HC Deb 19 June 1969 vol 785 cc830-45

9.44 p.m.

The Under-Secretary of State for Employment and Productivity (Mr. Roy Hattersley)

I beg to move, That the Selective Employment Payments Variation Order 1969, a draft of which was laid before this House on 21st May, be approved. When S.E.T. was first debated, the Government told the House that from time to time permission would be sought to reclassify an industry under the terms of the Act, thereby relieving the industry of the obligation to bear the tax, and making it eligible for refund and premium payment. This power to reclassify was always thought to be necessary for two reasons. The first reason was that the tax was originally dependent on the Standard Industrial Classification, an instrument designed for different purposes. The second reason was that changes in industrial processes might mean that an industry once properly classified so changed its techniques as to invalidate its original classification.

Section 9 of the Selective Employment Payments Act, 1966, permits the Secretary of State for Employment and Productivity to make an Order extending or limiting employments eligible for refund. This power to include additional industries in the lists of those eligible for payment under Section 1 of the Selective Employment Payments Act was first used in 1968.

The further extensions for which I seek permission tonight number seven in all. Article 2(1) of the Order reclassifies scrap, metal processes, waste paper processing, film production and industrial photo-printing. This reclassification is the main objective of the Order. Article 2(2) extends and clarifies the categories of slaughter men who qualify for repayment. Article 3 adds gas production and distribution by private companies to the activities eligible for refund under Section 2 of the Selective Employment Payments Act. Eligibility for refund in all these categories depends on each establishment fulfilling the usual qualifying rules.

The waste trades are, with minor exceptions classified in the Standard Industrial Classification as part of the distributive trades. In the Government's view, this remains the right classification for establishments which collect, sort and sell waste materials. But companies which process the materials to specifications into a form suitable for reuse perform an operation which can more accurately be described as manufacture. They change the shape, size and composition of the material, by processes which involve the use of machinery often of a complex and expensive type. Article 2 will include in the refund categories establishments engaged in such processes. Dealers in scrap metal and waste paper, who do not process the material, will remain under a distributive heading in the Standard Industrial Classification.

The processing of cinematograph films for public exhibition is already in the refund category; so, of course, is the production of unexposed film. Only one process in film making is excluded—the actual shooting of the film. It is, however, an integral part of film manufacture, and is, by any standard, manufacturing. Analogous processes, including the manufacture of video-tape recordings, will appear in the refund category of the 1968 edition of the Standard Industrial Classification which it is proposed in the Finance Bill to bring into use at the same date as this Order.

The fourth major change we seek to make provides for the reclassification of industrial photoprinting. This activity is not specifically listed in the Standard Industrial Classification. Previously it had been regarded as "photography". It is, however, more properly thought of as an independent activity, and a manufacturing process closely akin to printing.

Last year an Order added to establishments eligible under Section 1 of the Selective Employment Payments Act, private slaughter houses and knacker's yards. Local authorities' slaughter houses already qualified for refund. But two anomalies arose. Private slaughterers operating in municipal establishments and slaughtering carried out from rather than in knackers' yards were excluded. Article 2(2) rectifies these omissions.

Article 3 makes the production of gas by a private sector establishment eligible for refund. In 1966, all the production of gas in Great Britain was undertaken by the gas boards, which, as public utilities, qualified for refund. Since the exploitation of natural gas from the North Sea, one or two private companies process the crude gas before selling it to the board. Under the Order they will receive a refund of S.E.T.

The total cost of these adjustments is about £3 million, of which the reclassification of waste-paper processing accounts for £220,000; scrap metal processing, £1,600,000; and the adjustments to the eligibility of various slaughtermen, £150,000. The cost to the Revenue of the changes in the classification of filmmaking is estimated at about £900,000; industrial photoprinting, £85,000; and the production of gas, £10,000. All sections of the Order, if approved, will conic into effect on 7th July, the date from which the new rates of S.E.T. will operate.

9.51 p.m.

Mr. Peter Blaker (Blackpool, South)

Orders of this kind are narrowly interpreted and I hope, therefore, that my remarks will not bring you to your feet as frequently as occurred during the previous debate, Mr. Speaker. I am safe in saying that my hon. Friends welcome the Order, if only on the ground that one should not look a gift horse in the mouth Any step such as this towards the reduction of the burden of S.E.T. is a step forward.

