§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Charles R. Morris.]
§ 10.46 p.m.
§ Mr. Gwilym Roberts (Bedfordshire, South)
I should like to consider some of the problems and difficulties which face B.I.X., Ltd., of Leighton Buzzard, Bedfordshire, and similar scientific testing firms. I will provide some information which I feel will be valuable to the Financial Secretary when he comes to consider not only the debate but some Questions which I have put down for his Ministry. T should like to outline the activities of this firm and some parallel ones.
This is essentially a non-destructive testing firm which carries out its work in this country and many other parts of the world. The same type of argument applies to other scientific testing firms, four of which in the United Kingdom are direct rivals of B.I.X., Ltd. This type of service is highly technical. The firm has teams of welding inspectors and N.D.T. technicians, using things like X-rays, gamma rays, and ultrasonic and magnetic particle inspection equipment. Obviously, the level of training required for this type of work is very high.
The projects of B.I.X., Ltd., either at the moment or very recently, include the B.P. wellhead on the North-East Yorkshire coast, in connection with the oil developments in the North Sea. It is also involved in the inspection of pipeline and oil storage tanks in the Persian Gulf at Abadan and Bandar-Mashur in Iran and at Kharg Island in the Persian Gulf. In these cases, it is working for American construction firms. It is also carrying out work on gas pipelines in the Swiss gas pipeline between Basle, Berne and Neuchatel for the Bechtel International Company.
From this brief introduction it will be apparent to the House that this type of company is involved in a great deal of export work. Indeed, it is very often working for American firms and other sources from which dollars are earned. For much of the work now being done on the North Sea bed, the sterling being 1696 paid out to American firms is being partially recovered by the inspection work being carried out by B.I.X. Ltd.
It is worthy of note that since 1962 when the company received its first export contract, its turnover on the export side has grown from nil to about £150,000, the great majority of which is received in dollar drafts. I have with me a list of some of the firm's overseas contracts. In Switzerland it has a contract giving an annual return of £40,000 from Swiss contractors. In connection with the North Sea gas project, it has a return of £25,000 from American contractors. In Iran, from American contractors, its contract is worth about £7,500. In Nigeria, from American contractors, the contract is worth about £15,000. In the Persian Gulf, from American contractors, the contract is worth about £14,000 and from overseas activities connected with aircraft, its contract is worth £5,000.
Clearly, all along the line this firm is an exporter. Moreover, for some years it has had a distinct technical lead, something unusual for British firms these days. Part of Britain's difficulty has been that while we gained a lead in many spheres at the time of the Industrial Revolution, other countries have been developing newer techniques and have taken a scientific and technical lead over us. In this case, probably because American pipelines on a large scale preceded developments in this country, we have had a technical lead. However, the firm is finding that it is facing increasing competition from Germany, Holland and France.
I am not suggesting tonight that we should open wide the door for export rebates in the invisible sphere generally. I appreciate that to do so would take into account the mighty insurance exporters and so on. But this firm is exporting in a tangible way because of the trucks and vehicles it uses for its export work, and this aspect is valued at about £25,000 a year.
During work on the Kharg Island project, the company was hiring equipment to American firms, and that brought in £5,000 a year, all in dollars. This is something tangible to which, I suggest, a system of export rebates could apply. Indeed, the company is at present competing for a job in Saudi Arabia which 1697 might involve about £250,000 a year for the exportation of equipment and vehicles.
Despite the export of equipment in this way, the company is not receiving an export rebate and, to add to its burdens, it must now pay Selective Employment Tax. As I pointed out, the training of operators for this work takes a considerable time because of the skill that is needed. It is estimated that it costs the firm about £500 to train an individual employee and hold him between particular jobs. In this year alone the firm calculates that Selective Employment Tax will cost it about £3,640, and it is thought that by 1967 this will amount to £5,000. In fact, it is suggested that one of the firm's rivals is being forced by the additional burden of this tax to look overseas for offices from which it can operate.
I will refer the Financial Secretary to a Question in the House on Tuesday. 12th July which asked whether special arrangements are made for bigger exporters which are affected by this tax.
§ The Financial Secretary to the Treasury (Mr. Niall MacDermot)
What is the column number?
§ Mr. Roberts
I have not the column number. The Chancellor of the Exchequer replied,I doubt whether there would be such firm's."—[OFFICIAL REPORT, 12th July, 1966; Vol. 731, c. 1199.]I submit that B.I.X. Ltd. which next year hopes to export 75 per cent. of its turnover, compared with 60 per cent. this year, is this type of firm.
One feature of the company is the phenomenal growth rate. I have some figures. The employment figures rose as follows: 1963, 14; 1964, 26; 1965, 60; and 1966, 59. It would have been higher this year, except that for the first time the firm has been forced to put off one or two employees because of the burden of this tax.
The turnover figures are even more phenomenal. In the year ending April, 1961, the turnover was about £7,900. By 1963 it was about £23,000; by 1965, £95,000; in 1966, £165,000; and it is estimated that in the year ending April, 1967, it will be £250,000. It would be difficult to find a British firm which had 1698 this phenomenal rate of growth over this period. One may find quadration or cubic growth over a short period but not sustained over so long a time.
I have only a few minutes left and in them I wish to stress one or two points. First of all, this firm contributes to technical advance. I have provided the Financial Secretary with some examples of the very highly advanced work which the firm is carrying out. Taking one example only, the firm is considering methods which will revolutionise radiography on land pipelines. This could be more and more important with the proposed extension of land pipelines to carry oil and natural gas.
