HC Deb 03 July 1961 vol 643 cc1137-75

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 5 for the figure 12½.—[Mrs. Slater.

Brought up, and read the First time.

Mrs. Slater

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

Mr. Maurice Edelman (Coventry, North)

On a point of order, Mr. Speaker. I understand that this new Clause is to be taken in conjunction with the new Clause "Purchase tax: reduction of rate from 50 to 37½ per cent." in the name of the hon. Member for Kidderminster (Mr. Nabarro), myself, and several other hon. Members?

Mr. Speaker

I am greatly obliged to the hon. Member for refreshing my memory. That is right. I am sure that it would be convenient to the House to discuss both together.

Mr. Nabarro

Further to that point of order, Mr. Speaker. I apologise to you for intervening now, and to the hon. Lady the Member for Stoke-on-Trent, North (Mrs. Slater), but I understand that your Ruling is that these new Clauses may be discussed together but not voted on separately. Is that correct, Sir, or can we have separate votes, if necessary?

Mr. Speaker

The only Clause which is selected for the purpose of decision in any form is the one that the hon. Lady has just moved. The hon. Gentleman's Clause is not selected but may be discussed with this one.

Mr. Nabarro

Perhaps I may put a further point. That Ruling puts in very great difficulties some of us who are opposed to the Clause moved by the hon. Lady but who are supporting the Clause referred to by the hon. Member for Coventry, North (Mr. Edelman), and who have no opportunity of registering that contrast in views between two aspects of the same matter.

Mr. Speaker

I do seriously appreciate the difficulty. It arises from a difficulty which attaches to the Chair, that there was not time to call both, but I hope that should the hon. Member and other hon. Gentlemen have the good fortune to catch my eye they will be able by their speeches to indicate both their dilemma and the view they put forward. Mrs. Slater.

Mrs. Slater

I very much regret that the hon. Member for Kidderminster (Mr. Nabarro) will not be able to support us in the Division Lobby in spite of the fact that frequently during the year, between Budgets, he strongly attacks Purchase Tax in principle and goes to a great deal of trouble to work out how much the Chancellor is robbing the people by the various forms of this taxation.

This new Clause relates mainly to household commodities. Ever since the "pots-and-pans" Budget of the present Home Secretary, most of us have been opposed to this part of Purchase Tax which in this case puts a special tax of 12½ per cent. on the things that affect the housewife and the home. It is a relic of that "pots-and-pans" Budget.

I urge hon. Members to look at some of the commodities that are affected by the proposed new Clause. On reflection, hon. Members will clearly see how the housewife in affected by the 12½ per cent. tax. In ironmongery there are shovels, fireplace tongs, ashpans, dustbins, kneeling mats and ordinary mats—all are subject to the 12½ per cent. tax. Thus it can be seen that the housewife, in any event, well and truly comes under this taxation—and in mentioning those goods it can be seen that some husbands, those who use them, are equally affected.

We can move on to cutlery, in which category all forms of goods are affected except those used for industrial purposes, catering and in butchers shops and in some grocery shops if the cutlery is of a certain size. In cookery, pastry trays are affected, and mixers, vegetable racks, baking tins, bread bins, can openers and pastry boards. They all pay 12½ per cent. Purchase Tax. In the home, wallpaper—but not paint—is subject to the tax. Floor coverings are affected; I would have thought that the hon. Member the Member for Kidderminster would have been interested in this from a constituency point of view.

Mr. Nabarro

Only carpets.

Mrs. Slater

I was going to mention such varied items in the home as trophy cups, but not shields, all of which things are subject to the 12½ per cent. tax.

I am especially interested in one aspect of Purchase Tax, and that is the part which affects tableware. As hon. Members know, several of my hon. Friends and I represent constituencies involved mainly in pottery and the manufacture of it. We feel that this 12½ per cent. Purchase Tax continues to be levied on this industry year after year and that no amount of pleading on its behalf seems to affect the Treasury. There are special reasons why the claims of this industry should be heard. Firstly, hardly any of the commodities used in the pottery industry are imported and, thus, there are no dollar worries with which the Government need be concerned. The industry uses home-produced clay and coal and only the smallest percentage of raw material is imported.

For that reason alone—that it is a self-contained industry using home-produced raw materials—its claims should be heeded. Further, this industry is an extremely important section of the export drive. It sells to countries throughout the world and it rightly claims to be included among the major exporting industries. We urge that, on the home market, the 12½ per cent. tax should be dropped to at least 5½ per cent.

It should be remembered that in an industry such as pottery certain designs must be tried out on the home market— not merely design of shape, but design of decoration—before any item is put on the export market. It is far better to discover the likes and dislikes of the home market before attempting to export any of these commodities.

This is an industry in which craftsmen are so very important. Of recent years there has been some development in the mechanisation of the pottery industry, but there still remains a lot of hand craft in it and it is important that we do not lose the craftsmen and women who have been trained and who have grown up within the industry. Therefore, I make this plea that, on tableware, in particular, Purchase Tax shall be reduced from 12½ per cent. to 5 per cent.

I want to make a final plea on behalf of the housewife. Most Purchase Tax remissions have been made on those commodities used in industry. Here there is an important section of the community—the housewife, who is important even to the hon. Member for Kidderminster—and it is not right that the articles which are used in the home should be taxed. It is logical that things used in the home shall not bear a heavy rate of Purchase Tax. The present situation is unfair and illogical and we ask the Chancellor to consider once more the advisability of reducing Purchase Tax on pots and pans and ordinary things which are used in the home.

Today we have had another example of the Treasury finding excuses for doing nothing and going to great lengths to explain why nothing should be done, but we hope that on this occasion the Chancellor, who can give away millions in Surtax to a very small section of the community, will give a little to the housewives on whom the nation depends so much.

Mr. Nabarro

I am grateful to you, Mr. Speaker, for allowing the new Clause in the name of several of my hon. Friends, hon. Members opposite and myself, to be debated with the new Clause which has just been moved. The contrast between the two new Clauses is that my Clause calls for a reduction in the 50 per cent. rate of Purchase Tax, the highest level of Purchase Tax, to 37½ per cent.

It is significant from a study of the names of hon. Members supporting my Clause that the majority of them represent the great motor car manufacturing constituencies of this country, For example there is the hon. Member for Coventry, North (Mr. Edelman) and my hon. Friend the Member for Coventry, South (Mr. Hocking). Their names both appear. Then there is the hon. Member for Birmingham, Northfield (Mr. Chapman) and also the hon. Member for Dagenham (Mr. Parker). My constituency, of course, is intimately concerned with the motor car industry, not only because many thousands of workers who reside in my constituency work in the motor car factories of Birmingham and Coventry, and also because my constituency is largely responsible for the production of floor coverings for motor cars.

The 50 per cent. level of Purchase Tax will this year, it is assessed, raise a sum of £247 million—the Chancellor has not yet published that figure; I am delighted to see that he has made a note of it. He should make a careful note of the following figure—out of which £172.3 million will be raised from Purchase Tax on motor cars taxed at the rate of 50 per cent. It follows, therefore, that approximately two-thirds of the yield of the 50 per cent. rate of Purchase Tax is derived from Purchase Tax on motor cars.

10.0 p.m.

There are only four classes of goods which attract Purchase Tax at the highest rate of 50 per cent They are, first, motor cars; second, radio and television sets; third, cosmetics and toilet waters; fourth, gramophones and gramophone records. [Laughter]. I am sorry to have caused so much hilarity below me. Of those, overwhelmingly the most important consideration is that of the motor industry. I believe, as do the leaders of the motor industry on both sides, the employers and the trade union leaders, that there is an intimate association between the export performance of the motor car industry and the penal level of Purchase Tax currently applied to the sale of motor cars in this country.

It is, of course, impossible—I address this comment particularly to the Chancellor—to prove that proposition. It is hardly more possible to prove that export endeavour is stimulated by reliefs of executives' Surtax.

Mr. Selwyn Lloyd

Does my hon. Friend believe that?

Mr. Nabarro

I believe it. [HON. MEMBERS: "Oh."] I do not think that hon. Members opposite could have heard my right hon. and learned Friend's intervention. He asked me whether I believed it. Having raised my top hat to him on Budget day as a token of my respect and sympathy for the Surtax reductions he made, I say again now, that I ardently believe it—

Mr. Lloyd indicated assent.