What the Government are doing tonight—but what the hon. Gentleman did not say—is admitting that they have made a mistake. He almost admitted that a mistake had been made in the adoption of the Standard Industrial Classification for the purpose of S.E.T., and what the hon. Gentleman is now saying by the Order is that, notwithstanding the activities to which the Order refers being services and not manufacturing, according to the classification in the S.I.C., they will nevertheless benefit from a refund of the tax. He is, thereby confirming what has been said many times; that it was a grievous blunder to take the S.I.C. as the basis for the tax.

My hon. Friends have pointed out that the anomalies caused by the tax and the adoption of the S.I.C. as its basis were bound to be serious. We find from this Order confirmation that there are anomalies—some of which this Instrument is putting right—but, as a result of the Order, other anomalies will doubtless be created. The Government will hear much about coming anomalies later. Unfortunately, I cannot argue that matter now because of the rules of order.

I can point out, however, another type of problem which arises, and that is that the correction of one anomaly creates another. For example, in respect of slaughter houses the hon. Gentleman said on 8th July last year that private slaughter houses were at a disadvantage compared with local authority ones and that the Order which he was then presenting would put the position right. On that occasion he gave the impression that everybody would be on a fair basis in the slaughter house business.

We see tonight, however, that the hon. Gentleman has had to correct an anomaly which was created by the correction of a previous anomaly by the Order of last summer. That, apparently, was the result of ignorance on the part of his Department. It is surprising that his Department was not able to get the matter right first time, that it did not know enough about slaughter houses and the practices in them to be able to solve the problem in one go.

It is not only a question of anomalies, nor talking in statistical terms about the amount of money which this Order will cost the Revenue. This tax is affecting the businesses and lives of people engaged in the industries which are subject to the tax. We should not underestimate the anxiety, misery and resentment caused to people who are in businesses which they feel are unjustly subjected to the tax, quite apart from the fact that the imposition of the tax can put people out of business.

Mr. Speaker

Order. I understand that there is a selective employment tax and there are payments, but we are discussing a small isolated group in this Order.

Mr. Blaker

I entirely take your point, Mr. Speaker, and I hope within about 30 seconds to satisfy you that the point I am about to make is in order.

I was referring to the feelings of people relieved from payment of tax by this Order who for years have felt resentment because they thought they were wrongly classified. Now, having battled with the Government for nearly three years, they have convinced the Government, but they have had to wait a long time to do so.

We should consider the effect caused for those businesses in the last three years. Perhaps it would have been more satisfactory if the Under-Secretary had said a word of regret about the fact that these people have, as he now admits, in effect, been wrongly classified. They have been paying the tax all the time. He now says that scrap processing and shooting of films should count as manufacturing. That is what those people have been saying all the time, but for all that time they have had to pay the tax.

The importance of the industries which are now to be relieved of the tax should go without saying, but we cannot leave it without saying because if the Government had realised the importance of these industries they would not have subjected them to the tax in the first place. The importance of the scrap metal processing industry lies in the absence of raw materials in this country. We have virtually no minerals except a small quantity of tin and iron ore. The ferrous scrap industry processes and supplies about a quarter of the basic raw material used by British steel makers. The consumption of pure scrap is about 13½ million tons a year by the British steel industry and the import saving is over £100 million a year. Exports have reached a rate of £14 million a year.

In the non-ferrous scrap field, it is estimated that £180 million are saved and exports have run at £6 million a year. In waste paper, 1½ million tons are processed annually to meet the requirements of industry and exports have realised almost £2 million a year. As for the film industry, one should not underestimate the importance of the effect of showing British films overseas in promoting our prestige, exports and tourism. Photo-printing is fundamental as a new, developing industry. Perhaps there is some excuse here for the Government's late recognition of the importance of refunding the tax because this is a fast developing industry, but it is of fundamental importance to manufacturing industry and is becoming more so every day. Slaughterhouses and gas are also basic to our prosperity.

