HC Deb 11 July 1972 vol 840 cc1479-511
The Minister of State, Treasury (Mr. John Nott)

I beg to move Amendment No. 32, in page 107, line 18, leave out paragraph (b) and insert: '(b) a supply of anything comprised in any of the excepted items set out below, unless it is also comprised in any of the items overriding the exceptions set out below which relates to that excepted item'. I think it will be for the convenience of the House if I refer also to Amendments Nos. 33, 34 and 36, since they are all on very much the same point, and in due course move them formally.

These are technical Amendments designed to clarify the intention of Group 1 of the Schedule and in particular the relationship between excepted items and the items over-riding the exceptions. In the present draft of Group 1, the items overriding the exceptions can apply to any of the excepted items. The result would be that the items overriding the exceptions would have a wider application than under purchase tax. For example, Item No. 6 includes preparations and extracts of meat. It is possible that this could be held to include tinned dog food, in which case the latter would be zero-rated, and this would be a reversal of the purchase tax position.

The Amendments are designed to relate each of the items overriding the exceptions to the exception corresponding to the purchase tax group from which it was derived, thus restoring the exact purchase tax borderline.

Amendment agreed to.

Further Amendments made: No. 33, in page 108, line 2, at end insert 'and preparations thereof'.

No. 34, in line 3, leave out 'and' and insert '3A'.—[Mr. Nott.]

Sir Stephen McAdden (Southend, East)

I beg to move Amendment No. 35, in page 108, line 26, at end insert: 'Pure natural fruit juices or concentrates thereof'. The House has been moving at a fairly rapid pace through the Amendments, and I have no desire to slow down the pace. I shall make my point shortly, and I hope that the Government will recognise the force of the argument and accept it without delay.

7.15 p.m.

I regard—as I think that most people outside the House do—pure fruit juice as a nutritional food. Although my remarks are concerned mainly with orange juice, they apply equally to grapefruit juice. There may be some fruit juices which are not nutritional and have no food value. If so, they can be spelled out and deleted from the reference which I am claiming for natural fruit juices.

There is no doubt that orange and grapefruit juices have a high nutritional value and are entitled to be regarded as food. Oranges are so regarded, because they are zero-rated. If oranges are zero-rated, it seems in all logic that if an orange is squeezed, the liquid extracted from it and the surplus water removed, the product which is then supplied to the customer to add water and reconstitute it is just as much entitled to be treated as food as the orange itself. I cannot understand the logic which attempts to treat it differently from the orange itself.

This will probably be of benefit to many people. In these days when one has to be careful about one's interests, perhaps I should declare an interest, in that I am Chairman of the Anglo-Israel Parliamentary Group. It may be that this provision will be of benefit to the people of Israel. I do not think that that detracts from the argument. It will also benefit the people of Jamaica, of Honduras and even of the United States who send us some concentrated pure orange juice and also, I do not doubt, grapefruit juice. The basic point is that it is food, and the Government are committed not to tax food. That being so, there seems to be no sense or reason in taxing pure orange juice.

Quick-frozen concentrated orange juice consists only of the unadulterated natural solids of the fresh orange. It contains no additives or preservatives of any kind. It is obtained by pressing the orange immediately after harvesting and then partially eliminating the natural water content. The consumer, by replacing the "lost" water, is producing the same effect as he would by squeezing a fresh orange. The vitamin content is retained by the quick-freezing process, thus maintaining the food value of a fresh orange. I am sure that my hon. Friend would find it difficult to explain to his wife why she can buy a fresh orange without VAT, but if she dares to buy frozen orange juice she cannot do so without paying VAT.

This pure concentrate of fruit juice is not to be confused with orange squash and things of that kind which, whilst they make a refreshing and palatable drink, do not pretend to have anything like the nutritional value of pure orange and grapefruit juices. That pure fruit juice is regarded as a food is evidenced by the fact that most people drink it at breakfast. It is part of their breakfast diet. I hope that my hon. Friend will accept the case that I have made and accordingly zero-rate natural fruit juices.

