PURCHASE TAX (MOTOR CARS)

HC Deb 04 December 1962 vol 668 cc1230-68

7.42 p.m.

Mr. Douglas Jay (Battersea, North)

I beg to move, That an humble Address be presented to Her Majesty, praying that the Purchase Tax (No. 6) Order 1962 (S.I., 1962, No. 2434), dated 1st November 1962, a copy of which was laid before this House on 5th November, be annulled. I believe that the House tonight ought to have a fairly close look at this Order, not because we on this side of the House are opposed to a cut in Purchase Tax on motor cars—we certainly are not—but for two other reasons. The first is that the Chancellor of the Exchequer introduced not a little but quite a large autumn Budget a month ago and, apart from one day on the debate on the Address, the House has had no opportunity of discussing it, let alone voting on it. This is a rather startling contrast to the elaborate procedure which we usually pursue on Finance Bills.

Secondly, assuming that the Chancellor was going to give an expansionary stimulus to the economy, for which we have long been asking and which in our view should have been given some months earlier, we have to ask whether this particular cut in Purchase Tax is the right way to do it.

Therefore, I think that the House should note what a long step the Chancellor has taken this autumn in removing control of taxation, which is supposed to be the special prerogative of this House, out of the hands of Parliament altogether. I am glad to see that we have the Chancellor with us tonight, even at this hour, and I should like to ask him a question. Did he decide to launch a stimulus by way of Statutory Order in this form and to tell the House he was not giving us an autumn Budget simply because he had said a few weeks before that there would not be an autumn Budget, or did he do this because he did not want to go through the trouble of the whole procedure of a Finance Bill this winter? Either way, the whole thing is not very creditable to the brave new world which he is supposed to he encouraging at the Treasury.

We on this side of the House believe that it is necessary to use fiscal instruments for planning purposes at various times of the year, and it was for this purpose that the Labour Government introduced a Clause in the 1948 Finance Act which has enabled the Chancellor to introduce this Order this autumn. We were thereby showing a piece of foresight for which I hope the Chancellor is now duly grateful. But he is now going rather far, not in the economic sense—I do not think that he is going far enough in that respect—but from a Parliamentary point of view in the use of these powers this autumn. I would remind the right hon. Gentleman, incidentally, that the Labour Government in 1949, between November and Christmas, carried through a full minor Finance Bill when they believed that changes in taxation had to be made at that time. This shows that it can be perfectly well done if one wishes to do it.

During the last two years, however, we have had four Budgets and only two Finance Bills. Three weeks ago, in his speech on the Address, the Chancellor put into operation changes affecting £100 million to £150 million of tax revenue without the House having any chance until this Order comes before it tonight to give statutory approval or disapproval to it. In view of the very large amount involved, I think that the right hon. Gentleman has taken a long step towards removing not merely control of expenditure, but control of taxation out of the hands of this House altogether. Certainly, at the very least, his action this autumn is a formidable precedent.

Are we really sure that this particular and highly discriminating cut from 45 per cent. to 25 per cent. in the tax on passenger cars is the best way of injecting £50 million into the economy at the present time? By thus concentrating his whole relief on this one item in the 45 per cent. rate of Purchase Tax, the right hon. Gentleman has provoked some rather big and perhaps unforeseen consequences. To give one example, up to now there has been a wide differential between tax on passenger motor cars and tax on bicycles. Until the Order came into force it was 45 per cent. on cars and 25 per cent. on bicycles, as I am sure the hon. Member for Kidderminster (Mr. Nabarro) knows. As a result of the Order, that differential now disappears at one stroke.

Mr. Gerald Nabarro (Kidderminster)

Very good.

Mr. Jay

Yes, but the hon. Member, well-informed as he sometimes is, may not realise that according to my information a quite dramatic fall in orders for motor cycles has followed this sudden disappearance of the differential in their favour, with resultant depression in that industry. One Lancashire firm informs me that orders have fallen off so seriously in the last few weeks that redundancy notices are now to be issued, and this, incidentally, in an area where cotton workers have been taken on by a firm manufacturing bicycles. Was that the result that the right hon. Gentleman intended, or did he fail to foresee it?

Why did he concentrate the whole of this relief in the form of lower Purchase Tax on motor cars alone, instead of spreading it widely on other articles in the form of lower Purchase Tax or something else? The right hon. Gentleman argued in a rather long, and, I thought, rather sly, preamble in his speech in the debate on the Address, on 5th November, that his concentration on this item was because motor car production influenced so wide an area in the engineering and steel industries and because it had such a fine export record. He went on to paint a happy picture of employers, employees and everybody else living in harmony in the motor industry. That, of course, was before Sir Patrick Hennessey visited Merseyside.

I do not believe that those were the real reasons why the Chancellor selected this item. I believe that the real reason —perhaps the presence of the hon. Member for Kidderminster is evidence for it—is that the Government are pursuing a long-term policy of levying Purchase Tax less and less on the more expensive items like motor cars, television sets and some other things and more and more on necessities like clothes, boots and shoes and furniture. Each time when the individual step is taken, we are given an alternative explanation as we are now, which the Government hope will sound plausible.

It so happens—the Chancellor of the Exchequer did not point this out—that the £50 million Purchase Tax relief he is now giving to motor cars, which inevitably goes mainly to more expensive cars, exactly balances the extra revenue raised last April by extending the Purchase Tax to sweets and some other foodstuffs. Might the right hon. Gentleman not have spread the benefit more widely if some of the revenue taken by the new tax on sweets had been handed back?

It is interesting to observe the total effect of the series of Purchase Tax changes completed by the Order which we are discussing now. They began eighteen months ago, with the £200 million increase in taxation which the Chancellor's predecessor, the right hon. and learned Member for Wirrall (Mr. Selwyn Lloyd), made in July, 1961, again without a Finance Bill. The changes made then by the previous Chancellor, of course, were the main cause of the unemployment and depression we now see all around, including Merseyside. Before that time, this was the situation. Motor cars were taxed at 50 per cent. Clothes, boots and shoes were taxed at 5 per cent. and sweets were taxed not at all.

Now, after these eighteen months of manipulation, the tax on cars has come down from 50 per cent. to 25 per cent., the tax on clothes, boots and shoes has doubled from 5 per cent. to 10 per cent., and the tax on sweets has gone from nothing to 10 per cent. The tax on other more expensive items in the highest range has, of course, come down, though only slightly, from 50 per cent. to 45 per cent.

Altogether, this represents a massive switch within the Purchase Tax structure lightening the burden on those who buy motor cars and aggravating it on those who buy clothes, boots and shoes and some other things. This inevitably means a shift of tax on to those with the lower rather than the higher incomes. I do not think that the Chancellor will deny that it is all part of a plan to make the Purchase Tax not a selective tax with some sort of social purpose, but a general indirect tax falling indiscriminately on all articles of ordinary consumption, closer to the more reactionary system of taxation which prevails on the Continent of Europe.

If the Chancellor thinks, as he may, like the hon. Member for Kidderminster, that this is the right thing to do, he should say so frankly when he is introducing the changes. [Interruption.] I am sure that the hon. Member for Kidderminster will do so because he, at least, says what he means. At the moment, I am asking the Chancellor what he means and what his reasons were for making this rather peculiar change.

If one sets this tax change against the background of the changes made in the last two years, the total result is seen to be even more startling. It may be summed up in this way. Taxes on the general consumer have risen by over £200 million. Taxes on cars, on profits, property and Surtax incomes have come down by about £200 million. That is the shift in the tax burden which the Chancellor is completing by the Order we are discussing now, despite all his claims to be reversing the policies of his predecessor in office, who, from the point of view of the party opposite, seems to have been even more ineffective in his leaving of office than he was in occupying it.

I believe, and I think that most of my hon. Friends believe, that it would have been wiser and fairer to have granted some part of this relief to goods like clothes, boots and shoes, furniture and other household necessities. To have done so would have spread the relief in a more equitable way socially, industrially and geographically. I assure the Chancellor, in spite of all he said about the depressed state of the motor industry, which is true enough, that the textile industries are every bit as much in need of help as the motor industry, and they are largely situated in more vulnerable areas. We read this morning—I expect the Chancellor noticed it— that in October there was a sharp decline in the sale of clothes and footwear, a decline which is likely to lead to a spread of unemployment.