We have recognised the importance of these industries for some time and my hon. Friends and I have worked to persuade the Government to take the course they have now taken. This is particularly true of efforts by my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) in connection with the reclamation industry. The industries too have worked to persuade the Government to change their mind and they are very conscious of the hours they have put in in paper work and deputations to Ministers, with the support of trade associations, to achieve this result. Of course, there are other trade associations which are still exerting themselves similarly, so a lot of time is being wasted for industry by the anomalies created by this tax.

I would like to ask the Minister, in connection with the efforts of the industry to persuade the Government to refund this tax, how it was that so long a time has elapsed, in some cases, before the Government produced this Order. I would like to refer to the contacts which they have had with the British Secondary Metals Association, because it seems extraordinary that the Government should taken so long to make up their mind. I have here a history provided by the association of these negotiations and representations. They began early in 1967. In November, 1967, the association wrote to the Board of Trade suggesting a definition of a scrap processor. In February, 1968, something like a year after the representations were made, it had a letter from the Board of Trade regretting the delay on the review of the question and hoping for an early decision.

The association wrote again in April, 1968, and later that month it had further assurances from the Board of Trade that interdepartmental discussions were continuing. In May, 1968, the result of the review which the Board of Trade had been conducting was announced and that led to the exemption of slaughterhouses; but there was no result for the scrap metal industry and the correspondence continued right through until the Budget speech of 1969. That seems an extraordinarily long time to take before results were achieved and I wonder whether the Minister would say why that was so. Regrettably, the experience of some of the other industries concerned has been rather similar.

This Order makes a most extraordinary change in the financial condition of the industries affected because its effect is that for every adult male employee, a qualifying firm will cease, as from next month when the rates go up, to pay 48s. a week; and if the firm is in a development area the difference between being excluded from refund and getting the benefit of the refund, when one takes into account the regional employment premium and the premium on the selective employment tax is 85s. 6d. per week if my figures are correct.

This is a most tremendous difference to be made by a stroke of the pen in the financial position of an industry; and it is done not because, in the generality of cases covered by this Order, there has been any change in the circumstances, but because the Government have at last decided that they were wrong all the way and have now got it right. They have decided now that these are good boys whereas previously they were bad boys.

I would like to ask the Minister what is to be done about the tax that has been paid by these industries since September, 1966. A lot of money has been paid. The Minister quoted some of the amounts and these illustrate the rate at which these industries have been paying this tax. The ferrous scrap metal industry has paid £4 million over nearly three years. The film production industry has paid £750,000. Do the Government propose to find some way of repaying this money, which has already been paid because they blundered? I hope that the Minister will deal with this question.

I would like to suggest to him two ways in which he might find a means of doing so within the law. It seems to me that the last words of Section 7(2) of the Selective Employment Payments Act, 1966, give him power to decide the date from which repayments to an industry or firm should be made. The power to do this depends on whether the Minister considers that it would be equitable in the circumstances. Is not this a case where equity requires that a retrospective repayment should be made?

There is apparently a second power. I refer to the memorandum issued by the Ministry to explain this Order, which says that in connection with slaughterhouses, in respect of which a mistake was made in 1968, the position has been rectified by making payments to employers concerned under extra statutory authority from the Treasury. What is this extra-statutory authority, and, if it is to be applied to slaughterhouses, will it be applied to the other industries affected?

I ask the Minister to clarify one or two points about the wording of the Order. The passages dealing with scrap metal and waste paper refer to the use of machinery, and make the use of machinery an essential part of the process if the concern is to qualify. I cannot understand why the use of machinery should be necessary. The Government are saying that for a process to qualify it must be a manufacturing process. The Minister will be aware that the word "manufacture" means literally to make by hand. It does not mean to make by machinery.

Mr. John Hynd (Sheffield, Attercliffe)

If the hon. Gentleman is not clear about why machinery is brought in, the trade certainly is. The main basis of its claim has been that machinery is involved.

Mr. Blaker

No doubt the hon. Member will elaborate that point if he gets the opportunity to speak. That is not my information and I have had very recent contacts with the industry—indeed, this week—which indicate the opposite point of view.

