§ Question proposed, That the Clause stand part of the Bill.
§ Mr. Graham Page
I think that we need a little explanation of the Clause from the hon. Gentleman before we part with it. As I understand it, it follows the precedent in paragraph 3 of Schedule 8 of the Finance Act, 1940, which deals with patented articles in somewhat the same way as the Clause deals with copyright.
If I understand the position with regard to patented articles, that is that if a retailer—let us call him Mr. X—has gone to the inventor of an article, Mr. Y, and has paid him, say, £100,000 for the right to trade in the goods, but has bought the goods not from the inventor but from the manufacturer, Mr. Z, at £10,000, his Purchase Tax is paid on the value of the goods, the price which would be the right price between wholesaler and retailer. He may, therefore, find himslf charged not on the £10,000 which he paid for the goods but on the £10,000 plus the £100,000 which he paid for the licence to use them.
I am glad I am getting some nods from the other side because it would seem to indicate that I have correctly understood 1164 the patent Clause and therefore this copyright Clause. The patent Clause has lasted for twenty-five years without addition, and I think we should do well to probe and ask ourselves why copyright was not included in 1940. I have taken some trouble to look up the debates when the patent Clause was introduced, but I was surprised to find that it was not discussed during the Second Reading of the Bill in 1940, nor on Committee or Report stage. Incidentally, in those days, hon. Members appear to have been somewhat more lyrical than we are now. There were quotations from Tennyson's "May Queen" and concerning Purchase Tax on porcelain several apt quotations, such asThe old order changeth…And God fulfils Himself in many ways,Lest one good custom should corrupt the world".But there was nothing about the patent Clause, and I had to find my own way in order to understand it.
I had to refer to the present Clause, which repeats the patent law in exactly the same words, but relates it to copyright, and from my understanding of it one apparently pays Purchase Tax on the price which the goods would fetch in the open market, subject to certain assumptions. In relation to patented goods, the assumption appears to be that the retailer has not bought the right to deal in those goods and so they are free from patent restrictions. This is now to be applied to copyright as if the goods were free of copyright in the retailer's hands. He is acquiring them free and they must be valued at that.
Of course, I know the case from which this matter arises, because it is something of importance to many of my constituents. A great many of them are employed by Messrs. Littlewoods and this subject arose from the case where it was ruled that pools coupons are stationery and, therefore, could come under Group 26 and be subject to Purchase Tax. The Football League has a copyright in its list of fixtures, and Littlewoods bought a right to use that list from the Football League. The football coupons are then printed by a firm of printers, in which there will be noticed a close connection since its name is J. and C. Moore, Ltd. and the coupons are then sold to Little-woods.
The latter firm sought to pay Purchase Tax on the basis merely of the bits of 1165 paper; that is, the pools coupons, but the Inland Revenue authorities in turn sought to charge Littlewoods not only on the cost of the coupons existing as bits of paper, but also on what they had bought by way of using the copyright.
Hon. Members may have no real sympathy for the promoters of pools as against the Commissioners of Inland Revenue, but it was Lord Justice Harman, I think, who said that the Commissioners of Inland Revenue thought they could cash in on this bonanza but they failed. However much one may have no real sympathy with the pools promoters, they do provide entertainment and excitement for a very large number of people, and, incidentally, employ a great many others; and very many of those so employed are among my constituents. So I am interested in a constituency way in anything which may affect their capacity to employ.
As a result of that case, when Little-woods escaped Purchase Tax on the plea that it had paid for the use of this copyright, the Government now, I think in rather a shabby way, are trying to reverse it. I have tried to discover which groups it may affect. It will affect the stationery group that is liable to Purchase Tax—Group 26—which also includes diaries, calendars and similar articles so that any copyright in these will be charged to Purchase Tax, but I would think that perhaps the biggest group on which the Government intend to cash in on this bonanza would be gramophone records. There is the copyright element in them. In Group 25, I suppose that books, prints and photographs are included.
One wonders how much Purchase Tax is involved in this. Perhaps we might have some indication of what the Government hope to collect by this alteration in the law. Apart from the amount of money involved, is it right that goods should be loaded with the copyright element in order to collect tax on that inflated amount in the same way as patented goods are loaded with the patent element, the trade mark element and the design element?
