danger—which has been realised in the past—that the motor manufacturers, in order to try to find explanations for the fact that the unit cost of the British motor car is relatively high compared with that of our foreign competitors, will turn to wages as being the scapegoat for the failure of the British motor industry to achieve exports comparable with those of our foreign competitors who pay lower wages.

There are already certain dangers that in the new expansion of the motor industry there will be an attempt—which, I hope, will be defeated by strong trade union organisation—to make regional agreements for the payment of engineers which will be competitive with other districts and which will have the effect of menacing wage rates. But the fact that it is not primarily wages which are responsible for high unit costs can be shown from the example of the United States, where wages are relatively much higher, and yet, taking the assessment per lb. of motor cars, the United States motor industry is highly competitive.

I oppose the proposed new Clause in the name, of the hon. Member for Kidderminster. Although, taking an easy and parochial view, it would be possible to support it and, indeed, it might demagogically be more popular to support it, believe that in the interests of the country as a whole, in the long-term interest of the motor industry and, above all, in the interests of the workers who are engaged in that industry, it would be wrong and undesirable at this moment—I emphasise "at this moment"—to reduce the rate of Purchase Tax.

There will always be time to reduce Purchase Tax if the motor industry should run into real difficulties abroad, but for the time being the home market can and should 'be the buffer which protects the interests of those engaged in the industry. For that reason I hope that the Chancellor will not yield to the demands of his hon. Friend for a remission of Purchase Tax for the motor industry.

Mr. Gresham Cooke

My hon. Friend the Member for Kidderminster (Mr. Nabarro) has given us a brilliant exposition of the needs and desires of the motor industry and, indeed, of everybody who wants to see a reduction in taxation. But as one who is closely connected with the motor industry, and who is pestered every few days for the delivery of cars which have been on order for the last three or four months, I must be honest and say that I would not ask the Chancellor for a reduction in Purchase Tax from 50 per cent. to 37½ per cent. at this time.

Having said that, I would say that the situation could change very quickly indeed. With hire-purchase and credit restrictions the situation may be very difficult in a few months' time. I would ask my hon. Friend the Economic Secretary to remind the Chancellor that he can alter Purchase Tax at any time in the course of the year. He does not have to wait for a Budget or a Finance Bill to do that.

There is a question that we must ask ourselves and which I should like the Treasury Bench to consider. The production of the motor industry has been hampered in the last few months, not by Purchase Tax, but by a shortage of com- ponents. Most of the major firms could not build any more cars if they wanted to. What is the secret by which West Germany can rush her production up to 1,400,000 cars?

I wish to say two other things to the Economic Secretary on the subject of Purchase Tax. First, it can have very strange and serious effects in distorting our economy. Purchase Tax is 42 per cent. of the retail price of a new car. That means that all the way down the line second-hand cars cost 40 per cent. more than they should do. It means that there are marginal-use cars—lowcalibre cars—which, before the war, would have been taken off the road as unsafe, but which, today, still fetch a price and are used because their value is inflated by Purchase Tax on new cars. Therefore, Purchase Tax distorts the economy.

Secondly, there is a danger in keeping all these taxes too high for too long, just as Entertainments Duty was kept on for too long to the detriment of the cinema industry. To take a contracting industry such as the bicycle industry. Purchase Tax has been kept at too high a rate for too long and there is a case for taking it off the 'products of that industry. There may be a case with motor cars, cosmetics and, gramophone records for Purchase Tax to be reduced outside the Budget, but, like the hon. Member for Coventry, North (Mr. Edelman)—with whom I do not always agree—I think that it would be difficult to ask the Chancellor for a reduction in Purchase Tax on motor cars to 37½ per cent. at present, although the situation may change rapidly.

Mr. Victor Yates (Birmingham, Ladywood)

I have been flabbergasted to hear the speech of the hon. Member for Twickenham (Mr. Gresham Cooke).

Mr. Nabarro

Hear, hear; a disgraceful speech.

Mr. Yates

It is suggested that we should not consider a reduction in Purchase Tax at the moment because there happens to be a waiting list. What does it matter if the waiting list is doubled or trebled? The important thing is to find out what is the capacity of the motor car industry and to gear that industry to the demand that is likely to be created.

I am staggered to hear what seems to me to be the quite illogical statement from an hon. Member who is associated with the industry that we keep these taxes on too long, and yet when he has an opportunity of doing something to bring about a reduction, he says, "Not now". Even if I am surprised at his speech, I am shocked by the speech made by my hon. Friend the Member for Coventry, North (Mr. Edelman).

Mr. Nabarro

I thought it was dreadful.

Mr. Yates

He must be well aware of the representations that have been made to hon. Members during the last few years from trade unionists and workers in the motor car industry about the high rate of Purchase Tax and its effect on employment. Does my hon. Friend suggest that the motor car industry should just be left in such a state that we must wait until a crisis arises before we act? That is quite wrong. Either the tax is right or it is wrong. I maintain that it is wrong.

Mr. Edelman

My hon. Friend has addressed himself very passionately to the subject, but I cannot help feeling that he does not follow the fluctuations of the motor industry as closely as he perhaps should. In fact, when representations were made for a reduction in the Purchase Tax there was a tendency for unemployment to rise in the motor industry. The whole burden of my argument is that it should be used as a buffer, and precisely on occasions when there is actual unemployment or the threat of unemployment the Chancellor of the Exchequer can take action to reduce Purchase Tax.

Mr. Yates

I fully understand my hon. Friend's remarks, but, in my judgment, he wants to use the Purchase Tax in a manner quite different from what was originally intended. He speaks of it being used as a buffer. Why should we have to wait until there is unemployment in Coventry, for instance, before action can be taken? That approach is quite wrong. Not only is Purchase Tax involved here but hire-purchase agreements also, and the terms under which they can be made affect the motor car industry.

We have too often approached the subject of Purchase Tax from the wrong angle. I know that my right hon. Friend the Member for Battersea, North (Mr. Jay) has spoken in the past about motor cars as luxuries. I regard that as a lot of nonsense. I have never accepted the idea that the motor car is a luxury, however big it may be. If we can export cars, just as we export jewellery, to the presidential and royal palaces of the world, that is excellent for Britain's trade.

My hon. Friend the Member for Coventry, North was concerned about employment in the industry. Nothing he said told us how we can improve employment or maintain it. In Birmingham there are 1,800 trades in all, and hundreds of those trades are directly or indirectly affected by the motor car industry. Indeed, if the motor car industry were removed from Birmingham the situation would be very serious. I am very pleased when I hear my hon. Friends from Scotland ask that the motor car industry should go to Scotland, to areas where there is unemployment, and I am very pleased to think that such proposals can be considered. But how can the motor car manufacturers plan ahead if they do not know in advance what the likely prospects will be?

