§ I turn now to two questions of tax reform to which I referred last year.
§ First, the basis of company taxation. The Committee will recall that my predecessor, in his Budget speech of 1961, said that he intended to have the idea of a single corporation tax further examined. This examination was duly carried out, and in the following year 248 my right hon. and learned Friend said that a scheme had been framed which he had asked the Inland Revenue to discuss confidentially with outside technical experts. But, as I told the Committee last year, these discussions led to the advice from outside bodies that the schemes which had been considered for the amalgamation of Income Tax and Profits Tax on companies were not satisfactory.
§ I then announced, last year, that the Inland Revenue was examining with these outside experts the possibility of placing the taxation of company profits for income tax on an accounts basis, as is already the case for profits tax. Discussions on this matter have now been completed and most of those who have discussed the matter with the Inland Revenue are, in principle, in favour of the scheme that has been devised. But they urged that there should be more time for consideration of the details and implications of the legislation that would be required than is normally available between publication of a Finance Bill and the Committee stage debates. Moreover, the cost to the Revenue of any such change would be heavy in the initial stages.
§ I do not, therefore, propose legislation this year, but I shall publish a White Paper explaining the new scheme, accompanied with a draft of the main provisions that would be needed to bring it into effect. This course will enable fuller consideration to be given to the merits and complexities of the scheme.
§ Last year, I referred to the suggestion that we should adopt a value-added tax on the continental model as a substitute for Purchase Tax or Profits Tax. I said that while I was not myself convinced by the arguments which had been put forward in support of this suggestion, there were many people who took a different view. I therefore decided to ask Mr. Gordon Richardson to conduct an inquiry into the practical effects of such a change. Mr. Richardson was assisted by Sir Donald MacDougall and Sir Henry Benson in this task, and, as the Committee knows, their Report was published on 11th March.
§ I would like to take this opportunity to express my gratitude to Mr. Richardson and his colleagues for their comprehensive and carefully reasoned Report. 249 They have succeeded in clarifying the complex issues involved, and our thanks are certainly due to them.
§ The conclusions that emerged from their inquiries and analysis are, first, that, in the circumstances in this country, the Purchase Tax is superior, as a method of taxation, to the value-added turnover tax, and that there is no advantage either to exports or to the economy generally in switching over from Purchase Tax to a value-added tax; and, secondly, that to replace the Profits Tax by a value-added turnover tax would on balance probably be harmful to the development of the economy. These conclusions seem to me to carry conviction.
§ It is, as I have said, as a method of taxation that the Purchase Tax has advantages over the value-added tax. In reaching this conclusion we are not thereby making a judgment as to the scope of the Purchase Tax.
§ The Richardson Report also throws considerable light on a problem of taxation policy that is widely discussed, namely, the possibility of extending the field at present covered by indirect taxation by including some goods now exempt from tax, and by including services. The difficulties involved are formidable. Goods that escape the tax man's net are usually permitted to do so by this Committee for pretty good reasons.
§ Table 4, on page 32 of the Report, shows that of goods at present untaxed not less than four-fifths are food and fuel. In the field of services there are several large items such as postal services, rail transport or insurance which few people, I imagine, would regard as suitable objects for taxation.
As the Report says:
Taxation of services would present special problems owing to their diverse range and to the large number of businesses in some of the service trades".
Nevertheless, looking at the future trend of public expenditure and the pattern of consumer spending, I think that there is substance in the argument that at some time the basis of indirect taxation will have to be widened. But for the reasons I have given I do not regard it as a possibility for this year. We must continue to apply our minds to these
questions; but it would be misleading to suggest that there is any simple solution.