HC Deb 25 May 1971 vol 818 cc294-6

6.33 p.m.

The Financial Secretary to the Treasury (Mr. Patrick Jenkin)

I beg to move, That the Purchase Tax (No. 2) Order 1971 (S.I., 1971, No. 731), dated 4th May, 1971, a copy of which was laid before this House on 7th May, be approved. We go from the sublime to the "gorblimey". The effect of the Order is to introduce a minor adjustment to the purchase tax coverage to correct an anomaly which has become apparent in recent months. It is our intention to charge purchase tax on frozen yoghurt. Since 1962, Group 28 of the purchase tax Schedule has comprised "ice cream, ice lollies, water ices and similar frozen products, and prepared mixes and powders for making such products". Recently, a new product, frozen yoghurt, has come on to the market and Customs and Excise felt that it should be within the charge. In a court action in March of this year, when Customs and Excise contended that frozen yoghurt, which is usually put up in small tubs just like ice cream was chargeable because it was a "similar frozen product", we lost, and judgment was given, that it should not be so classified.

The product has subsequently been marketed on a stick. I have an example here. It is called, in small print, an "ice lolly". It appeared that we were faced with what could be a significant and widening loophole in the tax. It is confidently expected that this new product will sell beside other ice lollies, being offered as having a different flavour and a different texture. It will be sold through exactly the same retail channels, probably at much the same price, as many other frozen products which are within the range of the purchase tax.

The Act, fortunately, makes provision for dealing with exactly this situation. It is clearly unfair to the producers of existing taxed products that this new product, closely resembling the others, should be available free of tax for no other reason than that it was not invented when the relevant class was defined. Furthermore there could be a significant loss of revenue, and for that reason I have brought the Order to the House this evening.

The Order came into operation on 10th May, and simply inserts the words "frozen yoghurt" after the words "ice lollies" in the statutory heading to the group. It will bring the new product within the field of the tax. There is no intention of taxing conventional liquid yoghurt. The Order does not touch that product at all. We are concerned only with frozen yoghurt. This is a very short point. I hope, therefore, that the House will feel justified in making the Order, and I ask the House to approve it.

6.36 p.m.

Mr. Joel Barnett (Heywood and Royton)

I am sure the House will agree with the Financial Secretary that we should eliminate anomalies, but I wonder whether he is taking a sledgehammer to crack a nut, or a piece of frozen yoghurt. He did not make clear the extent of the avoidance. He seemed to imply a whacking great loophole in the law, with masses of frozen yoghurt being sold all over the country and escaping purchase tax.

I made a small inquiry about the extent of this, and I find that Walls Ice Cream Co. tried this idea last year and did some tests in the South of England, but discontinued the idea. Midland Counties Dairies, a subsidiary of Unigate, make frozen yoghurt. It is actually made by another subsidiary, Cheshire Sterilised Milk Co. of Stockport, and transported to Midland Counties for the deep-freeze processing. This does not seem to be done on the scale implied by the Financial Secretary.

I am sure that none of us wish to encourage the flouting of the law, but if the loophole is small, and since the Government plan to bring in value-added tax which would remedy all the anomalies, why is it necessary to bring in the Order for this comparatively trifling matter?

It is possible that the Order might not even catch the frozen yoghurt, or might catch genuine yoghurt which is a food and exempt from tax. The Financial Secretary said that it would not catch ordinary yoghurt but only frozen yoghurt, but I understand that yoghurt is kept in the freezing compartment in most retail establishments, and I am not sure how one would distinguish when yoghurt is frozen and when it is not frozen. On the other hand, it is easy for avoidance to occur by a customer buying ordinary yoghurt and then deep-freezing it.

The Government are perhaps going to somewhat unusual lengths for a comparatively short time on a comparatively minor matter. However, if this is what they want, and they think there is a major, momentous avoidance of our tax system, I am sure the House will wish to remedy this.

Mr. Jenkin

With the leave of the House, may I say to the hon. Gentleman that I do not put this matter forward as a major momentous change in the system. Indeed, my first sentence indicated that it was a matter of somewhat minor importance. If it were to be held by the courts not to be within the scope of the provision as drawn but we felt that the provision ought to be included, it seems right that we should let the manufacturers know where they stand so that they can plan ahead. I have not tried the product myself, but it may have a big public appeal. If we were to take no action on this matter, it would of course mean a loss of revenue. I am grateful for what the hon. Gentleman has said, and I hope that the Order will now be agreed.

Question put and agreed to.

Resolved, That the Purchase Tax (No. 2) Order 1971 (S.I., 1971, No. 731), dated 4th May, 1971, a copy of which was laid before this House on 7th May, be approved.