I come now to the new Clause which the hon. Member for Kidderminster (Mr. Nabarro) has put before us. Hon. Members may sometimes object to the manner in which the hon. Gentleman moves his Amendments or new Clauses, but I am bound to say that I thought the case he advanced this afternoon was unanswerable. Even if he had stuck to the brief of the Society of Motor Manufacturers and Traders he would have had a formidable case to put. I have read that statement very carefully and I must say at once that I have heard nothing in the debate today to convince me that its advocacy is wrong.

The motor manufacturers tell us that 1 million people are concerned, directly or indirectly, in the motor car industry. That is a very important section of the community. The hon. Member for Kidderminster referred to the total value of exports last year. He gave the figure of £540 million, but the Society of Motor Manufacturers and Traders gives £550 million as the total value of exports. This, again, is a very important matter. An overseas earning capacity of £1,000 every minute is not to be ignored, and, in my view, we ought to listen carefully to the arguments which have been put before us.

7.15 p.m.

It has been said this afternoon that the production of cars for the home market is important in order to improve exports. The hon. Member for Kidderminster gave us some figures. I was interested to compare the production for home demand in this country with that in Western Germany. According to the figures for 1954, the home demand for the United Kingdom was then 384,000. That went up to 635,000 in 1959. In Germany, the figure rose from 308,000 to 790,000. Does the hon. Member for Twickenham suggest that if Western Germany can increase home demand from 308,000 to 790,000, we can do nothing in this country to compete?

There is no doubt that if the home market were free of the burden of Purchase Tax the export trade would be greatly helped and the motor manufacturers would be able to plan ahead for a great increase in production. I support the hon. Member for Kidderminster not only in regard to the Purchase Tax on motor cars but in regard to the Purchase Tax on other manufactures, gramophone records and so forth. I do not believe in the Purchase Tax. I regard it as an altogether evil tax. It ought to have been abolished long ago. We should find a better method for levying taxes, if we must, on goods which we find are important for our export trade as well as for the home market.

If the Government cannot agree on this occasion, what prospect is there that during the next year an effort will be made to make it possible for the motor car industry to produce in even greater numbers for export as well as for the home market and so improve our country's trade? Even if he cannot agree to the reduction from 50 per cent. to 37½ per cent. now—it is certainly not very much to ask—will the Economic Secretary tell us that something will be done during the coming year? The whole subject of Purchase Tax ought to be thoroughly debated and there should be some welcome changes in it at the latest in the next Budget if no improvement is to be made this time.

Mr. Barber

I intervene now, not with the intention of limiting the debate but because I think that this is a useful stage to do so and because hon. Members who were present at the end of our proceedings yesterday will remember the words of the Chancellor about the intention of finishing this stage of the Bill today. We have still got a considerable way to go.

As my hon. Friend the Member for Kidderminster (Mr. Nabarro) said if this proposal were carried into effect it would reduce the top rate of Purchase Tax by a quarter, from 50 per cent. to 37½ per cent. I am sure that we are all grateful to my hon. Friend for making this debate possible. I must point out at the outset, however, that the cost of his proposal in a full year would amount to £60 million. I think that my hon. Friend gave the figure of £55½ million. By way of explanation, I should say that my figure of £60 million, my hon. Friend will be glad to know, allows for some consequential increase in sales.

The Committee should know not only the classes of goods involved to which my hon. Friend referred but also the breakdown, into three categories of the estimated yield, which I think will assist the Committee in reaching a decision. Motor cars make up the first category which it is estimated in the forthcoming year will account for £165 million. From radio and television, valves, gramophones and records the estimated yield is £70 million and, from perfumery, cosmetics and some toilet and hairdressing goods, the estimated yield is £22 million, making a total of £257 million for the year 1960–61.

Dr. Barnett Stross (Stoke-on-Trent, Central)

Is it not true that it is estimated that the yield from gramophone records, both at 50 per cent. and at 60 per cent., is £6½ million? Therefore, the Chancellor has lost nothing by a reduction of 10 per cent.

Mr. Barber

I have not the detailed figures with me. I think that the hon. Member came with a deputation to meet my right hon. Friend and myself. At any rate, I saw him at the Treasury on one occasion about this matter. No doubt the figure which he has given is right, but I am not able to check it at the moment.

It will be seen that the number of classes of goods chargeable at the 50 per cent. rate is quite small. On the other hand, the estimated revenue this year of over £250 million is very considerable. My hon. Friend the Member for Kidderminster said that he had been informed by the Treasury that the difference between the top rate of 50 per cent. and the standard rate of 25 per cent. was governed essentially by revenue considerations. He is quite right. There is no point in my giving him any other answer because that is true.

Of course, a reduction in any rate of taxation, considered in isolation, is always desirable, but my right hon. Friend the Chancellor has the responsibility not only to ensure that we are able to pay for the policies of which the electorate approved at the last election but also to consider the level of taxation in the light of the economic situation.

Mr. Emrys Hughes (South Ayrshire)

If the Economic Secretary has to find an extra £60 million, is that not due to the fact that the Defence Estimates have been increased?

Mr. Barber

No, Sir. The position is, as I am sure the hon. Gentleman knows, that one considers the total yield of taxation against the total of Government expenditure. This is one item. If this proposal were accepted it would mean, in our estimate, that there would be a reduction in the yield of £60 million.

My hon. Friend the Member for Kidderminster referred to the fiscal inequities of my right hon. Friend during the last two or three years. In view of his reference to the past, I hope that he will not think it comes amiss from me if I also make one or two brief references to the past. I believe that no fair-minded person would dispute the fact that in Purchase Tax my right hon. Friend has a fairly good record. In 1958 the highest rate of Purchase Tax was not 50 per cent, but 90 per cent. The second highest rate was 60 per cent. In 1958, in his first Budget, my right hon. Friend not only reformed the structure of the tax to which my hon. Friend referred. He did more than that; he reduced the highest rate from 90 to 60 per cent.

My hon. Friend said a reduction in rates was, in his view, an academic con- sideration. I asked for certain figures, and I think that the results are quite interesting. If the highest rate this year were 60 per cent. and not 50 per cent., the estimated additional yield would be £31 million this year and £42 million in a full year. When one is considering the effect of an increase or decrease in a rate of taxation, the only effective and meaningful way in which one can consider it is to make an estimate of what the effect would be in terms of money.