Mr. Deputy-Speaker (Sir Robert Grimston)

I do not wish unduly to restrict the debate, but the right hon. Gentleman is going a little wide of the Prayer, which deals with the Purchase Tax on motor cars. I have allowed him to stray rather far and I hope that he will not go further.

Mr. Jay

That was all that I intended to say on that point, Mr. Deputy-Speaker. I think that, in considering motor cars, we should have an eye on what is happening elsewhere and the possible alternatives.

In the present rather lamentable state of our economy induced by the deflationary policies of the previous Chancellor, I agree that any expansionist measure is better than none. For this, at least, we are thankful, and we do not intend to oppose the Order tonight. However, we are very far from believing that the Chancellor has selected the best, the wisest or the fairest method of giving the relief which is so obviously needed.

7.57 p.m.

Mr. Gerald Nabarro (Kidderminster)

I certainly hope that the Order will not be annulled tonight. It is probably the most important single Purchase Tax Order in the form of delegated legislation laid before the House during the past 15 years. As for the imputation by the right hon. Member for Battersea, North (Mr. Jay) that the Chancellor of the Exchequer is sly, I can only ask, does he look a sly chap? My right hon. Friend has a most honest, frank and open face, a face which was widely acclaimed on the television screen last evening when he was in a "hot" seat, dealing with local unemployment. There is nothing sly about the Order.

I shall not attempt to go over the ground again. On Guy Fawkes' day, when he brought in such an appropriate relief from indirect taxation, my right hon. Friend explained all the reasons for the momentous, dramatic and largely unexpected reduction of Purchase Tax on motor cars, the biggest single yielder of Purchase Tax in all the Schedules, which he then announced. The House will find his words reported in the OFFICIAL REPORT, columns 628–638, of 5th November last.

As for the influence of this reduction upon the total yield of Purchase Tax, it is significant that the previous Chancellor was budgeting in April, 1962, for a yield of £606 million from Purchase Tax in the year 1962–63, but, notwithstanding this reduction on motor cars, which would cost the Chancellor £50 million to £60 million in a full year, still the yield from Purchase Tax in 1962–63 will be £597 million. The difference between the figure postulated and estimated last April and the figure now estimated after the reduction is no more than £9 million out of a global total of approximately £600 million. Therefore, over all, one gathers the inference that consumption of articles subject to Purchase Tax is rising and that the net result to the Chancellor will be a yield almost as large as it was before.

This is really a Common Market measure. I am in no doubt about that. Adjusting for the differences in system, the French domestic taxation on motor cars is of the order of 24 per cent., the Italian is of the order of 17 per cent., the West German is of the order of 13 per cent. Before the change we are now discussing, ours was 45 per cent. I was gratified to hear on Guy Fawkes' day for the first time the adoption by the Chancellor of the Exchequer of the argument which my hon. Friends and I have used ad nauseam during the past few years, that an excessive and discriminatory rate of Purchase Tax on motor cars militated against the best export performance. By the single action of reducing the Purchase Tax on motor cars from 45 per cent. to 25 per cent., the Chancellor has brought us nearer to the rates applicable in the Common Market countries, which I believe is wholly desirable.

Mr. Jay

Does not that argument apply to other things besides motor cars?

Mr. Nabarro

Certainly, but my trouble is that—

Mr. Deputy-Speaker

Order. We are discussing motor cars now.

Mr. Nabarro

That is exactly what I was going to say, Mr. Deputy-Speaker. I never get myself out of order, whether tempted by the right hon. Gentleman or not. I do not propose this eventing to discuss the other articles Which are still subject to the 45 per cent. Purchase Tax. It would be out of order to do so. But the situation is very unfair, Mr. Deputy-Speaker.

Mr. Harold Lever (Manchester, Cheetham)

Mr. Deputy-Speaker, is it out of order to use the argument that, if a cut of this kind is justified in relation to motor cars, then one is compelled logically and inevitably to apply it to other articles and, hence, to use that argument as a reason for not making this cut? We are discussing whether we should allow this cut to be made. If I were to argue—I do not say that I shall —that this cut ought not to be made because it will raise an irresistible demand for similar cuts, having regard to the Common Market argument, would not that be in order?

Mr. Deputy-Speaker

Yes; I think that a passing reference of that kind in order to support an argument on the Prayer would be in order, but to go into a lot of detail about the rates of Purchase Tax on other articles would not.

Mr. Nabarro

The hon. Gentleman interrupted my passing reference, Mr. Deputy-Speaker.

The Purchase Tax on motor cars has come down from 45 per cent. to 25 per cent., leaving at 45 per cent. cosmetics, radio and television sets, gramophones and discs. I hope that my right hon. Friend will, when be begins his budgetary considerations next April, accord to those articles, equally important relatively to our export performance, the preferential treatment which he has now given to motor cars.

I come now to something else about the motor car industry as a whole which ought to be said within the context of our debate on this Order. Not only does this reduction in the Purchase Tax on motor cars increase the competitiveness of the British vehicle industry in shipping goods all over the world by bringing our rates of domestic taxation closer to those of our principal competitors, but it engenders also a much larger home market for motor cars and creates the possibility of taking up a great deal of unused capacity in the motor industry.

It is surprising how large that unused capacity has been during the past few months. This unused capacity, if the Ford strikers on Merseyside will allow the completion of the factory there, and if the other motor vehicle factories being erected on Merseyside, in Scotland and elsewhere are in due course completed, will be greatly increased in the next 12 months.

The National Institute Economic Review of September, 1961, published unchallengeable figures about the capacity of the British vehicles industry. It said that in the calendar year 1963 the capacity of our vehicles industry would be 2,710,000, of which approximately three-quarters would be motor cars and approximately one-quarter commercial vehicles. But if we base the full year's production of motor vehicles in this country on what was turned out in the initial 10 months of this year, the latest available figure to 31st October, and relate that pro rata to the full year 1962, the output of our motor industry will not be much more than 1,710,000 vehicles.

Thus, comparing 1962 as a whole with the estimate for 1963, there will be an unused capacity for producing 1 million vehicles, or something of the order of 36 per cent. of the total estimated vehicles capacity of the United Kingdom—that is, if the present rate of production in 1962 is carried forward into 1963. No industry can operate economically and efficiently with only 64 per cent. of its capacity used and 36 per cent. of its capacity unused. The principal reason why this Order is so important is that it makes a dynamic contribution to filling the unfilled capacity for 1 million motor vehicles during 1963 if all these new factories are to be fully employed.

I have a direct constituency interest in this, because Kidderminster produces most of the floor covering for the motor vehicles produced in the United Kingdom. The rate of Purchase Tax on the floor covering is only ten per cent. as a result of the benevolence of successive Chancellors of the Exchequer towards their colleague sitting for the Kidderminster constituency.

I wish to say a word to my right hon. Friend the Chancellor of the Exchequer about the fiscal dyspepsia from which his predecessors have suffered over the years. Nothing is more damaging to the motor industry than constant hiccuping in the rates of Purchase Tax. I do not think my right hon. Friend is aware of the extent to which this has gone on during the period of the Conservative Administration. [HON. MEMBERS: "Hear, hear.") But it was far worse under a Labour Government. Hon. Members opposite must wait for it. What is more, the rates were two or three times as high under a Labour Administration. [Laughter.] The memory of the hon. Member for Manchester, Cheetham (Mr. H. Lever) is very bad. He conveniently forgets these things. Perhaps he will allow me to refresh his memory.

When the Labour Administration was in office—I will go back to 1947—the rate of Purchase Tax on cars was 66⅔ per cent. In 1950, the higher rate of tax—that was, the rate discriminately applied to cars costing more than £1,280 wholesale—was removed by a Labour Administration, reducing the rate to 33⅓ per cent. The right hon. Member for Battersea, North was then the Financial Secretary to the Treasury and Sir Stafford Cripps was the Chancellor of the Exchequer. The right hon. Gentleman then sat on this side and I sat on the benches opposite. I used to attack him about the Purchase Tax on cars.

Mr. H. Lever rose—

Mr. Nabarro

No. I will give way when I have finished my statistical dissertation.

