EXEMPTIONS AND RELIEFS

HC Deb 03 December 1968 vol 774 cc1426-80

Mr. McNair-Wilson

I beg to move Amendment No. 20, in page 3, line 17, leave out 'fifty' and insert 'one hundred'.

The Deputy Chairman (Mr. Gourlay)

With this Amendment it will be convenient to take Amendment No. 21, in page 3, line 17, leave out 'fifty' and insert 'five hundred', and Amendment No. 22, in page 3, line 17, leave out 'fifty', and insert 'two hundred and fifty'.

Mr. McNair-Wilson

The reason for introducing this Amendment at the beginning of Clause 2 is because it deals with exemptions and reliefs, and this will eventually take us on to the schedules.

The first part of the Clause contains a suggestion by the Government for exempting goods which are imported, provided that their value does not exceed £50. In my estimation it is hard to see why the Government have put in that figure, because it is almost meaningless, unless it is to prevent people bringing in personal gifts of one kind or another. However, it cannot be that, because subsection (2) covers any personal effects of people coming into this country.

Here is an opportunity for the Government to take a really sensible step in the right direction towards helping those whose case I have been pleading all evening—the small importers. We have, unfortunately, and even at this late hour, faced a Treasury Bench which has been completely intransigent against some very moderate suggestions put out from this side of the Committee. I think that here is an opportunity for them to mend their ways and to genuinely help the small importers.

I will give one example. One problem is that many small importers are responsible for maintenance contracts to equipment which has already been imported and which has to continue to be serviced tinder a legal contract. This can apply to firms selling motor cars, typewriters, or whatever. If the Government were prepared to extend the £50 to £100, or to whatever figure I can persuade the Minister to accept, I believe that we shall make life substantially easier for these small importers who have to bring in parts to service pieces of equipment.

Several of my constituents have written to me on this point. At the moment they are legally bound, by an undertaking entered into when the equipment was sold, to service and maintain it. They now find that, under the Bill, they will have to put down money to bring in parts which are not for sale, but for which, in a sense, they have already contracted with their customers. Clearly £50 is a figure which is totaly irrelevant in this context. As I pointed out, I do not understand why the Government bothered to put £50 in. Here is a genuine case of hardship affecting quite a large number of small businesses in this country. Therefore, I ask the Government to look with favour on what I feel certain is a most reasonable Amendment.

Mr. Biffen

I should like to support the Amendment so ably moved by my hon. Friend the Member for New Forest (Mr. McNair-Wilson), and to advance an argument slightly different from his, which concerned the small business. My concern is that a great deal of the imports in respect of certain engineering products are spares and replacements for imported machinery which has already been installed here. The importation of spares is inevitable. Nothing that the Measure does will in any way deflect imports of that kind. Many of the spare parts will cost relatively small sums, but in many instances they will cost more than £50.

By raising the figure to the limit suggested in the Amendment moved by my hon. Friend, or perhaps even more acceptable, to show how generous I am, to the limit suggested in the Liberal Amendment, we could facilitate the continuance of a highly essential trade. If the Government were to make this gesture and raise the limit they would show that they were not entirely prejudiced and doctrinaire in their approach to the Bill.

Mr. Pardoe

My Amendment seeks to increase the figure to £500, primarily for administrative reasons. It seems ridiculous to fiddle around with every minor import, and I should like the Minister to tell us what proportion of these entries would be below the figure which the Government have put in the Bill, and which would be below the figure I have suggested. I am not tied to £500, even though I have put it in the Amendment. I put down that figure to enable us to have a debate, and I am open to other suggestions.

There is a strong argument for raising the limit in respect of spare parts, and my figure is more reasonable than the one suggested by the Government. My figure will simplify the administration of the scheme at the ports of entry. I remain to be convinced by the Government that that would not be the case.

Mr. Burden

I hope that the Minister will reconsider this, because it is necessary to ensure that people who use imported machinery to manufacture exports are not hampered in getting spare parts for that machinery. I am sure the Minister will realise that great damage will be done to the Government's strategy if manufacturers are not able to obtain the necessary spares from abroad.

If the Minister agrees to alter the figure in the Bill, this will be the first occasion on which the Government Front Bench has given way, and I suggest that this is the occasion on which the Minister could well do so.

Mr. Emery

I hope that the Minister will go one stage further than has been suggested in the excellent speeches of my hon. Friends, particularly that of my hon. Friend the Member for New Forest (Mr. McNair-Wilson). Can the Minister give the House some figures of what will be involved in terms of loss of revenue or loss of income if the £50 limit is increased to £100?

He must have some views on the matter, otherwise he must have picked a figure out of the sky. If the sums of £50 and £100 are not convenient, would the Minister consider £75 and £250? The Committee has a right to ask the Government why it should be £50. It is a very small amount for imports. What do the Government see as the loss if the Amendment should be carried?

Mr. David Webster (Weston-super-Mare)

thought that my hon. Friend would put against that not only the loss on revenue or income but also the change in the cost of collection. I hope that the Minister will give us those figures.

12.45 a.m.

Mr. Taverne

The £50 figure is not totally irrelevant. Although it accounts only for a tiny proportion of the total amount of imports it accounts for a considerable proportion of the number of entries. The figure is only 0.3 per cent. in terms of total value but it is about 16 per cent. in terms of the entries which are made for items worth less than £50.

I was asked if I could give similar figures for the higher amounts involved in the Amendments. I can give those only for £100. If the exemption were extended to £100 it would affect 1.1 per cent. of the total value of imports and 28 per cent. of the entries. On the face of it this would make it an attractive proposition, to argue that this affects only a small amount of the total value vet a considerable proportion of the number of entries, and therefore why should we not extend the amount beyond £100?

The difficulty about this is the difficulty involved in circumventing the deposit scheme by splitting consignments into small amounts. There is no doubt that this would be done because it is being done with the £50 limit. Consignments of wine are already being split into amounts which bring them under the £50 limit. We chose that limit because at that level there are extra forwarding charges to be paid if extra entries are to be made, and the savings which would result from not having to pay the deposit would more or less be offset by the extra expense incurred by the additional entries.

In the case of the higher limit it becomes eminently worth while to split consignments into many different lots and in this way a much bigger inroad into the scheme would be made than simply 1.1 per cent. of the total value.

Mr. John Smith

Is it not possible to do exactly the same thing as we do in the exemption from stamp duty in respect of dealings in property of low value, namely, that a person signs a declaration that it is not part of a larger transaction?

Mr. Taverne

There are all sorts of administrative difficulties and it is important that we should keep the administration to a minimum. We do not want to employ more people than necessary, and in order to keep the administration to a minimum it is important to avoid these complications.

There would be major inroads into the scheme if large consignments were to be split in a way in which it would pay importers to split them. Therefore the limit is set rather lower than the Government and the Committee as a whole would like to see.

Mr. Hall-Davis

I find it difficult to believe the caution and addiction to the minutiae of procedures should reach the point that we have just heard from the Minister of State. We can only contrast the concern of hon. Members on this side of the Committee to keep industry operating smoothly and efficiently with the concern of the Minister to make sure that not even 1.1 per cent. should become 1.5 per cent. or 0.3 per cent., even taking his present estimate, could perhaps become 1.5 per cent. It is incredible that the hon. and learned Gentleman should have made no mention of the importance of spares and replacements arriving in this country rapidly. With industry becoming increasingly heavily capitalised, with production lines at the mercy of a small breakdown in a single stage of the production flow, it is essential that a spare or replacement part should be flown into this country over the weekend and put into operation at the shortest possible notice.

I ask the hon. and learned Gentleman—although with very little confidence, in view of his previous attitude—to do some mathematics about how many breakdowns in major plants need to be prolonged for an extra 24 or 48 hours for the national interest to be damaged far more than by the possibility of another 0.5 per cent. of imports escaping the levy.

On the same theme, I turn to his question of splitting the consignments. He said that an advantage of the £50 limit was that if one exceeded it, it imposed the expense of an additional entry, and that therefore there was a double deterrent. I believe that the deterent of sending off two or twenty packages instead of one is so great that, even if it were tried a time or two, it would be rapidly abandoned.

The Minister of State does not understand how industry works. Industry is not a grocer's shop, bundling up its products in brown paper bags and sticking a label on them. Industry is used to despatching its goods in batches of 20, 50, 1,000 or 5,000. This is particularly so if it is overseas industry, for whom we are only part of the market: they will not change their routines just to escape a levy at this sort of level.

Some bright spark might try it once or twice, but this will not make serious inroads. We have many times drawn attention to the disproportionate difficulties which the small business will suffer under the Bill. In this situation, there is an opportunity of giving some relief to the truly small operator. There is no question of its being rejected on grounds of equity, for there is no equity in this Measure, especially towards the small businesses.

We must thank the Minister of State at least for giving us the available figures. Would anyone say that the possibility of excluding 28 per cent. of the entries—and the fiddling 28 per cent.—which are going to cause the trouble, is not worth lifting the exemption on this vast sum by 0.8 per cent., and even running the risk that it might lift by another 0.2 or 0.3 per cent. because of split consignments?

If the Minister of State cannot accept the Amendment in the interests of industrial efficiency, of the firms doing the repair work, and of trying to keep the administration down to a minimum, could he not at least give himself a flexible power to vary the limit up to £100, and, if he found this leading to widespread abuse, to bring it back down to £50. At least then industry will have the satisfaction of knowing that the Government made an attempt to accommodate them. The only conclusion one can draw from the reply of the Minister of State, if he does not heed the arguments, is that not only do the Government attach overriding importance to their credit squeeze, but do so at the expense of industrial efficiency and the continuation of smooth production at major plants. That is what they may well be imperilling.

Mr. Pardoe

The Minister of State gave some very telling figures of the effect this change would have if we increased the amount of £100, for instance. Could he say whether those figures cover all imports or only those which are to be affected by this import deposit? The list of exemptions in the Schedule covers very large bulk deliveries, such as foods and raw materials. That means that his figures may be even more telling if they are only applied to the imports which the Bill affects.

I fully accept the argument put far-ward by the Conservative Front Bench that the mere act of splitting these parcels is in itself a deterrent to imports. If the purpose is to stop people from importing, or making it difficult, the whole business of having to split consignments into small parcels is a brake on imports. I therefore believe that the Minister does not have a very strong case here. I hope that he will look at the case again and, in particular, give an answer to the statistical questions I have raised.

Mr. Taverne

The answer is that the 16 per cent. and the 0.3 per cent. are on the chargeable imports involved. Hon. Members have not faced the reality of the arguments, because they have treated it purely as a matter of the 1.1 per cent. If the limit were £100, there would be an inroad of far more than 1.1 per cent. The Customs are in a position to judge, and they find that even with the £50 limit there is a good deal of splitting already going on, and it would be very much greater if the limit were raised to such an extent that the disadvantage of the forwarding charges would no longer be there to offset the advantages in not having to pay the deposit.

Mr. Burden

The hon. and learned Gentleman says that there is evidence that they are already splitting. How long has this been running, and what evidence is there in the Customs already that goods have been split and sent overseas in this short time just to circumvent these regulations?

Mr. Taverne

The fact that it is already visible in the short time of the scheme when the limit is as low as £50 strengthens the view that there would be a major difficulty if the figure was raised. When we come to the great difficulties that importers are said to have to encounter, the fact is that most articles are dutiable in any case. If the amount of the deposit which would have to be found were £100 instead of £50, one would have to weigh the marginal further inconvenience of finding the deposit in such cases where duty has to be found in any event compared with the inroads which it would make in the scheme. This leads to me think that the Committee

would be well advised not to raise the limit.