The argument may be advanced that these juices were formerly subjected to purchase tax and therefore they ought to be subject to VAT. I do not accept that. As they say in China: "Two wongs do not make a wight". I do not agree that because they were subject to purchase tax they ought to be subject to VAT. I hope that my hon. Friend will see the force of the argument and appreciate that natural juices are of high nutritional value and have been wrongly subjected to purchase tax. We cannot argue about that now, but this is the time to put the matter right and see that they are zero-rated for VAT.

Mr. Dalyell

It is a pity that the hon. Member for Southend, East (Sir S. McAdden) did not have the wind to read on. He and I have the same brief. He left out a rather choice sentence. The brief continues: This product is in reality the orange itself with the unwanted materials removed and should, we believe, be classified as a food. I do not know what the unwanted materials are; nevertheless, we can guess. This is a fairly convincing brief that we have from Mr. E. Hall, of the National Association of Frozen Food Producers.

Sir S. McAdden

The unwanted materials are the skin, the pith and so on.

Mr. Dalyell

Obviously the hon. Member for Southend, East is a great expert on the natural orange. But the brief continues: As a food, oranges themselves are zero-rated; there can surely be no good reason for treating the frozen concentrated juice any differently. Without the present or proposed tax, the major companies concerned would reduce the retail price by 2p per 6¼ fluid ounces. I think that most of us who served on the Standing Committee do not produce briefs in which we do not believe. I believe in this one. There is a good case for it. We look forward to what the Minister has to say.

Mr. Charles Morrison (Devizes)

I support my hon. Friend the Member for Southend, East (Sir S. MacAdden) on this Amendment.

The first occasion on which I attended a Conservative Party Conference was in 1963, when it took place in Blackpool. I remember arriving, rather late at night, at a boarding house a long way down the shore from the conference centre. The next morning I came down to break- fast. I looked at the menu. It started off with three possibilities: fruit juice, cereals, and porridge. I asked for fruit juice. What arrived at the table was a small glass of lukewarm, very dilute orange squash. Literally, it left a nasty taste in the mouth. It gave me a rather unfortunate first insight in Blackpool.

Until I became aware of the purchase tax regulations, indeed, until this Bill was published, that was the only occasion I have known when orange squash has been muddled and bracketed with orange juice. I cannot help wondering whether there is not some connection between the two events. My right hon. Friend the Chancellor is extremely well advised and, not least, he has the assistance in his deliberations of my hon. Friend the Member for Blackpool, South (Mr. Blaker). Could it be that he, too, believes what might well be a popular Blackpool fallacy: that orange squash and orange juice are one and the same and should be treated similarly? Could that be the source of the advice to the Chancellor on the Bill?

The fact is that orange squash is not normally drunk for breakfast, but sometimes orange juice is and it is drunk as such as an alternative to, but in the same bracket as, porridge or cereals. Therefore, I believe that it is a food and should be treated as such in relation to value added tax. For that reason, I hope that my hon. Friend the Minister will be able to make a concession on this point.

Mr. Brian Walden

It will not surprise the hon. Member for Southend, East (Sir S. MacAdden) that nothing whatsoever would persuade me to touch this noxious stuff, least of all the argument that it would do me good. All the exciting things in life are the things that do not do one good. Nevertheless, I shall be very interested to hear the Government's case on this point.

I think that the brief is right. To all intents and purposes this is the orange. It is difficult to explain—not in the case of squash; I accept that—but in the case of pure juice why there should be a differential treatment here. As I anticipate that the Minister will make a concession, the Opposition need say no more about it.

Mr. Ian Lloyd (Portsmouth, Langstone)

I have one observation on the Amendment, which obviously refers to a matter of great pith and moment. Clearly what we are talking about is the progress in the container which is used to transport orange juice, the progress from that provided by nature to that invented by man. The last thing that my right hon. Friend the Chancellor would want to do is to black a container.

Mr. Nott

In moving his Amendment, my hon. Friend the Member for Southend, East (Sir S. McAdden) said that he hoped that either I or himself would have no difficulty in explaining this matter to our respective wives. I cannot give him that assurance, because all of us have certain difficulties on occasions in that direction. But I hope that I shall make good progress in explaining to the House the reason why we cannot accept the Amendment.