In 1950, the rate was down to 33⅓ per cent. In April, 1951, it went up to 66⅔ per cent.—a violent hiccup. That is where the Tories took over.

Under a Tory Administration, the rate has drifted down.

Mr. Lever rose—

Mr. Nabarro

When I have finished this I will give way—hot pants.

In 1953, the Tory Administration reduced the rate from 66⅔ per cent. to 50 per cent. In 1955, in that dismal, October, autumn Budget, the rate was increased to 60 per cent. In 1959, before the last General Election, the rate was again reduced to 50 per cent. In July, 1961, when the regulator was applied, the rate went up to 55 per cent. In April, 1962, it came down to 45 per cent., and now at long last it is down to a standard 25 per cent.

The point that I want to make to my right hon. Friend is that there have been eight Purchase Tax changes in 12 years. This kind of fiscal dyspepsia is disastrous to the organisation of large-scale production in this country.

Mr. Lever

Hear, hear.

Mr. Nabarro

Now that we have the rate down to a standard 25 per cent., for goodness sake leave it at 25 per cent., along with the rate on all other comparable goods, including motor cycles, which should be taxed at the same rate as motor cars.

Mr. Lever

I wish to ask the hon. Gentleman one brief question. In the course of these fiscal hiccups in motor car Purchase Tax under a Labour Government, which pleased me no more than the violent continuation of them under the Conservative Government, was there ever an occasion when, as a result, the industry was forced to work to only 60 per cent. capacity, as it is at present?

Mr. Nabarro

Many economic factors bear on an argument of this kind. I do not wish to go over what my right hon. Friend said on 5th November, but I very much applaud what he said at the foot of column 628. His words were exceptionally well chosen and, in my fiscal philosophy, impeccable. I quote them: The motor car industry is a fundamental part of our whole engineering complex. Apart from the direct employment offered by the great motor car companies, the activities of their many suppliers from sheet steel from Llanwern to the smallest electrical components "— he might have added there on my behalf, "including floor covering"— have a marked effect on the whole level of business activity in this country. It is, moreover, an industry with a fine export record." —[OFFICIAL REPORT 5th November, 1962; Vol. 666, c. 628–9.] There is the justification for this Order.

The right hon. Member for Battersea, North, because it is a figure favourable to the Tory Government, omitted from his speech the figure I am about to give. It should be engraved on his heart. During the last period of 12 months for which figures have been published, £660 million was the export performance of the British vehicles industry. This represents 18¼ per cent. of the whole of visible exports from the United Kingdom. Any single industry which can contribute such a vast sum to Britain's well-being should not be the subject of onerous and discriminatory indirect taxation. That is the justification for this Order.

I finish by reminding my right hon. Friend—[Interruption.] I have asked 400 Parliamentary Questions on Purchase Tax. I am entitled to talk about the modest success that I have had tonight. It has taken a long time to achieve it.

Mr. Cyril Bence (Dunbartonshire, East)

And to talk about the hon. Gentleman's modesty.

Mr. Nabarro

Yes, of course. My right hon. Friend the Chancellor of the Exchequer, in reply to a Question by me on Purchase Tax on 20th November, said: I shall be reviewing the whole Purchase Tax situation in … my forthcoming Budget." —[OFFICIAL REPORT, 20th November, 1962; Vol. 667, c. 986.] I want a standard rate, a flat rate, a non-discriminatory rate applied to all articles currently subject to Purchase Tax. I should be out of order if I went over them. I am glad to see you nodding assent, Mr. Deputy-Speaker. I have no intention of going over them, but the right hon. Member for Battersea, North made the point, in passing, that the top rates were coming down and the bottom rates were going up. That is exactly the motion of compression that I seek in order to achieve a standard rate of 16⅔ per cent., or 2d in the 1s., which should be the Chancellor of the Exchequer's goal in his 1963 Budget.

8.16 p.m.

Mr. Cyril Bence (Dunbartonshire, East)

Once again, we have enjoyed the very modest—more modest than usual—dissertation of the hon. Member for Kidderminster (Mr. Nabarro) on the situation of the motor car industry in relation to Purchase Tax since 1945. However, I was shocked that, having praised the Chancellor of the Exchequer for his perspicacity and having expressed faith in his ability to handle the finances of this country, he should have suggested that his right hon. Friend had not noticed what has been going on in the last twelve years.

I should not have much faith in any of my right hon. Friends if I thought that for the past twelve years he had not noticed what had been going on. But we on this side—I am sure that I speak for many of my hon. Friends—take the view that the Chancellor of the Exchequer knows very well what has been going on during that period.

I have always thought the imposition of Purchase Tax on the motor car a mistake. The world motor car industry is highly competitive, and our competitors are very competent manufacturers of the internal combustion engine. Our capacity to compete with them, especially at the end of the war, has been very difficult. I have been in the motor industry for the best part of my life, on the manufacturing side. The people of this country do not realise the very difficult situation that we were in in 1945. The hon. Member for Kidderminster, who used to live in Birmingham, knows that the motor industry in 1945 and 1946 was in a very difficult situation, and that the cutting back of home consumption was absolutely essential.

We were then besieged by demands for motor cars. I remember Captain Black getting 1,000 toolmakers together in one of the subsidiaries of the British Motor Corporation and saying that if we could get out a particular model by 1947 he would see that each of us got one of those models at cost price. By the time that we had tooled that model, and got it on to the markets of the world, the Purchase Tax had been pushed up so fair that those of us who put OUT names down for a oar, even if we could have had one, could not have afforded it.

The world market was there for the British motor car at that time, and one of our great problems was that the British steel industry found it very difficult to give us the sheet steel that we wanted for passenger cars.

Mr. E. Fernyhough (Jarrow)

We had to import it.

Mr. Bence

Yes. The steel industry was not equipped to provide the motor industry, which had developed a good deal in the war, to give us in quantities the quality of steel that we needed. In view of the high Purchase Tax at that time, there was some justification for it keeping the motor car in vast quantities off the British market.

I agree that the situation could not have persisted for very long. Once the sellers' market began to disappear, which it was bound to do as the war receded, the motor car industry would have to have some of these shackles removed if it was to compete successfully with the French, German and American motor car industries, particularly the French.

The hon. Member for Kidderminster said that this reduction in Purchase Tax is a move towards Britain entering the Common Market. Purchase Tax or no, the Common Market countries have taxes on their cars. If we send cars to that market, I believe that the British motor car manufacturer can compete successfully with any manufacturer on the Continent. They have taxes on their home market. Taxes are levied on the cars that we send over there and taxes are levied on the cars that they send over here. Today, some of our cars are successfully competing in the markets of Europe and some of Europe's cars are successfully competing over here.

Many other factors are involved in exporting our cars successfully to the Continent. I do not want to get out of order, but I sometimes wonder, when the hon. Member for Kidderminster talks about reduction of Purchase Tax helping us to export more cars to Europe, whether he realises that one of the biggest obstacles is the inability of British manufacturers to get garage agents in Europe. They are tied up with Renault, Simca and Mercedes Benz. It is often difficult to get agents in cities in France and Germany. Limitations are placed on their capacity to accept agencies, not only for British cars, but for other French or German cars. The same kind of thing happens here. A man takes up an agency for Ford and is not able to take an agency for another car. Those are some of the difficulties about exporting cars to Europe.

I do not think that the reduction of Purchase Tax will give a quick stimulus to the manufacture of cars. I think that it will take two years to put an extra kick into the demand on the home market. My car had a scheduled trade-in value and I knew the schedule. I knew that I could buy a new car and trade in the old car for that figure. I went to a garage, but found that the trade-in value of my car has now dropped £110. I have had my car for three years. It is part of my purchasing power on a new car, so my purchasing power has been reduced by £110. I admit that the price of the new car has been reduced by £93. I have, in fact, lost purchasing power which I had three months ago to buy a new car.

Mr. R. Gresham Cooke (Twickenham)

Prices always fall in November compared with August.

Mr. Bence

I am quoting a particular case, although I know that it is dangerous to base a general proposition on a particular case.

As a result of the cut in Purchase Tax, my purchasing power for a new car has been reduced by £110 to buy a car which has fallen in price by £93, or some such figure.