1.0 a.m.

Mr. Stainton

I feel forced to protest at what the Minister of State said. I think he is obliged to quote the increased cost of freightage when parcels are broken up against the potential saving of imports. if we take the £50 limit, of which there is so much evidence of splitting, a rate of interest of 10 per cent., presupposes a saving of £2½. I wager that shipping freight anywhere in Europe, let alone as far as Hong Kong, would exceed that cost. Unless the Minister of State addresses himelf specifically to this point, I am afraid that he will find a very dissatisfied business public in the country.

[Mr. SYDNEY IRVING, in the Chair]

Sir K. Joseph

We would like to give the Government a chance to reconsider their answer to this batch of Amendments. If the Minister of State would tell us that they would do that, we would welcome another 24 hours after which they could come back to give us their considered answer. My hon. Friends would welcome that evidence of an open mind on a point which would add a disproportionate inconvenience to a large number of businessmen for an utterly marginal benefit to the Government scheme and would consider withdrawing the Amendment. If not, I am sure they would wish to divide against the Government point of view.

Hon. Members

Answer.

Question put, That that Amendment be made:

The Committee divided: Ayes 105, Noes 147.

Division No. 21.]	AYES	[1.2 a.m.
Alison, Michael (Barkston Ash)	Cooke, Robert	Hall-Davis, A. G. F.
Allason, James (Hemel Hempstead)	Dalkeith, Earl of	Hamilton, Michael (Salisbury)
Atkins, Humphrey (M't'n & M'd'n)	d'Avigdor-Goldsmid, Sir Henry	Harvie Anderson, Miss
Baker, Kenneth (Acton)	Drayson, G. B.	Hawkins, Paul
Baker, W. H. K. (Banff)	Eden, Sir John	Heseltine, Michael
Biffen, John	Elliott, R. W. (N'c'tle-upon-Tyne, N.)	Higgins, Terence L.
Black, Sir Cyril	Emery, Peter	Hiley, Joseph
Blaker, Peter	Errington, Sir Eric	Hill, J. E. B.
Boardman, Tom (Leicester, S.W.)	Eyre, Reginald	Holland, Philip
	Farr, John	Hordern, Peter
Boyle, Rt. Hn. Sir Edward	Fletcher-Cooke, Charles	Howell, David (Guildford)
Brewis, John	Fortescue, Tim	Hutchison, Michael Clark
Brinton, Sir Talton	Foster, Sir John	Jenkin, Patrick (Woodford)
Buchanan-Smith, Alick (Angus, N & M)	Gibson-Watt, David	Joseph, Rt. Hn. Sir Keith
Burden, F. A.	Gilmour, Sir John (Fife, E.)	Kershaw, Anthony
Campbell, B. (Oldham, W.)	Glover, Sir Douglas	Kitson, Timothy
Carlisle, Mark	Grant-Ferris, R.	Legge-Bourke, Sir Harry
Clegg, Walter	Hall, John (Wycombe)
Lubbock, Eric	Peel, John	Taylor, Sir Charles (Eastbourne)
MacArthur, Ian	Percival, Ian	Taylor, Edward M. (G'gow, Cathcart)
McNair-Wilson, Patrick	Peyton, John	Tilney, John
Macmillan, Maurice (Farnham)	Pike, Miss Mervyn	van Straubenzee, W. R.
Maddan, Martin	Price, David (Eastleigh)	Waddington, David
Maginnis, John E.	Prior, J. M. L.	Walters, Dennis
Maxwell-Hyslop, R. J.	Pym, Francis	Ward, Dame Irene
Mills, Peter (Torrington)	Rhys Williams, Sir Brandon	Webster, David
Miscamphell, Norman	Ridley, Hn. Nicholas	Whitelaw, Rt. Hn. William
Mitchell, David (Basingstoke)	Royle, Anthony	Williams, Donald (Dudley)
Montgomery, Fergus	Russell, Sir Ronald	Wilson, Geoffrey (Truro)
More, Jasper	Sandys, Rt. Hn. D.	Winstanley, Dr. M. P.
Murton, Oscar	Scott, Nicholas	Wolrige-Gordon, Patrick
Nott, John	Shaw, Michael (Sc'b'gh & Whitby)	Woodnutt, Mark
Onslow, Cranley	Smith, John (London & W'minster)	Wright, Esmond
Osborn, John (Hallam)	Stainton, Keith
Page, Graham (Crosby)	Steel, David (Roxburgh)	TELLERS FOR THE AYES:
Page, John (Harrow, W.)	Stodart, Anthony	Mr. Hector Monro and
Pardoe, John	Stoddart-Scott, Col. Sir M. (Ripon)	Mr. Bernard Weatherill.
NOES
Alldritt, Walter	Fraser, John (Norwood)	Mitchell, R. C. (S'th'pton, Test)
Anderson, Donald	Freeson, Reginald	Morgan, Elystan (Cardiganshire)
Armstrong, Ernest	Gardner, Tony	Morris, Charles R. (Openshaw)
Atkins, Ronald (Preston, N.)	Griffiths, Eddie (Brightside)	Moyle, Roland
Atkinson, Norman (Tottenham)	Griffiths, Will (Exchange)	Murray, Albert
Bacon, Rt. Hn. Alice	Hamilton, James (Bothwell)	Newens, Stan
Bagier, Gordon A. T.	Hamling, William	Norwood, Christopher
Barnes, Michael	Hannan, William	Ogden, Eric
Bennett, James (G'gow, Bridgeton)	Harrison, Walter (Wakefield)	O'Malley, Brian
Bidwell, Sydney	Haseldine, Norman	Oram, Albert E.
Binns, John	Hattersley, Roy	Orme, Stanley
Bishop, E. S.	Hilton, W. S.	Oswald, Thomas
Booth, Albert	Horner, John	Owen, Dr. David (Plymouth, S'tn)
Bray, Dr. Jeremy	Howie, W.	Page, Derek (King's Lynn)
Brooks, Edwin	Hoy, James	Palmer, Arthur
Brown, Hugh D. (G'gow, Provan)	Hughes, Rt. Hn. Cledwyn (Anglesey)	Parkyn, Brian (Bedford)
Buchan, Norman	Hunter, Adam	Pavitt, Laurence
Buchanan, Richard (G'gow, Sp'burn)	Irvine, Sir Arthur (Edge Hill)	Peart, Rt. Hn. Fred
Cant, R. B.	Jackson, Colin (B'h'se & Spenb'gh)	Pentland, Norman
Chapman, Donald	Jeger, Mrs. Lena (H'b'n & St. P'cras, S.)	Price, Christopher (Perry Barr)
Coe, Denis	Jenkins, Hugh (Putney)	Price, William (Rugby)
Coleman, Donald	Johnson, Carol (Lewisham, S.)	Rees, Merlyn
Conlan, Bernard	Johnson, James (K'ston-on-Hull W.)	Richard, Ivor
Crawshaw, Richard	Jones, J. Idwal (Wrexham)	Roberts, Gwilym (Bedfordshire, S.)
Dalyell, Tam	Jones, T. Alec (Rhondda, West)	Rodgers, William (Stockton)
Davidson, Arthur (Accrington)	Kerr, Mrs. Anne (R'ter & Chatham)	Rose, Paul
Davies, Dr. Ernest (Stretford)	Lawson, George	Rowlands, E. (Cardiff, N.)
Davies, Harold (Leek)	Lever, Harold (Cheetham)	Sheldon, Robert
Dell, Edmund	Loughlin, Charles	Silkin, Rt. Hn. John (Deptford)
Dempsey, James	Lyon, Alexander W. (York)	Silkin, Hn. S. C. (Dulwich)
Dewar, Donald	Lyons, Edward (Bradford, E.)	Silverman, Julius
Diamond, Rt. Hn. John	Mabon, Dr. J. Dickson	Skeffington, Arthur
Dobson, Ray	McBride, Neil	Swingler, Stephen
Doig, Peter	McCann, John	Taverne, Dick
Dunnett, Jack	MacColl, James	Tinn, James,
Dunwoody, Mrs. Gwyneth (Exeter)	Macdonald, A. H.	Urwin, T. W.
Eadie, Alex	McGuire, Michael	Wainwright, Edwin (Dearne Valley)
Edwards, Robert (Bilston)	McKay, Mrs. Margaret	Walker, Harold (Doncaster)
Edwards, William (Merioneth)	Mackenzie, Gregor (Rutherglen)	Wallace, George
Ellis, John	Mackintosh, John P.	Watkins, David (Consett)
English, Michael	Maclennan, Robert	Whitaker, Ben
Ennals, David	McNamara, J. Kevin	Williams, Alan Lee (Hornchurch)
Ensor, David	MacPherson, Malcolm	Williams, Clifford (Abertillery)
Evans, Fred (Caerphilly)	Mahon, Simon (Bootle)	Wilson, William (Coventry, S.)
Evans, Ioan L. (Birm'h'm, Yardley)	Manuel, Archie	Winnick, David
Fernyhough, E.	Marks, Kenneth	Wyatt, Woodrow
Fitch, Alan (Wigan)	Marsh, Rt. Hn. Richard
Fletcher, Ted (Darlington)	Mikardo, Ian	TELLERS FOR THE NOES:
Foot, Michael (Ebbw Vale)	Millan, Bruce	Mr. Charles Grey and
Forrester, John	Miller, Dr. M. S.	Mr. Joseph Harper.
Fowler, Gerry

Mr. Michael Shaw (Scarborough and Whitby)

I beg to move Amendment No. 101, in page 3, line 21, at end insert: (3)(a) No import deposit shall be payable in respect of goods which it is shown to the satisfaction of the Commissioners are entered in the name of a company if it is neither a holding company nor a subsidiary of another body corporate and its turnover does not exceed £500,000; (b) the said turnover is to be calculated as though sub-paragraph 13A(2) of Schedule 2 to the Companies Act 1967 applied and relates to the annual accounts made up to a date within the year ended 27th November 1968; (c) any such exemption shall not be granted to such a company to the extent that the goods which it imports under this Act exceed £500,000. In recent months, the plight of small companies has been brought much more to the attention of the House and the general public, thanks in large measure to my hon. Friend the Member for Croydon, North-East (Mr. Weatherill). This Amendment is designed to give exemption to smaller importing companies, providing that, if a company during its last financial year had a turnover of less than £500,000, it may import up to £500,000 worth of goods before becoming liable to pay import deposits.

We are not wedded to the figure of £500,000. If Ministers are prepared to meet us in any way, we shall do our best to fall in with them. There is, however, a wide variety of view as to what constitutes a small company. The C.B.I., for example, feels that an Amendment of this kind would be appropriately directed to a figure of £1 million turnover. Under the Companies Act, 1967, it was felt that the appropriate smallness for the purpose of exemption related to turnover was indicated by a limit of £50,000 turnover. Our Amendment falls just about halfway between the two. As I say, we are not wedded to a particular figure. Our concern is for the strong point of principle involved.

For a concern predominantly engaged in purchasing and merchanting, £500,000 worth of goods imported and sold sets a reasonable and small limit. Indeed, if that were the total turnover of sales, the figure of purchases, even if wholly from abroad, would be less. If the goods were used for manufacture within the company, the amount of foreign goods brought in comprised in the total turnover of less than £500.000 would be considerably less still.