Britain has held its position in the world by providing always a high level of specialised technical skill. This type of firm is playing its full part in keeping us ahead in this technical skill. It would be a tragedy if such an enterprise were to be choked by the burden of taxation. I submit that this type of firm is the type which not only the people of Leighton Buzzard but also B.I.X. and the economy of Britain truly need.
§ 10.59 p.m.
§ Mr. Stephen Hastings (Mid-Bedfordshire)
I have no wish to cut into the time which the Financial Secretary has to reply to this important debate. I wish to congratulate my Parliamentary neighbour, the hon. Member for Bedfordshire, South (Mr. Gwilym Roberts) on presenting in such depth a case which I think is of the greatest importance. He has put considerable research in it. I cannot believe that the Financial Secretary will treat it in any sense lightly. Some of the management live in my constituency. I do not think I can expand or improve on the case put by the hon. Member. The thing which strikes one about B.I.X. and other firms of this kind is the great skill involved and exports of 75 per cent. are something of which any firm can be proud. It is astonishing that such a firm should be classed as a service and penalised in this way vis-à-vis its competitors abroad.
In the Economist last week there was a long article on Professor Kaldor's theories on this extraordinary tax. I am not sure yet that I understand it but I go further than the hon. Gentleman did in condemning it. I read the article once or 1699 twice. If this scrambled egg of an intellectual approach to fiscal reform makes sense to the hon. and learned Gentleman, I hope that he understands it better than I do. Surely the hon. and learned Gentleman will see that there is room for anomalies—that there must be room for them. Certainly the case of this firm is an extraordinary anomaly. If he cannot assure us tonight that there will be some real reform of this iniquitous tax, I hope that at least he will look into the case of firms like B.I.X., which are suffering quite unduly, with consequences to the economy as well.
§ 11.0 p.m.
§ The Financial Secretary to the Treasury (Mr. Niall MacDermot)
In contrast with the intemperate and ignorant remarks we have just heard from the hon. Member for Mid-Bedfordshire (Mr. Hastings), my hon. Friend the Member for Bedfordshire, South (Mr. Gwilym Roberts) presented his case with persuasion and moderation. He told in a way which I am sure interested all of us of the remarkable achievements and record of B.I.X. Ltd., which is in the forefront in its own field of technical work and which has an astonishing record both of growth rate and export achievement.
The question he raises is whether something cannot be done to assist it in its effort through the machinery of the export rebate scheme. The scheme is one, and by no means the only one, of the Government's contributions to helping exports. The last Government examined it and rejected it. Now the hon. Member for Mid-Bedfordshire, who supported that Government, tells us that we are penalising exporters. When we introduce a scheme to the limit that we are able, he says we penalise people who fall within it. The limits of the scheme are dictated by what is administratively feasible and also by our international trade obligations.
§ Mr. Hastingsrose——
§ Mr. MacDermot
No. I will not give way. I did not attempt to stop the hon. Gentleman intervening in the debate and I propose now to answer it.
The aim of the scheme was to refund without introducing any element of subsidy certain indirect taxes, mainly petrol and oil duties and vehicle licence duty, 1700 which enter into the cost of exports. In order that the scheme could be workable it had to satisfy all these requirements. To do so we had to confine it to exports of goods produced or manufactured in the United Kingdom. This was both necessary to comply with these international agreements and to make it administratively feasible.
I will illustrate the administrative aspect. There are two serious practical difficulties, apart from anything else, in trying to apply a rebate scheme like this to service industries. The first is that there is no available statistical information about the incidence of indirect taxes which is needed in order to calculate the rates of rebate and to ensure that they do not include a subsidy element. That is not readily available for the export service sector of the economy. Secondly, even if these difficulties could be overcome, the appropriate rates would be extremely low for many service industries where a large part of the work is done and which consists of expert labour and knowledge and only a small proportion of which represents the burden of relevant indirect taxes. Thirdly, the whole machinery of the Customs and Excise organisation which we have in this country would be quite inadequate to supervise and administer a rebate scheme for invisible exports.
These are the general reasons why we had to confine the scheme to goods and there is no question of our penalising service industries which do not qualify for it. It is a misfortune for them that they are unable to do so, but they are not being penalised in comparison with their foreign competitors. My hon. Friend makes the point that this particular firm, in the course of providing what is primarily a service, exports a certain amount of goods and equipment, and he says that it is receiving no export rebate whatever for that equipment.
I am not sure why that is, and if he will supply me with further information about it I will be very glad to look into it, because there are certain provisions in the Act whereby export rebate can be claimed in respect of plant and equipment which is sent overseas, whether it is sent on hire—provided the hire period is not less than a year—or whether it is permanently exported for use in the applicant's own business abroad.
1701 I do not know, but it may be that this firm will qualify, or might be able to qualify, for some export rebate. But I suspect that the point my hon. Friend has in mind is to seek to claim rebate for indirect taxes going beyond those which went into the production of these particular goods, and to seek to claim rebate in respect of other indirect taxes which may have been paid by the firm. This, I am afraid, would be unacceptable from our point of view. It would not be acceptable internationally because, under the international agreements which allow a rebate scheme of this kind, one must relate the rebate to the cost of the indirect taxes which have been borne in relation to the goods themselves.
1702 I am informed that there is no record of an actual application having been made by this company for rebate. I believe it did make a general inquiry of the local officer and was informed, as is the fact, that generally speaking a rebate is not payable in respect of exported services. But if the company cares, either through my hon. Friend or directly through the local officer, to let us have more specific information about plant and equipment which it sends abroad, I will gladly have the matter investigated to see whether it can in fact qualify for some element of export rebate.
§ Question put and agreed to.
§ Adjourned accordingly at nine minutes past Eleven o'clock.