Clause 2.—(LOWER RATES OF CUSTOMS DUTES ON E.F.T.A GOODS.) (Hansard, 15 May 1962)

§ Mr. Jay
If we may have some time to ask a question on this Clause, I want only to ask the Chancellor of the Exchequer, or the Economic Secretary, to explain what the Government are doing by the Clause. As I understand, they are merely carrying out certain reductions in duties following on the Stockholm Convention. Reductions on matches and mechanical lighters, for instance, are involved and I should like to ask the Government whether any reductions in prices of these articles will be made to redound to the benefit of the consumer. In this case, we are reducing some indirect taxes. When we raise indirect taxes, the price paid by the consumer always goes up. As we are now reducing such taxes, even by quite small amounts and on goods only from one area of the world, is there any prospect that some prices will he reduced?

§ Mr. Barber
The right hon. Member for Battersea, North (Mr. Jay) is quite right in his interpretation of the Clause. The Clause and the related Schedules, the First, Second and Fourth, introduce for the first time reduced rates of Customs duty on beer, spirits, tobacco, matches and mechanical lighters and also on composite articles containing components or ingredients of those descriptions 1258 from E.F.T.A. countries, that is to say, goods originating in and consigned from places in the European Free Trade Association.
It is impossible for me to predict the effect on prices, but I would have thought that, in general, it would be very small, if there is any effect at all on retail prices, because the total cost of the various reductions is estimated to be only £150,000. The right hon. Gentleman will appreciate that on such a wide range of goods that means that reductions in respect of any individual item would be very small, as, for example, in the case of liqueurs, where the new E.F.T.A. rate will be £15 15s. 4d. a liquid gallon, that is 1s. 8d. a liquid gallon below the full rate of duty. I picked that example at random. Another more relevant item is cigarettes. The new E.F.T.A. rate of duty for cigarettes will be £3 15s. 2½d. a pound, which is only 1s. 2d. a pound below the full rate of duty.
It may be useful for me to mention to the Committee that with revenue duties, in contrast with the normal import or protective type of duty, we had an alternative under Article 6 of the Convention. We could either have gradually reduced the protective element in the revenue duty, with successive reductions corresponding to the reductions prescribed in the original import protective duties, or opted to eliminate the protective elements in the revenue duties by 1st January, 1965. We were free to choose either of those methods and we chose the second—in other words, the 1965 option. At the same time as we chose it we told our E.F.T.A. partners that it was, nevertheless, not our intention to maintain in full the protective element on all E.F.T.A. goods until the end of 1964. Indeed, I am told by those who have consulted the trades concerned in these matters that it would not be in the interests of the United Kingdom producers to remove the whole of the protective element in our revenue duties on the items in the Clause in one fell swoop before the end of 1964.
These proposals go part of the way to meeting our obligations under the E.F.T.A. Convention. They are reasonable, are in line with our obligations and I commend the Clause to the Committee.

§ Mr. Frederick Mulley (Sheffield, Park)
I wish to probe the Government's intention a little further. The Economic Secretary said that this goes some way towards fulfilling our E.F.T.A. commitments. Does that mean we are lagging behind in our fulfilment of those obligations or that we have several stages to complete?
I was under the impression that there was some attempt afoot to try to keep pace with the tariff and other reductions and I was wondering how our commitments under E.F.T.A. or other treaties can be dealt with in the traditional way of a Finance Bill, which comes before the House each year. Is it possible for this procedure to be adopted year by year in successive Finance Bills or have the Government some other idea in mind by which to carry out our E.F.T.A. commitments?
It would be advantageous if the Economic Secretary could give not only the exact effect of the proposals but also say to what extent they meet our contractual obligations under the E.F.T.A. Treaty, what the Government have in mind for carrying out the further stages and whether or not he feels that the Finance Bill procedure is suitable for these kind of commitments?

§ Mr. Barber
I willingly do that and there may be a certain misunderstanding on the part of the hon. Member for Sheffield, Park (Mr. Mulley) which might have resulted because in my original explanation I passed over quickly one rather important aspect of the Clause. I did so because I did not think that it was the wish of the Committee that I should go into it in great detail.
The E.F.T.A. Convention provides, among other things, for the gradual reduction—indeed, the eventual elimination—of Customs duties on most industrial products if they are what I will loosely describe as E.F.T.A. goods. The Convention draws a distinction between the normal import or protective duties and revenue duties. We are, in this Bill, concerned with revenue and not with protective duties.
In general, under the E.F.T.A. Convention, import duties—that is, the protective duties—must be progressively reduced and eventually eliminated altogether 1260 vis-à-vis the E.F.T.A. countries. Successive reductions in import duties, as opposed to those with which we are concerned tonight, on industrial E.F.T.A. goods imported into the United Kingdom have already been made in accordance with the basic obligations of the E.F.T.A. Convention.
By 1st March this year the degree of reduction had already reached 40 per cent. Although the revenue duties, as distinct from the protective duties, are charged primarily for the purpose of raising revenue, they may, nevertheless, have, as it were, a built-in element and there is an obligation under the E.F.T.A. Convention to reduce and, ultimately, eliminate the protective element in any revenue duties. The duties which are the subject of the Clause and the related Schedules are the revenue duties and where they contain a protective element we are obliged to abolish it. We are going part of the way towards doing that in these provisions.