1.15 a.m.

The Amendment stands on two legs. The first is the limit itself, on which we are prepared to agree any reasonable figure. The second is the leg of principle. Is it agreed between the two sides of the Committee that there should be some sort of exemption for the small company? We hold that there should be. [AN HON. MEMBER: "Why?"] Because, over the last four years, in Bill after Bill the incidence of burden has pressed particularly hard upon the smaller company, and we are anxious to rectify that as much as we can. We are not convinced by the Financial Secretary's statement on 28th November that The most that will happen here, and what is intended to happen, is that a man who really must have the import will go to the inconvenience and modest expense required to obtain finance."—[OFFICIAL REPORT, 28th November, 1968; Vol. 774, c. 760.] It will not be easy for all small companies to obtain that finance if they cannot go to their banks. We heard earlier tonight about their difficulties in not being able to use the documents as negotiable instruments. There is clearly a limitation for the company that is not large and does not have the strong financial standing that itself will be a sufficient guarantee to the would-be lender. Private companies do not have the sort of strength by which they can persuade bankers to lend them money without security.

Apart from the changes in the taxation system, which have fallen very heavily on close companies, that problem of obtaining additional substantial finance has continually bedevilled many small companies. It is not enough simply to consider the new burden that the Bill will place on the small company; we must look at the problem against the general background of financial difficulty. There are the present restrictions on credit, which have been in existence for far too long, and there is the threat of an added squeeze superimposed on already difficult conditions.

There is another burden that bears particularly hard on small companies. If they are growing, virile companies they are continually expanding, mainly on bank money which tides them over a period of expansion until they can consolidate. This inevitably means that during a time of squeeze they temporarily finance themselves in the hope that the squeeze will ease off, as has always happened in the past, that the policy will be successful and a period of easier credit will lie ahead. The Government have given indications time and again that their policies have been working and that better times were ahead. Therefore, the companies' hope was legitimate. They have worked very close to their margins, and therefore a sudden additional squeeze, such as seems to be coming upon them, bears all the harder. Those are the sort of difficulties that face such companies.

The final difficulty is that of still further extended credit by their customers. I am sure that further extensions of credit in the trade generally will take place if there is a tighter squeeze in the months ahead. This affects the small manufacturer more stringently than others.

All those general considerations must be taken into account when considering the additional burden being placed on such companies by the Bill. The small company deserves a break—and more. It deserves practical acknowledgment by the Government that its difficulties are recognised, as is the vital rôle that such companies play in our economy and in the future well-being of this country.

Mr. Harold Lever

May I congratulate the hon. Member for Scarborough and Whitby (Mr. Michael Shaw) on what, as far as I know, is his first appearance on the Opposition Front Bench. He argued his case with deep earnestness and as much plausibility as the terms of his Amendment permitted. The Amendment combines a high degree of impractibility with a high degree of undesirability.

Let us examine the tedious detail, not of the drafting, but of the practicality of what the hon. Member proposes. He proposes, in effect, that companies with a turnover not exceeding £500,000 should be exempted from the import deposit. How are we to know whether a company is going to have a turnover of only £500,000? He does not want us to go through the books of a company afterwards, so at the time of importation we will be admitting goods free of duty on the say-so of the importer alone. One can look at the turnover in the year of exemption, but the hon. Member is faced with a serious difficulty. The importers would come in and assure me earnestly that they did not expect to have a turnover of more than £500,000, but then they might have a turnover of several million pounds. Then the bird is flown, the goods are imported and there is nothing we can do about it. The Act will have expired by the end of a year.

The hon. Member does not argue that it is possible to do what his Amendment purports to do: to exempt firms who, after the deposit scheme comes into force, have a turnover of only £500,000. He is driven to go back to the past and not to rely on the present.

Mr. Nott

I wonder if the Financial Secretary was going to suggest that companies might wish to split turnover?

Mr. Lever

I will come to that proposition in a moment. Let us first deal with this point: what the hon. Member wanted us to do in his speech he does not propose in his Amendment. If we followed the Amendment, a firm which imported £500,000 or less last year would be exempt. He is driven to rely on what has happened so far and not on what happens in the period of the scheme. So all a firm which has imported £100 million of goods has to do is to prove that it did not turn over more than £500,000 this year. It would be in a splendid position and could do £100 million in the following year since every competitor of any size would be paying the deposit. It would mean channelling the import trade of this country through the small firms. This ingenious arrangement evades the real problem of relating the deposit to what is happening now. It simply means that any importer who had the good fortune not to import £500,000 last year will have freedom to import more this year. To do what he says he knows is impossible, so the hon. Member does something quite different. He gives unrelated exemption irrespective of the amount imported, provided that the company did not import more than £500,000 last year.

Mr. Shaw

What about (c).

Mr. Lever

The hon. Member wants (c) to mean that in some way exemption is not granted to a company whose goods imported exceed £500,000. But the exemption will already have been granted, the bird will have flown, the deposit will not have been paid, the Act will have expired and the Customs Commissioners will be left lamenting and without the millions of pounds of deposit which was to produce all the desirable results that my right hon. Friend the Chancellor of the Exchequer has foreshadowed for the benefit of our country and of our economy. Therefore, ingenious as it is, the Amendment cannot assist us.

For lose reasons, the hon. Member is on the horns of a dilemma. He has either to use past experience, which is irrelevant, or, if he attempts to use the relevant experience, rely on an ample supply of crystal balls available for the Customs which will enable it to predict with certitude what the company's turnover will be as it commences to import at the beginning of the year. Without those crystal balls, the Customs will be facing considerable difficulties in operating the Amendments proposed by the hon. Gentleman.

Mr. Michael Shaw

The Financial Secretary has highlighted, very wittily, the problems involved in any Amendment of this nature. What he has not answered is whether he is sympathetic towards any sort of exemption for small companies.

Mr. Lever

The hon. Member is trying to lure me to do what I never do, certainly not since I have had the privilege of addressing the House of Commons as Minister, and that is to stray from the due order which you, Mr. Irving, so jealously preserve. I can deal only with the Amendment which is before the Committee. I have told the Committee the effects of it, although, if the hon. Member wishes, and if you, Mr. Irvine, do not think that I am straying too wide, I would like to join him in expressing the deepest sympathy with small companies in every difficulty they face.

I am, in fact, looking personally into some of their tax difficulties with very real sympathy. I am very anxious to help them. I absolutely take the hon. Gentleman's point that the small companies form a vital part of the entrepreneurial atmosphere of the free enterprise section of the economy. I do not want to discourage them in any way. I think that they can all hold their own but, unhappily, for the reasons I have outlined, it would not be desirable to accept the Amendment.

With all the sympathy which I share with the hon. Member and with hon. Members opposite for all small companies, in all difficulties, of all kinds, nevertheless I must advise the Committee to reject the Amendment.

Mr. Robert Cooke (Bristol, West)

Before the Committee comes to a decision, I should like to join the Financial Secretary in expressing sympathy for small companies. My hon. Friend the Member for Scarborough and Whitby (Mr. Michael Shaw) was trying to make their position possible under the existing conditions of squeeze. He particularly mentioned close companies which find it difficult in present circumstances—perhaps at any time—to get finance for expansion.

Without giving away any trade secrets, I would like to raise with the Financial Secretary the case which he has already been sent by a constituent of mine concerning a small family company which has discovered a piece of equipment manufactured abroad but which is manufactured in only two foreign lands, one some way from this country and one in Europe, one of our most deadly European competitors.

The company has managed to get the exclusive franchise in the United States of America, Canada and South Africa for this foreign machine, which it wishes to export to those countries. Indeed, the potential export to the United States is, on reasonable estimates, something like 110 million dollars. That is something not to be sniffed at if we can grasp the opportunity.

My constituent assures me, however, that because of the import deposit on his trade in similar machinery, he will have to find between £50,000 and £60,000 to put down as deposit. This, he say, he simply cannot afford. It will result in the cancellation of all his plans and arrangements for the United States of America and South Africa, and he is quite certain that the whole of the trade which he had hoped to make with those countries—export trade, earning dollars for Britain—must be abandoned, and our European competitor will seize the opportunity.

1.30 a.m.

I know that I must not go into too much detail, but the Amendment is aimed at helping the small companies and the Financial Secretary said that he was anxious to help. I have no doubt that he will be out of order in telling me how he proposes to help cases such as the one I raise, but I hope you, Mr. Irving, will allow him to say a few more friendly words to show that he has not closed his mind to finding a way at a later stage of helping companies such as this.

Mr. Lever

This is a matter which the hon. Member should examine when we come to the Schedules of exemptions; it is not entirely appropriate to this Amendment. May I take this opportunity of insisting that my sympathy for small companies does not derogate from my sympathy for large companies, in appropriate cases, where the difficulties of small companies need sympathy and the difficulties of large companies need sympathy.

Mr. Michael Shaw

I will gladly reconsider the words of the hon. Gentleman, particularly those expressing what I believe to be his sincere sympathy for the small company. I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. J. Bruce-Gardyne (South Angus)

I beg to move Amendment No. 78, in page 3, line 24, at end insert: (4) No import deposit shall he payable in respect of goods or materials imported exclusively for the purpose of incorporation as components in manufactured articles which would themselves require to be wholly imported in the event of non-availability of the imported components.

The Chairman

With this Amendment we may also discuss Amendment No. 79, page 3, line 24, at end insert: (4) No import deposit shall be payable in respect of goods or materials imported exclusively for the purpose of incorporation as components in articles manufactured under a licensing agreement entered into before 22nd November 1968 and containing a guaranteed minimum royalty payment clause which will operate during the period of operation of this Act, in any case where manufacture cannot take place without the import of the said goods or materials. Amendment No. 114, in page 3, line 24, at end insert: (4) No import deposit shall be payable in respect of goods or materials which are imported wholly and exclusively for the manufacture in the United Kingdom of other goods or materials of a type, kind or description currently imported into the United Kingdom. and Amendment No. 115, in page 3, line 24, at end insert: (4) No import deposit shall be payable in respect of goods or materials being goods or materials controlled by patents which prohibit their manufacture in the United Kingdom, and also being goods or materials which are imported wholly and exclusively for the manufacture in the United Kingdom of other goods or materials of a type, kind or description currently imported into the United Kingdom.

Mr. Bruce-Gardyne

The four Amendments have one point in common, that they are all concerned with exemptions designed to provide the possibility of import substitution. The distinction between them is that Amendment No. 78 has the effect of giving exemption for the import of components not available in the United Kingdom to be incorporated into finished articles which would in turn have to be imported if the components were not available.

Amendment No. 79 is effectively the same as No. 78, but it is confined to cases where, if the importer of the components were unable to import the components, he would he penalised under a royalty agreement applying to the finished goods for his inability to manufacture the finished goods.

Amendment No. 114, in the name of my hon. Friend the Member for Barkston Ash (Mr. Alison) and myself, is the widest of the four and would give exemption for machines imported for the purpose of manufacturing goods in substitution for goods currently imported.

Amendment No. 115 is a narrower version of No. 114 in that it is confined to machines imported for the purpose of import substitution, machines which cannot be manufactured in this country because their manufacture is protected by patents.