Mr. F. Harris

Is not my hon. Friend basing himself on the assumption that sales will remain exactly the same from one year to another? Surely it is obvious that if Purchase Tax were reduced the demand would go up and consequently the yield would go up. This is proved by figures year after year. All my hon. Friend's assumptions do not take that into account.

Mrs. Slater

Is it not true that the increase in the yield of Purchase Tax last year was largely due to that factor?

Mr. Barber

I can assure my hon. Friend and the hon. Lady that these estimates take into account any consequential changes in sales. I explained that the estimated cost of this proposal, £60 million, takes that factor into account.

The Committee will remember that in 1958 my right hon. Friend went further. He reduced considerably the number of classes of goods chargeable at the top rate. Let me give one or two examples. The Purchase Tax on greetings cards was reduced from 90 to 30 per cent., on cosmetics and perfumes from 90 to 60 per cent., and on leather goods, photographic goods, musical instruments and a number of other classes from 60 to 30 per cent. A wide range of domestic equipment, including refrigerators, washing machines, gas and electric fires, and so on, which the Committee will agree are most important items, had their rate of tax halved, from 60 to 30 per cent. A few classes of very big revenue producers were left at the 60 per cent. rate.

That was not all. In the following year, 1959, there was a further reduction of the top rate from 60 to 50 per cent. The Committee will remember that the cost of the reductions in 1959 was put at £81 million in a full year. No one, if he is fair, can doubt where the sympathies of my right hon. Friend lie with regard to changes in Purchase Tax.

Reference has been made to the various individual industries whose products are subject to a tax of 50 per cent. I assure the Committee that we watch very carefully what happens in these various industries, but there is no evidence at present that the products on which there is a duty of 50 per cent. are unable to bear it.

A great deal of this discussion has centred around the motor industry. My hon. Friend the Member for Kidderminster referred to it at some length. Even if he used some of the figures supplied by the Society of Motor Manufacturers and Traders, I make no complaint about that, because, having seen these figures, I know perfectly well that they are among the best and most accurate figures available. This industry was also referred to by the hon. Members for Birmingham, Northfield (Mr. Chapman) and Coventry, North (Mr. Edelman). I should like to say, without elaboration, that I agree that a vital part of our export trade consists of motor cars.

I put this consideration to the Committee. If we were to reduce Purchase Tax by the extent suggested in the new Clause, would it not stimulate home demand still further beyond what the industry already cannot meet without encroaching on our supplies for the export market? I cannot accept the view that the present level of Purchase Tax is holding back our exports of motor cars.

7.30 p.m.

Mr. Nabarro

My hon. Friend will recall that I was careful to say that the level of Purchase Tax was not the only consideration, although it was a major one. If my hon. Friend has arrived at the conclusion which he has just stated, will he attempt an estimate of the quite extraordinary increase in the export of German motor cars? I am sure that he will agree at once that that increase is not based on the fact that the German motor car is better in quality or performance than the British—it simply is not. Some of the German cars may be as good, but certainly they are not better than ours. There must, therefore, be a reason for the phenomenal increase in German exports. Having regard to the fact that Germany's rate of domestic taxation is only one-quarter of our rate of domestic taxation, would my hon. Friend not agree that that is a cardinal factor?

Mr. Barber

I certainly cannot agree that Purchase Tax is a cardinal factor in this matter. My hon. Friend says that many factors are involved in our exports of motor cars. Exactly the same is true of foreign countries. Both before and after the deputation from the motor car industry came to see my right hon. Friend we went into the matter in great detail. I can only say to my hon. Friend, as my opinion—obviously, it must be an opinion—that I do not believe that the present level of Purchase Tax is holding back our exports.

My hon. Friend referred to expansion of the motor industry. He said that Purchase Tax could be reduced and that we could have a better home market, soil more cars and have greater expansion. The fact is that the leading motor car manufacturers are already heavily committed to a policy of expansion. Hon. Members will remember that the Ford Company has decided to spend a further £25 million on the extension of its plant and that most of the other major manufacturers also have considerable plans.

Mr. F. Harris

If the credit squeeze continues the picture will shortly be very different.

Mr. Barber

I doubt that very much.

Mr. Harris

It is changing quickly now.

Mr. Nabarro

What about the Hoover sackings?

Mr. Barber

My hon. Friend complained earlier of somebody who raised a question concerning an article which was not taxed at 50 per cent. I think I am right in saying that the Hoover and other similar articles are not taxed at the 50 per cent. rate.

I should like to draw attention to one or two figures about the motor car industry. From January to March this year, the latest period for which figures are available, there was a 52 per cent. increase in production as compared with the same period last year. That is considerable. In 1958, production was 22 per cent. above the previous year and in 1959 was 13 per cent. higher than in 1958. In the three months January to March there has been a 52 per cent. increase aver the corresponding period a year ago. In the same period exports were 55.1 per cent. higher.

I should like to refer briefly to one or two of the other matters that were mentioned by my hon. Friend. He referred to radio and television. Here, again, I can only tell him that the figures certainly do not indicate that the products of the radio and television industry cannot stand this rate of tax, although I realise that the manufacturers would all wish that it could be reduced. The latest figures, for January and February of this year, show that there was an increase in the production of radios and radiograms of 30 per cent. over the same period last year and in television sets a 17.7 per cent. increase.

My right hon. Friend referred to what he called the "typist's lipstick". I have sympathy with him. Here again, however, it is fair to point out that this is an expanding industry. It is not being held back by the Purchase Tax. My hon. Friend will remember that the rate used to be 90 per cent. It was reduced to 60 per cent. in 1958 and down to 50 per cent. last year.

My hon. Friend referred to gramophone records and said that this was a tax largely on culture. He referred casually in passing, in his inimitable manner, to "pop" records. What my hon. Friend did not tell the Committee was that over 80 per cent. of all the home market sales are of "pop" records. I do not know my hon. Friend's taste in matters of music. I like "pop" records, but I have never played them as being largely cultural.

Mr. Nabarro

Does my hon. Friend dismiss absolutely the argument I used this afternoon, not at all originally because it has been used in this Committee a hundred times before, that books are exempt from Purchase Tax and that gramophone records should, therefore, be exempt from it, notwithstanding that not all books are cultural; many are non-cultural? Not all gramophone records are cultural; many are non-cultural. There are, however, just as many trashy books as there are trashy gramophone records.