The hon. Member for Twickenham (Mr. Gresham Cooke) quite rightly says that this is in the autumn and that prices in the second-hand car market will rise in April or March. I know that the second-hand car market is an important factor in the motor industry. Long before the war we used to say that if second-hand prices were rising we would be busy in the factories, and if they were falling we would be slack. That was because a second-hand car represents part of the purchasing power of a member of the motoring public. I suggested to the garage owner that I should wait until the spring, when prices would rise, but he said, "No, they will not. They are more likely to fall." It is very doubtful whether a cut in Purchase Tax does stimulate the motor car industry.

I believe that it is desirable to cut the tax because I think that we should gradually eliminate it. I do not like indirect taxes at all. I prefer direct taxes. They can be borne better and more justly by the community than can Purchase Tax. The hon. Member for Kidderminster, who has put down 400 Questions with a view to getting a reduction of Purchase Tax, disagrees. He thinks that indirect taxes are a good thing, if they are based on his figures. I hope that we shall not get another 400 Questions from him with a view to reducing the tax further. I do not see why 25 per cent. should be regarded as sacrosanct. Why should it not be 15 per cent.? Is this a scientifically worked out figure? Has the hon. Member for Kidderminster worked out in his statistical dissertation that 25 per cent. is the right figure?

Mr. Nabarro

I did not work it out in the course of my statistical dissertation, for the very good House of Commons reason that it would have been grossly out of order to do so, but currently a series of articles is appearing in up to two dozen newspapers, giving my detailed plans for the reform of most of our indirect taxation. If the hon. Member will remind me, I shall arrange for him to have a copy, for example, of the Nottingham Guardian and Journal of 30th November, which will be left for him on the rack. Then I shall be very much in order in giving him the particulars.

Mr. Bence

I shall be very pleased to read them, but I cannot discuss that now because it would be out of order, as we are discussing Purchase Tax on motor cars. I do not see why 25 per cent. should be regarded as the right figure. I was surprised that the hon. Member complimented' the Chancellor on reducing Purchase Tax to that figure.

A problem has been arising since 1947 with the increased accessibility of motor cars. The fellow who used a motor bike now buys a car and the fellow who used a bicycle buys a motor cycle. When we bring the sales of motor cars into the widening income scale, we diminish the sale of other means of transport, such as the pedal cycle and the motor cycle. The more that motor cars become accessible, the fewer motor cycles will be sold.

That is well illustrated in France. One sees very few motor cycles in France because the motor car is cheap there. Models such as the Renault are becoming accessible to more and more people so that the motor cycle is very seldom seen. In this country the motor cycle industry may go through a very difficult time, especially when our friends across the seas use ways and means of frustrating our export to their countries where we have been successful in selling pedal cycles.

I welcome the cut in Purchase Tax, and I hope that we are moving away from the time when we could use fiscalc instruments only as a regulator. We are moving from the old traditional idea that we must have an annual Budget about 6th April and do things on the day which stand for the whole year come hell or high water, if that is in order. I have never liked that idea. I suppose that it is a nineteenth century tradition in line with hunting, harvesting and sowing. It is the spring of the year, so we sow taxes and reap them later; then start sowing again the following April. It is a good idea to get away from the traditional annual ritual which we call the Budget and, instead, to use this sort of means throughout the year as the economy moves and we see the needs of the country and of the people.

I welcome the Chancellor's cut in the Purchase Tax on motor cars, although —let us be fair—it does not help us in Scotland one bit. The motor industry which has gone into production at Bathgate is engaged on commercial vehicles, on which there is no Purchase Tax. Therefore, the production of commercial vehicles from Bathgate is in no way stimulated by the relief of Purchase Tax.

Mr. Gresham Cooke

It will stimulate the Rootes factory at Paisley.

Mr. Bence

Yes, there will be stimulation to Rootes from the person who comes into the market for a new car for the first time. With the person who already has a car and has to trade it in with his dealer, however, the stimulation is not so great. Indeed, I believe that it will be a minus quantity because of the fall in values in the second-hand car market.

If the Chancellor is thinking in terms of stimulating the economy and increasing the employment of our people, there are fiscal measures that he could adopt—perhaps not on these lines—to help the traditional industries of, say, Scotland and the North-East Coast, where the situation is bad and will not be helped in any way by the Order. None of our industries will be stimulated. I do not think that there are any strip mills on the North-East Coast. We have one in Scotland at Ravenscraig, but its production is small.

Mr. Nabarro

All this is out of order.

Mr. Bence

It is not out of order, because that is the purpose of the cut in the Purchase Tax. I doubt whether we will see any effect from it in less than two years. I hope, therefore, that the Order will be accepted and that we have this cut in Purchase Tax and that, having helped the industries of the Midlands, the Chancellor will follow this up with early fiscal measures to help our sorely-tried heavy industries of the North-East and Scotland.

8.32 p.m.

Mr. R. Gresham Cooke (Twickenham)

I am sorry to hear the sad saga about the second-hand price of the car belong-Mg to the hon. Member for Dumbartonshire, East (Mr. Bence).

Mr. Bence

It is very unfortunate.

Mr. Gresham Cooke

The great fallacy in the hon. Member's argument was in comparing the price of the car which he might have got in August with the price today, in the fogs of November or December. The hon. Member should have compared the price which he might have had on 5th November, when Purchase Tax was reduced, and then seen the difference between the prices at 5th November and today. He would find that the fall in the price of his secondhand car had not been as great as the fall in the Purchase Tax on the new car that he would have bought.

I strongley advise the hon. Member, however, not to defer his order for a new car and to take delivery until the spring, because he will not get delivery then. There will be waiting lists of three months covering March, April and May. That is my advice to the hon. Member.

I have seen it suggested that the Order should not have been introduced because, it is argued, it will not help the country as a whole but will help only the southern part. There is grave misconception throughout the country that the motor industry resides solely in Birmingham, Coventry, Luton, Dagenham and Oxford. The truth is very different. Five great new plants are being erected. Three of them—Vauxhall, Standard-Triumph and Ford—are on Merseyside and between them will employ about 17,000 people. Then there is the Rootes plant, a company with which I am associated, where £23 million is being spent, at Paisley, to produce small cars at the rate of 3,000 a week from March and April onwards.

Mr. Bence

I hope that the hon. Member will make it clear that although we have the motor plant at Paisley, this plant and the plant of B.M.C. and those on Merseyside will be assembling motor car components the majority of which are manufactured in the Midlands.

Mr. Gresham Cooke

I am not saying where they are manufactured. What I am saying is that there are five great new plants scattered over the north of England and Scotland to employ tens of thousands of people and that, therefore, the benefit of tonight's Order will spread among those plants. In addition, there is the Pressed Steel plant at Linwood alongside the Rootes plant there, near Paisley.

The benefit will spread through the steel industry, through Sheffield, Lancashire, South Wales, Cheshire, Flint and elsewhere. The benefit will spread through a large number of towns in, for example, the production of gears at Huddersfield, batteries at Manchester, brake linings at Chapel-en-le-Frith, forgings at Lincoln, springs at Leeds, components at Warrington, and so on.

Mr. Nabarro

And carpets at Kidderminster.

Mr. Gresham Cooke

For the sake of the record, I have a list of 15 other towns which are very much interested in the Order and which are worth putting on record, particularly for those hon. Members in whose constituencies they fall: exhaust pipes at Halifax, carpets at Heckmondwike, brake linings at Wallasey, anti-freeze at Keighley, overdrives at Sheffield, castings at Derby, upholstery at Rossendale and Glasgow, leather cloth in Lancashire, plastics at Blackpool, shock absorbers at Beverley and Ossett, in Yorkshire, timing chains at Manchester, belting at Manchester, safety glass at Team Valley, gaskets at Gateshead and tyres in Renfrewshire and Edinburgh. That does not include plants in South Wales—for example, the new Rover factory at Cardiff, Ferodo at Caernarvon, Girling at Cwmbran, and Rubery Owen at Wrexham.

That disposes of the argument that this Purchase Tax Order is, as the right hon. Member for Battersea, North (Mr. Jay) has hinted, a geographical one to help only the most prosperous part of England. In my view, it will help the whole nation, including Scotland, and, therefore, there is much about it to be desired.