§ Mr. Jay
The Economic Secretary has explained the revenue duty, but surely, if there is a protective element in it, it applies equally to home-produced and imported goods?

§ Mr. Barber
The Customs duty is sometimes different from the Excise duty—although both are revenue duties—and the Customs duty, if it is different, may have built into it some protective element which must be removed. They do not come under Board of Trade legislation, which deals with normal import duties, and are classed as revenue duties. In fact, they sometimes have a small part which is, in effect, a protection for United Kingdom industry.

§ Mr. Jay
When the hon. Gentleman says that they have a protective element in them, he means, in effect, that the duty charged on imported goods is higher than the duty charged on home-produced goods, by whatever name he likes to call it.

§ Mr. Barber
That is so. On the other hand, I ought to explain—one can go into this in very great detail—that even if there were no protective element in the Customs duty on tobacco, for example, it might well be that the Excise rate would not be the same as the Customs rate, because those who manufacture 1261 tobacco in this country have to put up with certain restrictions which do not always apply in foreign countries. These are restrictions imposed upon them by the Board of Customs and Excise. Therefore, a small differential is made between the Customs and the Excise rates to take account of that. That is something which we maintain is not a protective element.
There being this protective element and the Clause and the related Schedules being concerned only with revenue duties, we had the option, which did not apply to the normal protective or import duties, either to reduce the protective element in successive stages, along with the reductions in the normal protective duties, or alternatively to get rid of the whole lot before the end of 1964.

§ Mr. H. Rhodes
Does this apply to the importation of double cotton yarns from Portugal, which is a member of E.F.T.A.?

§ Mr. Barber
I have not come across that item yet in the Schedules. I think I can give the hon. Gentleman the categorical assurance that it does not.

§ Mr. Ede (South Shields)
Where can we find a list of the articles on which in some cases on duty and in other cases that duty with something else built into it is payable? Are these articles set out in a Schedule to any other Act? If one sees the duty on any one article, how can we be sure that it is a single duty without any built-in element?

§ Mr. Barber
Certain figures are set out under the heading "Convention rate" in the last column of Table I of the First Schedule. These figures refer to the E.F.T.A. Convention rate. That is the new rate as fixed by the Bill. It differs from both the Commonwealth rate and the full rate. The only point which perhaps I may not have made clear to the Committee is that these reductions go some way only towards the full elimination of the protective element which has to be completed, as I said earlier, before 1st January, 1965.

§ Mr. Ede
Are the articles set out in Table I of the First Schedule the only articles to which this argument relates, or are there numerous other articles? Would it not be better for the hon. 1262 Gentleman to submit a White Paper to the House of Commons showing all the specific articles involved?

§ Mr. Barber
The right hon. Gentleman will find that the articles are all listed, in Table I of the First Schedule, in the Second Schedule or in the Fourth Schedule. The only additions, apart from those referred to in the Schedules, are matches and mechanical lighters, which are dealt with specifically in the Clause.

§ Mr. Mitchison
May I ask the hon. Gentleman one or two simple questions to show my own ignorance? First, were matches and mechanical lighters not included by the Government in Clause 1 because they are dealt with in this Clause?
My second question relates to beer. According to the Second Schedule, the Excise rate on beer is £6 3s. for duty and the Convention rate is £6 13s. 5d. by way of Customs. Am I right in concluding from what the hon. Gentleman said that in due course the £6 13s. 5d. will be reduced to £6 3s. so that Danish lager beer, for instance, will, in effect, pay the same duty as lager beer manufactured by British brewers?
Thirdly, why is the drawback for beer higher than the duty? I ask this because there appears to be somewhere an honest way of making 2d. out of the Revenue, since the drawback is 2d. higher than the duty.
My fourth question is about black beer. I have always wanted to know what black beer is. I have not yet found out, because the definition of "black beer" is only that it is black beer of an original gravity of 1,200 degrees or more". That does not tell me what black beer is. I know from previous experience of Customs nomenclature that it is unlikely to be anything so simple as Guinness. What is it? What happens to it? It eludes one in the Bill, yet black beer appears to be mentioned as one of the things concerned.

§ Mr. Barber
I think that I can answer some of the questions put by the hon. and learned Member for Kettering (Mr. Mitchison). He will find, if he tries black 1263 beer, which is often used for medicinal purposes, that it is considerably stronger than Guinness. According to the definition in the Clause which we have just passed, 'black beer' means black beer of an original gravity of 1,200 degrees or more". I am told that the original gravity of water is 1,000 degrees, a fact which rather surprised me, and that the original gravity of the average beer which the hon. and learned Member and I drink is 1,030 degrees, so he will appreciate that 1,200 degrees is something rather strong. I can only tell him that this is alleged to be a difference in degree, but I think that at times, by results, it turns out to be a difference in terms.
Matches and mechanical lighters were included in the surcharge in the regulator, as the hon. and learned Member pointed out. They are not being consolidated on this occasion, because the amounts yielded by the surcharge were quite trivial and the duty on matches was already very high. As he knows, the duty on mechanical lighters merely countervails the duty on matches. My right hon. and learned Friend thought that it was not worth while including it in the consolidation.
As to the difference in the Schedule between the Customs duty and the drawback with respect of beer, all I can tell the hon. and learned Member is that there has previously been this distinction. I am not quite sure what the reason for it is, but I shall try to find out before we come to debate the Second Schedule to the Bill.