It is arguable that this sort of legislation should be left severely alone on the grounds that so much unconsidered, ill-prepared, half-baked and entirely deleterious legislation comes from the hands of this Government that the best thing to do is to leave it to wreak the full damage so as to expose the idiocy of the Government who are responsible for it. On the other hand, we have to consider the interests of our constituents, and it is with the interests of one firm in mind that I have drafted the first two of these Amendments.

I can explain the case simply by describing the circumstances of the firm. It is a small engineering firm in my constituency manufacturing, among other items, machinery for the jute industry. It has just started this year to manufacture a high-speed cock winder for the jute industry under licence from the Belgian patent holders.

The firm is making arrangements to have all the bought-in components manufactured in the United Kingdom, but, meantime, it is faced with the necessity to import electric motors and switchgear from Belgium. There are no motors and switchgear of this type currently available in this country for incorporation in these high-speed cock winders.

The cost of the imports of the electric motors and switchgear runs at £1,500 a month.. In other words, unless they are exempted from the provisions of the Bill, it would be obliged to find a deposit of £750 a month. It happens that the firm is right up against its overdraft limits, and I understand that it has no way of finding the £750 a month for this purpose.

Unless it is granted an exemption, it will have to cease to manufacture these high-speed cock winders. Already it has sold two machines to Turkey and one to Mexico, and it estimates that there is a marker for some £100,000 to £150,000 worth of exports available for the machines in Pakistan alone.

No doubt I shall be told that, in a later Amendment in the Chancellor's name, in so far as these machines are exported, the components might be exempted from the import deposit, anyway. But this would not help the firm, because it could not find the residual deposit which would still be required for components required for machines intended for home delivery. The truth is that, if it is prevented by the import deposit scheme from importing these components, it is possible that it may lose these extremely valuable export markets. In addition, it will also lose the markets for this revolutionary machine at home. Some Dundee manufacturers have ordered these machines. I am assured that, if they cannot obtain them from a local manufacturer, they will purchase them from Belgium. The effect of that will be that, instead of our facing a bill of £100 a time for imported components for the machines, each machine will cost £1,040 to our balance of payments to import from Belgium.

We are told that the object of the Bill is to reduce the total cost of our imports. If that is so, it is hard to imagine anything which could be less sensibly designed for the purpose.

I come, then, to Amendment 79, because, under the terms of the firm's agreement with the Belgian patentees of the finished machine, it has an obligation to pay £5,000 on 1st April of next year as its minimum guaranteed payment for machines which, if it is not allowed to import components, it will not be able to produce. The effect of having to pay this £5,000 guarantee will be that because the company is running on a very tight financial margin it will have to cut down its investment and modernisation programmes and will be forced to abandon, perhaps for some years and perhaps for ever, the prospect of manufacturing these high-speed cock winders in future.

I do not wish to say very much about the other two Amendments which are much broader, as I think their intention is very clear. As I say, it is a matter of enabling firms to import machinery which is not available in this country and which can then be used for the manufacture of goods which are currently imported into the United Kingdom.

But, as to Amendment No. 115, I suggest that it is a little absurd that manufacturers who wish to develop the production of goods which are currently imported into this country but who are dependent upon machinery or machine tools imported from abroad in order to produce those goods, who cannot obtain the machines in this country because they are covered by patent arrangements which make it impossible for the machines to be manufactured in this country, should be debarred or discouraged from importing those machines by this grotesque and absurd measure.

I hope I have said enough to explain the purpose of the Amendments. I do not regard their wording as in any sense sacrosanct, and if the Minister of State were able to say that he accepts their sense but rejects the wording I should be delighted; I hope that he would then consider the wording and suggest wording which the Government could accept, so long as the sense is retained.

Mr. John Hall (Wycombe)

I am grateful to my hon. Friend for having tabled these Amendments. Curiously enough, I have a case very similar to the case which my hon. Friend recounted to the Committee, which is met by at least three of the four Amendments. I have to declare a personal interest because I am chairman of the company I have in mind. For this reason, perhaps I know in considerable detail the problems affecting the company.

It is a company which imports partly finished goods which are its raw materials. It cannot get these partly finished goods in this country; they have to be imported. The company will face a deposit charge of something like £250,000 over six months from the date on which the Bill comes into force. Although, under the guidance given by the Chancellor, it can have facilities to meet the deposit charge for the first few weeks, this will be useless for meeting a deposit charge amounting to £250,000 over six months. It will have considerable difficulty in obtaining finance from other sources. If it is unable to pay the deposit, it will have to cease importing and cease manufacturing. There is no alternative.

The tragedy is that it is an expanding company. It is building up an export business from the fully manufactured goods that it finishes in this country, exporting to those parts of the Commonwealth which were the old Colonial Empire. It can build up a business which it is estimated might be worth anything from £500,000 to £1 million in the next few years. Because of the pressure on the banks to restrict their lending, the company will be in a position of having drastically to reduce its scale of operations and perhaps close down altogether. As the factory is in a development area, giving employment where it is needed, it would be a tragic matter and not one which was intended by the Government in bringing forward the Bill.

1.45 a.m.

I am sure that this is only one of many cases. It comes about by the fact that the Government have selected in their list of exclusions in Schedule I basic raw materials which must have been culled in the days of the 19th century. Many companies today import a number of semi-processed goods which are the raw materials that they finish. A great part of our export trade is made up of companies importing semi-processed goods which are re-exported in a finished state, having had used on them the particular skills for which this country is notable throughout the world. I hope that whoever is to reply will give special consideration to the cases mentioned by my hon. Friend and myself, cases which no doubt can be duplicated by hon. Members in all parts of the Committee.

Mr. Drayson

I am grateful to my hon. Friend for having moved these four Amendments.

Amendment No. 114 covers an aspect of one of the problems of a firm in my constituency which I had hoped to raise on the Schedules to the Bill. That Amendment deals with the import of goods or materials which are imported wholly and exclusively for manufacture in the United Kingdom. I will give the Minister details about the case that I have in mind in the hope that he might be able to consider such cases, and, when we come to the Schedules, it might be possible for the Government to put forward Amendments that would cover them.

The mill to which 1 refer imports its yarn from Austria. That yarn consists of about 50 per cent. Australian wool and about 50 per cent. I.C.I. Terylene which has been exported from the United Kingdom to Austria. The Australian wool makes its way to the United Kingdom via Austria where it meets the I.C.I. Terylene which has been exported from the United Kingdom. The Australian wool and the Terylene are spun together and the resulting yarn arrives in the United Kingdom where it is woven into tropical suitings, of which about 98 per cent. is exported.

This firm has been weaving cloth for over 100 years, it employs over 100 people, and its turnover, on the export side, amounts, after finishing processes, to £1 million a year. It is faced with immediate difficulties. It has a consignment of this yarn at Hull docks and it is called upon to pay a deposit at the moment of £40,000 for £80,000 worth of yarn. This seems wholly unfair to a company that is exporting material which consists of 50 per cent. Terylene which has been sent from the United Kingdom to Austria to be spun with the Australian wool, simply because the yarn is not produced here at the present time. The firm tells me that it will be only too pleased to get its requirements of yarn in the United Kingdom and then make 100 per cent. export of its tropical suitings, for which there is no market in this country.

Some years ago the company made the decision, when it was supplying 95 per cent. of the home trade with its products, to switch to exports, and in a period of 12 months it switched over to 95 per cent. for export. It is to be congratulated on its remarkable achievement. However, it is now faced with considerable difficulties.

I hope that I have sufficiently outlined the problem so that the Minister will have an opportunity of giving sympathetic consideration to the case. I shall raise it again when we get to the Schedule. but it may well be covered by the Amendment.

Sir Harry Legge-Bourke (Isle of Ely)

One has to relate the Clause to the Schedule—and we discussed the principle underlying the Schedule on the Order the other day—but there are two examples in the Schedule of semifinished products which are exempt. The first is woven fabrics of jute, and the second is pearls, synthetic and natural, precious and semi-precious stones and precious metals not fully manufactured. I cannot see the logic of upholding those exemptions and turning down the Amendments.

The partially manufactured products which would be covered are those which are essential to the companies concerned. Very often they cannot be obtained in this country, and the object of the Amendments is to make sure that those materials which are essential to complete a manufacture in this country, but which cannot be obtained here, are exempt. If it is possible in the Schedule as it stands for the Government to put in semi-finished products anyway, why cannot they accept the Amendments, which do not infringe the principle embodied in the Schedule?

Mr. David Mitchell (Basingstoke)

I wish to draw attention to a problem which arises in my constituency, and which is not covered by the Schedule. A firm in my constituency exports diamond drills for drilling through rock in various parts of the world. The drills become battered beyond imagination in use, and have to be re-imported here when that happens. The diamonds are then picked out of the battered piece of metal, put on to a new metal base, and re-exported. So far as I can see this will not be covered, and I ask the Minister to ensure that it is, by putting forward an Amendment to the Schedule when we reach it.

Mr. Biffen

The jute industry and those activities ancillary to it can count themselves lucky to have so fluent and cogent an advocate as my hon. Friend the Member for South Angus (Mr. Bruce- Gardyne).

The point which occurs to me relates to the machine tool industry, and a development which we have seen in the British machine tool industry over recent years. It is one which is welcomed by both sides of industry. I am referring to the development of certain lines of machine tool manufacture and certain sophisticated designs as a result of American investment and partnerships in association with British machine tool companies. The obvious case is Herbert-Ingersoll, which has a very sophisticated line of machine tools now being installed at Daventry. That is one example of the trend which is in wide evidence.

These are imports of parts, very often from the American partner, which are essential to the build up in this country of machine tool designs which hitherto have not been manufactured here. Once the designs are manufactured in this country, it will mean that we shall no longer need to import them from North America or from our Western European competitors. Developments of this kind are put in some jeopardy by the Bill, and I am sure that the Minister will be anxious to assure the House that that kind of importation will be allowed to continue, and will not be harassed in any way.

Mr. Taverne

Many points have been made forcefully about encouraging import substitution and avoiding dislocation. Reference was made to this by the hon. Members for Oswestry (Mr. Biffen), South Angus (Mr. Bruce-Gardyne), and others. To some extent the question that arises here, and in particular the kind of problem raised by the hon. Member for Skipton (Mr. Drayson), can be fully discussed when we come to the Government Amendments to the Second Schedule. The other questions on the Schedule will be discussed at a later stage. My objections to the Amendments are not ones which relate to the Schedule; they are inherent in this kind of Amendment.

The question posed by the Amendments is: how do we verify the facts on which the exemption from import deposits would be based? It is very important that the test for the customs as to whether or not a deposit is payable should be a clear one. If it is not clear—if there is elaborate argument about whether or not the goods fall within the exempted case, and elaborate inquiries have to be made to see whether these are the kind of goods which get an exemption, the result would be that time was taken on inquiries, there was congestion at the docks, and all sorts of difficulties arising which interfered with the importation of these and other goods.

If we look at the kind of matters raised in Amendment 114, which is the widest one, we see that the difficulty is not a matter of drafting; it is inherent in this kind of Amendment. The facts which would have to be established are not necessarily self-evident at the time when the application for exemption is made. Are these goods of a type currently being imported into the United Kingdom? In some cases it would be clear, but in many cases it would not necessarily be clear straight away. Are these goods of a type which are wholly and exclusively imported for the manufacture of goods of that type? These questions cannot be clearly determined, and if they have to be examined by the customs authorities many delays will occur.