Mr. Barber

There are special reasons why it was decided at the outset of Purchase Tax that books should not be included.

Hon. Members

No.

Mr. Douglas Jay (Battersea, North)

The hon. Gentleman is not quite right. Books were included in Sir John Simon's Budget in April, 1940, and were taken out as a result of opposition by the Labour Party in the House of Commons.

Mr. Barber

I do not know whether I would accept that. My point is that it is not quite correct to suggest that the tax on gramophone records is a tax on culture.

The overriding consideration which, I regret, makes it impossible to accept the new Clause is that it would cost £60 million. My hon. Friend the Member for Kidderminster made a point which is of great importance. He said that if the tax were reduced by one-quarter to three-quarters of what it is now, the yield would not be less than the present yield. I do not want to take my hon. Friend too literally in what he said. It implies that consumption of these products would rise by one-third, which is a considerable amount. When one bears in mind that motor cars account for more than half the tax yield at the top rate and that if the reduction of Purchase Tax by one-quarter were brought about the result would be a reduction in the tax-inclusive retail price of a motor car by only about 7½ per cent.—it would be a little less than 7½ per cent. for the remainder of the goods in this category—it is doubtful whether a reduction of 7½ per cent. or less would result in an increase in consumption of one-third.

Mr. Chapman

Why is the hon. Gentleman so worried? To make comparison with other countries, in five years German home consumption of motor cars has risen by 500 per cent. Why does the Economic Secretary worry about a one-third increase here?

Mr. Barber

The hon. Member knows perfectly well that what we want and what is best for the country is an increase in the number of motor cars which are exported. The motor car industry is doing remarkably well in exports. At any rate, I throw that out to the Committee. One must consider whether it is really true that a decrease of the selling price by 7½ per cent. would result in an increase of consumption of one-third.

I do not propose to go into great detail about the economic situation. I content myself with reminding the Committee that in his Budget speech my right hon. Friend referred not only to likely additional expenditure this year but also to the need for restraint in the economy, and he explained why it was necessary that there should be a small net increase in taxation. His overriding purpose is to prevent the return of inflation and to safeguard the balance of payments. Those are objectives which I know will commend themselves to every hon. Member. It was with these considerations in mind that my right hon. Friend did not feel able to make any net reduction in taxation.

I agree with a great deal of what was said by my hon. Friend the Member for Basingstoke (Mr. Denzil Freeth) when he explained why he did not support the Clause. To accept the Clause at a cost of £60 million would run clean counter to my right hon. Friend's appreciation of the economic situation. I was grateful to my hon. Friend the Member for Twickenham (Mr. Gresham Cooke) for his remarks, especially in view of his connections with the motor industry and the difficulty, in which he and others like him in the industry are concerned, with the tremendous demand for cars which cannot be supplied.

My hon. Friend the Member for Kidderminster said that no Committee stage would ever be complete without a discussion of the Purchase Tax. He is right, and we should be grateful to him for having given us this opportunity. I am only sorry that for the reasons I have given I cannot advise the Committee to accept the Clause.

Mr. Jay

I thought that the hon. Member for Kidderminster (Mr. Nabarro) made as good a case for the Clause as possibly could be made.

Mr. Nabarro

I am very grateful to the right hon. Gentleman.

Mr. Jay

In spite of that, I cannot recommend my hon. Friends to vote for it. The hon. Member for Kidderminster made another ferocious attack on the Chancellor whom he has now accused of absurdity, illogicality, iniquity and turpitude, all of which reveals an interesting state of relations between hon. Members opposite. The hon. Member also accused his hon. Friend the Member for Twickenham (Mr. Gresham Cooke) of having made a disgraceful speech. I am sure that the hon. Member will follow his usual course this year and carry his Clause to the Division Lobby.

I agree with the hon. Member for Kidderminster on two points. It is ridiculous for the Chancellor to claim that he has been making reductions in Purchase Tax. In spite of what the Economic Secretary said about a pretty good record. the facts are that in 1951 the total rate of Purchase Tax was rather under £300 million, it rose in 1959–60 to £471 million, and in the current year it is £535 million. This is a very odd form of tax reduction.

I also agree with the hon. Member that one of the great flaws in the tax at present is that there are too many rates, which give rise to these absurd distinctions. The hon. Member did not remind the Committee that the tax was successfully simplified between 1947 and 1951 at least to only three rates, and that after all the changes of recent years we still have four rates and the tax is more complex than it was ten years ago.

Mr. Nabarro

I agree that when the right hon. Gentleman left office at the Treasury there were three rates but for most of his time those rates were 100 per cent., 66⅔ per cent., and 33⅓ per cent. There are now four rates. They are 50 per cent., 25 per cent., 12½ per cent., and 5 per cent., and, although I disagree with having four rates, at least they are very much lower.

7.45 p.m.

Mr. Jay

But we have four rates today and we raise nearly twice as much in tax as we did ten years ago. We say that it is desirable to deal with these taxes with a view to having fewer and lower rates than we have at present.

The reasons why I cannot agree with the hon. Member for Kidderminster are very much the reasons given by my hon. Friend the Member for Coventry, North (Mr. Edelman). If we 'have £60 million to give away by tax concession I do not think that this particular reduction in Purchase Tax is the first priority. We are dealing here with cars, cosmetics, television sets and gramophone records. I would not call them luxuries. I think that there is a stronger case for giving relief of Purchase Tax on some of the household goods at lower categories. Clothing, household textiles, boots and shoes, linoleum, wallpaper and even ordinary soap are subject to Purchase Tax at present. We should like to see earlier priority given to reductions for those categories of goods.

I also think that this particular moment is a rather odd one at which to press as an immediate priority a reduction in Purchase Tax on motor cars, T.V. sets and "consumer durables", as I believe the experts now call things of this kind. The Chancellor tells us that the economy is suffering from overstrain. He has just introduced a new series of restrictions on hire purchase. The trade figures in the last week or two have shown clearly that we are not exporting on the scale that is desirable. This, therefore, would be an odd moment to choose to make a reduction in tax on consumer goods of this kind.

If I were convinced that a reduction in Purchase Tax, as has been argued, would lead to an increase in the export of motor cars, I would certainly support it, but I think that here the hon. Member for Kidderminster failed to make his case. If he is going to make his case by comparing our exports of motor cars with those of Germany and other countries, he must explain why British motor car exports have risen a good deal faster than the exports of other British goods which are not subject to such a high rate of Purchase Tax. Surely the simple point in this argument which we have often had in Committee about the relation of Purchase Tax to exports is that if an industry is working below capacity an increase in home sales can help exports. But if the industry is working to full capacity it is not possible to argue that an increase in demand at home will increase exports quickly.