Is there any distinction and should we draw one, as we have done for the 1166 past 25 years, between patented goods the goods with copyright in them? In the Littlewoods case, Lord Denning found a clear distinction. After explaining how patented goods paid Purchase Tax on the loaded element in the goods, he commented:Significantly enough, there is no such provision in regard to the copyright element. There is nothing to say that the price is to be loaded with the copyright element.This is without the amendment proposed by the Bill. He continued:In order to solve this problem, it is necessary to remember the nature of copyright. It is an incorporeal right quite distinct from the paper on which it is written. When an author sets down his words in writing, he acquires copyright in the written expression of this thought, but not in the thoughts themselves nor in the paper on which they are written. He may sell the paper to another, but he does not thereby sell the copyright. Unless he expressly assigns copyright, he can stop anyone thereafter reproducing his words, even after he has sold the piece of paper.Lord Denning found a distinction between a patented article and a copyright article and this was expanded upon by Lord Justice Harman in his judgment. Lord Justice Harman said:I cannot help thinking that the mental gymnastics to which this court has been urged throughout this case, to which standing on one's head is nothing, are all caused by the fact that purchase tax here has been applied to a subject-matter to which it does not really fit.I would adapt Lord Justice Harman's words and say that the proposed amendment to the 1963 Act, contained in Clause 3, attaches Purchase Tax to a subject matter to which it does not really fit.
§ The Solicitor-General
I think I can answer the hon. Member for Crosby (Mr. Graham Page) in a very few words. He is perfectly right when he says that this Clause arises out of a recent decision of the House of Lords, a decision which revealed what I submit is an anomaly in the law. The Clause proposes to amend the Purchase Tax Act, 1963, which succeeded, as the hon. Member said, the Finance Act, 1940. I have been trying to cast my mind back to the Finance Act, 1940. I cannot remember the precise motives at that time, but the explanation may be that in that year we had certain other things on our minds besides the details of the Inland Revenue.
1167 The position is this. Taking the Purchase Tax Act, 1963, Section 3, for the purposes of Purchase Tax, the Commissioners of Customs and Excise are required to make an estimate. The tax is charged on the wholesale value of the goods. The Commissioners have to form an opinion as to the price which the goods would fetch at the time when the tax becomes due to a person selling wholesale in the open market in the United Kingdom to a retail trader in the United Kingdom. For that purpose they have to take various things into account. It is perfectly true that, where a patent or a trade mark is involved, then they are enjoined to take this into account.
I do not quarrel in the least with the analysis which the hon. Gentleman gave. They have to look at what the goods cost and where a payment has been made to a patent holder, then they have to take that into account as well in arriving at the value of the goods. Over a long period of time the practice of the Commissioners had been to treat copyright in precisely the same way as patent or trade marks. That is to say, where copyright entered, in dealing with stationery or whatever it may be, then account was taken of the copyright and the payment which should have been made in respect of the copyright, in precisely the same way that they took into account what payment would have been made in respect of a trade mark or a patent.
It was held by the Court of Appeal and the House of Lords in the case referred to by the hon. Gentleman that copyright was not covered by the Purchase Tax Act, 1963. It is not actually mentioned in the schedule. It was on those grounds, because of the omission in the 1963 Act, that the Court of Appeal and the House of Lords arrived at their decision.
There can be no difference in principle, why these matters should be dealt with differently. They are all elements which should be considered by the Commissioners when they form their opinion as to the value of the goods at the time appropriate. I would reassure the hon. Gentleman that this is not going to affect the employment of his constituents at Littlewoods in the slightest degree. We are merely dealing here with what has 1168 been revealed to be an omission in the law. I would invite the Committee to approve the Clause.
§ Question put and agreed to.
§ Clause ordered to stand part of the Bill.
§ Mr. Callaghan
I beg to move,That the Chairman do report Progress and ask leave to sit again.I am sure that will be a very welcome speech. We could have gone a little further today, but we have made a start and as it is nearly half-past eleven on the first night, I hope that by finishing now, as we are, perhaps we can make a good start on Wednesday and make a little more rapid progress than we have done today.
§ Question put and agreed to.
§ Committee report Progress; to sit again Tomorrow.