On the point raised by the hon. Member for Oswestry (Mr. Biffen) it may be difficult to establish the kind of facts which he outlined. This difficulty is inherent, to a lesser extent, in the other Amendments. The acceptance of the first Amendment would make a major inroad into one of the central purposes of the whole scheme—the restriction of credit. Being drafted in such wide terms it would mean that the amount of credit being affected by the scheme would be much less than it would if this exemption were excluded.

Amendment No. 115 is not quite as wide, but the same sorts of question arise as to whether these are materials of the type currently imported into the United Kingdom and whether they are imported wholly and exclusively for the manufacture in the United Kingdom of these types of goods.

With Amendment No. 78 one is in greater difficulty, because it does not refer to similar finished goods currently being imported; it refers to manufactured articles which would require to be wholly imported in the event of the non-availability of the imported components. Are they necessary? Who will decide whether they are? These are clearly the kind of questions which would lead to endless arguments, confusion and congestion at the docks.

On Amendment No. 79, many of the matters are more easily verifiable. This would not apply to all, because we should have to decide, again, whether manufacture could not take place without the import of the said goods or materials. On the other hand, it would be possible to establish whether a licensing agreement had been entered into before 22nd November.

2.0 a.m.

But there is a further difficulty here, which also arises over the next group of Amendments, namely, what to do about prior contracts. I do not want to go into that argument, but either one exempts all prior contracts and goods in transit or one does not exempt them at all. But there is no case for taking one form of prior contract alone, that of a licence agreement. I do not want to anticipate our next debate, but the general difficulty which exists in its strongest form in Amendment 114 also applies to all the other Amendments.

Mr. Bruce-Gardyne

The Government are knowingly and consciously encouraging the import of goods costing £1,040 each to the balance of payments in place of goods costing £100 each, but in the circumstances of this fatuous legislation, this is a consequence which we must probably face, since additional complications would arise under the Amendments. It proves once and for all that, when we are trying to handle the legislative programme of this Government, the best thing to do is let it alone and allow it to do the maximum possible damage to the economy.

Amendment negatived.

Amendment made: No. 31, in page 3, line 25, at end insert— 'subject to annulment in pursuance of a resolution of the Commons House of Parliament'.—[Mr. Taverne.]

The Chairman

We come now to Amendment No. 28, in page 3, line 30, at end insert— (6) No import deposit shall be payable in respect of goods which it is shown to the satisfaction of the Commissioners were already in transit on 22nd November 1968 or were the subject of a contract dated prior to 22nd November 1968. with which we may also discuss Amendment No 96, in page 3, line 17, at end insert— (2) No import deposit shall be payable on any goods delivered as part of a contract entered into before 22nd November 1968.

Mr. Emery

It would probably be convenient for the Committee if I move the second Amendment at this stage. I beg to move in page 3, line 17, at end insert— (2) No import deposit shall be payable on any goods delivered as part of a contract entered into before 22nd November 1968. This covers the same point as Amendment No. 28. Both, as the Minister said earlier, deal with prior contracts and goods in transit. We have had arguments on these lines before. I moved similar Amendments in our debate on the 15 per cent. surcharge. There is a difference of approach between both sides of the House in how we would deal with these matters in this type of legislation.

I do not want to be railroaded into a debate on how prior contracts may be affected by taxation, because these are not the same as or even slightly similar to those affected by this type of legislation. We believe that any contract given by any person purchasing in industry is of major importance. We ought to do all we can to ensure that sanctity of contract is preserved, because on that rests the confidence of people in industry and commerce.

An importer may be under a contractual obligation to supply goods at a given price. He is acting independently, although in some aspects he is acting as an agent for industry. I have already referred to A.E.C., which farms out to specialists certain of its contractual imports. Those are usually obtained for the company on fixed term contract. This Bill means that the importer will not be able to hand on any of the 2½ per cent. increase which the Financial Secretary glibly suggested could easily be absorbed by the importer. The strength of the hon. Gentleman's argument was that all importers will be in exactly the same position, but if the importer already has a firm contract, he has to meet that 2½ per cent., and that seems to me to be entirely wrong. If it is suggested that the major company should make allowances for this legislation, that is a possibility, but again it means that industry is being asked to up its prices generally, because its estimates are carefully and closely worked out.

Goods in transit are normally covered by a purchase order or a contract. The Amendment covering contract is fair enough and definite enough to cover them, and should be considered by the Government. Again, we see an aspect of retrospection in this legislation. People who have made commercial judgments about the pricing of components for industry and have acted as the law allowed—and this is not a matter of tax we have been nearly told by a Law Officer earlier today that it is not a duty—and suddenly we have retrospective action which must increase the price of the product, process or component. This type of legislation ought to be discouraged.

The strange thing is that in this House, whichever party is in Opposition, we always have loud and long—and I hope my speech will not be of the latter type—speeches about retrospective legislation. It is right that those speeches should be made, but what worries me that that more and more the aspect of retrospection has been creeping into the type of legislation that we have been getting from the Government. We have had it even in the recent mines and quarries Measure, and here we have it once again. The Financial Secretary can shake his head, but in the present case it means that retrospective legislation will increase the prices of goods contracted for some times months before, or even last year.

At this late hour there are a number of other problems one could argue about. I should perhaps declare an interest in the Institute of Purchasing and Supply. It has made only one major objection to this Bill. It has always felt that free trade is the best method of obtaining efficiency, but it feels strongly about this aspect of sanctity of contract. On this more than on anything else it would urge the Government to give way.

How much do the Government believe they would lose if they gave way? Have they any idea? I have attempted to make some estimates. I urge the Government to consider this matter because I do not believe that the amount lost would be significant. If it is not large or significant, for goodness sake instead of having this type of objectionable legislation let us back up the general approach on the sanctity of contract and allow those which are already in existence for the transit of goods to stand.

[Mr. HARRY GOURLAY in the Chair]

Mr. Burden

I add my voice to that of my hon. Friend the Member for Honiton (Mr. Emery). In the Second Reading debate I raised this point about contracts which have been entered into. Already many firms have entered into contracts which will not mature until some months ahead. This raises a very important problem for firms which as a result of this legislation will not be able to take delivery of goods which they have ordered because of the 50 per cent. deposit. Not only will that do the firms concerned considerable harm but they may find themselves liable to prosecution for not carrying out contracts they have entered and subject to heavy damages, and also because they are unable to honour the contracts for sales in this country of the merchandise they intend to import they may be faced with claims for damages because of non-delivery to customers here. This would place them in a serious position.

At one moment the Government say that these people will have no difficulty in getting the money for the deposit and at another moment they say that the whole operation is intended to make it impossible for people to get credit and it is to mop up liquidity. If there are only some who cannot honour contracts because of Government action the Government should consider insulating those who cannot meet their obligations and who might be subjected to legal penalties against the hazard which the Government have created.

If these circumstances arise, there will be representations by companies overseas which have been let down by British firms which have been unable to meet their obligations because of Government action. Other countries may take retaliatory action against us. British exporters to countries where we have fallen down on our obligations will suffer, as will the Government.

2.15 a.m.

Mr. Blaker

In rejecting an earlier Amendment the Minister of State said that one of his grounds for doing so was that no clear test would be available of whether the goods should be exempted. That argument is not available to him in this case, because there will be clear documentary evidence in any imaginable cases the Commissioners will have to consider. What is more, the Amendment contains the words to the satisfaction of the Commissioners". If the Commissioners are not satisfied with the documentary evidence available to them, there will be no exemption. The hon. and learned Gentleman may argue that the acceptance of Amendment No. 28 would create more work. This argument is not valid either, in view of what he said when rejecting the suggestion that the minimum exemption limit should be raised above £50.

Hon. Members have received particulars of many cases, from constituents and elsewhere, illustrating contracts which cannot be cancelled and which were finalised before the relevant date. I have received details of three, all of which indicate the stupidity of the Bill as framed. One is the case of an importer of machinery to manufacture macaroni which would compete with macaroni which will be imported free of deposit. Another case concerns machinery specially made in Germany to produce glass fibre which is intended to increase the sales of the importing country by between 300 and 400 per cent. The cases of which I have received details concern goods not available here and where importers foresee difficulties arising in the availability of credit.

In the cases we are considering ex hypothesi no purpose will be served by reducing imports, because the goods have already been ordered. The only purpose that can be served is to reduce credit. That purpose will be served only at the cost of injustice. If the matter of reducing the availability of credit is so much in the Government's mind, can they not find another method of doing it without causing injustice and without once again, as they have so often done in the last four years, badly affecting business morale by subjecting business to shocks which no reasonable businessman could be expected to foresee? It is becoming such a hazardous business to be in commerce that it must have an adverse effect on our economy.

I have one example here which shows how lunatic the proposed arrangement is. A wine shipper has in Bordeaux, Burgundy and Germany stocks of wine which he wholly paid for seven or eight years ago. He is now informed that, if he imports this wine during the currency of the Bill, the import deposit will have to be paid. No purpose in restriction of imports will be served by subjecting these imports to the deposit. They have already been paid for 100 per cent. In this case the Bill will work contrary to the Government's intention, since this gentleman will not import his wine. He will leave it there, even if this means some deterioration in quality, and that wine, which would have been imported without cost to the balance of payments will be replaced by other wine for which we shall have to pay.

Mr. John Hall

We are now at the hour of the morning when it is reputed that human vitality is at its lowest. Certainly, my vitality is pretty low. I only hope that the Minister's vitality is even lower and that he may be driven to accepting his first Amendment today.

The Amendment is particularly relevant to a case which has been brought to my attention. All who have spoken so far have given examples of the way in which the Bill adversely affects many British companies. The case to which I refer is that of a large printing company which, some time ago, became concerned at the lack of printing facilities in England, especially for coloured brochures, most of which work is now being done on the Continent. More and more companies are now having their printing crone abroad, especially the print- ing of travel brochures, which come in duty-free and are, moreover, exempted under Schedule 1 and come in without payment of the deposit.

Because of its concern and its wish to play a part in saving some of the import cost which must be met in the printing of brochures abroad, this company looked about for a suitable photogravure machine which would do the job. Naturally, it looked for a British machine first but could not find one of the right size and quality or offered at the delivery date it wanted. Eighteen months ago, therefore, it bought a machine from a Continental country, and that machine is now coming up for delivery.

The machine costs £200,000. The company will have to pay £100,000 for the privilege of bringing in a machine intended to save the strain on our balance of payments through the cost of putting printing work overseas. When it placed the order, the company thought that it was playing a part in helping to produce a favourable balance of payments. It noted that the Economic Development Council which had made a survey of the printing industry, especially in relation to exports and imports of printing work, had pointed out that, whereas in 1958 imports of trade catalogues and advertising material totalled only £782,000, that figure had risen to £5.8 million in 1967, and it was running in the first six months of this year at nearly £3.7 million, so that it would be over £7 millions for the full year.

Here is a company which is trying to meet an obvious need. It placed an order 18 months ago for a machine, but, because of this Bill, it faces the problem of finding £100,000 for the deposit. How will it manage? The banks have said that they are not allowed to provide facilities save for a very short time. If it is able to raise the money in other ways, its expansion and capital development programmes in other directions will have to be stopped.

This kind of thing strikes the average businessman as sheer lunacy. It is a severe discouragement to businesses all over the country which, despite all the impediments and handicaps put in their way by the Government, have still been trying to play their part in developing our markets overseas and reducing our adverse balance of payments. Yet as soon as they set about it, they are clobbered by a stupid Measure of this kind.

