HC Deb 09 April 1962 vol 657 cc989-92

I now come to Purchase Tax. The yield in 1961–62, including surcharge, was £521 million. It is easy to be critical of existing methods of levying indirect taxation. I am not, however, going to deal today with the wide issue whether at some future date it will be desirable to change the whole basis, for example, by the substitution of a turnover tax. I understand that that method is becoming less popular where it operates, and there is a view that a tax such as ours at the wholesale point is to be preferred. However that may be, I consider that there are some changes in our own arrangements which can with advantage be made; indeed, that it is necessary to make.

It is sometimes said that Purchase Tax leads to distortion of the pattern of consumer spending and hence investment, because it is levied on an arbitrary and limited range of commodities. I think that there is great force in this argument.

There is a strong case for broadening the scope of the tax by including some articles which most people would consider just as suitable for taxation as those which are already included.

I propose, therefore, to bring into the tax, at a new rate of 15 per cent. of the wholesale value, confectionery (in other words, sweets, including chocolate biscuits), soft drinks and ice-cream. These changes will operate from 1st May next, in order to allow time for the application of the tax machinery over this new field and for the essential discussion of certain technical questions between Customs and Excise and the trade. Of course, there will be the usual exemption for the small manufacturer, who makes and then sells taxable goods to a value of not more than £500 a year. He will not have to pay tax on his sales, but, of course, he would pay the tax paid price in so far as he buys taxable ingredients.

Lest it be thought that by putting a tax of 15 per cent. on soft drinks, I am prejudicing their position vis-a-vis alcoholic beverages, I would add this. The tax on gin is equivalent to a 400 per cent. rate of Purchase Tax, and that on beer to a 130 per cent. rate. So the 15 per cent. I am putting on tonic water should be compared with the 400 per cent. on gin. Strengthened cider already pays British wine duty equivalent to a Purchase Tax of about 50 per cent. Ordinary cider will now pay the new rate of 15 per cent.

The new tax on confectionery, icecream and soft drinks is expected to yield £30 million this year and £50 million in a full year.

Hon. Members

Oh.

The Chairman

I hope that hon. Members will allow the Chancellor to continue.

Mr. Lloyd

The tax on sweets, though it will be welcomed by the medical professions, or ought to be, will not be popular with the younger generation. As the father of a small daughter I expect some trouble on the home front myself, but I shall brace myself to meet it.

In parenthesis, on what may seem a different topic, but one which also affects the welfare of the young, I stated in the House on 26th July last that I must for financial reasons put a ban on any action following upon the Wolfenden Report on Sport and the Community. Whatever the effect upon young people of sweets and soft drinks, there can be no doubt about that of games, physical exercise and club facilities. I therefore intend to lift that ban, so that we can start in a modest way to make good some of the deficiencies pointed out by the Report.

A second criticism of present Purchase Tax arrangements concerns the spread of the rates of the tax. Opinions have very much changed as to what items should rank as part of the normal standard of living of ordinary people. The present Purchase Taxes, by their disparity, imply a sort of moral judgment on what people should or should not buy. In our society, I do not think that most people regard motor cars, T.V. sets and cosmetics as very different from jewellery, refrigerators or washing machines. Yet the former are at present taxed at 55 per cent., the latter at 27½ per cent. I do not think that most people would regard carpets, floor coverings, or cooking utensils as very different from clothing and furniture. Yet the first are taxed at 13¾ per cent. and the others at 5½ per cent. I propose to take some action now.

I think that my predecessor once referred to action in this field as "grasping the nettle". It is, in a sense, "grasping the nettle" and, of course, there must be unpleasant circumstances because some particular rates will have to go up, but I believe that we must begin to reform the structure of Purchase Tax, particularly if we are to go into Europe. I therefore intend to reduce the spread, or limits, of the rates. I propose, therefore, that the top rate of 55 per cent. should be reduced to 45 per cent. This includes motor cars, radio and television sots and cosmetics.

The 27½ per cent. rate will be brought down to 25 per cent. This includes, among other things, such household goods as gas and electric fires, refrigerators and washing machines. The 13¾ per cent. and the 5½ per cent. rates will be consolidated at 10 per cent. This means an increase in respect of furniture and clothing—except children's clothing, which remains tax free—and reductions in a wide variety of household goods, such as carpets, cutlery and hardware.

My changes mean that for a £600 motor car the tax comes down by about £34; for a £65 T.V. set, tax comes down £3 5s.; for £50 spent on carpets, tax comes down £1 3s.; for £100 spent on furniture, tax goes up £2 17s. 6d.; for a £12 suit, tax goes up 7s. 6d.; for a £20 suit tax goes up 12s. 6d.; for £20 spent on cutlery and hardware, tax comes down 8s. 6d.

Mr. Loughlin

It is taxing the newly-weds.

Mr. Lloyd

I believe that, on balance, the newly-weds will be better off. The revenue in this financial year from these changed rates will be £576 million instead of £585 million, which would have been the figure if I had simply retained the 10 per cent. surcharge for the whole year. It will be seen that I am not making these changes for the yield, but to make the tax more sensible and less discriminatory. All these changes in rates will take place as from midnight tonight. I also intend making some very minor changes in the machinery of Purchase Tax.