Whether the hon. Gentleman is correct or not—and I do not accept that he is—it is right that the Minister should explain why the use of machinery is necessary for a firm to qualify. Man is the cleverest machine available. The reason parts of the industry still rely on man is that machines which are clever enough to rival man have not yet been invented. Therefore, this is totally illogical. I suppose that there is some other reason why the Government insist on the use of machinery for qualification purposes. The introduction of machinery is the wrong test. The test should be whether the material is altered to a recognised trade specification. That should satisfy the hon. Member for Sheffield, Attercliffe (Mr. John Hynd).

This point is of some general importance because I understand that the reason these parts of the reclamation industry are in the Order and others are not is that the Government believe that machinery is an important part of the process in connection with scrap metal and waste paper, but not in other sections of the reclamation industry. I cannot now go into whether it is in fact important in those other parts of the industry, but it would be useful if the Minister would explain why the use of machinery is made essential in these cases.

Secondly, what sort of machinery will qualify? Will only the complicated machinery qualify—and some of it these days is very complicated and expensive—or does "machinery" include hand tools, like hand shears, spanners, cold chisels and elementary tools of that kind, which must still be used in the process of scrap reclamation?

What personnel employed by the scrap metal reclamation industry will be in qualifying employment? Does it include those who work the machinery, or does it include, for example, lorry drivers who have a rôle to play in selecting and segregating the material and feeding it into the machines?

Next, film production. Will the Minister confirm that film production activities by British companies on location, whether at home or abroad, will qualify and not only activities in the studio?

I was glad to hear the Minister say that the recording of video-tape programmes for television purposes will qualify. I understood him to say that the 1968 edition of the Standard Industrial Classification would contain an amendment to make that clear. Is that so? Could he refer to the amendment? Is it not rather a case of recording of video-tape programmes being still classified as a service activity, but the Government saying that for the purposes of the S.E.T. it will, nevertheless, be eligible for refund?

Last, will the hon. Gentleman confirm that all employees in any slaughterhouse employed in killing or in the dressing of carcases will be treated as engaged in manufacturing, except in what would be the very unlikely case of their being employed in a larger complex which, because of the balance of numbers qualifying and not qualifying, would not itself count as a qualifying establishment?

We welcome the Order, but we fear that it will itself create further anomalies. No doubt, there will be another Order soon to clear them up. The Parliamentary Secretary may well argue that, if one has a tax of this kind, one must draw the line somewhere. But there is an alternative course. When a tax causes so much harm and injustice and produces as little success as this one has in the case of the industries now being relieved under the Order, the commonsense course would be to abolish the tax.

Mr. Speaker

Order. We cannot discuss that now. The hon. Gentleman got it in in the last sentence, but it was quite out of order.

10.13 p.m.

Mr. Richard Wainwright (Colne Valley)

Naturally, one welcomes the long overdue extension of selective employment payments to certain industries, and this relief, such as it is, and arbitrary though the selection be, is particularly welcome to my hon. Friend the Member for Orpington (Mr. Lubbock), who has worked for three years on behalf of all the reclamation trades and the waste industry, some sections of which are to receive relief under the Order.

I join in hoping that the Minister will tonight try to explain the extraordinary procedure by which these industries were selected. In particular, when he spoke just now of processing, are we to take him to mean industries which change the nature of the materials with which they deal so that those materials are suitable for manufacturing purposes? That is what processing means to me, and I hope that we shall be told that that is what it means to the Minister.

As for the rest, one can only congratulate these arbitrarily chosen sections of the waste trades on their luck—for that is all it is—in coming out of the draw on the right side. At least, the Order gives encouragement to other equally important sections of the waste industry, notably woollen rags and cotton waste, which have not been lucky on this occasion, to think that they may come out top of the draw in a future lucky dip.

10.15 p.m.

Mr. Hugh Jenkins (Putney)

I regret that, while I was snatching a bite to eat between debates, I missed the speech of my hon. Friend the Under-Secretary when he introduced the Order. I am sure that his remarks were as cogent as they were brief.

I congratulate my hon. Friend upon the changes that he has made, particularly upon the removal of the production of cinematograph films for public exhibition from the impost which it has suffered during the whole of the operation of the Act and the Order stemming from it.