Sir D. Glover

I congratulate my hon. Friend the Member for Honiton (Mr. Emery), who, par excellence, has shown that he is not only a free enterpriser but a businessman who understands the implications of the Bill. Many of his Amendments, taken together, form a coherent whole of what he rightly thinks needs to be done to help the business and industry community if the Bill is not to be a disaster.

In a television programme when the latest crisis occurred, Mr. Hyman of Viyella, who is not looked upon as one of the most backward members of the industrial community, said that it is completely impossible for industrialists in this country to plan an efficient system of production, because every time they work out their programme for an efficient system they wake up the next morning to find that the Government have introduced a Measure that destroys the whole of their plan.

The Amendment tries to remove that disturbance in industrialists' plans, which they have made months ahead, before the Bill was introduced. If it is accepted, a good deal of that planning will continue in a normal, fruitful way. People will be able to honour their commitments and carry on increasing their efficiency. But, if it is not accepted, a great number of probably some of the most efficient industrialists in the country, who have entered into commitments for machinery and so on from abroad, will have the whole of their plans and forecasts of profitability and production thrown into the melting pot because of the Government's arbitrary action in doing things without any consultation and without considering its effect on the business community.

My hon. Friend would probably lose some of his antagonism to the Government's action, and would perhaps not press the Amendment so far, if the Government had been much more forthcoming about the negotiability of the 50 per cent. deposit. Industrialists who have entered into commitments and arranged the whole of their finances for a long period, and now find that under the Bill everything is thrown into the discard, would probably be able to get out of a good deal of that difficulty if, possibly at a slight discount, they could get rid of their liability for the 50 per cent. deposit. The Government have been very lukewarm about accepting any idea of negotiability. Do not they realise that unless the Amendment is accepted they are throwing an enormous spanner not into the works of inefficient industrialists or inefficient companies but into some of the most efficient industries in the country, which, because they are efficient, have worked out their affairs on a financial knife edge.

A totally different situation is created by the Government's arbitrary decision. As Mr. Hyman said, it is impossible to expect British industry to improve its productivity, efficiency or export performance unless it can feel that it can plan for a long period ahead knowing that the Government will not spoil all its planning.

It is rather frightening that the party opposite, which is supposed to be the party of planning, acts like a bull in a china shop in most of our affairs. That is what they are doing here.

My hon. Friend has tried in a very small way to remove some of the worst anomalies that the Bill will create. I hope that the Minister will say, perhaps not that he will accept the Amendment, but that between now and Report he will produce something that will have the same effect. If the Government do not do so they will create more disturbance than they have any idea of at present in the fabric of our industrial life.

2.30 a.m.

Mr. Drayson

These Amendments draw attention to an objectionable aspect of the Bill—the retrospective legislation. I want to return to the question of the importation of yarn from overseas. In every case, contracts for goods now arriving at the docks will have been placed many months if not years ago. As my hon. Friend the Member for Ormskirk (Sir D. Glover) has said, firms operating on close budgets will have made their financial arrangements for many months ahead and the 50 per cent. deposit can put all their plans out of action.

I will quote from a letter I received from another firm in my constituency: We import a certain amount of yarn from the Continent because it is impossible to get deliveries in the United Kingdom. The yarn is used for materials that we then export. This infamous deposit will probably mean that we cannot get this yarn and that we will therefore lose our export business in this type of cloth. I hope that by the time we get to the Schedule the Government will have had another look at the question of including yarns and more semi-processed materials in the Schedule, because I have given two examples tonight of export business built up against considerable competition from Japan and other countries which will be in jeopardy if firms operating on small budgets are unable to find 50 per cent. deposits and therefore have to stop this type of manufacture.

The Board of Trade have all the relative figures of the amount of yarn imported, what types of yarn they are, whether they are available in this country. They will know that invariably they are not, and that firms importing these materials only do so because they cannot get them in the home market.

I hope that by the time we get to a later stage, the Government will make these items free of deposit.

Mr. Taverne

I intend to restrict my answer to points directly relevant to the prior deposit. Without disrespect to the points raised by the hon. Member for Wycombe (Mr. John Hall), much of what he said was against the whole principle of credit restriction and that if a firm manages to raise £100,000 for this it will not have it for other purposes.

I am concerned with the case raised by the hon. Member for Honiton (Mr. Emery) about prior contract for goods in transit. He asked whether it would affect the scheme. Of course it would, because many contracts have been entered and many shipments may take something like three months to arrive. This is particularly true of goods from Australia, Hong-kong or Japan, sent by sea. In the course of the 12 months Scheme it would make a considerable difference if goods which take three months to arrive were exempt from the scope of the Scheme. It would seem to discriminate against our near neighbours if goods in transit from distant parts were exempt whereas the goods from our near neighbours were not.

The important answer to the major point is that it has been the standard practice not only of this Government, but of previous Governments that where there has been a change in customs duties, they should apply from a fixed operative date without exception. This has not only been the practice of the present Government. It was also the custom of other Governments. This argument in relation to Customs duties applies equally to this deposit—

Sir D. Glover

Is it now accepted that this is a Customs duty? The Attorney-General spent half an hour this afternoon convincing us that it was not.

Mr. Taverne

Had the hon. Member waited to the end of my sentence, he would have seen that I said that this is a practice which relates to Customs duties and it is also something which should be applied in the case of the deposits. [An HON. MEMBER: "Why?"] Because exactly the same arguments apply. If hon. Members opposite do not see this, they do not understand the effect of what they are proposing.

If Customs duties are raised in the middle of a contract being fulfilled, goods which have been paid for become more expensive and a worse deal results for the buyers of the goods. Exactly the same sort of principles apply. It has always been necessary to provide certainty, uniformity and a precise point in time from which the new measures would operate.

Mr. James Allason (Hemel Hempstead)

I understand the hon. and learned Gentleman to suggest that the duty should be passed on to the customers. Is he suggesting, therefore, that when goods which are imported are already invoiced to other customers, those other customers should find the deposit?

Mr. Taverne

As we discussed earlier in the evening, the person who pays the deposit is not necessarily the importer, but in many cases he will be. The argument applies to the extent that every time a duty is raised, someone will have his bargain affected for the worse by the imposition of that duty in the course of the contract. No argument could ever then be raised that the increase in the tariff or whatever it might be, or the increase in interest rate, should not operate on goods in transit or a contract already concluded. Precisely the same arguments apply here.

Mr. John Hall

I am sorry to interrupt the hon. and learned Gentleman; I know that it is troublesome to have to keep bobbing up and down. Would he not realise, however, that there is a difference between the deposits and the raising of a tariff? In the raising of a tariff, there is one additional sum to be met, generally not very high, on a particular transaction. In this case, there is an additional charge for the interest to be paid on the money raised, but, above all, in many cases it is necessary to find a very large sum of money, the difficulty thus caused being quite different from that produced by the raising of a tariff.

Mr. Taverne

The raising of a tariff may be by much more than the interest payments which now have to be paid by those who find the deposit.

Mr. Burden rose—

Mr. Taverne

I am sorry, I must finish the point. I cannot deal with several interruptions at the same time. If the tariff is raised, it may be raised by much more than the interest payments which have to be found in this case. As to the raising of the deposit, I find it hard to believe that firms which have fixed contracts will find it impossible to raise money for the deposits which they are required to find.

The hon. Member said that in this case, the difficulties about uncertainty would not arise. I think that it was the hon. Member for Blackpool, South (Mr. Blaker) who said that the certainty argument which I deployed on the last batch of Amendments could not arise here. I think that he is wrong, because there may be many arguments about when, for example, the transit began. It might be difficult in certain cases, when goods do not come here by a direct route, to decide when they started to be goods in transit.

There might be considerable difficulty in deciding on what date the contract was concluded. If the contract is concluded, as often happens in commercial transactions, by exchanges of letters, there are often many arguments at the Bar to decide which of two large con- corns has been the more unbusinesslike in its correspondence, the outcome turning on the precise date on which the contract took effect as a result of correspondence between the parties.

The test of certainty which is so important to the whole smooth operation, and to importers, is one which again would suffer if arguments arose as to whether or not goods were actually in transit at the time when the scheme was launched, and whether or not the date of the contract was before or after the scheme.

There is also the further point of fairness. A number of hon. Members have said that it was grossly unfair to put this burden on those who had already signed a contract, but fairness requires that importers should be treated alike. Importers will be competing against each other in the market, and hon. Members opposite are suggesting that if, owing to some chance, one lot of importers had signed their contracts earlier, or had got their goods in transit earlier, they should escape the deposit, whereas other importers should pay the deposit because a contract date fell on the wrong side of the line. Goods which arrive in this country after the operative date should compete with each other on an equal footing, and it would have an unfair and distorting effect on competition if this Amendment were carried. Hon. Members are proposing to apply an entirely different standard to import deposits from the standard imposed in the past where the same principles have applied. These are standards which they themselves have always found it necessary to impose, and they are standards which should be imposed here, so as to work fairly between importers, in order to provide the certainty and uniformity which would enable the scheme to work smoothly and also because this is the pattern which has been followed by successive Governments.

Mr. Burden

The hon. and learned Gentleman has been subjected to a great deal of strain but he must not get testy; if he does all he will do is to prolong operations. He was on two very bad points when he made his speech. In endeavouring to explain the charges, he said that tariff rates were much higher than the interest payment on import deposits. This is complete and absolute nonsense. The importers have to pay not only the interest rates, they have to find 50 per cent. more than the cost of the goods. This is far greater than any normal tariff increase. Whereas firms can take a risk on a normal increase in tariffs, which moves between close lines, the import deposit imposes an increase of 50 per cent. on the cost of the goods to the importers, which must be laid out for six months, and many of them are in no position to do this.

The hon. and learned Gentleman said that we must bring about equity between importers, and that it would be unfair if buyers who had placed their contracts considerably before the date were allowed to bring in goods without having to pay the import deposit. This again is an extraordinary argument. Anyone who places an order now does so fully aware of what the total cost will be. People who placed their orders before the Bill was introduced thought that the merchandise which they were buying would cost them, in effect, a third less.

If it is a question of equity, the Minister of State has got himself into a muddle and cannot know what equity is. I suggest that the only reason why he has got himself into a muddle is that he has begun to lose his temper. If he can keep calm and discuss the matter rationally, he will not repeat such nonsensical statements.

2.45 a.m.

Sir K. Joseph

The Government face a really difficult dilemma here. Obviously they do not want to impose totally unpredictable costs on our businessmen. My hon. Friend the Member for Gillingham (Mr. Burden) spelt out precisely what damage this arbitrary Act will do to all sorts of businessmen, and clearly the Government do not desire that.

I regret having to compare Her Majesty's Government to South American States, but I believe that when South American States have imposed protective measures of this sort, we have appealed to them, often successfully, to allow cargoes that were already on the way to be exempt. By the standards of some of those States, the Government are being very savage in the impact that they are making on our businessmen.

The Government's excuse, which may be a very powerful one, is that they could not afford to do this because the volume of exemption would be too heavy. But the Minister gave us no details. He claimed that there would be a large amount of money involved that would escape. But when we recognise that we are dealing with only a third of our total import bill, and if we discount for a moment the proportion of that third which is on long sea voyage or on long order, there must be only a relatively small amount of the total import bill which would be affected if there were some sort of exemption as proposed in this set of Amendments. I hope that the hon. and learned Gentleman will give the Committee an idea of the volume of the loss to the Government if they were to meet the case being put to them.