There has been no dispute in the Committee that the motor car industry is working to capacity today. The hon. Member for Twickenham said courageously that he was pestered by orders and he did not see the immediate need for this reduction. My hon. Friend the Member for Birmingham, Northfield (Mr. Chapman) considerably weakened his case by using the phrase, "with waiting lists as long as they are today". I cannot think that this is the most pressing moment to argue that a reduction in tax would lead to an increase in exports. Therefore, it does not seem to us that this is a first priority in the matter of reducing Purchase Tax.

My hon. Friend the Member for Coventry, North said, and I entirely agree with him, that we must be prepared to use Purchase Tax to some extent as what we call an instrument of fiscal control. The hon. Member for Kidderminster does not want to do that, but if he does not do it he will deprive the Government of the opportunity to use Purchase Tax to put some restraint on the demand for certain articles and the Government will have to move even further in the direction of using the credit squeeze to reduce the pressure on the economy. Hon. Gentlemen opposite have an ideological objection to physical controls. If they are to have an ideological objection also to using the Budget whenever we get into this state which the Chancellor calls overstrain, we shall have higher interest rates every time, and the effect of that is clearly to strike at investment rather than consumption in order to exercise some restraint.

The hon. Member for Twickenham earlier today quoted United Nations and O.E.E.C. figures which show most alarmingly that this country is falling behind moist European industrial countries in production, in exports and in investment. If we study these figures closely, it is very difficult to come to any other conclusion than that the main cause of this is the rather slow rate of industrial investment, which may well be due to the fact that whenever, under the present and recent Governments, we have got into a state of what is now called overstrain, it has been investment, public and private, at which they have struck rather than consumption.

If we followed the advice of the hon. Member for Kidderminster to reduce the Purchase Tax at all times and in all cases, we should be pushed even further in that direction. For these reasons, I must agree with my hon. Friend the Member for Coventry, North and others that this is not the first priority at the present time. We intend to press at a later stage in this debate for reductions in the rate of Purchase Tax on even more essential household goods than these, and we hope to see this tax both simplified and reduced in weight as the years go by.

Mr. Ellis Smith

Divide.

Mr. Emrys Hughes

I do not wish to prolong the debate. I do not usually take part in debates on the Finance Bill, but I have listened to the case put by the hon. Member for Kidderminster (Mr. Nabarro), and have been waiting for a satisfactory answer from both Front Benches. I must say that the balance of the argument seems to be in favour of the hon. Member for Kidderminster, and I do not know whether that will be an embarrassment to him or not.

Mr. Nabarro

The hon. Gentleman will recall that the only occasion on which he obeyed a Whip in this House was in February, 1955, when he obeyed my Whip on the Clean Air Bill.

Mr. Hughes

There is a certain historical relevance, in that that was not the only occasion on which I have obeyed a Whip.

To me, this has been a most interesting and illuminating debate, especially in regard to the facts which have been brought out about competition with West Germany. There was, indeed, what semed to me to be an extremely relevant interruption from the hon. Member for Stoke-on-Trent, South (Mr. Ellis Smith), who asked, when these figures were being quoted about the tremendous and sensational rise of the export industry of Germany, who won the war. It was, indeed, a relevant question. We have been given figures from both sides of the Committee to show that, in spite of the immense destruction caused in Germany during the last war, German industry has risen from practically nothing and is now able to compete with British industry and is likely to gain advantages in export markets in other parts of the world.

I suggest to the hon. Member for Kidderminster that he might carry his researches a little further and pursue that point. It is quite true that the hon. Member who speaks for the Treasury has to collect the money, but why? To pay for the last war and to prepare for another war. If he has to prepare for another war, it means that he has to get the money from somewhere, and, as a result of defence expenditure going up by £110 million, he has to find an extra £60 million. I leave that point, because I know that I am getting near the borderline of order.

These are relevant considerations, which I hope the hon. Member for Kidderminster will consider, as a result of my following him into the Division Lobby tonight. I believe that the problems of the Exchequer are serious, because of other expenditure. I believe that this reduction in the Purchase Tax, though I do not believe that it should be considered as a priority, would be a necessary contribution to shifting the balance of British industry and investment into productive instead of wasteful industry. It is because I want to see an approach made in this direction and because I think that, on the whole, the hon. Member for Kidderminster has made his case, that I propose to embarrass him by voting in the same Lobby with him on this new Clause.

Mr. Reynolds

I came into the Chamber after the last Division, and saw that the hon. Member for Kidderminster (Mr. Nabarro) was likely to speak. As usual, when I am able to do so, I sat here awaiting his speech, which I thought would be at least instructive. I was not disappointed. We heard another vitriolic attack on the Chancellor of the Exchequer and his Front Bench which to me is more nauseating every time I hear it. No doubt, the hon. Member receives publicity from it which would make my hon. Friend the Member for Nelson and Colne (Mr. S. Silverman) green with envy.

Mr. Nabarro

That is very unkind.

Mr. Reynolds

The hon. Gentleman can hardly complain of my being unkind, when he has accused me of being bigoted and incapable of accepting a reasoned argument. He cannot say that I am now being unkind, but I am sure that his back is broad enough to allow that to fall off without making any impression at all.

Mr. Nabarro

Hear, hear.

Mr. Reynolds

I wish to make one or two points with regard to the effect of Purchase Tax on motor vehicles. As I understand the hon. Gentleman's argument, he was arguing that a reduction in the Purchase Tax on motor vehicles would assist the motor industry in increasing—[Interruption.]—if the hon. Member wishes to intervene, I will certainly give way.

Mr. Nabarro

I was indicating the Lobby in which to carry the "Ayes" vote on this occasion.

Mr. Reynolds

I thought the hon. Gentleman was attempting to intervene, and I should certainly give way if he wanted to do so. He tried to make out that a reduction in the Purchase Tax would make it much easier for motor vehicles to be exported. In an intervention which the hon. Gentleman permitted me to make, I said that theoretically I agreed with him, but I asked him to go on and explain it a little more. The hon. Gentleman rather brushed me off, as is his wont, by referring me to and advising me to have a look at the figures of production of commercial vehicles, in respect of which he claimed the credit for having achieved a reduction in Purchase Tax during the last year or two.