Mr. Bence

It does not help Scotland.

8.38 p.m.

Mr. Harold Lever (Manchester, Cheetham)

The fiscal Baedeker which we have just had indicated to us shows how various motor parts are made in all sorts of places throughout the country. This has little relevance to the proportion in which the people in these various towns compares with the total for the industry. Nobody can seriously suggest that this is not a measure which is predominantly helpful to the motor industry of the Midlands. It need not be wrong for that reason, but one should not evade the issue by quoting exhaust pipes made in Halifax or carpets made in Kidderminster.

Mr. Bence

At Heckmondwike.

Mr. Lever

I do not rise with any conviction about the Order; I am not sure whether it is good or bad.

Mr. Nabarro

Sitting on the fence again.

Mr. Bence

Sitting on the carpet.

Mr. Lever

The hon. Member for Kidderminster (Mr. Nabarro) had a good run, in which his modesty wrestled with his ebullience. It is not for me to decide which was the winner in that interesting if unequal battle. The hon. Member must understand that there are hon. Members like myself who come to the House in search of instruction, preferably from the Minister, especially when mighty matters of financial weight are being handled by the Chancellor himself, whom we are glad to see present, although I was rather sorry that the description of him offered by my right hon. Friend the Member for Battersea, North (Mr. Jay) was taken amiss. My right hon. Friend did not say that the Chancellor of the Exchequer was sly.

Mr. Nabarro

Yes, he did.

Mr. Lever

My right hon. Friend said that the Chancellor's speech gave sly reasoning. That is quite another matter. I am not qualified, nor would I desire, to pass judgment on the physiognomy of the Chancellor in the confident way in which the hon. Member for Kidderminster did. Since the right hon. Gentleman's elevation to his distinguished office, whether he has the sly look or the open and candid features that have been claimed for him by his on. Friend, he certainly has a slight tendency to look like his future monument in the Lobby rather than the living embodiment of physical orthodoxy in charge of our financial destiny.

Mr. Jay

Would my hon. Friend agree that it is less uncomplimentary to accuse the Chancellor of the Exchequer of being sly than it is to accuse him of dyspepsia, as did the hon. Member for Kidderminster (Mr. Nabarro)?

Mr. Nabarro

If the hon. Member for Manchester, Cheetham (Mr. H. Lever) will permit me, I said that the record of Purchase Tax changes was one of fiscal dyspepsia. I did not say that my right hon. Friend was physically suffering from dyspepsia. There is a difference between "fiscal" and "physical", but the night hon. Gentleman has failed to perceive it.

Mr. Jay

On a point of order. Is it not more uncomplimentary and more unparliamentary to accuse a Chancellor of moral dyspepsia than of physical dyspepsia?

Mr. Deputy-Speaker

That is not a point of order. I think we had better get on with motor cars.

Mr. Lever

At all events, the hon. Member far Kidderminster, unlike the hon. Member for Twickenham (Mr. Gresham Cooke), mingled his encomiums for the relief being granted by the Chancellor of the Exchequer with at least some recognition that the relief was from his predecessor's—that is, the same Government's—misdeeds. The hon. Member for Kidderminster was not guilty of that vast enthusiasm for the man who applies the bandage without at least giving some recognition to the fact that it was the same hand which had inflicted the wound. It is ridiculous to hear these hallelujahs in praise of the Chancellor for stimulating a sorely tried industry when it is the same Conservative Government who were responsible for the economic and fiscal policies which left the industry in its present parlous condition.

In the course of this statistical dissertation it has been said that the Chancellor as an occupational disease tends to suffer from physical dyspepsia, that his digestion is affected, and we are expected to be less alarmed by it on the ground that it is an inevitable occupational hazard for anyone in his office, because it is said that Labour Chancellors of the Exchequer produced, if I may use this unparliamentary phrase, the same financial burps in relation to the motor trade.

I want to point out—the hon. Member for Kidderminster did not challenge this—that, whatever the Labour Government did as to Purchase Tax and the motor industry, one thing is clear. They never dealt the industry the kind of blows which this Government have been dealing it and which have forced the industry to work to 60 per cent. capacity. It was under the Labour Government that the splendid record, rightly praised by the hon. Member, was built up for exporting. When my right hon. Friend was at the Treasury I remember how the man from Whitehall was much despised by Tory Members. It was said that there could not possibly be a virile export trade in motor cars or anything else except on the basis of a thriving home trade, and every effort was made to discourage the Labour Government's pressure to encourage exports.

Mr. Gresham Cooke

The hon. Gentleman surely will remember that in those days there was very strict control of steel supply, with the result that many factories were working at 50 per cent. capacity in the late 1940s.

Mr. Lever

I gather that the hon. Gentleman is saying that the strict control of steel resulted in manufacturers working to 40 per cent. or 50 per cent. capacity.

Mr. Gresham Cooke

In 1947 or 1948 motor manufacturers were producing nothing like what they might have produced with the plant available, owing to the strict control of the supply of steel.

Mr. Deputy Speaker

We are getting a long way away from the Prayer. I understand the hon. Gentleman's argument so far as it has gone, but we cannot now discuss the control of steel in the 1940s.

Mr. Lever

The hon. Member's argument, apart from it being out of order, would be interesting and cogent if it had the slightest relationship with the actual facts. Apart from that, it is a very strong argument. Neither the steel industry nor the motor industry worked to such marked under-capacity at any time in all the tribulations of the Labour Government as they do under the dispensation of the present Government. One of the reasons is what has been called the dyspepsia, which I should have thought could have been more aptly described as epilepsy, in what is considered to be the economic and financial planning of the Government. It is not a joke. I have every sympathy with motor manufacturers and industrialists, because they have to cope with these ups and downs of Purchase Tax.

I was very intrigued by the argument of my hon. Friend the Member for Dunbartonshire, East (Mr. Bence). He suggested that the immediate effect for a couple of years of reducing Purchase Tax would be to increase the price of motor cars for those who want to buy. It is obvious from this argument that, if the Chancellor of the Exchequer wanted to stimulate purchases, he should have increased Purchase Tax, presumably to a very high level Intriguing as the argument of my hon. Friend was, he will find that it has a modest modicum of reality. He is confused in supposing that even in the short term the reduction in Purchase Tax is a deterrent to buying cars.

Mr. Bence

Not in the long term.

Mr. Lever

Even in the very short term, apart from the dislocatory effect of these ups and downs on all the traders and manufacturers, no doubt the Chancellor of the Exchequer will have the satisfaction of seeing some increase in the consumption or user of motor cars.

My question is this. We are told that there is an unused capacity of 1 million cars, or that there will be a surplus capacity of 1 million vehicles for next year if we go on as we are. There are two ways of tackling this problem. One is to come to the conclusion that we ought to encourage the use of another million motor cars, for which we certainly have not the roads or other safety margins. The other is to take the view that perhaps the motor car industry has over-extended itself and that we ought not to make it the sole bearer of this fiscal reduction and increased consumption. I do not know whether this is so. I should like the Chancellor to tell us why he asks us to agree to this Order.

My right hon. Friend was rather precipitate and impetuous in promising that we would not divide against the Order. He was speaking for the Front Bench and not necessarily for the great number of his enthusiastic colleagues here who want an explanation before we allow this to pass. I hope that the Chancellor will tell us that he is satisfied that we should use up this extra capacity of 1 million cars. Perhaps it is a bad thing to do. It is very right and proper that the motor industry should be proud of its fabulous export record, but we for our part ought to have a little anxiety on this score.

Is it wise and reliable that we should have such a high percentage of our exports deriving from motor cars in the world we see ahead of us, in which other countries are also expanding their motor industries? Is it wise to allocate skilled labour to that industry, or should we be working on a wider and more sophisticated front? I say this in no party political spirit, but what was justified by the immediate exigencies after the war under a Labour Government may not be wise long-term policy now—

Mr. Bence

The organisation of the motor car industry is such that within the ambit of its production and assembly there is a wide variety of consumer durables, apart from the motor cars.