I want to express a few words of regret at the manner in which the Opposition Front Bench has approached this question. If every time the Government refine this Measure, which admittedly was introduced in a very rough and ready fashion, if on every occasion when the Government say, "We have decided to improve and refine and make the selective employment tax proposals more selective", the Opposition say, "Why did you not do this before?", it will have the effect of discouraging my hon. Friends from improving the Act rather than of encouraging them. I want my hon. Friends to make the selective employment tax much more effective and introduce some further things in a future Order which are not contained in this Order.

On the other hand, I believe that there was some point in what the House may have thought was the somewhat pedantic distinction which was drawn between "hand-made" and "machine-made". Perhaps my hon. Friend's mind has been moving a little in this direction. The secondary means of performance—films for television—is exempted by this Order, whereas the original means of performance—the theatre itself—still must endure the burden. This is totally indefensible.

I hope that my hon. Friend will not say that there is some equally pedantic reason for keeping the theatre in. Although it may be pedantic to argue that "manufacture" means hand-work—it does not mean that any more in common parlance—it would be equally pedantic to say that manufacturing takes place only provided a great deal of machinery is used in the process. It could be cogently argued that it is truer to say that a play is made afresh every night than it is to say that a film is made afresh every night.

Mr. Speaker

Order. Mr. Speaker must be pedantic and keep the hon. Gentleman to the Order.

Mr. Jenkins

I fully recognise the correctness of your guidance, Sir, and accept it. Therefore, I will not pursue the point except to say that I hope my hon. Friend will find some way within the rules of order of giving some reassurance on this point.

It would indeed be unfortunate if the question of who is to be relieved of a burden were to depend upon who was the most efficient in presenting his argument, who brought the most pressure to bear on the Government in the finest way, who used the best P.R.O.s. I suggest that the reason why the film business is getting away with it—good luck to it; it entirely deserves to be relieved of this burden—is that it has marshalled and presented its case in a better fashion than other organisations—I have instanced the theatre—which have not placed their arguments before my right hon. Friend the Secretary of State, although their arguments may be much more powerful than those that have been presented to him.

10.20 p.m.

Mr. John Hynd (Sheffield, Attercliffe)

I must thank my hon. Friend and congratulate him on the step that he has taken. I have frequently raised the case of the scrap metal industry with him. Unlike the hon. Member for Blackpool, South (Mr. Blaker) I have no need to try to read a brief which will show some kind of carping, grudging acceptance of this progress. I fully understand that, while there may have been considerable delay in reaching this decision when S.E.T. was introduced, it was made clear that, while the Standard Industrial Classification was to be the basis at the beginning, representations and other considerations would be closely examined by the Government and modifications made when they were found to be necessary and justified.

There is a very wide range of activity in the scrap metal business, from the "Steptoe" type of firm to the vast kind of organisation, which can be found in my constituency, with complex and heavy machinery involved. It is not surprising that close examination of the various activities in the industry should be necessary before reaching a final decision. On behalf of the firms in my constituency which have made representations, I should like to express our appreciation of the progress that has been made and wish the Minister god-speed in any further modifications he may find it possible to make.

10.22 p.m.

Mr. Hattersley

The hon. Member for Blackpool, South (Mr. Blaker) asked me a number of questions, but before turning to them may I try to deal with what the hon. Gentleman said was the basis for the necessity of this Order, and that is the shortcomings of the Standard Industrial Classification as an instrument on which our classifications are based. As I said at the beginning of the debate—and my hon. Friend the Member for Putney (Mr. Hugh Jenkins) need hardly apologise for missing it; I very nearly missed it myself—the Government have always said, and tried to make it clear, that since the S.I.C. was initially intended for some other purpose, it would be necessary for us, from time to time, to alter the classification categories which entitled a firm to refund, or did not do so. That is a sensible and sophisticated way to proceed.

The hon. Gentleman will also understand when I say that to make the adjustment and remove the anomalies which are bound to arise, and which we have always agreed were bound to arise, is by its nature a process which takes time, not simply because the Government have to listen to representations and judge, according to their own criteria, the weight of the evidence, but because, almost invariably, representations are preceded by the normal legal processes which can be undergone by companies or individuals who believe that they are not receiving repayments to which they are entitled. I mean initially the appeal to the industrial tribunal.