I am always quite willing to learn and to find out things, and so I had a look at the figures of commercial vehicles. I found that in 1955, throughout the year, the average monthly production of commercial vehicles was 26,071, and the average monthly exports throughout the year were 10,955. Then, we see what happens when the tax goes. Production goes up from 26,000 to 35,000 per month, while exports go up from—does the hon. Member for Kidderminster wish to intervene?

Mr. Nabarro

I am much obliged. The reason why I did not reply to the intervention of the hon. Gentleman who is now addressing the Committee is that, in my opinion, it is completely out of order to talk about articles which are not within the Purchase Tax range at 50 per cent., and that is why—[An HON. MEMBER: "The hon. Gentleman is running away."]—I am not running away—I could not reply to the hon. Gentleman. If the Chair considers that it is in order to talk about commercial vehicles which do not attract Purchase Tax at all, I will willingly reply to the hon. Gentleman after he has made his speech.

Mr. Reynolds

Some 9,000 more vehicles are being made every month; 7,500 are being sold on the home market and 1,500 are being exported. So much for that side of the hon. Gentleman's case.

Now let us have a look at something different—passenger-carrying vehicles, the figures for which are given in the Digest of Statistics. I find that since 1955—exactly the same year—the monthly figures of production have increased from 87,629 to the April figures. I do not know why the Economic Secretary gave us the figures up to March only, when the April figures are here in the Digest of Statistics, though I admit that his case, though still valid, would not then have been so pointed. Motor car production rose from 87,629 per month to about 120,000 per month. Incidentally, that is an increase in production of about 37 per cent., whereas the increase in commercial vehicle production has been only 35 per cent., so that the increase in production with vehicles carrying the 50 per cent. rate of tax is 2 per cent. greater than the increase in production of vehicles on which the tax has been completely abolished.

8.0 p.m.

In addition, whereas only one-sixth of the extra production of commercial vehicles is exported, 53 per cent. of the extra production of passenger vehicles is exported, although we have been told that a reduction of Purchase Tax makes it easier to export. The increase of exports of commercial vehicles from which the tax has been removed has shown nothing like the proportion to increased production which the extra export of passenger-carrying vehicles, bearing 50 per cent. tax, has shown.

Yet the hon. Member for Kidderminster based the whole of his argument on the ground that the motor car industry had great potentiality for increased exports which would be achieved if the tax were reduced. He referred me to the figures in respect of commercial vehicles to prove the point, but I have checked them and found that they completely disprove his argument.

Question put, That the Clause be read a Second time:—

The Committee divided: Ayes 16, Noes 231.