Mr. Nabarro

—but I equally ardently believe—this is where my right hon. and learned Friend gets into trouble by nodding too much—that it is a sensible proposition to say that there is a relationship between the level of Purchase Tax on motor cars sold in this country and their export performance.

The motor vehicle industry is probably the largest exporting industry in Great Britain. In 1960, it contributed no less than £617 million worth of exports, or approximately 17 per cent. of our total national export trade. I do not wish to deceive the House. Not all that £617 million was in respect of motor cars. Of course it was not. In fact, £224 million was in respect of motor car exports. There was another £86 million of tractor exports. There was £104 million of commercial vehicle exports, and approximately £200 million worth of sundry exports from the motor manufacturing industry comprising tyres, components, accessories, spare parts and the rest. Of all that huge volume of export trade, the £617 million worth, the only sector concerned in the Purchase Tax argument is the motor car sector, that is, £224 million of export trade.

It gives me no pleasure at all to compare the export performance of the motor car industry of this country during the past few years, with the export performance of Western Germany. The figures are significant. They have not recently been quoted in the House. They should be quoted tonight because there is, in my judgment and in the view of the leaders of both sides of the industry, an intimate association between the two conditions.

In 1955, the United Kingdom exported 391,000 motor cars. In 1955, Western Germany exported 344,000. In 1956, Britain exported 337,000. Western Germany exported 413,000. In 1960, we exported from Britain 570,000 motor cars. The West Germans exported 865,000 motor cars, more than 50 per cent. more motor cars than we exported from Britain. That position of supremacy which Western Germany occupies is projected still further into the results for the first quarter of 1961. These figures are even more alarming. I use the word "alarming" advisedly. In the first three months of 1961, the United Kingdom exported only 85,000 motor cars. Western Germany exported almost treble that number, 243,000 motor cars. For every motor car exported by Britain, West Germany was exporting three motor cars. We were almost caught up by France. In the first quarter of this year, as I have said, we exported 85,000 cars. France exported 83,000 cars. Five years ago France was a very long way behind us.

My proposition to the Chancellor of the Exchequer is that, while it is perfectly true that Purchase Tax applies only to motor cars sold on the home market, it is undoubtedly true that the cost of production of a motor car must depend on the volume of through-put which dominates the cost of the vehicle. That is a proposition argued with great success by my right hon. and hon. Friends when we were sitting on the benches opposite, pleading with Sir Stafford Cripps and his predecessors about the incidence of Purchase Tax and associated matters. A view which, as far as I am aware, has not been contradicted in this House or within the industry is that the larger the volume of output of a great industry such as the motor vehicle industry, with a very high level of capital investment and tooling costs, the lower the unit cost of the vehicle and the greaater the competitiveness of that vehicle when sold in overseas markets.

I now come to the critical point in my argument concerning motor cars. We in this country are taxing our cars at a far higher rate than any of our competitors. Our level of 50 per cent. Purchase Tax on the wholesale price of a motor car is equal to 42 per cent. tax on the retail price of the car. That is not my figure. It is supplied by the Society of Motor Manufacturers and Traders. France taxes her vehicles sold on the home market at only 24 per cent. The Germans tax their vehicles on the home market at only 13 per cent., or just under one-third of the level of our domestic taxation. Italy taxes her vehicles at only 10 per cent. I believe that these figures should be of great significance to the Chancellor of the Exchequer. How can we in this country continue to compete with the three great West European motor car manufacturing countries if we insist on taxing our home market at such a level as to cause the export vehicles to be uncompetitive when meeting the products of these other nations?

I pass now to what would be the cast of this new Clause. Of course, my right hon. and learned Friend, by process of mental arithmetic and without the benefit of a Treasury brief, can easily work out what it would cost. Because the 50 per cent. rate of Purchase Tax this year raises £247 million, it follows that the cost of reducing that rate to 37½ per cent. would be £62 million, out of which £43 million would be the cost attributable to reduction of Purchase Tax on motor cars. My right hon. and learned Friend would be perfectly correct in saying to me, "Yes, but my hon. Friend the Member for Kidderminster has announced in speeches that he broadly supports my Budget and the overall surplus of £506 million at which I aim. How can he therefore in all honesty move a new Clause which entails my giving away revenue of the order of £62 million?" That would be a perfectly fair argument.

I reply at once to my right hon. and learned Friend. I never make a proposition to him unless I have thought out the answer in advance. Were I the Chancellor of the Exchequer, I would immediately proceed on two parallel lines to recover the £62 million in a fashion which would not derogate from or inflict any harm on Britain's export trade.

First, I would abolish the 30 per cent. initial allowance on motor cars bought by business firms. Unfortunately, I could not attend the Committee stage of the Bill when the Rolls-Royce controversy—the initial allowance with a limit of £2,000—was debated, but I said earlier this afternoon in an intervention that in my judgment it is iniquitous that a business firm may buy any kind of motor car up to £2,000 for an executive and in the year of purchase attract, not only an initial allowance of 30 per cent., but a depreciation allowance as well of another 25 per cent., so that 55 per cent. of the cost of such a car goes against Income Tax and Profits Tax in the year of purchase.

That encourages extravagance. It is totally wasteful. I have always been opposed to it. I have not had an opportunity for years to express my views on this, but I say to my right hon. and learned Friend the Chancellor that without any detailed knowledge—and he has no detailed knowledge either—it is no good him nodding his head at me. He does not have any detailed knowledge. [Interruption.] I am not sure what the Chancellor's head movement was. I thought that, in the words of the OFFICIAL REPORT, he was indicating dissent.

My right hon. and learned Friend does not know in respect of the year 1961–62 how many cars will be bought for business purposes. Therefore, he cannot estimate what the initial allowance of 30 per cent. on business cars would cost. I hazard an estimate, however, that it will be between £25 and £30 million in the year 1961–62. That is the Income Tax relief in the form of initial allowances which my right hon. and learned Friend will have to give in respect of this 30 per cent. allowance. I would scrap that at once in pursuit of the policy of reducing Purchase Tax on cars from 50 per cent. to 37½ per cent., because the giving of an initial allowance on business executives' cars on the home market does not help our export trade one iota. That is the first thing.

The second and parallel plan which I recommend to my right hon. and learned Friend is simply this, There are three great sectors of consumer expenditure which are not subject to Purchase Tax and which ought to be subject to Purchase Tax. The first is advertising—

Mr. Speaker

Order. It may be quite true, but I do not succeed in relating it to either of the two new Clauses.

Mr. Nabarro

I am sorry, Mr. Speaker, if I have gone into too much detail, but I was informed that the rules of order permitted me to say how the revenue would be replaced were the new Clause to be accepted.

Mr. Speaker

No. The proposition to be discussed is aye or no, should the reduction be made and the Clause be read a Second time.

Mr. Nabarro

Very well, Mr. Speaker. I have dealt with the initial allowance. I make this statement only as a passing reference, which, I hope, you will consider to be in order. I would bring the whole of general advertising, the whole of soft drinks and the whole of confectionery and sweets into the ambit of Purchase Tax on one of the lower scales. That is a proposition which should be acceptable to the Chancellor and would not be unreasonable or inequitable in respect of the industries concerned Above all, it would not inflict any harm whatever upon the nation's exporting industries.

The Chancellor must surely face the fact that Britain's motor car exports are continuing to decline and the exports of our principal competitors are continuing to increase. I quote the words put out by the motor industry itself in the last bulletin of the motor industry, issued by the Society of Motor Manufacturers and Traders, when it said that a substantial reduction in Purchase Tax or its removal at an early date is quite essential to enable the British motor industry to have the fullest opportunities in export markets. In final support of my words, I quote the views expressed by the heads of all the principal motor firms in Coventry to Mr. Nigel Lawson, the City Editor of the Sunday Telegraph, who published these views on 18th June, 1961, just a fortnight ago. He said: Car makers ready to join Europe. But Coventry's top men say ' We must have fair play over Purchase Tax first… A principal executive, Mr. Geoffrey Rootes, used these words: I am convinced, for example, that if our Purchase Tax were halved—which would bring it roughly to the average level on the Continent, whilst still leaving it higher on most other goods here—we could increase our home sales and our exports by 20 per cent. 10.15 p.m.