Hon. Members will all have received this particular brief, as I have. It arrived on the famous breakfast table which has been referred to. As the sponsors of the Amendment—if I may describe them as such—have sponsored a large extensive advertisement in The Times recently, this matter merits a full reply.

The object of the Amendment is to zero-rate pure natural fruit juice. My hon. Friend made the point that its effect would be to relieve from tax certain items which are already taxed. In this way, it would change the present borderline between taxed and untaxed foods. As the House will know, the decision to tax at the standard rate of food and drink currently subject to purchase tax was taken principally for revenue reasons. To zero-rate all such items would have led to revenue losses of about £110 million in a full year, and thus it would have led to a rise in the rate of value added tax.

At a time when the Government were introducing a comprehensive tax on consumer expenditure, it would have been inappropriate to remove from tax goods already subject to purchase tax, for by doing so we would have set off widespread claims for relief from others concerned with purchase-taxed food.

Fruit juices are aimed at the breakfast table market. I noted with interest—I cannot say "with sympathy" in view of the experiences of my hon. Friend the Member for Devizes (Mr. Charles Morrison) at his boarding house at Blackpool—that the ice cream and potato crisps industries have also based their claim for relief on the fact that their products are increasingly used as part of breakfast, although not necessarily so, or at any rate part of a main meal.

The House will appreciate that if we had removed any one item from among the group of foods now subject to purchase tax, the continuity of the move from purchase tax to VAT would have been broken. I appreciate that the claim is made—particularly by the Americans, as I understand it—that concentrated juice is similar in all ways to fresh fruit. No preservatives or other adulterants are added to the juice, and only water is extracted. My hon. Friend the Member for Southend, East made that point.

For a number of years representations have been made on this subject, through advertisements in the Press and letters to Members of Parliament, which we have all had recently, attempting to obtain purchase tax relief for this industry. I should point out that last year the rate of purchase tax on these items amounted to 22 per cent. The current rate of purchase tax on food is 18 per cent. of the wholesale value. On average, this is equivalent, in terms of VAT, to about 12½ per cent. in retail terms. My right hon. Friend's proposal to recommend a rate of 10 per cent. will lead to yet another reduction in the rate of taxation on these foods. I am sure that would bring satisfaction to the industry.

As the House has been told on many occasions the overriding effect of the Chancellor's proposal for the reform of indirect taxation will be to reduce the burden of tax on food in this country. SET is being abolished when VAT is introduced and SET fails to some extent on the distribution of food.

My right hon. Friend the Chancellor has already reduced the rate of purchase tax on these foods, and the introduction of VAT will lead to further reduction in tax. As we cannot have a broken line appearing between the purchase tax foods for one separate item I hope my hon. Friend will see fit to withdraw his Amendment.

7.30 p.m.

Mr. Brian Walden

The Minister of State's reply puzzles me. At one stage I thought that when it was said that orange juice was an absolutely natural foodstuff with the water taken out the Minister of State would say that it was not, but he did not. He referred to VAT and SET and the rates of purchase tax. I wonder he did not say that if the economy grew by 5 per cent. people would be able to buy more anyway. He has turned the Amendment down flat on the ground that the situation is better than it was before. I am sure that the hon. Member for Southend, East (Sir S. McAdden) is under no illusions about the reply and I still do not understand why the Minister says we cannot draw the line here. Why? It seems a very sensible place to draw a line since he has not disproved the fact that it is a food.

Mr. George Wallace (Norwich, North)

One point has been completely overlooked. Orange juice is not necessarily consumed at breakfast. It is also a very nutritional food containing vitamin C, which is an important factor in children's health. There is in my constituency a factory owned by a very well known manufacturer of baby food and baby food juices. These products are subject to tax. The Government have said they are not taxing food, but they are taxing baby food. That should be borne in mind. I hope that the Minister of State's reply will not be accepted.