Division No. 114.]	AYES	[5.26 p.m.
Baxter, William (Stirlingshire, W.)	Holt, Arthur	Wade, Donald
Bellenger, Rt. Hon. F. J.	Johnson, Dr. Donald (Carlisle)	Wells, Percy (Faversham)
Biggs-Davison, John	Kerby, Capt. Henry	Williams, Paul (Sunderland, S.)
Davies, Rt. Hn. Clement (Montgomery)	Maginnis, John E.
Fell, Anthony	Noel-Baker, Francis (Swindon)	TELLERS FOR THE AYES:
Grimond, J.	Smith, Ellis (Stoke, S.)	Mr. Nabarro and Mr. Wise-
Harris, Reader (Heston)	Thorpe, Jeremy
NOES
Agnew, Sir Peter	Butcher, Sir Herbert	Duncan, Sir James
Aitken, W. T.	Campbell, Sir David (Belfast, S.)	Duthie, Sir William
Allan, Robert (Paddington, S.)	Campbell, Gordon (Moray & Nairn)	Eden, John
Alport, Rt. Hon. C. J. M.	Carr, Compton (Barons Court)	Elliott, R. W.
Amory, Rt. Hn. D. Heathcoat (Tiv'tn)	Cary, Sir Robert	Emery, Peter
Ashton, Sir Hubert	Chataway, Christopher	Emmet, Hon. Mrs. Evelyn
Barber, Anthony	Chichester-Clark, R.	Errington, Sir Erie
Barlow, Sir John	Clark, William (Nottingham, S.)	Farey-Jones, F. W.
Batsford, Brian	Cooke, Robert	Farr, John
Baxter, Sir Beverley (Southgate)	Cooper, A. E.	Finlay, Graeme
Beamish, Col. Tufton	Cooper-Key, Sir Neill	Fisher, Nigel
Bell, Ronald (S. Bucks.)	Cordeaux, Lt.-Col. J. K.	Fletcher-Cooke, Charles
Bennett, F. M. (Torquay)	Cordle, John	Fraser, Ian (Plymouth, Sutton)
Bennett, Dr. Reginald (Gos & Fhm)	Corfield, F. V.	Freeth, Denzil
Berkeley, Humphry	Costain, A. P.	Gammans, Lady
Bidgood, John C.	Coulson, J. M.	Gardner, Edward
Birch, Rt. Hon. Nigel	Courtney, Cdr. Anthony	George, J. C. (Pollok)
Bishop, F. P.	Craddock, Sir Beresford	Gibson-Watt, David
Bossom, Clive	Critchley, Julian	Glover, Sir Douglas
Box, Donald	Crosthwaite-Eyre, Col. O. E.	Glyn, Sir Richard (Dorset, N.)
Boyd-Carpenter, Rt. Hon. John	Crowder, F. P.	Goodhart, Philip
Style, Sir Edward	Cunningham, Knox	Goodhew, Victor
Brewis, John	Curran, Charles	Gower, Raymond
Bromley-Davenport, Lt.-Col. W. H.	Currie, G. B. H.	Grant, Rt. Hon. William (Woodside)
Brooke, Rt. Hon. Henry	d'Avigdor-Goldsmid, Sir Henry	Grant-Ferris, Wg Cdr. R.(Nantwich)
Browne, Percy (Torrington)	Deedes, W. F.	Green, Alan
Bryan, Paul	de Ferranti, Basil	Gresham Cooke, R.
Bullard, Denys	Donaldson, Cmdr. C. E. M.	Grosvenor, Lt.-Col. R. G.
Bullus, Wing Commander Eric	Drayson, G. B.	Hall, John (Wycombe)
Burden, F. A.	du Cann, Edward	Hamilton, Michael (Wellingborough)
Hare, Rt. Hon. John	Loveys, Walter H.	Robinson, Sir Roland (Blackpool, S.)
Harris, Frederic (Croydon, N.W.)	Low, Rt. Hon. Sir Toby	Robson Brown, Sir William
Harrison, Brian (Maldon)	Lucas, Sir Jocelyn (Portsmouth, S.)	Roots, William
Harvey, Sir Arthur Vere (Maccleef'd)	Lucas-Tooth, Sir Hugh	Ropner, Col. Sir Leonard
Harvie Anderson, Miss	McAdden, Stephen	Sharples, Richard
Henderson, John (Cathcart)	McLaren, Martin	Shaw, M.
Hendry, Forbes	McLaughlin, Mrs. Patricia	Shepherd, William
Hiley, Joseph	Maclean, Sir Fitzroy (Bute & N. Ayrs.)	Simon, Sir Jocelyn
Hill, Mrs. Eveline (Wythenshawe)	MacLeod, John (Ross & Cromarty)	Spearman, Sir Alexander
Hill, J. E. B. (S. Norfolk)	McMaster, Stanley R.	Speir, Rupert
Hinchingbrooke, Viscount	Macpherson, Niall (Dumfries)	Stanley, Hon. Richard
Hirst, Geoffrey	Maddan, Martin	Stevens, Geoffrey
Holland, Philip	Maitland, Cdr. Sir John	Storey, Sir Samuel
Hope, Rt. Hon. Lord John	Markham, Major Sir Frank	Studholme, Sir Henry
Hopkins, Alan	Marples, Rt. Hon. Ernest	Summers, Sir Spencer (Aylesbury)
Hornby, R. P.	Marshall, Douglas	Sumner, Donald (Orpington)
Hornsby-Smith, Rt. Hon. Patricia	Marten, Neil	Talbot, John E.
Howard, Gerald (Cambridgeshire)	Mawby, Ray	Thomas, Leslie (Canterbury)
Howard, John (Southampton, Test)	Maydon, Lt.-Cmdr. S. L. C.	Thomas, Peter (Conway)
Hughes Hallett, Vice-Admiral John	Montgomery, Fergus	Thompson, Kenneth (Walton)
Hughes-Young, Michael	Morgan, William	Thompson, Richard (Croydon, S.)
Hutchison, Michael Clark	Mott-Radclyffe, Sir Charles	Thornton-Kemsley, sir Colin
Iremonger, T. L.	Neave, Airey	Tiley, Arthur (Bradford, W.)
Irvine, Bryant Godman (Rye)	Noble, Michael	Tilney, John (Wavertree)
Jackson, John	Nugent, Sir Richard	Turner, Colin
James, David	Oakshott, Sir Hendrie	Turton, Rt. Hon. R. H.
Jenkins, Robert (Dulwich)	Osborn, John (Hallam)	Tweedsmuir, Lady
Jennings, J. C.	Osborne, Cyril (Louth)	van Straubenzee, W. R.
Johnson, Eric (Blackley)	Page, A. J. (Harrow, West)	Vane, W. M. F.
Johnson Smith, Geoffrey	Pannell, Norman (Kirkdale)	Vaughan-Morgan, Sir John
Joseph, Sir Keith	Pearson, Frank (Clitheroe)	Vickers, Miss Joan
Kerans, Cdr. J. S.	Peel, John	Wakefield, Edward (Derbyshire, W.)
Kerr, Sir Hamilton	Percival, Ian	Ward, Dame Irene (Tynemouth)
Kimball, Marcus	Peyton, John	Watkinson, Rt. Hon. Harold
	Pickthorn, Sir Kenneth	Watts, James
Kirk, Peter	Pilkington, Capt. Richard	Whitelaw, William
Lagden, Godfrey	Pott, Percivall	Williams, Dudley (Exeter)
Lambton, Viscount	Powell, J. Enoch	Wills, Sir Gerald (Bridgwater)
Lancaster, Col. C. G.	Price, David (Eastleigh)	Wilson, Geoffrey (Truro)
Leather, E. H. C.	Prior, J. M. L.	Wolrige-Gordon, Patrick
Leavey, J. A.	Prior-Palmer, Brig. Sir Otho	Wood, Rt. Hon. Richard
Legge-Bourke, Maj. Sir Harry	Profumo, Rt. Hon. John	Woodhouse, C. M.
Lewis, Kenneth (Rutland)	Ramsden, James	Woodnutt, Mark
Lilley, F. J. P.	Rawlinson, Peter	Woollam, John
Lindsay, Martin	Redmayne, Rt. Hon. Martin	Worsley, Marcus
Linstead, Sir Hugh	Rees, Hugh
Litchfield, Capt. John	Renton, David	TELLERS FOR THE NOES:
Longbottom, Charles	Ridley, Hon. Nicholas	Colonel J. H. Harrison and
Longden, Gilbert	Ridsdale, Julian	Mr. Brooman-White.