The article by Mr. Lawson is the consensus of opinion derived from the advice received in the motor trade and he concludes with these words: The other important point is the matter of Purchase Tax. In the past, Governments have been understandably reluctant to yield to the industry, for fear that easier home sales far from boosting exports, would be achieved only at their expense. I can't help feeling that this was a justifiable fear, so long as the industry were working flat out. But this situation is rapidly changing, new plant is coming into commission at a rate far exceeding the growth in demand, and looking ahead there seems no reason why an expansion in home sales should have any deleterious effect on exports. … Other industries besides Coventry may be in a similar position. I conclude with these words to the Chancellor. He must deal with this excessive level of Purchase Tax on our principal exporting industries such as the motor car industry. I cannot support in present circumstances that there should be any substantial change in the lower levels of Purchase Tax. I believe in a single lower level of Purchase Tax on all manufactured goods subject to the enlargement of the ambit of the tax by the three sectors which I named to the Chancellor, general advertising, soft drinks, and sweets and confectionery. I would bring them in, but then I would bring all the top levels of Purchase Tax down to a single flat rate level at about 15 per cent. after also eliminating the initial allowances on business motor cars.

The hon. Lady the Member for Stoke-on-Trent, North (Mrs. Slater) twitted me about my native constituency manufacturing interest in the form of carpets. Of course, Kidderminster and carpets are synonymous. Successive Conservative Chancellors of the Exchequer have yielded to my continuous blandishments during the last decade—I think my right hon. and learned Friend looked a little anxious at my choice of words—his predecessors have yielded to my blandishments during the last decade and reduced progressively the Purchase Tax on carpets from the level of 33½ per cent. where it was ten years ago down to 12½ per cent. today. I have told all the carpet manufacturing interests in Kidderminster that they should not expect a further reduction from 12½ per cent. I have said it to the glass industry. I believe the same should be said to the pottery industry. I believe that all manufactured goods in this country with those I have denoted should pay a flat rate of Purchase Tax at about 15 per cent. in order to facilitate those industries paying so heavily today at a rate of 50 per cent such as the motor car industry, to be brought down to the lower level. All manufactured goods paying Purchase Tax should be brought into the net and the flat-rate system I have denoted should be applied.

I hope that my right hon. and learned Friend will not reply by taxing me that I should provide indications of alternative revenue to pay for the cost of the £62 million resulting from this Clause. He would be wrong in doing so. I have told him specifically how to do it. I shall not be very pleased with him tonight—I ask my hon. Friend the Member for Exeter (Mr. Dudley Williams) to stop laughing—unless he deals with those alternative sources of revenue which I have suggested to him so specifically, and in such cogent terms.

Mr. Maurice Edelman (Coventry, North)

I rise to support the request of the hon. Gentleman the Member for Kidderminster (Mr. Nabarro) for a reduction in the Purchase Tax on motor cars—and I hasten to add, for none of the reasons which he himself offered. Indeed, there is no one like the hon. Member for making a brief his very own, and tonight, of course, he has spoken to the brief of the motor manufacturers, who together with the maladministration of the Government have combined to leave the motor industry in the condition of malaise in which it finds itself today.

Mr. Nabarro

The hon. Gentleman said that I spoke to the brief of the motor manufacturers. Let me tell him straight away that the motor manufacturers are entirely opposed to my suggestion that the initial allowance on motor cars should be withdrawn.

Mr. Edelman

I am glad that the hon. Member has qualified the brief by that exception. Nevertheless, the main theme of what he said and the quotations which he invoked in support of his demand for a reduction of Purchase Tax all derive from one source, and that is the Society of Motor Manufacturers and Traders which has circulated a number of us with that particular brief urging us to support the Clause today.

I support the Clause for one reason alone, although last year when the matter was under discussion I opposed a reduction in Purchase Tax. I did so then because I believed that if the production of cars for the home market could be controlled by this fiscal method the motor manufacturers would be obliged to go out into the export markets and increase their exports. But as the year went on that did not happen and many of us recall the motor workers who came to Westminster and milled about in the Central Lobby urging their claim to work. Last year thousands of men were under-employed and many were redundant, and the Chancellor of the Exchequer, with the President of the Board of Trade, dreamed up the idea of a payroll tax in order to push people out of the motor industry into other industries.

I can foresee already at the present stage that when winter comes, and there are already signs of this, there will be grave difficulties inside the motor industry. I have always believed that the home market should be reserved as a kind of cushion against the threat of unemployment. I can see already the threat of unemployment rising inside the motor industry, a threat demonstrated by figures quoted by the hon. Member for Kidderminster, who indicated how Britain's share of world production of motor cars is declining and especially how her share of the export markets is declining.

I believe with many of my hon. Friends that we should already have constituted a working party of the motor industry to try to see what structural changes are necessary to make the British industry competitive with the French, German and Italian motor industries. Our manufacturers have always claimed that to reduce the unit cost of a motor car it is necessary to cut the Purchase Tax on the home market in order to have an enlarged home market and in that way reduce their final cost. They have always called in aid the argument that if that were done they somehow or other would automatically increase their exports. But I would ask the hon. Member for Kidderminster whether it is not the case that the extraordinary success of German and French motors on the export markets has not been due to the fact that they have had a relatively low rate of Purchase Tax on their domestic markets, because the Germans have had something like 13 per cent. and the French 24 per cent.

It is not that at all. The reason for the extraordinary success of French and German cars in the export markets of the world, and particularly in the United States, goes much deeper than that. It arises from the fact that they have simplified models and greater standardisation than we have. They do not go in for fashionable cars which change every season. They go in for cars which can be kept by the owners from one season to another without any kind of social derogation, which in the United States, particularly, is certainly important. That is why the British motor industry finds itself in such difficulties in the export markets.

I do not believe that the incidence of Purchase Tax has anything to do with it, but I want the Chancellor to reduce the Purchase Tax on motor cars because I think that in the absence of an export market, which certainly will not be enlarged by Christmas time, there is great need on the home market for an expansion and for a sustained level of production which will enable the workers in Coventry, Birmingham and Oxford to remain in work.

In Coventry there is already a threat to the workers engaged in one of the largest motor companies, a threat that by Christmas time they will be unemployed because a model is to be dropped. That may be merely, so to speak, a sport in the configuration of the motor industry, but I believe it goes very much deeper than that. I believe that the British motor industry will run into serious trouble in the export markets simply because it has not put itself into a posture to provide the type of car at the kind of price which the foreign markets demand.

The hon. Member for Kidderminster referred to the European market and to European competitors. But he said nothing at all about our potential American competitors. Certainly the threat from the United States, not only the threat of their compact cars but, even more than that, the threat of their incursion into the European market, is something which we have to face and to which we must give very serious thought, particularly at a time when we are ourselves expanding—some people, myself among them, think "over-expanding"—our own capacity for production.

The hon. Member for Kidderminster quoted from an article in the Sunday Telegraph in which a leader of the motor industry mentioned almost as if an aside that the industry had perhaps over-expanded in relation to the demand. I always find it extraordinary how motor manufacturers can one day throw off a sanguine announcement which bolsters up the hopes of all, including the workers in the industry, and next day turn their backs on it and seem to forget about it.

When they talk about competition, the need for the Government to provide further help, how ready they are to meet competition and how eager they are to enter the Common Market, it seems to me that they just drop those factors which are uncongenial to themselves and, in a kind of wishful thinking, accept those which promote their immediate short-term purpose.

In Coventry, certainly, there are men with very keen and lively memories of the days of the 20's before the McKenna duties were introduced, which prevented the established unemployment in Coventry from continuing into the 30's in the very bitter form in which it existed in the 20's.

Today the motor manufacturers say in one breath that they want Purchase Tax to be reduced so that they may enter into competition with their competitors in Western Europe, and yet in another breath they say how confident they are that they can face the complete blast of competition from the Common Market countries.

It is very hard to obtain comparable figures of rates of pay among the engineering workers in the countries of Western Europe and compare them, like for like, with our own rates of pay. However, some time ago I made a comparison taking into account the social wage of workers in Western Europe. I do not say that this is necessarily an ultimate argument against the Common Market, but it is true that the workers in Western Europe—Germany, France and Italy—even taking into account their social wage, are certainly worse paid than workers in the key centres of motor car production in Great Britain.