Mr. Lever

I dare say that is so, but we should at least consider whether that industry can be expected to bear as much of the export load in the years ahead as it has successfully borne in past years. I am not sure, and I want some information from the Chancellor, who is good enough to be present now to help us to understand the Order, as to whether we are not being rather naïve in dropping the Purchase Tax so sharply.

I should like to see a stable level of Purchase Tax—I much deplore the ups and downs that have made long-term planning impossible—but I am not sure what the stable rate should be. Perhaps it should be 100 per cent., or it may be that the present 45 per cent. is right. I am open to be convinced. The Chancellor is fortunate in that he has me at one of my most open-minded moments, and I am ready to be persuaded that the high rate is wrong, that 45 per cent. is right, that the level of production is the right one for us to aim at, and that we should be steering our skilled labour, not back into the motor car industry, but into more permanently hopeful industries. That is not to say that the motor car industry should not know its future, and the level at which it is expected to operate.

I am always puzzled by the economic experts who constantly hold forth to the House—and both sides of the House are very liberally endowed with those economists, professional and amateur, who offer their advice. Unfortunately, most of the advice is contradictory. We used to be told that we should have high Purchase Tax on the motor car and on similar goods because, without a soft home market, the manufacturers were encouraged to find markets abroad. On that basis, and at different times—though not immediately before General Elections—innumerable firms have been wrecked by Conservative Government's stop-go policy.

Another person will say that we cannot have high Purchase Tax on motor cars and similar things, because we then get a thinner home market, and do not get such long runs as we do when the tax is lower. We are told that the home market gives the enormous runs that make production cheaper, and that the goods can be exported because they are competitive. That, of course, is in direct opposition to the argument in favour of the high tax. Both of these theories seem to have had their play in the last 10 years, with not very notable advantages to the industry.

We are also told that when we take off Purchase Tax we increase consumer power, so that the home market eagerly buys cars, and the industry has the eagerly awaited long run which will make it competitive in world markets. We have hardly finished applauding the Ministers and economists concerned before we are told that the country is on the verge of a balance-of-payments crisis, that we have to draw in our horns, that inflation is rampant, that the £ is going down, and that nobody has confidence in us nor have we confidence in ourselves. It is all very bewildering to the simple man who wants to vote on such great issues.

Another problem faces me, as an open-minded Member. The hon. Member for Kidderminster says, and it has also been said in the newspapers, that this cut in Purchase Tax was, as it were, a Common Market cut. I happen to be in favour of us going into the Common Market, on terms that I consider to be suitable, and in the interests of the country—but only on those terms. Naturally, I do not wish us to go in on any worse terms than we can get. But one of the complaints of my less enthusiastic hon. Friends, and not an unjust one, is that the Government, as they put it—though they may be exaggerating—are hell-bent to go into the Common Market on any terms. I am afraid that the argument of the hon. Member for Kidderminster, unless disavowed by the Chancellor, supports the theory that the Government have made up their mind to go in irrespective of the terms.

If that is true, if the Government are already shaping their fiscal legislation on the basis of going into the Common Market, it is quite clear that, even if they do not negotiate an improvement in terms, we shall go in. That, surely, must be deplorable, especially as, if the hon. Member for Kidderminster can see the point, presumably the negotiators in Brussels can see the point, and can say, "This new Chancellor is even doing a sort of autumn Budget, on the assumption that Britain is going into the Common Market. He is structuring the financial and fiscal policies of the Government in advance of the terms being agreed, so it is a certainty that even if we are tough and do not make reasonable concessions, he cannot draw back."

That was intended as a compliment, but it is a very serious charge against the Government if this cut in the Purchase Tax can be said to have been made in anticipation of going into the Common Market. I, as an enthusiast for going into the Common Market, would say that the time to start drafting fiscal policies on the basis of being in the Common Market is after we have agreed the terms and they have been proved to be satisfactory and they have been approved by the House of Commons. It is disastrous if we are to announce to the world that we have already made up our minds to go into the Common Market irrespective of the terms which we get.

Mr. Jay

Does not my hon. Friend recall that the previous Chancellor of the Exchequer, when making Purchase Tax cuts in last spring's Budget, used this argument explicitly?

Mr. Lever

It is a most unfortunate argument and it ought to be disavowed.

Having trespassed overlong on the indulgence of the House, I will sum up my argument. I disapprove of these violent jerks which masquerade as economic planning and I sympathise most sincerely with the industrialists who have to cope with them, for they, more than any other single factor, are responsible for the growth rate in this country being smaller than that of many European countries. Oddly enough, I believe that we are in a period where a slightly more laissez-faire and humble attitude by the Government, combined with serious general planning, would be more favourable to growth than the governessy and excessively interfering and jerky method of handling matters which has been undertaken by the Government.

Looking back on it, with all these different new economic and financial weapons which the Government have got into their hands, it has struck me that oven the last few years that successive Chancellors of the Exchequer have lacked more and more like a rather tipsy organist coming for the first time to the amazing Würlitzer organ and wanting to experiment with the different keys and stops and notes which can be produced from them. They have not been able to keep their hands off Profits Tax and Purchase Tax and Surtax and any other tax.

I regret having to find myself in direct disagreement with one of my hon. Friends who applauded the principle that it is splendid that we should have abandoned the nation of altering these taxes once a year. Again on a spurious argument, the Government claim the right to tinker with all these economic controls at regular intervals. Why is it that every half year—

Mr. Deputy-Speaker

Order. The hon. Member is beginning to go a bit far from the Order.

Mr. Lever

I do not want to challenge your Ruling, Mr. Deputy-Speaker, but I have not been speaking except with great relevance to the point. Let me put it this way. The Government are asking us in the middle of the year to reduce the Purchase Tax on motor cars. One can object to that reduction because one thinks that it ought not to be reduced, or because one thinks that it should not be reduced in the middle of the year. I have dealt with whether it should be reduced and I should now like to deal with whether it should be reduced in the middle of the year. I am not arguing in any frivolous spirit. This is a serious matter.

Mr. Deputy-Speaker

As long as the hon. Member will restrict his argument to motor cars, he will be in order.

Mr. Lever

With respect, the rules of the House have never been such as to take restriction to the point where one cannot make passing references so as to link motor cars, in this case, to the general argument. That is so that one does not argue in a vacuum. I do not want to mix my metaphors and I have never seen a motor car in a vacuum.

I am merely saying that we ought not to tinker about with the Purchase Tax on motor cars in the middle of the year. I do not want to be fractious, but I think that it is within my competence to say that the Purchase Tax on motor cars ought not to be altered in the middle of the year, because if the Purchase Tax on motor cars is altered, the Purchase Tax on other things should be altered, and that becomes part of the system of interference with these taxes at bi-annual intervals. I go from there in all seriousness to say that, having gone from annual to bi-annual intervention with these taxes, we will proceed to monthly intervention before we finish.

In theory, it would be a splendid thing every other week to have the Chancellor coming to the House at his most monumental to announce that, after a scientific and electronic detailed survey of the economy, he had decided to add 2d. on there and to take 6d. off here, to expand on the left and to contract on the right, to expand in Birmingham and to shrink in Manchester. and so on throughout the country

I do not approve of this sort of transaction as evidenced here tonight. It is bad enough that we have the Government's ineptitude inflicted annually on the sorely tried industrialist. To have it inflicted by-annually and perhaps even quarterly, will put industrialists into an even more chaotic situation than they have been in the past. This argument that we should welcome annual interventions by the Chancellor in our economic affairs is put forward with a certain specious plausibility.

The core of this policy is the belief which most Chancellors have in their own infallibility. If I could believe in it, I would welcome the frequent interventions of the Chancellor of the Exchequer, but in my experience of many Budgets, autumn and otherwise, the capacity of the Treasury and the Chancellor to assess with any degree of accuracy the economic situation, or the effect of their fiscal measures on it, has been so slight that it does not warrant more than a modest approach, more than an annual intervention by the Chancellor in matters of this kind.

There are other matters which I think could be dealt with at more frequent intervals, such as the Bank Rate, but I do not want to stray out of order or to appear to be discountenancing frequent attention to the economic regulators by the Chancellor of the Exchequer, but this sort of regulator, when frequently taken on and off, has the effect not of producing the results wanted by the Treasury, but of dislocating, unnerving, and upsetting the calculations of industry.