This has happened with the waste trades. They did more than apply to the Government for reconsideration and re-classification; they applied to industrial tribunals which ruled—as we would have expected them to rule—with two exceptions that the distribution heading was the right classification for the waste trades. While it was anticipated that a company which believed it was paying tax wrongly should go through this process, it has taken rather more than two years from the inception of the tax until this evening. That is the normal process of the correction of anomalies.

I concede—if not happily, then willingly—that the slaughterhouse adjustment we seek to make reflects an error. It was an error which the hon. Gentleman, in a sense, compounded when he said that the Government ought to understand the practices in slaughterhouses. One of the facets of the Government's error was that we understood those practices, but forgot that sometimes the practice of slaughtering took place outside slaughterhouses. I concede that the Order presented to the House a year ago was less complete than it might have been had it included two categories of slaughtering. That is why we asked for and obtained extrastatutory authority for paying the two categories of slaughtermen, but it was our intention and that of the House to include in that Order the three included for reasons of technical error. That is the area where extrastatutory authority for repayment is appropriate, but it is that area and that area alone.

The hon. Gentleman asked about the prospects of the retrospective payment. One reason which prevents the Government from making retrospective payment is that it is beyond our power to do so. Section 7(2), to which he refers, cannot be used to create a retrospective title to refund. The object of that section is to make sure that in certain circumstances individuals who make a claim for refund out of time, and who were at all times entitled under the heading to refund, may receive that retrospectively. However, that does not empower the Government to reclassify an industry retrospectively, and, therefore, the issue of retrospective payments does not arise.

The hon. Gentleman asked me several detailed questions, but preceded them with the most general question of all, the definition of "manufacture" and asked whether the use of complex and expensive machinery, or any machinery, was the essential criterion. In this matter, as in so many matters connected with the English language, we deceive ourselves if we rely on the classical roots. The word has come to mean a great deal more than it originally meant.

I said in my opening speech that one of the criteria was the changes that are made in the material—changes in shape, in size, in composition—and for my part I regard the use of machinery as in part, but not entirely, indicative of those changes. Much of our application of this criterion is based on the judgments of industrial tribunals which, by and large, have regarded the use of machinery as indicative of manufacturing process but as one of the criteria. Certainly it is a criterion on which we lean heavily, although there are other criteria, and it is a principle which, I agree with the hon. Member for Colne Valley (Mr. Richard Wainwright), must follow a change in the nature of the material.

When I had to make a judgment on whether slaughtering was or was not a manufacturing process, basing my views on the criterion in the change in the nature of material I took perhaps too fundamental a view, that the change between life and death constituted a fundamental change in the nature of material, and, therefore, I regard that as a manufacturing process.

Mr. Blaker

I also share the view which the hon. Gentleman has just propounded, and I said so in my speech. My point was this. Is not that test sufficient without introducing machinery which, as the hon. Gentleman has said, is indicative only of manufacture? I will go with him on that, but it is not essential to manufacture.

Mr. Hattersley

Machinery being indicative, it is important not to rely on one simple criterion when making what is essentially a complex and difficult judgment about the two categories. There are issues in which the simple change ought to be regarded as the criterion for manufacting but that is not a judgment which one would want to take in all its simplicity without also having some supporting evidence.

The three specific questions which the hon. Gentleman asked me concerned video-tape recording, slaughtermen and all kinds of film-making. I will answer all three questions directly. Video-tape recording appears in the new Standard Industrial Classification as a refund category. As a result of the assistance provided for me by that most sophisticated machinery, man, in the form of a Parliamentary Private Secretary, I can quote the heading, which is MLH 365. Slaughtermen of all kinds engaged on all forms of animal killing and all forms of animal dressing will be eligible for refund.

If film makers are operating for British-based firms but working outside Great Britain, and if they are within the normal taxation categories common to all individuals working outside Great Britain, they will be eligible for the payment of tax and refund in the way in which they would be if they were working in Great Britain.

It is a matter of some pleasure to ask the House to approve the Order, which I commend to the House.

Question put and agreed to.

Resolved, That the Selective Employment Payments Variation Order, 1969, a draft of which was laid before this House on 21st May, be approved.