If one adds to that the re-equipment of the French motor industry, which I know fairly well—as demonstrated by the factory where Renault make the Dauphine, the extraordinary electronic transfer machinery which they have introduced, the fact that they have modernised their equipment to a very high degree and are capable of mass-production in a way which enables them to send out their single models into world markets—I think it ought to be clear even to the hon. Member for Kidderminster that it is not the marginal difference in Purchase Tax on the home market which is preventing the British motor car industry from exporting. There must be certain fundamental structural alterations throughout the British motor industry, in terms of standardisation of components and the simplification of design—both major matters. This must be done if we are to comtemplate facing the competition of our Western competitors, let alone our American ones.

10.30 p.m.

The British motor industry today is in a very dangerous condition. I appeal to the Chancellor to give some non-partisan attention to the proposal made by my hon. Friends that a working party should be set up for it—not just an advisory committee of the Board of Trade which reports hugger-mugger to the Minister, but a working party composed of those on both sides of the industry, which would work in public and whose findings would be published; a working party which would really go to the root of what is wrong inside the structure of the industry.

We have recently seen some further symptoms of the malaise inside the industry which is directly relevant to the issue of reducing Purchase Tax. That malaise, as demonstrated by strikes, shows that there is something inherent in the structure of the industry which should be attended to, and I suggest to the Chancellor that what is wrong is the general and long-standing sense of insecurity—and I do not say that one side or the other is more to blame—inside the industry.

There is the feeling among the workers that unemployment may come and they may be thrown out of work at any moment by a slump in trade, and there is the over-optimism on the part of the manufacturers—like some over-excited housewife who cries "Bingo" before the game is over—as illustrated by their cries of delight after the success of one British car at the New York Motor Show. I agree that the new Jaguar's success, extraordinary as it was, was well-deserved, but after the show there were all sorts of over-optimistic statements by the manufacturers to the effect that the industry was in such a wholesome condition that nothing had to be done about Purchase Tax, or anything connected with it, in order to guarantee its future well-being.

I believe that we are facing several months of difficulty for motor car workers—right through the winter. I am in favour of a reduction in Purchase Tax, but I am only in favour of it in certain conditions as a poultice for a sick industry.

Mr. Philip N. Hocking (Coventry, South)

Does the hon. Member really think the industry is as sick as he makes out? With all the expansion that has gone on during the last twelve months, can it really be as sick as he says it is?

Mr. Edelman

The fact that the Society of Motor Manufacturers has sent out to Members a brief circular pointing out the weaknesses and difficulties of the industry and its inability to face competition under present circumstances shows that certain fundamental weaknesses do exist inside the industry.

The British worker in the motor industry is capable of vying with the best in the world, but, under present conditions, if the industry is allowed just to drift along without any plan we are heading for trouble. The industry requires a plan, not just the alleviation of a reduction in Purchase Tax.

Mr. Deputy-Speaker (Sir Gordon Touche)

The hon. Member must realise that we are discussing a reduction in Purchase Tax.

Mr. Edelman

That is precisely my theme. The reduction in Purchase Tax may save the industry from some of the worst dangers which threaten unemployment between now and the end of the year. What is necessary, ultimately, is a radical reform of the structure of the industry, and, as a preliminary, the Chancellor ought to accept the proposal that as soon as possible a working party should be organised to study the whole question.

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

I want to make a few observations on behalf of those engaged in the pottery industry, the workers in particular and the industry generally.

When my hon. Friend the Member for Stoke-on-Trent, North (Mrs. Slater) was moving this new Clause, I was pleased to see the interest which the Chancellor was taking in her speech. I thought that he listened in a respectful manner. I hope that if the Chancellor is influenced by the reasonableness of the case we present he will again set an example of how the House of Commons can function on the basis of democratic discussion and take action in the interests of our industries. The Chancellor is constantly making appeals—and on this most of us are in agreement—for an increased effort for the export trade. Yet at the same time the Treasury is responsible for this tax which is discouraging exports.

I was in at the birth of this tax. Our party in particular was fundamentally opposed to it. It took Lord Dalton a long time to persuade us to agree to it. We acquiesced only because we put the winning of the war before everything else. It is now admitted by Treasury officials that this tax has become a revenue-raising tax. I have a suggestion to make to the Chancellor. Before making it I qualify my suggestion by admitting that it is easy to talk, but it is when one has responsibility that one is put to the test. Therefore, before making the suggestion I admit that while present policy is pursued revenue has to be found from somewhere.

I suggest that Britain's economic situation is so serious that we have not only to maintain our export trade, but, if we are to hold our own in the world, we must increase it. That means that the Government should assist the export industries to the maximum extent. One of the essential early steps to take is to remove Purchase Tax from all products of manufactured industry catering for the export trade. I remember that before the last Budget there were many articles in the financial Press suggesting that the export trade should he given incentives. When reading those articles I realised how difficult it was to do that.

Here we have an opportunity to take off a tax which is discouraging the export trade. My hon. Friends and I have received a letter from people who do not support us politically—in fact they do all they can to prevent us being elected, though not very successfully. The letter is headed, "British Pottery Manufacturers Federation," and dated 28th June. It begins: "Dear Mr. Chancellor." I will not read the letter, because of the time, but I will give one or two extracts from it to reinforce what I said were the opinions of people who hold different political views from myself.

The letter states: We have now collated details of the position in the industry at 5th May, 1961, in respect of labour force, number of weeks' orders on books and increases in stocks. I will not give the figures, but the summing up is that they are getting very concerned about the position, that the stocks are building up, and that the number of people in the industry is nowhere near as high as they would like. The letter concludes: There was little change in the stock position which showed that members' stocks amounted to 136 weeks' holdings over the October, 1955, figures. I contend that if given the encouragement which it should have the pottery industry could increase its exports. It is acknowledged throughout the world that it produces the finest pottery in the world. If a number of countries which were with us in the war were playing the game with us as they should, instead of encouraging others with subsidies and finance in their own market, things would be better. Some countries talk about imperialism. I am entitled to be critical of our imperialism, but they are not. They have embarked on the greatest imperialism and exploitation of all time—financial penetration. Now they are using their own markets to subsidise their export trade. But that is another story and I will not go far with it except to say that millions of pounds of orders are at stake.

Nearly all Americans and Canadians are great admirers of our pottery. The time has arrived when the Chancellor ought to begin an experiment. It could start tonight. If he thinks that we are making a reasonable case, and if the industry gives an undertaking that it will start a new drive to increase exports and will reduce prices in proportion to the amount involved in removing Purchase Tax, will he undertake to take this step tonight?

The industry obtains most of its raw material in our own country; very little is imported. At least 40 per cent. of the pottery produced in North Staffordshire is exported. That is another reason why Purchase Tax should be taken off. The main reason that I oppose Purchase Tax altogether is that I was brought up in large-scale competitive industry. I spent years engaged in the most severe competition that this country has ever faced. We had to reduce our production costs to a minimum and to save every penny possible by scientific methods. Overhead charges were reduced to a minimum. We even had to negotiate with our fellow workers to reduce piece-work prices, in spite of the national agreement that these prices should not be changed unless the method of production or the design was changed. So concerned were we to retain full employment or even short-time work that we were almost on our hands and knees seeking to hold our own against foreign competition. It is because of that experience—and I do not want the country to go through it again—that I am pleading once more that the Government should recognise the reasonable case which we are making and should encourage those engaged in the export trade more than they have been encouraged in the past.

10.45 p.m.

During the past fifteen years those engaged in export trades in this country have made efforts greater than have ever been made, except in war time. The export industry expends more effort per day in the service of this country, leads a busier life, and takes a greater interest in the service it renders than those working in Government Departments, municipal offices, or elsewhere. That is why we have done so well, relatively speaking. It is because there is a great drive inside the exporting industries. All engaged in the industries realise that our very future is at stake, because we are all living on our exports now. All those people who boast of their greatness in doing this, that or the other are living on the export trades. The position will become more acute as time passes. Hence the need for the Chancellor to take an elementary step tonight and agree to remove the tax.

I am a regular reader of the Board of Trade Journal. It is an excellent journal. It is improving. Those who produce it deserve great credit. I constantly read the Chancellor's speeeches reported in the Journal. He constantly exhorts people to increase our exports. The President of the Board of Trade does the same. He has been to Moscow and Warsaw and made a number of other visits for the purpose of increasing exports. The time has come for the Chancellor to act. He should accept the Clause. We ask the Chancellor to live up to the exhortations he has made.