Mr. Bence

Is my hon. Friend suggesting that the Bank Rate burp is not so injurious as the Purchase Tax burp?

Mr. Deputy-Speaker

Order.

Mr. Lever

I would welcome the opportunity of giving the House my views about Bank Rate changes. They are more frequent than good sense warrants, but there is justice in wanting to change those more than annually. There is no good sense in seeking to change Purchase Tax every half-year, or every three months, or as often as the Chancellor thinks it will have beneficial results.

I promised to sum up, and now I must do so. First, I object to the sharpness of the drop. Secondly, I object to the way in which it has been done in the middle of the year without adequate discussion and without adequate Parliamentary attention and control over it. Thirdly, I object to the fact that no comprehensive case has been made for it, and, so far as we have been given a case, it relates to the Common Market, and that argument I have dealt with and disproved. Finally, I hope that the Chancellor will enlighten us as to his purpose, and, within the rules of order, show how this is related to his general economic and financial policies.

Although we do not see eye to eye on political, fiscal, or economic measures, I am sure that everyone on this side of the House, wishes him well and hopes that he is successful in his office, and I hope that we shall hear some outline of how this is related to the general policies he is undertaking at the present time.

9.3 p.m.

Mr. E. Fernyhough (Jarrow)

I think that we all appreciate the motives which compelled the Chancellor to reduce the Purchase Tax on motor cars from 45 per cent. to 25 per cent. He was aware of the growing unemployment problem, and he assumed that a reduction of this size in the tax on motor cars would give the economy a spur and reduce substantially, in a short time, the large number of men now registering at the employment exchanges. But I very much doubt whether what the Chancellor has done will have the effect.

As the hon. Member for Kidderminster (Mr. Nabarro) made clear, 36 per cent. of the capacity of the industry is already under-used.

Mr. Nabarro

I did not say that. I very deliberately said that when all the motor car factories at present in course of construction are completed, and assuming that they are completed in 1963, compared with the rate of output far motor vehicles in 1962 there would be an unused capacity of 1 million vehicles.

Mr. Jay

indicated assent.

Mr. Nabarro

I am glad to see the right hon. Gentleman assenting. That is what I said, and it is a very different matter.

Mr. Fernyhough

If there is no unused capacity now—

Mr. Nabarro

There is some.

Mr. Fernyhough

Perhaps the hon. Member will tell us what it is. If it is not 36 per cent., how much is it?

Mr. Nabarro

The unused capacity in the motor car industry today is about 17 per cent. When all the construction at present in hand is completed next year, if the current rate of output does not rise the unused capacity by the end of 1963 will have risen from 17 per cent. to 36 per cent. That is a very different matter.

Mr. Fernyhough

It will not mean a greatly increased level of employment in the motor car industry, or in the ancillary industries. I do not believe that Chapel-en-le-Frith, which makes brake linings, will engage many more people simply because Purchase Tax on motor cars has been reduced and, presumably, the 17 per cent. unused capacity will be brought into use.

In very few of these supplying factories will there be a greatly increased use of labour. If there is any increase, it is likely to be in the very areas where the Chancellor says that it is undesirable at present. All the activities of the Chancellor and the Government are directed towards taking employment to the North-East, Scotland, Wales and Northern Ireland, and not encouraging any further employment in what is called the coffin area, but this reduction in Purchase Tax, will increase the demand for labour in those very areas where there is now relatively full employment, while making little or no contribution to the substantial unemployment problem which exists in those areas which I have mentioned.

I am delighted when Purchase Tax is reduced, if it means that goods become cheaper for people to buy. But if the Purchase Tax on motor cars is reduced from 45 per cent. to 25 per cent., it means that we must sell 80 per cent. more cars in order to bring in the same amount of revenue. If we do not do that, assuming that the Chancellor insists on obtaining the revenue he has budgeted for we must ask where he is going to place the burden of additional taxation to make up for what he is losing by this reduction.

I am not opposed to this reduction, provided that he does not place the burden upon a section of the community that can ill afford to bear it, but I am opposed to his collecting £50 million from children's sweets and passing on a reduction in Purchase Tax on motor cars.

Like other hon. Members who have spoken, I represent an area which has a growing unemployment problem. The unemployed are not excused from paying Purchase Tax. If they have to renew some of their household equipment or items of clothing, the unemployed are not excused Purchase Tax. At a time when unemployment is rising and when hundreds of thousands of people are worried almost to their graves about how to make ends meet because of the miserable pittance they are allowed, any Government who had £50 million or £60 million to give in relief might have looked to the people who most badly need relieving. They might have thought how they could help those citizens who are really deserving of the Government's sympathy and understanding at present.

Mr. Bence

And the sick.

Mr. Fernyhough

Yes, and the sick and the pensioners.

None of these is excluded from Purchase Tax. They pay the same rates irrespective of the size of their incomes. I know that each week in the areas I have mentioned unemployment overtakes more and more families. Whenever the Chancellor decides to remove a burden and ease the lot of any section of the community or of industry he ought not to forget the pensioners, the sick and the unemployed, because every additional penny of relief to them is far more important than it is to many people who will benefit from the relief which the Order will give.

I believe that motor cars are now included in the cost-of-living index. If that is not so I should be glad to be corrected, but if they are included there is something radically wrong with our sense of values. Nobody pretends that the 540,000 unemployed, the 1½ million on National Assistance, and the hundreds of thousands of sick possess motor cars. This means, statistically, that it will appear as if the cost of living has gone down, whereas for these people it remains where it was before, whatever effect this has on the index.

I do not agree with the hon. Member for Kidderminster that the Order makes a difference to our export trade. The British home market now is of such a size and nature that whether it is increased or not makes relatively little difference to our export trade. Nor do I think that this will enable us to sell more cars in the Common Market countries. If a Volkswagen is imported here it pays the same Purchase Tax as our own cars. The same applies to the Fiat or the Simca, and when our motor cars enter Common Market countries they pay basically whatever taxes are paid on cars in those countries. It is a matter of what one makes on the roundabouts one loses on the swings. This applies to countries on both sides of the Channel. It does not make any difference.

The other factor is that, while it would be a good thing, if it would lead to a substantial increase in employment, that we should sell tens of thousands more motor cars, one must remember that for the 5 million or 6 million people—or whatever the present number is—who already have cars, this change gives no incentive at all. The cars which they would trade in have dropped in value roughly by the same amount as the reduction in Purchase Tax. It is only to those who would buy a new car or a further car that this will be a real incentive.

Mr. Gresham Cooke

That is just not true. The hon. Member for Dunbartonshire, East (Mr. Bence) has already told us that his car has fallen in value and, therefore, the marginal motorist, so to speak, who might not have been able to afford a car is now able to afford a cheaper second-hand car.

Mr. Fernyhough

The hon. Gentleman is quite wrong. My hon. Friend told us that he thought that he would be able to buy a new car because of the reduction in Purchase Tax, but when he was told how much the price of his own car had fallen he decided that he would not go in for a new one. The same considerations will apply to tens of thousands of ordinary people.

This change shows how the Government have no idea of how to deal with the economic problems which beset the nation today. It is only eighteen months or so since the Chancellor's predecessor brought in the regulator. The level of Purchase Tax would move up and down by 10 per cent. if there was need to give the economy a blood transfusion and the regulator would be used to bring down Purchase Tax overall, on everything, not selecting special items or industries for special treatment. The present Chancellor has overthrown that. The regulator has gone by the board. All the hours of discussion we had on it were to no purpose. The right hon. Gentleman has singled out for special treatment one industry, hoping that it would produce the necessary miracle.

I want the Chancellor to tell me what will happen if he does not get from the 25 per cent. Purchase Tax in the present year the money which he would have got from the 45 per cent. tax. On whose shoulders will the additional burden be placed? If he finds that this reduction in Purchase Tax is not the stimulus we need in the North-East, Scotland, South Wales and Belfast, what other remedies has he in mind?

If the Chancellor believes that the paltry efforts of this Government will produce work on Tyneside, in Belfast, in Scotland and in South Wales, he sadly underestimates the problems confronting him. I wish that they would I want the 540,000 who are now unemployed to be given work, but I do not believe that measures of this kind even point in the direction of providing the new jobs which are necessary.