Sir S. McAdden

In view of what my hon. Friend the Minister of State has said, and while I do not accept his argument completely, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Amendment made: No 36, in page 108, line 32, at end insert: '(4) Items 1 to 3 of the items overriding the exceptions relate to item 2 of the excepted items and items 4 to 6 of the items overriding the exceptions relate to item 3A of the excepted items'.—[Mr. Barber.]

Mr. Sheldon

I beg to move Amendment No. 38, in page 109, line 4, at end insert: '7. Microfilm reproductions of books, booklets, brochures, pamphlets and leaflets'. The Amendment seeks to zero-rate microfilm reproductions of books, book- lets, pamphlets, brochures and leaflets. The reason for it was brought out in the original discussion initiated by my hon. Friend the Member for Edmonton (Mr. Albu). He pointed out, because of his particular interest in a firm engaged in the introduction of microfilm for this purpose, the way in which to a considerable extent it is replacing the use of books in certain spheres. A microfilm is made of a book and it can be stored in a very small place. That enables a very large library to be reduced to a very small volume.

The equipment used for the purpose both for recording the microfilm and for reproducing it, is of a very specialised kind. It enables research workers, universities and so on to have readily to hand a vast range of documents, papers, books and pamphlets in a way that would be impossible except for the largest of libraries. The case is clearly made because the technological growth of this development is such that it will change the way in which research workers operate.

My first question to the Financial Secretary is why, with a system which is directly concerned with books, the only function of which is to provide the same kind of reading as is obtained from books but in a smaller volume, is he not prepared to zero-rate it in the same way as he is zero-rating books, pamphlets and so forth?

The Chancellor of the Exchequer has an Amendment on the Order Paper which we shall discuss in due course in which he concedes that talking books for the blind shall be zero-rated, a move that we shall welcome. The Amendment will allow a magnetic tape specially adapted for the reproduction of speech for the blind, together with the tape recorders and the parts and accessories which will enable the blind to hear the talking books, to be zero-rated. The Chancellor has accepted that there can be a case for books which are in a form which books do not normally assume. He accepts the case for books and he accepts the case for talking books on magnetic tape. Why does he not accept the case for books on microfilm? This is the third category of books in an unconventional form that will be discussed today.

The Chancellor argued on a previous occasion that the matter was unimportant because the microfilm was used by large companies and the large companies would be able to claim the input for their books. But this is only one small part of it. As well as the universities, the research workers themselves will use this tool increasingly. The research worker or author deciding to publish some learned volume requires a whole mass of material of a kind he finds increasingly difficult to store—and difficult to obtain access to it. The use of the microfilm will obviously facilitate his work but he will be unable to gain any offset against the tax.

If we do not accept the Amendment we shall be taxing books and taxing knowledge in precisely the same way that was attempted during the early war years when purchase tax was introduced. People who can recall those debates, in which it was stated that purchase tax would be a broadly based tax covering large sections of commodities, will remember that it was fiercely resisted in this respect because it was regarded as a tax on knowledge, something the British people had always opposed. In so far as this is a tax on knowledge of a special kind, I see no grounds for the Chancellor rejecting the Amendment.

Mr. William Hamling (Woolwich, West)

My hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) is wrong when he says that the Amendment refers to books in an unconventional form. Any research student will know that it is a very conventional form these days. I think of many works of scholarship which are out of print and which can be read only by going to Goldsmiths' Library at the LSE, Colindale, the Picton Reference Library or one of the other large establishments and reading them by means of the microfilm projectors. Many research students—I must declare an interest here—owe their acquisition of spectacles to the fact that they have spent so many years straining their eyes looking at microfilm through projectors. My own use of spectacles dates from that. Therefore, there may be an indirect medical advantage in the Treasury's refusal to consider the Amendment, but I am sure the Financial Secretary will not consider that tonight.

Universities will not be affected. I wonder whether libraries which are exempt will pay value added tax on the microfilms that they obtain. They should not pay it. There is no material difference between the use of books in reference libraries and the use of microfilms, which fulfil the same purpose and are only another form of book. That is particularly true of brochures, pamphlets and leaflets. Anyone who knows anything about social history and the researches in it knows very well that more research students rely on microfilms of pamphlets, brochures and leaflets, particularly because some of the leaflets used can be obtained only in microfilm form. I think particularly of research into the social history of the nineteenth century. The best way to preserve such documents is to microfilm them. They can be preserved much better like that than in an obscure place collecting dust where they end up by literally falling apart.