Mr. Donald Wade (Huddersfield, West)

The hon. Member for Kidderminster (Mr. Nabarro) said that Purchase Tax affects the export trade. The same point has been made by every hon. Member who has taken part in the debate. Most industries are dependent to a greater or lesser extent on the home market. It is true that Purchase Tax does not apply to articles exported, but indirectly a high tax on articles for the home market is bound to make it more difficult for manufacturers to sell overseas. This fact has often been debated in this Chamber. It has been established that the general effect of Purchase Tax is to put obstacles in the way of exporting industries.

In theory it can be argued that the reverse is true and that manufacturers, when faced with a stiff Purchase Tax on goods for the home market, will tend to put greater endeavours into selling overseas. However, experience shows that it is only when manufacturers have a complementary home market to maintain that they can sell and compete successfully in overseas markets.

This debate has turned largely on the problems of the motor manufacturing industry, but I hope that it will not be limited to that. Whether or not we go into the Common Market, I believe that competition with the Western European countries will be keen. If we do not go into the Common Market, there is little doubt that motor manufacturers will open new plants in Europe and it may well be that our workers will suffer more as a result of our being cut off the Common Market than in it—but I must not embark on that topic now.

I support the new Clause moved by the hon. Member for Stoke-on-Trent, North (Mrs. Slater). I should be content with a reduction to 10 per cent. rather than to 5 per cent., but I do not want to belittle the hon. Lady's case. I am, however, a little concerned at the prospect of frequent changes in Purchase Tax. It may very soon be increased as a result of the Chancellor's new regulator and that, in turn, will create considerable uncertainty.

I am not sure that the right hon. and learned Gentleman sufficiently appreciates the harmful effect of uncertainty created by the possibility of frequent changes in Purchase Tax—

Mr. Deputy-Speaker (Sir Gordon Touche)

Order. I am afraid that does not come within the scope of the new Clause before the House.

Mr. Wade

I bow to your Ruling, Mr. Deputy-Speaker. I wanted to say in passing that I recognise that a reduction from 12½ per cent. to 5 per cent. would, if followed by frequent changes, create a state of uncertainty in industry which would have a harmful effect on manufacturers, wholesalers and retailers, and affect the flow of goods in a way that would create great difficulties for manufacturers in planning ahead.

That being so, I hope that the Chancellor will accept two propositions. He should accept the view put forward by the hon. Member for Kidderminster and other hon. Members that Purchase Tax does not lead to an increase in exports. The indirect effect of the tax is to make great difficulty for the manufacturers to maintain their flow of goods at competitive figures, and it is the very effort that the right hon. and learned Gentleman wishes to encourage that is damaged by its continuance. I shall be interested to learn whether or not he accepts that proposition.

The other proposition is that the uncertainty created by frequent changes in the level of the tax has its effect on the wholesaler and the retailer, and makes it more difficult for the manufacturer to maintain a steady flow and to plan ahead. While supporting the reduction from 12½ per cent. to 5 per cent., I make it quite clear that I should prefer a reduction to 10 per cent. steadily maintained for a number of years. That would be the best solution, but if the Chancellor is willing to reduce the level in this case to 5 per cent. I welcome it. I support the new Clause.

Mr. Chapman

The hon. Gentleman the Member for Kidderminster (Mr. Nabarro) said that the situation in the motor industry was alarming. I agree with the hon. Gentleman and I wish merely to say in a few words why I agree and what I consider are the prospects for the industry in the coming autumn and winter.

Let me make it clear at the outset that I am not a prophet of gloom and that I do not believe that the industry is overoptimistic in the long run, at any rate. In the last ten years—as I have pointed out until I am blue in the face—the motor industry has increased its production threefold. I admit that I once joined the chorus of people who said that the industry was too optimistic, but I have tried to learn, as a result of the history of this trade, that one cannot go on making the same mistake, in view of the rapid growth and the increase in production, sales and exports.

At this stage, I will not cross swords on this issue with my hon. Friend the Member for Coventry, North (Mr. Edelman). While he may be correct that certain things are wrong, I think that the situation is alarming enough not to cross swords with him. I simply wish to welcome him this year as a convert among those who have been trying to get a reduction in Purchase Tax.

The hon. Member for Kidderminster did not make it clear in his speech that this is not something new that we are saying. After all, we made these sort of speeches about the dangers facing the motor industry in 1958, 1959 and 1960, and we are now making them again in 1961. If nothing impresses the Economic Secretary in other respects, I hope that the fact that we have proved to be consistently right in what we have said about the developing dangers will at least make him think that it is time that some regard was paid to this problem.

My hon. Friend the Member for Coventry, North is partly right. The industry needs more drive in exports and it is true, of course, that a reduction in the incidence of Purchase Tax would greatly help. The history of the last few years has consistently proved the correctness of the case that has been made out in four Budgets by the hon. Member for Kidderminster and myself.

Each year we have said that the alarming feature is that whereas our exports are going up—by one-third or one-half, from whatever base year is taken—the exports of the Germans, French and Italians have been going up by 75 per cent., 100 per cent., 125 per cent. and even 200 per cent. It is no good saying that this was Europe recovering. That excuse is out of date. Even after having recovered, Germany, France and Italy are licking us in the motor markets of the world.

How alarming is this situation at this stage of 1961? We have had a reduction of something like one-half in our exports in the first quarter of this year—a half of one of our major export earners. This trend, projected for the remainder of the year—since there is no sign of recovery—indicates that our production of motor cars this year may be something like only two-thirds or three-fifths of that of last year. There faces the industry a crisis even worse than the last one in 1956. We have never taken such a tumble in recent years and, therefore, the Government must realise that there must be something in the case that the industry needs help to meet the competition from its European competitors.

11.0 p.m.

Mr. Edelman

Do not the hon. Gentleman's impressive figures suggest one thing, and that is that it is not merely some fiscal piece of prestidigitation which is necessary in order to restore the position but some fundamental change in the structure of the industry?

Mr. Chapman

I am not going to argue that. I simply say that the situation is so alarming that all possible help is needed. My hon. Friend is partly right, that greater drive and perhaps greater energy of all kinds in the industry are needed to overcome a real crisis, but I ask him to go part of the way with us. This crippling tax, which is so damaging to our efforts in the continental markets, must also be reduced so that we and our competitors can be on equal terms.

I said that the situation that we are likely to face this year will be worse than the last crisis in 1956. But things have got worse in the last two months. We have been exporting from 70,000 to 90,000 cars a year to Canada, and within the last two weeks enormous barriers have been put up in Canada against British cars. That makes the prospect even worse than it would otherwise be. But even more important is to look at our difficulties in 1961, as the hon. Member for Kidderminster partly did, compared with what is happening to our competitors on the continent.

Look at what is happening. Germany is not suffering any setback this year. In the first three months of this year Germany has produced half a million cars compared with an annual rate of 1.8 million last year. If she goes on at that rate she will not be having a reduction of two-thirds on last year's production. She will be having an increase. Take France, with 280,000 in the first quarter compared with an annual rate of 1.2 million last year. France, is not going to have a tumble this year like that we are going to have. Italy, which was not a competitor of ours in world markets, is now rising to become one of our major competitors. Italy has produced and sold 161,000 cars in the first quarter of this year compared with 596,000 in the whole of last year. She is going to have an actual physical increase in production this year.

If ever there was a time when something should be done about Purchase Tax, now is the time. There is example after example of the way in which our continental competitors face much lower taxes at home, and they are beating us in their sales record and in their prices in overseas markets. We have got to do something about it.

What we get is an alternating theme from the Treasury. When there are pleas for relief in taxation we get from the Treasury the story—and we had it last year—that if we were to reduce taxes this year a lot of cars would be sold on the home market and this would eat into the number of cars which ought to be exported. We had it from the Economic Secretary last year: 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?"—OFFICIAL REPORT, 22nd June, 1960; Vol. 625, c. 497.] When things are going well and the boom is being stoked up we are told that it is dangerous to let any more on to the home market. But once the boom has got out of hand, as it does with sickening regularity in our economy, and we switch from stoking up to damping down, we get the other story from the Treasury, which is, "We could not reduce it this year. We could not help the motor industry this year because we could not afford to release purchasing power which the reduction in Purchase Tax would involve."

I said last year: 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 …"— as they certainly did after I made that speech. If they do, next April will be too early for a sudden lightening of the burden of taxation."—[OFFICIAL REPORT, 22nd June, 1960; Vol. 625, c. 481.] We have this rhythm: when we are stoking up the boom, we cannot let the Purchase Tax off, and when we are damping down, we cannot let it off. It must come to an end some time.