9.20 p.m.

The Chancellor of the Exchequer (Mr. Reginald Maudling)

As your predecessor in the Chair said, Mr. Deputy-Speaker, the debate is necessarily on a fairly narrow issue and we cannot go into the wider matters of economic policy which have been hinted at in some of the speeches.

I think that my answer to the first question asked by the hon. Member for Jarrow (Mr. Fernyhough) is that, in my judgment, it is possible and desirable at this stage to reduce the overall burden of taxation, not shift it from one person to another, because there is slack in the economy. My answer to his second question is that the measures I have taken to deal with the problems in the economy as a whole go far beyond the particular action we are discussing now, and it would not be reasonable to discuss one's whole policy in a debate of this sort which relates to only one facet of it.

I think that we have had six speeches on the Order, and my count of the score is four in favour and two "Don't knows", which I think is probably a reasonable average to expect.

The first question asked by the right hon. Member for Battersea, North (Mr. Jay), and echoed by the hon. Member for Manchester, Cheetham (Mr. H. Lever), was. "Why do it now? Is it reasonable from the point of view of Parliamentary control? Why not have a Finance Bill?" In my view, the answer is clear. I think it right to do it now because it needs to be done now. I am being pressed on all sides to do even more by way of taxation. I think that the right hon. Member himself implied that it would be desirable to do more. I think that it is right to reduce this Purchase Tax now in the interests of the economic situation. It would be wrong to wait for the Budget because, if there are idle resources, we should do what we can to bring them into use as soon as possible and not be tied to what I think the late Aneurin Bevan, in a very striking phrase, referred to as the habits of a pastoral society.

I think it desirable to do it now, and I think, also that it was quite proper to use the machinery so thoughtfully provided by our predecessors to make a change of this kind by Order. Control by Parliament has its effect in our debate this evening, just as it would if what I have done were part of a Finance Bill.

Mr. Jay

The right hon. Gentleman cannot believe that. He knows that on a Finance Bill we can propose Amendments, whereas we cannot do that now.

Mr. Maudling

I think that the degree of Parliamentary feeling is evidenced by the attendance at the debate. I do not think that hon. Members, on the whole, feel that Parliamentary privilege is affected by what we are doing. The purpose, I should have thought, of the introduction of these powers some years ago was to be able to take action rapidly and effectively in situations such as that which we are in at present.

The right hon. Gentleman raised the point about the differential with other mechanically propelled vehicles like three-wheelers and motor cycles. That differential arose fortuitously in 1951 when the rate on motor cars was stepped up steeply to 66⅔ per cent. for reasons of preserving steel and the economic situation at the time. Although I recognise that the people making motor cycles and those making three-wheelers have been considerably affected by this change, I do not think that they have a claim to maintain permanently a price or tax differential over the four-wheeler that they have enjoyed fortuitously for some years.

The other point that the right hon. Gentleman made was that the reasons which I gave in my speech on 5th November for this change were not my real reasons. If he does not believe me when I say something, it is not much good my saying it. I meant what I said at the time, and I still mean it.

My hon. Friend the Member for Kidderminster (Mr. Nabarro) in a helpful speech—I see that he has moved slightly to the left, but I do not think that that has any political significance—

Mr. Nabarro

No. When my right hon. Friend tells me that I have made a helpful speech, I elevate myself on to the P.P.S's bench at once.

Mr. Maudling

What will happen when my hon. Friend makes two helpful speeches I shudder to think.

I particularly want to deal with my hon. Friend's point that this is a Common Market measure, because it was taken up by several hon. Members opposite. In my view, this measure is desirable whether or not we enter the Common Market. If we enter the Common Market, I think it is clear that there will be great difficulty in having rates of Purchase Tax on motor cars radically different from the rates ruling in other parts of the Common Market. If we do not enter the Common Market, it will be all the more important to give our industries every possible encouragement in the very severe competitive battle in export markets which will emerge. I regard this change as desirable whether or not we enter the Common Market, and I hope that the hon. Member far Manchester, Cheetham will be satisfied with that answer.

The hon. Member for Dunbartonshire, East (Mr. Bence), who is in favour, I gather, of eliminating all indirect taxation, welcomes this example thereof. I disagree with him in his suggestion that the reduction in Purchase Tax will not provide a stimulus to the purchase of more motor cars for a long time—for two years, I think he said. I find this hard to believe. I share the view of one of his hon. Friends who said that, if that is true, I might have increased the tax rather than reduced it. The price of second-hand cars has fallen substantially. That must mean a much larger ownership of second-hand cars because they are cheaper, and total car ownership will increase. It will take some time to work itself out. There will be a bigger demand for second-hand cars at lower prices. To reduce the price must mean that there will be an increase in the consumption of the article.

Mr. Bence

I said that there would be a time-lag of about 18 months because of this. I said that before the war we used to say that there was about eight months' time lag if the second-hand market dropped 10 per cent.

Mr. Maudling

I do not agree with the hon. Gentleman. I think that he is over-estimating the time-lag. It is difficult for us to draw any conclusions from the figures in a month or two. This is the time of the year when the market is falling. It is another reason for taking action of this kind, when the motor car industry normally runs into a slack seasonal period.

My hon. Friend the Member for Twickenham (Mr. Gresham Cooke) pointed out the very widespread nature of the motor car industry, which is one of the main reasons why I selected it for this action. The hon. Member for Cheetham made an important point about the effect on exports of different levels of taxation. Whether one says that higher taxation encourages exports by making the home market more difficult or whether the lower rate does it, one has to be practical and not doctrinaire. There are arguments on both sides. In the past, when I was at the Board of Trade, I experienced occasions when too vigorous a home market certainly diverted goods from the export market and encouraged imports. On the other hand, it is true, as the hon. Gentleman implied, that a strong home market can provide a basis for a reduction of costs and thereby provide a basis for more competitive efforts overseas.

One has to consider a particular industry at a particular time. In this industry, in which there is substantial capacity for expansion, I am satisfied that an expansion in the home market can lead to reducing costs per unit and to a more competitive position in overseas markets, and there is capacity at home to produce more. Increased home consumption will not drag in more exports nor cause the diversion of cars from the export market to the home market. I have had very firm assurances from the motor industry on this point, and, in view of its excellent record in exports markets, I am satisfied that this will be so. It will help it considerably with its exporting problems.

I do not wish to enter into the broad economic questions, but might I summarise the position briefly? The problem that I was facing at the time that I introduced this proposal was the need for a stimulus to the economy, but a stimulus of a selective kind—that was why I did not use the regulator—because consumption was rising and is rising, but investment in manufacturing industry was flagging and because the need to increase exports even more vigorously is apparent if we are to have a sustained rate of growth. I am anxious in anything I do to stimulate the economy to introduce measures which can be sustained and which make sense when there is Slack in the economy and will continue to make sense when the slack is taken up.

I want to get away from the belief to which reference has been made. It would be right to concentrate on measures which stimulate investment and assist exports. The motor industry was a special case because it is right at the hub of the whole engineering complex of this country and employs, indirectly Or directly, at least half a million people whose employment gives confidence to people throughout the country and the engineering industry and indirectly will help even the North-East.

The motor industry has made and is making an enormous contribution in Scotland, Merseyside and South Wales, but not, I regret, to the North-East. I assure the hon. Member for Jarrow that this was not for lack of trying. I should have been happy to see a big motor car firm go to the North-East, but we did not succeed in achieving this. The entry of the motor car industry into Scotland, Merseyside and South Wales has made and is making a very great difference to the people there. Anything which encourages the home motor car market will help the employment problem in those areas. I know that it is only an assembling industry but if we take the kind of capital being invested in Pressed Steel art Bathgate and Rootes at Paisley it has brought much vigour and will be of considerable help to the people of the area.

From the export point of view, this industry in its present posture can provide the larger requirement for the home market without detracting from exports, in fact making them more easy by spreading the very high level of overheads in the industry over a larger total volume. For all these reasons, I believe that this particular move was the right one made at the right time and that it will help the economy and those areas where unemployment is high.

For these reasons, I ask the House to approve the Order.

Question put and negatived.