They say, secondly, that it would not be practicable to decide when the date of origin, either of the voyage, taking the transit test, or of the order, taking the goods contractually committed, was applied. Surely there must be administrative criteria which could be adopted here. I imagine that the date of the bill of lading could be taken as conclusive evidence, and I am sure there are other means by which the courts or the Customs can decide when an order or a voyage begins.

The Government are shifting uneasily in their use of the key words "Customs duties". When it suits them to argue that these deposits are Custom duties, they so argue. When it suits them to deny that they are Customs duties, they so deny. The hon. and learned Gentleman is saying that, just because a Customs duty may be changed overnight and the importer has to bear the brunt, he should bear the brunt when the deposit is imposed. But, in substance, it is a quite different and new animal, by which an importer had no reason to expect any sort of change.

The Minister must seize in his mind the scale of what is required here. As my hon. Friends have said, this is a 50 per cent. extra cash demand on the importer. It is true that it is repayable and that the ultimate cost is only the loss of interest. But, in terms of cash flow, it is a savage demand to be imposed unpredictably on the importer. We ask the Minister of State to look again at these Amendments which have been discussed so trenchantly by my hon. Friend the Member for Honiton (Mr. Emery) and to tell us in particular how much of the total import trade might escape if these Amendments were accepted.

Mr. Taverne

I cannot tell the hon. Member exactly or even roughly what volume of trade is involved, because, as he realises, this involves knowledge which we do not possess of a number of uncertainties. One does not know what the contract date is. One would not know this about goods coming into this country. One does not know when the transit began. It is not good enough to say that one can simply make the bill of lading conclusive evidence. What about goods in transit which did not come by ship? What about the time that they were loaded on to a train? What about those which came overland? There are many difficulties about transit which are not soluble in such a way as to make it absolutely certain which goods are exempt and which are not.

Mr. Patrick Jenkin

Why is it that we cannot apply in this case the test for goods in transit under the Sale of Goods Act, 1893, which I have always understood from my earliest legal days at the university, to be an absolutely clear and categorical test, and that different rules apply when the property passes? Why cannot those workable and well-established rules apply in a case like this?

Mr. Taverne

Under the Sale of Goods Act a great deal of litigation has to take place to determine when the transit started. These issues frequently have to be decided by court of law. It would be fatal to turn the Customs into a judicial body which would have to spend a great deal of time resolving this kind of dispute.

Mr. Patrick Jenkin indicated assent.

Mr. Taverne

The hon. Member nods. He realises that this is something which one must avoid. If inquiry has to be made elaborately into each individual case, exactly the same objections arise as arose in the case of the last Amendments.

I used the analogy of Customs duty. It seems to me that this is a good analogy. If hon. Members do not like that analogy, there are all sorts of other eventualities which can arise in the course of a contract which can adversely affect the different parties to that contract. There could be an increase in the price of raw materials or an increase in transit rates. There are different ways in which parties to a contract can by subsequent events be prejudiced. This is merely one of the ways in which existing contracts can be affected.

Mr. Emery

The inadequacy of the replies from the Treasury Bench shows that the Minister has no real understanding or experience of how industry works. It is not true that on a fixed price contract the factors which he has just referred to will alter the contract or the price. To say that it is difficult for a director of supplies or a purchasing officer to establish the date when a contract was made or an order was given is not true. The Minister is concocting arguments to shoot down our case. They are arguments which do not stand up to proper examination.

It is exactly the same sort of commercial judgment which was applied when the Financial Secretary to the Treasury was speaking earlier. He gave us a lot of "guff", and we are getting exactly the same sort of "guff" now. I feel so strongly about this matter that I do not feel inclined to withdraw the Amendment.

Amendment negatived.

The Deputy Chairman (Mr. Gourlay)

The next Amendment is No. 29 with which Amendment No. 25, in page 3, line 24, at end add— (4) No import deposit shall be payable in respect of goods or materials which, on or before 22nd November 1968, were the subject of temporary exemption from import duty by Treasury order, on the grounds that they were goods or materials not made in the United Kingdom or the Commonwealth or that the supply available from these sources was not substantial having regard to the existing United Kingdom demand. Amendment No. 30, in line 30, at end insert— (6) No import deposit shall be payable in respect of goods which are already subject to Board of Trade import licensing control or quotas. and Amendment No. 104, in line 30, at end insert— (6) No import deposit shall be payable in respect of goods covered by a temporary ex-emption order made under the Import Duties Act 1958. have also been selected.

Mr. Patrick Jenkin

I beg to move Amendment No. 29, in page 3, line 30, at end insert— (6) No import deposit shall be payable in respect of goods referred to in section 6 of the Import Duties Act 1958. It is interesting to see how far our debates now are following almost exactly the chronology of the debates on the Finance Bill of autumn and winter, 1964. I find that on 1st December, at about 11 o'clock at night, we discussed goods in transit and we followed on to deal with goods subject to temporary duty exemptions. In one respect we are less fortunate. It is now three o'clock in the morning. In another respect I hope that we shall be as fortunate. I do not know whether the Financial Secretary will be replying. No doubt he will see that his predecessor, the hon. and learned Member for Derby, North (Mr. MacDermot) made some concessions to the Committee when the matter was dealt with four years ago. I confidently look forward, therefore, to hearing what further concessions the Financial Secretary is prepared to make on this occasion.

These Amendments deal with particular categories of imported goods where, for one reason or another, special circumstances exist which warrant the exclusion of those goods from the import deposit scheme.

The three Amendments refer to three different categories of goods, and I will briefly describe them.

Amendment No. 29 deals with goods subject to the temporary exemption procedure under Section 6 of the Import Duties Act, 1958. The Committee will remember that this Section replaced the old Safeguarding of Industries Act, 1921, when key industry duty disappeared in 1958 and the Section 6 procedure took its place. This relates to special categories of goods which in 1921, and again in 1958, it was felt required on occasions special protection in order that the industries could become established here. The first group includes aircraft, machinery, optical and scientific instruments, measuring and checking instruments, a lot of organic chemicals, principally dyestuffs and organic intermediates, and so on.

The second group, covered by Amendment No. 104, relates to a much more general category of exemptions under Section 3(6) and Section 13 of the Import Duties Act, 1958. This deals with cases where the Treasury can make orders, on the Board of Trade's recommendation, to exempt particular goods from import duty for a prescribed period. Applicants for duty exemption under this head are successful if the Board of Trade is satisfied that the United Kingdom or Commonwealth production is nil or negligible. The temporary exemption system applies mostly to chemicals, many of which require further processing. The goods temporarily exempt from duty are listed under tariff headings. I make this point to indicate that there is no question of uncertainty. It would be very easy for importers and the Customs to identify the tariff headings for the goods covered by a temporary exemption order which could, therefore, easily be made free from the import deposit.

The third category, covered by Amendment No. 30, is a rather different one. These are goods already subject to Board of Trade import licensing control. The Minister of State to the Board of Trade—I am glad to see him here—will know that the categories principally covered are goods imported from Iron Curtain countries. These are countries with which we have bi-lateral trade agreements where maximum quantities are laid down. This, therefore, is closely linked with the volume of exports that we can make to those countries. It would seem, on that ground, that this category must be excluded from the import deposit. If goods covered by these agreements are kept out, the inevitable result will be that exports will fall as well.

3.0 a.m.

The other two, the Import Duties Act cases, are based on the proposition that manufactured goods which are for any reason temporarily exempt from import duty are by definition those goods which are not available in this country, or at any rate not available in sufficient quantities, and which therefore have to be imported. They are goods which, if the manufacture based on them is to continue, will have to continue to be imported. The only effect of the import deposit will be to add extra costs.

Those two categories and the licensing category are all groups of goods in respect of which there will be two separate forms of Government control—either scrutiny by the Board of Trade and exemption plus the import deposit, in the other case, the bilateral trade agreements and the licensing system, plus the import deposit. A point which one might make in relation to the licensing one is that these goods come mostly from Iron Curtain countries. These are not goods for which the exporter will be able to provide any extra credit, and therefore this gateway will not be open to the importer.

Those all seem to be cogent reasons why these categories of goods should be exempt, and in this context I was interested to read what the Permanent Secretary to the Board of Trade, Sir Antony Part, said to the Session of G.A.T.T. only last Friday when he had to make reference—unhappy man—to the fact that this import deposit scheme had been introduced. He assured those who were listening to him that the scheme was designed to do as little damage as possible to international trade". Sir Antony is a highly respected civil servant, and if those words are to be taken at their face value the Government must meet the case of these goods which have to be imported, because, by definition, they are not available in this country.

Here are categories which are easily and readily definable, where none of the problems of uncertainty exists, and where there seem to be the most cogent reasons why they should be exempted from this deposit scheme. If the pledge to G.A.T.T. is to be fulfilled, it is essential that the Amendments should be accepted.

Mr. Alison

I should like to say a few words on Amendment No. 25, which I admit is an exploratory Amendment. Perhaps I could draw the Financial Secretary's attention to an announcement in the Board of Trade Journal, curiously enough on the very day that the Chancellor of the Exchequer announced the import deposit scheme. Under the heading, Applications for temporary exemption from import duty", the announcement said: The Board of Trade are considering applications for the temporary exemption from import duty of the materials listed below on the grounds that these materials are not made in this country or the Com- monwealth or the supply available from these sources is not substantial having regard to the existing United Kingdom demand. Further down the announcement there is appended a substantial list of almost unpronouncable commodities and articles.

The significant point is that those materials do not appear in the Schedule to the Bill. Are we to understand that goods which enjoy a temporary exemption from the normal customs duty, on the grounds proposed by the Board of Trade advertisement, automatically qualify for exemption from import deposit charges? This may be one reason why the list is not included in the Bill. if that is not so, do we understand that the Government have in mind that before the announcement by the Chancellor goods which were being considered for temporary exemption from normal import duty are now being reconsidered for inclusion not only in the normal import duty but in import deposits as well?

If the Government and the Board of Trade have decided that certain categories of goods which are not available in this country are to be imported free of duty it follows naturally that the Government should automatically include such goods in the list of exemptions. I hope that the Financial Secretary can reassure us that all goods which have hitherto been exempted from import duty will be included, in the form of words I have suggested, in the arrangements that he has made for certain categories of goods.

Mr. Harold Lever

This group of Amendments recalls to me some of the semantic excitement that occurred at the beginning of our debate about the difference between the duty of Customs and Customs duty. There was some scepticism among hon. Members opposite when we explained that duty of Customs was not necessarily the same thing as a protective duty in relation to our E.F.T.A. and Irish obligations.

This emerges clearly from this group of Amendments. I will deal first with Amendment No. 29, which would exempt from import deposits goods which may be exempted from import duty under Section 6 of the Import Duties Act, 1958. The list covers aircraft, machinery, optical and scientific instruments, various organic products, articles for testing or examination, and certain non-commercial importations for scientific research.

I should mention that the issue of Treasury directions giving this exemption for machinery has been suspended since the autumn of 1967. The Bill already propose to exempt certain non-commercial importations for scientific research, and substantially to exempt aircraft and parts and spares for overseas services, following the precedent of the previous Measure, so we have already met part of this demand. It was thought that the balance of national advantage lay in exempting these items.