If things continue as they are now in the Midlands, we shall have redundancy and short-time working on a scale much worse than last year. If we could look ahead and foresee it last year when we spoke on the Budget and warned the Government of what might happen, how much more can we be certain on the evidence of the first quarter of this year. It will be too late to play about in the autumn when the worst has happened. We must break out of the vicious circle of argument we have year after year and do something to lighten the burden of taxation and help the industry forward. I warn the Economic Secretary that, if he does nothing, things will be very tough indeed in the Midlands this winter, and he ought to make his reply tonight in the certainty of that, knowing that he will be held to account to some extent if he promises no help.

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

I promise to be very brief. I ardently support my hon. Friends from Stoke-on-Trent who have spoken to the new Clause and I add only one further argument. As a result of its research in the whole general field of ceramics, the pottery industry not only helps itself but helps almost every industry which depends on modern scientific effort. The Ceramic Research Association, which is supported by employers and partly subsidised by Government money, is so concerned with the safety and welfare of the workers that I would do anything to encourage the industry as a whole to prosper, quite apart from my desire to give the consumer the opportunity to buy cheaper goods. I want the manufacturers to have such profits that they can continue at all costs to support the research which is done and which is yielding such successful results in saving life and preserving health.

On the new Clause spoken to by the hon. Member for Kidderminster (Mr. Nabarro)—(Purchase tax: reduction of rate from 50 to 37½ per cent.)—I shall say nothing about motor cars. I know very little about them. Not for the first time, however, I shall speak about music recorded on gramophone records. I am delighted that it is the Economic Secretary who is to answer, because I know that he feels personally as deeply about the undesirability of this tax as I do and as, I believe, hundreds of hon. Members do.

The Purchase Tax on gramophone records is a tax on culture and on education. It is undesirable from every point of view. It brings in about £6 million of revenue at the moment. Fifty per cent. is a higher rate of taxation on gramophone records than is levied anywhere else in the world. We have very serious competition from the United States, and there the tax is, I think, 4 per cent. The whole basis and success of the industry depends on keeping the greatest artists of the world assigned to the recording companies.

The two great companies in this country have three out of four of the greatest conductors and artists of the musical world attached to them. If those artists are lost to them because the companies cannot afford to continue classical recordings, they will have to go and earn their living elsewhere. If they earn their living elsewhere we all of us will be the losers spiritually and culturally, and the Treasury will lose money, too. If the Economic Secretary cannot see his way to finding the small amount of money which he would have to lose if he gave way to me tonight, at least let him say to us, "I will consider next year, if not this year, freeing entirely classical recordings." Let him say, "I did not know how to do it in the past. I have not wanted to distinguish between popular and classical records, but I know there is a way in which it can be done. I will at least do that." That is my plea to him tonight. I hope I have succeeded in moving him.

Mr. Jay

This debate is about Purchase Tax rather than about motor cars, and I think that perhaps it is a pity, since we have had no other time this year to debate Purchase Tax, that we have had so little time to cover such wide ground tonight. This has, after all, become a very formidable tax by which the Chancellor raises £525 million a year. That is more than £200 million more than he raised ten years ago, and, indeed, it is remarkable that ten years ago we were raising about £200 million in Surtax, rather less than £200 million in Purchase Tax, and this year we are raising £525 million by Purchase Tax and about £100 million in Surtax—about five times as much by Purchase Tax. The Government have entirely failed to make any simplification of this tax, despite all the efforts of the hon. Member for Kidderminster (Mr. Nabarro).

Mr. Nabarro

That is entirely untrue. My noble Friend Lord Amory reduced the number of rates from seven to four in 1958. In 1959 he reduced each of the rates again. All the rates are much lower and the tax much simpler as the result of my continuous endeavours in that regard.

Mr. Jay

In 1948 we had three rates of tax we still have four rates today. That was the simple point I was making.

If we are to have reductions I am not sure that I should give first priority to a reduction in tax on motor cars. I am not absolutely satisfied that a reduction of Purchase Tax on motor cars would be of immediate assistance to exports. However, I agree with the hon. Member for Kidderminster to this extent, that if the industry might be chronically under-employed, if capacity were in the future to be less than fully used, as it has been in the past year, then the case that applying a reduction of Purchase Tax would be of assistance to exports would be very much stronger now than it has been in the past.

I would also frankly agree with the hon. Member in that I would much rather abolish the initial allowances and lower Purchase Tax. This extraordinary system by which the Chancellor attempts to push motor car exports and motor car production by means of Purchase Tax, and then sucks them back with initial allowances is, I think, an extremely foolish proceeding.

However, our debate is essentially on a Clause which seeks to reduce the 12. per cent. rate to 5 per cent. The 12. per cent. rate, as several of my hon. Friends have pointed out, covers a very large number of important articles of household equipment including wallpaper, carpets and other floor coverings, kitchen utensils, cutlery, pottery and so on. One argument in favour of this Clause which has been little emphasised tonight is that it would assist in making some reduction in the cost of living. In the past year we have again had a very considerable rise in the cost of living of about four points, and the Chancellor has again been making veiled threats, and appeals to wage earners to exercise restraint, and he has been alarmed by the rising spiral of wages and prices. If that is so, I should have thought that he ought to consider seriously making some tax reductions which would contribute to keeping the cost of living down, and to provide some substantial argument for some sort of restraint of this kind. If, on the other hand, as we constantly read, we are to find that he increases indirect taxation in a few weeks' time, then his appeals for restraint will be met with contempt and derision.

The Chancellor's record this year has been very repressive. First he raised the cost of living by raising the health charges. Then he went further and makes an enormous reduction in Surtax. Is he now going to be unfavourable to our proposal for a reduction of Purchase Tax for the sake of lightening the cost of living? Then apparently he will raise indirect taxes all round and afterwards ask for wage restraint. I assure the Chancellor that if that is the economic policy which he has in mind it is likely to have little success either economically or politically. Therefore, I hope that the right hon. and learned Gentleman may pause a moment and reflect whether he might not do a little better and accept something on the lines of this Clause.

11.15 p.m.

Mr. Barber

The right hon. Member for Battersea, North (Mr. Jay) rightly pointed out that the estimated yield from Purchase Tax this year is £525 million, and no debate on the Finance Bill would be complete without some consideration of the present levels of Purchase Tax. Perhaps I might say also that no consideration would ever be complete without the views of my hon. Friend the Member for Kidderminster (Mr. Nabarro).

Criticisms of Purchase Tax fall into three broad categories. The first criticism comes from those who consider that the revenue could be better raised in some other way, because the present system involves different rates of tax for different categories of articles and this inevitably produces anomalies and yet when one attempts to deal with the anomalies the consequences of reform seem almost more anomalous. The proposal of my hon. Friend the Member for Kidderminster to avoid these disadvantages in the present scheme is to have a single flat-rate of tax which would mean, of course, an increased rate of tax for many classes of articles. But at least my hon. Friend is prepared to face that fact.

The second criticism made concerns the structure of the tax, and one consequence of the Clause in the name of the right hon. Member for Huyton (Mr. H. Wilson) and others, moved by the hon. Lady the Member for Stoke-on-Trent, North (Mrs. Slater) would be to reduce the number of rates from four to three. The present structure, as my hon. Friend the Member for Kidderminster said, was introduced in 1958 and comprises four rates which are well-known to the House. The hon. Lady's proposal is that there should be only one reduced rate of 5 per cent. instead of two, as now, of 12½ per cent. and 5 per cent.

The third criticism which was embodied both in the Opposition Clause and in the Clause to which my hon. Friend the Member for Kidderminster has referred is that the rates, or particular rates, of tax are too high. My hon. Friend is concerned with the top rate of 50 per cent, and wishes to reduce it to 37. per cent., whereas the Opposition Clause is concerned with the lower rate. I was surprised to hear the hon. Member for Birmingham, Northfield (Mr. Chapman) who is not now in his place, talking of Conservative Chancellors year after year making one excuse after another for not reducing taxation, but there certainly has been a reduction since a Conservative Government came into office in the tax on motor cars to which the hon. Member referred.