Division No. 115.]	AYES	[8.2 p.m.
Awbery, Stan	Rankin, John	Watkins, Tudor
Baxter, William (Stirlingshire, W.)	Royle, Charles (Salford, West)	Wells, Percy (Faversham)
Bowles, Frank	Silverman, Julius (Aston)	Yates, Victor (Ladywood)
Davies, S. O. (Merthyr)	Silverman, Sydney (Nelson)	Zilliacus, K.
Hughes, Emrys (S. Ayrshire)	Smith, Ellis (Stoke, S.)
Pavitt, Laurence	Stross, Dr.Barnett (Stoke-on-Trent, C.)	TELLERS FOR THE AYES:
		Mr. Nabarro and Mr. Chapman.
NOES
Agnew, Sir Peter	George, J. C. (Pollok)	Matthews, Gordon (Meriden)
Amory, Rt. Hn. D. Heathcoat (Tiv'tn)	Gibson-Watt, David	Maudling, Rt. Hon. Reginald
Ashton, Sir Hubert	Glover, Sir Douglas	Mawby, Ray
Atkins, Humphrey	Glyn, Sir Richard (Dorset, N.)	Maydon, Lt.-Cmdr. S. L. C.
Barber, Anthony	Goodhart, Philip	Montgomery, Fergus
Barlow, Sir John	Goodhew, Victor	Morgan, William
Barter, John	Gower, Raymond	Mott-Radclyffe, Sir Charles
Batsford, Brian	Grant, Rt. Hon. William (Woodside)	Neave, Airey
Baxter, Sir Beverley (Southgate)	Grant-Ferris, Wg Cdr. R.(Nantwich)	Nugent, Sir Richard
Beamish, Col. Tufton	Green, Alan	Oakshott, Sir Hendrie
Bennett, F. M. (Torquay)	Gresham Cooke, R.	Orr-Ewing, C. Ian
Berkeley, Humphry	Grosvenor, Lt.-Col. R. C.	Osborn, John (Hallam)
Bidgood, John C.	Hamilton, Michael (Wellingborough)	Osborne, Cyril (Louth)
Biggs-Davison, John	Harris, Frederic (Croydon, N.W.)	Page, A. J. (Harrow, West)
Birch, Rt. Hon. Nigel	Harris, Reader (Heston)	Page, Graham
Bishop, F. P.	Harrison, Brian (Maldon)	Panned, Norman (Kirkdale)
Black, Sir Cyril	Harrison, Col. J. H. (Eye)	Pearson, Frank (Clitheroe)
Bossom, Clive	Harvey, John (Walthamstow, E.)	Percival, Ian
Bourne-Arton, A.	Hendry, Forbes	Peyton, John
Box, Donald	Hicks Beach, Maj. W.	Pickthorn, Sir Kenneth
Boyd-Carpenter, Rt. Hon. John	Hiley, Joseph	Pilkington, Capt. Richard
Boyle, Sir Edward	Hill, J. E. B. (S. Norfolk)	Pott, Percivall
Braine, Bernard	Hirst, Geoffrey	Powell, J. Enoch
Brewis, John	Holland, Philip	Price, David (Eastleigh)
Bromley-Davenport, Lt.-Col. W. H.	Hopkins, Alan	Prior, J. M. L.
Brooman-White, R.	Hornsby-Smith, Rt. Hon. Patricia	Prior-Palmer, Brig. Sir Otho
Bryan, Paul	Howard, Gerald (Cambridgeshire)	Profumo, Rt. Hon. John
Burden, F. A.	Howard, John (Southampton, Test)	Ramsden, James
Butcher, Sir Herbert	Hughes Hallett, Vice-Admiral John	Rawlinson, Peter
Campbell, Gordon (Moray & Nairn)	Hughes-Young, Michael	Redmayne, Rt. Hon. Martin
Carr, Compton (Barons Court)	Hutchison, Michael Clark	Rees, Hugh
Carr, Robert (Mitcham)	Iremonger, T. L.	Rees-Davies, W. R.
Cary, Sir Robert	Irvine, Bryant Godman (Rye)	Renton, David
Chichester-Clark, R.	Jackson, John	Ridley, Hon. Nicholas
Clark, Henry (Antrim, N.)	James, David	Roberts, Sir Peter (Heeley)
Clark, William (Nottingham, S.)	Jenkins, Robert (Dulwich)	Robinson, Sir Roland (Blackpool, S.)
Collard, Richard	Jennings, J. C.	Roots, William
Cooke, Robert	Johnson, Dr. Donald (Carlisle)	Ropner, Col. Sir Leonard
Cooper, A. E.	Johnson, Eric (Blackley)	Sharples, Richard
Cooper-Key, Sir Neill	Johnson Smith, Geoffrey	Shaw, M.
Cordeaux, Lt.-Col. J. K.	Jones, Rt. Hn. Aubrey (Hall Green)	Shepherd, William
Cordle, John	Kerans, Cdr. J. S.	Simon, Sir Jocelyn
Corfield, F. V.	Kerby, Capt. Henry	Skeet, T. H. H.
Costain, A. P.	Kerr, Sir Hamilton	Smyth, Brig. Sir John (Norwood)
Coulson, J. M.	Kimball, Marcus	Spearman, Sir Alexander
Courtney, Cdr. Anthony	Kirk, Peter	Speir, Rupert
Craddock, Sir Beresford	Lambton, Viscount	Stevens, Geoffrey
Critchley, Julian	Leather, E. H. C.	Steward, Harold (Stockport, S.)
Crosthwaite-Eyre, Col. O. E.	Leavey, J. A.	Stodart, J. A.
Cunningham, Knox	Legge-Bourke, Maj. Sir Harry	Stoddart-Scott, Col. Sir Malcolm
Curran, Charles	Lewis, Kenneth (Rutland)	Storey, Sir Samuel
Currie, G. B. H.	Lilley, P. J. P.	Studholm, Sir Henry
Dance, James	Lindsay, Martin	Summers, Sir Spencer (Aylesbury)
d'Avigdor-Goldsmid, Sir Henry	Linstead, Sir Hugh	Sumner, Donald (Orpington)
Deedes, W. F.	Litchfield, Capt. John	Talbot, John E.
de Ferranti, Basil	Longbottom, Charles	Tapsell, Peter
Donaldson, Cmdr. C. E. M.	Loveys, Walter H.	Teeling, William
Doughty, Charles	Low, Rt. Hon. Sir Toby	Thomas, Leslie (Canterbury)
Drayson, G. B.	Lucas, Sir Jocelyn (Portsmouth, S.)	Thomas, Peter (Conway)
du Cann, Edward	Lucas-Tooth, Sir Hugh	Thompson, Kenneth (Walton)
Duncan, Sir James
Elliott, R. W.	McAdden, Stephen	Thompson, Richard (Croydon, S.)
Emery, Peter	MacArthur, Ian	Thorneycroft, Rt. Hon. Peter
Emmet, Hon. Mrs. Evelyn	McLaren, Martin	Tiley, Arthur (Bradford, W.)
Errington, Sir Eric	Maclean, Sir Fitzroy (Bute & N. Ayrs.)	Tilney, John (Wavertree)
Farey-Jones, F. W.	MacLeod, John (Ross & Cromarty)	Turner, Colin
Farr, John	McMaster, Stanley R.	Turton, Rt. Hon. R. H.
Finlay, Graeme	Macpherson, Niall (Dumfries)	van Straubenzee, W. R.
Fisher, Nigel	Maddan, Martin	Vane, W. M. F.
Fletcher-Cooke, Charles	Maginnis, John E.	Vickers, Miss Joan
Fraser, Hn. Hugh (Stafford & Stone)	Markham, Major Sir Frank	Vosper, Rt. Hon. Dennis
Fraser, Ian (Plymouth, Sutton)	Marlowe, Anthony	Ward, Dame Irene (Tynemouth)
Freeth, Denzil	Marshall, Douglas	Watts, James
Gardner, Edward	Marten, Neil	Wells, John (Maidstone)
Whitelaw, William	Wise, A. R.	Worsley, Marcus
Williams, Dudley (Exeter)	Wolrige-Gordon, Patrick
Williams, Paul (Sunderland, S.)	Woodhouse, C. M.	TELLERS FOR THE NOES:
Wills, Sir Gerald (Bridgwater)	Woodnutt, Mark	Mr. Edward Wakefield and Mr. Noble
Wilson, Geoffrey (Truro)	Woollam, John