An exemption of all the goods covered by Section 6 of the 1958 Act would be much too wide. The criterion for exemption under that Section is protective, and this is the point that I intended to make about the semantic aspects of a duty of Customs. This is not a protective Measure; it is a Measure calculated to produce a marginal reduction in imports and a selective pressure upon liquidity. It is not a protective Measure, in that we do not set as a criterion the requirement that the goods must be such as can be made in this country.

The intention of the Measure is concerned with credit and a marginal pressure on imports, but irrespective of the availability of British-made goods comparable to the goods affected. If we were to give this protective flavour—and this is what the Opposition are inviting us to do—the Opposition must see that this would be in direct conflict with their earnest representations earlier not to offend the spirit of G.A.T.T. and the E.F.T.A. Convention. We have taken their representations very much to heart in framing the proposal, and if we yielded to their argument in this case we would be offending the spirit of the E.F.T.A. Convention and G.A.T.T. We should be vulnerable to the criticisms which the Opposition were then wrongly making, in accusing us of breaking the principle of these agreements.

Mr. Patrick Jenkin

I find this argument very abstruse. The Amendment would remove the goods in question from the import deposit, and would therefore, to that extent, reduce the protection which the scheme will, to the extent that it keeps out imports, have for British industry. The fact that these goods are already, by definition, exempt from import duty, and that the protective element of the duty is non-existent, does not seem to make the extension of that exemption to cover the import deposit as well as the import duty give the Bill a protective effect. I do not understand the argument, perhaps because it is ten past three in the morning.

Mr. Lever

When there is an exemption from duty under this power, that exemption is based upon the non-availability domestically of these goods, so it is not a protective duty which is removed, because there is nothing to protect. If, for example, there were a duty on Zanzibar spice not producible in this country, even with a 100 per cent. tariff, then if there is a tariff on its importation, that is not a protective duty. It is rather like the Customs duty on whisky, even though in the form of a tariff.

There is no point in keeping that on, and the Clause enables us to take it off, if we are satisfied that the goods are not available domestically, but if, in selecting our list of exemptions, we take that into account and establish it as a criterion, this becomes not a general pressure on imports but a selective pressure of a protective kind—that is to say, we are showing that we are not applying this pressure to goods except where we can make the goods ourselves in competition with the foreigner.

I can assure the hon. Gentleman that it would be very ill-regarded by E.F.T.A. and G.A.T.T. if we were to apply what are in effect protectionist criteria, that is to say, exempting goods where there is no domestic production challenging foreign importation and not exempting those which we can make at home, and the import deposit would act as a protective duty. I hope that this point goes over, even at this hour.

For this reason, we cannot accept the criteria of the Amendments. But I offer this consolation: the Government have taken power in the Bill—this might be an inducement to hon. Members to enact it speedily—to make further exemptions, though not to remove any. We shall certainly look at the whole area of exemptions—this will have to be my answer on the Schedule, later—and what is the best package we can get up for using the exempting power by Order. I cannot promise any particular exemptions under the Clause, but I can promise that they will be candidates for early and urgent consideration. I hope that, with that crumb of comfort, and my argument for not giving this flavour which would be ill-regarded by our E.F.T.A., G.A.T.T. and Irish friends, the hon. Member will feel able to dispose of these Amendments.

Mr. Jenkin

The hon. Member piles such layers of jam on the crumbs which he offers us that they become irresistible. I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Question proposed, That the Clause, as amended, stand part of the Bill.

3.15 a.m.

Mr. Alison

We have in the Financial Secretary in these few declining moments of debate, a self-admitted friend of the small company, and of the large company and, I have no doubt, of the medium company as well—

Mr. Harold Lever

Where appropriate.

Mr. Alison

Yes, where appropriate. He exudes a certain avuncular—indeed, paternal—regard for companies of all kinds. I now invite him to look at a problem which will face the small company, and the small close company in particular.

This difficulty will arise because of the problem, which I know the hon. Gentleman appreciates, of the small company getting its share of such bank credit as may be available after the invitation of his right hon. Friend the Chancellor of the Exchequer to the banks to restrict finances really begins to bite. He will know that small companies—and I have in mind the example of a small wine company, in which I have no interest at all to declare—will have to begin generating internal funds in anticipation of having to pay deposits.

If the small company is a small close company, the Financial Secretary will appreciate that its necessity to generate and retain within itself more funds for the possible payment of deposits will present it with an embarrassment, in that the notorious and extremely disagreeable Section 77 of the Finance Act, 1965, makes it necessary for small close companies—or, indeed, any close companies—to distribute a certain proportion of their income, the undistributed portion incurring Corporation Tax, Income Tax and Surtax.

I know that the hon. Gentleman can give no more than a general undertaking now, but may we take it that, when the next Finance Bill comes round, he will bear in mind the fact that something will have to be done for small companies which are, as a result of the Bill, forced to retain more money and so will not be able to distribute it because they have to save up for the necessity to meet import deposits? Perhaps he could give some assurance that an extra undistributed with that object in mind would not be treated in that way in terms of the Finance Act, 1965. I know that the Financial Secretary looks forward with eager anticipation to the Finance Bill, 1969, but I can say that with such an assurance a lot of close companies would regard the Bill with a great deal more equanimity.

Mr. Blaker

I have two questions to ask, and the first relates to the machinery available for the settlement of disputes. The Clause provides for exemptions and reliefs, and as soon as one does that one opens the way to differences of opinion between companies and individuals and the Customs about whether, for example, a particular article is entitled to relief.

Section 260 of the Customs and Excise Act, 1952, provides machinery for the settlement of disputes which involves approval of the settlement by a referee in certain cases or by the High Court in other cases. The Bill declares that it is to be construed as one with the 1952 Act so, on the face of it, one might suppose that the dispute procedure laid down in that Act is available for all tax disputes which could arise under the Bill, but there is room to doubt whether that disputes procedure will be available, at any rate in a satisfactory way, in connection with goods entered for warehousing.

Clause 1(8) alters the date on which the incidence of duty operates in respect of that class of goods, and the ordinary rule in previous Acts in relation to ordinary Customs duties is that it is ascertained at the date of removal from the warehouse. Clause 1(8) alters that rule, and says that the incidence of duty shall be ascertained at the time when the goods are entered for warehousing. It therefore creates a new position in respect of that category of goods.

I suppose it might be argued that since the incidence of duty is now to be decided at the time the goods entered the warehouse, it will mean that the matter has been settled at that time, which usually will be when the goods enter the country, and that the possibility of making an appeal after entry to the warehouse is before the date described in Section 260 of the Act of 1952, that is to say the date of delivery of the imported goods from the Customs charge. I should like to have an assurance that the disputes machinery of the 1952 Act will he available in all cases from now on in relation to imports deposits in relation to goods in the warehouse.

Clause 2(2) says: No import deposit shall be payable, in the case of a person entering the United Kingdom, in respect of any of his personal effects. I should like to know whether the expression "personal effects" includes household effects. In my recollection of the law—which is rather dim now—there used to be a distinction between the two categories of personal, on one hand, and household, on the other. I can visualise cases arising of people arriving in this country with household effects—for example, members of the Armed Forces posted back to this country during the currency of this Bill—bringing with them their household effects and not merely their clothing, watches and that sort of thing. As I read the Bill, unless "personal effects" can safely be taken to include household goods, those people and categories such as the numerous people who will be attracted to this country by the high rates of tax under this Government, will be caught for import deposit on household effects. I cannot think that that is the intention of the Government.

Mr. Harold Lever

Although one tries to keep the debate as light-hearted as possible, I hope that the hon. Member for Barkston Ash (Mr. Alison) will believe that my remarks about small com- panies were made in all sincerity. I certainly take the point he made, that a company ought to be allowed if it needs it for import deposits, to retain profits in the business and not be forced to distribute them. I venture the opinion that the clear requirements of the business of an importer would include the necessity to finance to some extent his import deposits. If he so used his cash, I should have thought he would have the clearest case for resisting distribution of those profits if he wished to use them for import deposit purposes.

I cannot help mischievously adding that it would be a case where he could avoid paying Income Tax and Surtax on them for a year and have the money in cash form afterwards exempt. So, far from being a loser tax-wise, he would have a modest advantage which I would not begrudge him.

Mr. Michael Shaw

If this is in fact a deposit, is it therefore a charge against income?

Mr. Lever

I think that the hon. Gentleman could not have followed the argument advanced by the hon. Member for Barkston Ash as closely as I have. The hon. Member for Barkston Ash asked: if a close company has to find money for these deposits, will that be taken into account in assessing what percentage of the profits it is reasonable to retain in the business? I have said that it is obvious that if an importing company finds the deposits from profits nobody could reasonably demand that it should pay those deposits away in dividends. What could be more essential for the business of an importer than to find the deposits? I have also said that, far from losing this, they even gain a rather unusual advantage.

On the disputes procedure, I think that there has to be difference from the normal practice, because with dutiable goods the practice is to allow the goods to go into bonded warehouses and not to fall liable to duty until they are taken out, but it would seriously affect the deposit scheme if we allowed the same procedure here. So the deposit becomes payable, not when the goods are taken out of the warehouse, but when they are entered into the warehouse. I think that otherwise the machinery is adequate to deal with disputes in the same way as in any other part of the Customs area.

As to household effects, subsection (2) wholly exempts from the deposit personal effects of people arriving in the United Kingdom. Passengers' baggage is not required to be entered with Customs. Section 28 of the Customs and Excise Act, 1952, arranges this convenience. However valuable it may be, it would be impracticable to cover it in the import deposit scheme, under which repayment is to be made to a person named on a Customs entry. Household effects which are conveyed as freight, however, have to be entered and it is not impracticable to apply the deposit scheme to them.

Mr. Patrick Jenkin

Oh, no.

Mr. Lever

There is an existing duty exemption for used household effects under the Customs Duty (Personal Reliefs) No. 3 Order, 1968, which was made under Section 7 of the Finance Act, 1968. Household effects which qualify for that exemption will ipso facto qualify for the exemption from import deposit. So any existing second-hand household effects which are relievable from duty will be relievable from this Customs duty. This is what the hon. Member for Blackpool, South (Mr. Blaker) wanted, I think. The cry of pain from the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) was premature. There is no reason why the deposit should not apply to new household effects which bear ordinary duty in the ordinary way. I gather that the hon. Member for Blackpool, South is satisfied.

Dr. M. P. Winstanley (Cheadle)

Will the Financial Secretary clarify his explanation of subsection (2), which says: No import deposit shall be payable, in the case of a person entering the United Kingdom, in respect of any of his personal effects, whether or not carried with him or contained in his accompanied baggage. What about goods whether or not carried with him or contained in his accompanied baggage which are not personal effects? It is a double definition. What are personal effects, and what are household goods?

Mr. Lever

I shall not attempt at this late hour, without notice, to give an exhaustive legal definition of a very interesting area of Customs law. I shall be happy to write to the hon. Gentleman. What a man carries in his bag with him would be regarded as his personal effects. A man may have personal effects apart from any travelling with him. They are already dealt with by existing duty law and are exempt from duty in the case I have mentioned. The hon. Gentleman is engaged in an unnecessary, niggling anxiety. I am not complaining about that. I think he is troubling himself unnecessarily. I shall be very happy to write to him setting out more comprehensively the technical legal definitions which he seeks.

Question put and agreed to.

Clause, as amended, ordered to stand part of the Bill.