Before I outline the more general considerations which I know the House will wish to face in considering these proposals, I should like to refer to certain specific classes of goods which have been mentioned by various speakers in the course of the debate. In view of the fact that three hon. Members representing Stoke-on-Trent have spoken with deep feeling about the position in the pottery industry, I think that the House would wish me to say a few words on that subject. In 1955, as hon. Members know—and I do not want to make any political point of it—the tax was 30 per cent. It was reduced to 15 per cent. in April, 1957, and to the present 12½ per cent. in April, 1959. The tax applies equally to tableware, with which I think the hon. Lady and her hon. Friends were principally concerned, and to kitchenware of whatever material it is made.

Again, I think that the hon. Members who represent Stoke-on-Trent will agree that in this field pottery, glass, metal and plastic are all directly competitive and that it would not be defensible to discriminate in favour of one material despite the fact, as I recognise, that there are immense and unique skills involved in the production of the products made in their city.

Having said that, I think one must consider tableware and kitchenware as a whole. While I do not dispute much of what was said by the hon. Lady and her hon. Friends, I think I should point out that, whereas the pottery industry experienced something approaching a recession in 1955–56, it has recovered subsequently and home market sales have been pretty good and have, in fact, improved steadily each year. In terms of value, as the hon. Members well know, home market sales for 1960 were the highest ever. I have other figures here but I will not trouble the House with them except just to mention, because the question of pottery has loomed large in the debate, that the total production for both home and export in the first three months of this year is 4.1 per cent. up on the same period last year.

Reference was made also by the hon. Lady to carpets, linoleum and wallpaper. In that context she was pleading not so much for a particular craft industry but on behalf of the housewife and the householder who has to purchase the articles. Again, on this point I think it is fair to bear in mind that, for example, the tax represents 1s. 9d. in the pound on the retail price of a carpet, which amounts to about three guineas on a carpet costing £36. On a square yard of good linoleum, I am told, the tax is about 1s. 4d., which represents about £1 6s. 8d. for a medium sized room. I should not have thought that these amounts of tax were really excessive. The tax on wallpaper represents only about one-seventeenth of the retail price, or an average addition of about 3s. on the cost of papering an ordinary sized room. If one of the cheaper papers were used, the tax element would be as low as 1s. 6d.

I am not saying that the present level of tax at 12½ per cent. does not have any effect in these cases, but I think it can be exaggerated, especially if one fails to look at the end effect, the proportion of tax in relation to the retail price.

Mr. J. J. Mendelson (Penistone)

While it can be exaggerated, cannot it also be understated by mentioning one item at a time? Surely it is the cumulative effect of the prices that makes the cost of living extremely difficult for young couples.

Mr. Barber

The difficulty that I am in is that I cannot mention them all at once. I was trying to refer seriatim to all the items mentioned by hon. Members opposite.

My hon. Friend the Member for Kidderminster made some important observations about the motor car industry, and they were followed up by other hon. Members, in particular by the hon. Member for Birmingham, Northfield and the hon. Member for Coventry, North (Mr. Edelman). I hope that I shall be forgiven if I do not at this stage, in considering Clauses which are concerned solely with Purchase Tax, comment upon some of the wider and more basic suggestions which have been made by hon. Members about the state of the motor industry.

Before I come to the specific proposals made by my hon. Friend the Member for Kidderminster I must remind the House that last year the motor industry enjoyed a record year. But it is equally true to say that if we simply look at the statistics for the year as a whole they can be very misleading, because exports fell away considerably in the third quarter, mainly due to difficulties we had in selling our motor cars to the United States. There was also a decline in home sales in the fourth quarter, probably due to the delayed effect of the hire-purchase restrictions imposed in April. But the relaxation of the hire-purchase restrictions in January of this year has been followed by a recovery on the home market. Registrations of new cars for March of this year were the highest ever recorded, although in fairness I must say that the April figures—because of the early Easter—have shown some falling away. At all events, the home trade is recovering, and once again, as my hon. Friend will know, there are waiting lists for some of the more popular cars.

My hon. Friend spent some time in dealing with the inter-relation between home sales and exports, and this aspect was touched upon by the hon. Member for Huddersfield, West (Mr. Wade). I agree with much of what he said, and certainly with his argument that there is an inter-relation, but I do not think that one can always draw the same conclusion. With some commodities it is true that the firmer the home market base the better the prospects for exports, but with other commodities it is equally true that a high level of home demand may act as a brake on exports. It is very difficult to draw any firm conclusion on this matter—certainly one firm enough to affect my right hon. and learned Friend's decision on Purchase Tax.

I am not satisfied that the present level is a serious deterrent to exports. In 1959 Purchase Tax was at 60 per cent. until the Budget of that year, when it was reduced to 50 per cent., but in that year exports rose by 17.6 per cent., and they rose again last year. Making full allowances for the way in which they tailed off, or fell seriously towards the end of the year, exports for the year as a whole, with the rate of Purchase Tax at 50 per cent., were up.

I do not want to be dogmatic, or to lay down principles which may not be applicable in future years, but with the best will in the world I cannot accept unconditionally the point of view expressed by my hon. Friend.

Mr. Nabarro

Would my hon. Friend deal wth two points? He may not accept my proposition, but in refusing to do so, does not he recognise that it is unanimously subscribed to by all those engaged in the our motor manufacturing industry? Secondly, does not be agree that although our exports of cars have been decreasing progressively in the last twelve months—and did not show a particularly healthy rate of increase for three years before that—the West Germans, the French and the Italians have benefited in their home markets by the rate of domestic taxation being only one-third of our level? Would my hon. Friend comment on those striking facts?

11.30 p.m.

Mr. Barber

On the second point made by my hon. Friend, I do not think that it necessarily follows that the better performance in exports of motor cars by some of our competitors overseas is due to a difficult level of Purchase Tax. It may or may not be so. I do not think anything my hon. Friend said in his speech shows that is necessarily so. On the second point he made, I should be very surprised indeed if the motor manufacturers without any exception did not support my hon. Friend in advocating a reduction in Purchase Tax on motor cars.

I hope that the hon. Member for Stoke-on-Trent, Central (Dr. Stross) will forgive me if I do not deal with the points he made about gramaphone records. I should remind him, as I think he knows, that about 80 per cent. of all home market sales are of the "pop" type of record. Despite the plea he made, I think that it would be extremely difficult and impracticable to make any distinction for tax purposes between classical and popular music records. I have discussed this with the hon. Member and I received a deputation led by him on it. He knows my views and I am afraid that, certainly this year, nothing can be done to meet the points he made.

I turn finally to more general considerations. Of course, considered in isolation, any reduction in taxation is desirable, but the fact is that nobody in a position of responsibility can consider particular proposals for reductions in taxation in isolation. In the first place, it is necessary to consider in general whether the balance between direct and indirect taxation is right. Some of my hon. Friends take the view that in the United Kingdom we have not got that balance right and that the first essential in the general interests of the economy is to reduce direct taxation and not indirect taxation.

My hon. Friend the Member for Kidderminster was at any rate constructive in suggesting alternative means of raising indirect taxation, but there is an even more fundamental consideration. It is universally accepted that the Government have a responsibility to act to avoid excess demand on the one hand and deflation on the other. The Budget remains one of the primary instruments for achieving that. My right hon. and learned Friend gave his analysis of the situation on 17th April and it was generally approved by the Committee. I shall content myself with quoting ony one passage from his speech. He said: Bearing all this in mind, what should be the purpose of this year's Budget? The rise in personal consumption must be restrained. I would hope that as in 1960 increased saving would be an important part in this. Nevertheless, I am sure that the broad effect of the Budget must be counter-inflationary; there must be a larger surplus above-the-line than last year and a smaller overall deficit."—[OFFICIAL REPORT, 17th April, 1961; Vol. 638. c. 801.] My right hon. and learned Friend therefore provided for a net increase in taxation this year of £68 million. My hon. Friend the Member for Kidderminster says that we should raise taxation in various other ways—

Mr. Nabarro

Alternative ways.

Mr. Barber

—alternative ways. Some may agree with him and some may not, but the fact is that these two Clauses would involve a considerable reduction in taxation this year. Nothing that has happened since the Budget could lead one to the conclusion that it is any less necessary now than at the time of the Budget to take the action that my right hon. and learned Friend then advocated.

My hon. Friend the Member for Kidderminster would certainly not expect me or my right hon. and learned Friend to accept off the cuff the proposals he made for increasing taxation—

Mr. Nabarro

I shall press them.

Mr. Barber

—as an alternative, but to accept either of these two Clauses would run counter to the basic counter-inflationary purposes of this Budget. Without quarrelling with some of the arguments which have been adduced in favour of these reductions, considered in isolation, I hope that the House will take the view that, whatever their intrinsic merits may be, it would not be in the general interest at this time to accept either of these two Clauses.

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

The House divided: Ayes 91, Noes 167.

Division No. 238.] AYES [11.35 p.m.
Ainsley, William Howell, Denis (Small Heath) Randall, Harry
Awbery, Stan Hoy, James H. Redhead, E. C.
Bowden, Herbert W. (Leics, S.W.) Hughes, Hector (Aberdeen, N.) Reynolds, G. W.
Boyden, James Hynd, John (Attercliffe) Roberts, Goronwy (Caernarvon)
Broughton, Dr. A. D. 0. Janner, Sir Barnett Ross, William
Brown, Alan (Tottenham) Jay, Rt. Hon. Douglas Slater, Mrs. Harriet (Stoke, N.)
Castle, Mrs. Barbara Jeger, George Slater, Joseph (Sedgefield)
Cliffe, Michael Jenkins, Roy (Stechford) Smith, Ellis (Stoke, S.)
Crosland, Anthony Johnson, Carol (Lewisham, S.) Soskice, Rt. Hon. Sir Frank
Cullen, Mrs. Alice Jones, Dan (Burnley) Spriggs, Leslie
Darling, George Jones, Elwyn (West Ham, S.) Stonehouse, John
Davies, G. Elfed (Rhondda, E.) Kelley, Richard Stones, William
Delargy, Hugh King, Dr. Horace Strachey, Rt. Hon. John
Diamond, John Lee, Miss Jennie (Cannock) Stross,Dr.Barnett(Stoke-on-Trerrt,C.)
Dodds, Norman Lewis, Arthur (West Ham, N.) Symonds, J. B.
Driberg, Tom Logan, David Thompson, Dr. Alan (Dunfermline)
Edelman, Maurice Loughiin, Charles Thornton, Ernest
Evans, Albert MacColl, James
Gaitskell, Rt. Hon. Hugh Mclnnes, James Wade, Donald
Ginsburg, David Mackie, John (Enfield, East) Wainwright, Edwin
Gordon Walker, Rt. Hon. P. C. Manuel, A. C. Warbey, William
Gourlay, Harry Mendelson, J. J. Weitzman, David
Grey, Charles Milne, Edward J. White, Mrs. Eirene
Griffiths, W. (Exchange) Mitchison, G. R. Whitlock, William
Grimond, J. Mulley, Frederick Wilkins, W. A.
Hale, Leslie (Oldham, W.) Neal, Harold Willis, E. G. (Edinburgh, E.)
Hannan, William Noel-Baker, Francis (Swindon) Wilson, Rt. Hon. Harold (Huyton)
Hayman, F. H. Oram, A. E. Winterbottom, R. E.
Henderson, Rt.Hn.Arthur(RwlyRegis) Owen, Will
Holman, Percy Pavitt, Laurence TELLERS FOR THE AYES:
Houghton, Douglas Pentland, Norman Mr. Short and Mr. Lawson.
Howell, Charles A. (Perry Barr) Probert, Arthur
Agnew, Sir Peter Chichester-Clark, R. Fraser, Hn. Hugh (Stafford & Stone)
Allason, James Clark, Henry (Antrim, N.) Fraser, tan (Plymouth, Sutton)
Ashton, Sir Hubert Clark, William (Nottingham, S.) Gammans, Lady
Barber, Anthony Cordeaux, Lt.-Col. J. K. George, J. C. (Pollok)
Barter, John Corfield, F. V. Gibson-Watt, David
Beamish, Col. Sir Tufton Cos tain, A. P. Glover, Sir Douglas
Bennett, F. M. (Torquay) Courtney, Cdr. Anthony Glyn, Dr. Alan (Clapham)
Biggs-Davison, John Critchiey, Julian Glyn, Sir Richard (Dorset, N.)
Bingham, R. M. Crowder, F. P. Coodhart, Philip
Bishop, F. P. Curran, Charles Goodhew, Victor
Black, Sir Cyril Currie, G. B. H. Cower, Raymond
Bossom, Clive d'Avigdor-Goldsmld, Sir Henry Gresham Cooke, R.
Bourne-Arton, A. Deedes, W. F. Grimston, Sir Robert
Box, Donald de Ferranti, Basil Grosvenor, Lt.-Col. R. G.
Boyle, Sir Edward Donaldson, Cmdr. C. E. M. Gurden, Harold
Brewis, John Doughty, Charles Hall, John (Wycombe)
Browne, Percy (Torrington) Duncan, Sir James Hamilton, Michael (Wellingborough)
Bryan, Paul Elliot, Capt. Walter (Carshalton) Harris, Frederic (Croydon, N.W.)
Bullard, Denys Emery, Peter Harris, Reader (Heston)
Campbell, Gordon (Moray & Nairn) Farr, John Harrison, Brian (Maldon)
Chataway, Christopher Finlay, Graeme Harrison, Col. Sir Harwood (Eye)
Harvey, John (Walthamstow, E.) Markham, Major Sir Frank Sharpies, Richard
Heald, Rt. Hon, Sir Lionel Marten, Nell Shaw, M.
Hiley, Joseph Mathew, Robert (Honiton) Shepherd, William
Hill, J. E. B. (S. Norfolk) Matthews, Gordon (Meriden) Skeet, T. H. H.
Hinchingbrooke, Viscount Mawby, Ray Stevens, Geoffrey
Hirst, Geoffrey Maxwell-Hystop, R. J. Storey, Sir Samuel
Hobson, John Maydon, Lt.-Cmdr. S. L. C. Taylor, Edwin (Bolton, E.)
Hocking, Philip N. Mills, Stratton Thomas, Leslie (Canterbury)
Holland, Philip More, Jasper (Ludlow) Thomas, Peter (Conway)
Hopkins, Alan Nabarro, Gerald Thompson, Richard (Croydon, S.)
Hornby, R. P. Noble, Michael Thornton-Kemsley, Sir Colin
Hornsby-Smith, Rt. Hon. Patricia Oakshott, Sir Hendrie Tiley, Arthur (Bradford, W.)
Hughes-Young, Michael Osborn, John (Hallam) Turner, Colin
Hutchison, Michael Clark Page, John (Harrow, West) Turton, Rt. Hon. R. H.
Iremonger, T. L. Page, Graham (Crosby) van Straubenzee, W. R.
Johnson, Dr. Donald (Carlisle) Pannell, Norman (Kirkdale) Vickers, Miss Joan
Johnson, Eric (Blackley) Peel, John Walker, Peter
Johnson Smith, Geoffrey Pickthorn, Sir Kenneth Walker-Smith, Rt. Hon. Sir Derek
Kaberry, Sir Donald Pilkington, Sir Richard Wall, Patrick
Kerans, Cdr. J. S. Pitt, Miss Edith Ward, Dame Irene
Kershaw, Anthony Pott, Percivall Wells, John (Maidstone)
Lancaster, Col. C. G. Powell, Rt. Hon. J. Enoch Whitelaw, William
Legge-Bourke, Sir Harry Price, David (Eastleigh) Williams, Dudley (Exeter)
Lewis, Kenneth (Rutland) Prior, J. M. L. Williams, Paul (Sunderland, S.)
Lloyd, Rt. Hon. Selwyn (Wirral) Proudfoot, Wilfred Wilson, Geoffrey (Truro)
Longbottom, Charles Quennell, Miss J. M. Wise, A. R.
Longden, Gilbert Rawlinson, Peter Wolrige-Gordon, Patrick
Loveys, Walter H. Redmayne, Rt. Hon. Martin Wood, Rt. Hon. Richard
Lucas-Tooth, Sir Hugh Rees, Hugh Woodhouse, C. M.
MacArthur, Ian Rees-Davies, W. R. Woodnutt, Mark
McLaren, Martin Ronton, David Woollam, John
McLaughlin, Mrs. Patricia Ridsdale, Julian Worsley, Marcus
Maclean, SirFitzroy(Bute&N. Ayrs.) Roots, William
McMaster, Stanley R. Ropner, Col. Sir Leonard TELLERS FOR THE NOES:
Macmillan, Rt. Hn. Harold(Bromley) Scott-Hopkins, James Mr. Edward Wakefield and
Maddan, Martin Seymour, Leslie Mr. Frank Pearson.