It can therefore be seen that microfilms are absolutely essential for students and researchers. The case for the Amendment is so obvious that I need not detain the House any longer.

7.45 p.m.

Mr. Higgins

I cannot accept that the case is so obvious that the House need not be detained any longer on it. The matter was debated briefly in Committee, and the hon. Member for Ashton-under-Lyne (Mr. Sheldon) has deployed the arguments again.

It is important to distinguish between books as such and microfilm reproductions of booklets and so on. The hon. Gentleman also spoke about talking books for the blind. There are a later Government Amendment and another Amendment on that subject, which is quite separate. It so happened that the two were, by chance, discussed together in Committee on the Floor of the House, but they are quite different cases.

I do not think it can be argued that microfilm is a form of reading matter, used in conjunction with the equipment necessary to read it, which is widespread in the average household or among private users. As the hon. Member for Woolwich, West (Mr. Hamling) said, it is largely used in institutions such as libraries, museums and so on.

As became apparent in Committee, there are two possible aspects to the question—microfilms of the kind discussed today and microfilms used in the process of manufacturing books. I pointed out in Committee that if the books were zero-rated any input tax charged on the microfilm would be cancelled out by the normal workings of the credit mechanism, so we need not refer to that any further.

I turn to the main thread of the argument. It is certainly the case that the microfilms are used very largely in institutions. We must have regard to the problem of drawing the line. If we accepted the Amendment, there would be pressure to relieve instruments for viewing microfilms. People would ask, "Why not make the same concession for other kinds of film? If the concession is made for viewing apparatus, why not make it for equipment on which holiday slides and so on are viewed?" Once we start on that slippery slope, it is very difficult to see where to draw the line.

Therefore, it is right to draw it where it is now in the Bill, not only because the items we are discussing are physically distinguishable from books but also because they are used very largely by institutions. The institutions are likely to be in various possible positions with regard to VAT. For example, an institution may be a taxable person. Quite a number of institutions may make a charge for admission or for the use of the microfilm. If they are taxable persons, the VAT will normally be charged. Any tax which is charged on the microfilm would be an input tax in the normal way, and would be cancelled out by the normal workings of the credit mechanism.

Mr. Hamling

Is the criterion to be, then, that an institution charges an admission fee? I hope we shall not pursue that, because it would include museums and art galleries which use microfilms a great deal. For example, the National Maritime Museum has many students who use microfilms. I hope that the criterion is not simply that the institution charges an admission fee.

Mr. Higgins

No, Sir. That is not the criterion. I am saying that one situation in which microfilms might be used is where the person providing the microfilm facility is a taxable person. I understand what the hon. Gentleman is saying about the National Maritime Museum, because he and I frequently attend that institution.

If a person providing the microfilm were a taxable person—the point I make will be familiar to all who serve in Committee—output tax would be charged and the taxable person would have to deduct the input tax on the microfilm. The alternative position is that it might be a local authority library or museum which was not a taxable person. It still would not suffer any net burden because any input tax incurred would be refunded to the local authority by virtue of Clause 15. In that circumstance also, the charge would not be a burden on the institution providing the facility.

The other possible situation is the case of non-local authority libraries which are not taxable persons and, in particular, university libraries. Most university libraries will probably not be taxable persons. If they are not, they may well use microfilms for non-taxable purposes whether or not they are a taxable person. Either way most university libraries in this position will be treated in the same way as the university sector. My hon. Friend the Chief Secretary in the debate on 16th May made clear what was the position for educational bodies. He said: Our intention is that educational bodies which receive grants direct from central Government shall neither gain nor lose as a result of the tax changes—the introduction of VAT and the abolition of purchase tax and SET. The grants to these bodies will continue to be related to their estimates of income and expenditure. Once the tax changes are in force, they will be reflected in the prices paid by the bodies concerned for their purchases of goods and services and will, therefore, be reflected in their estimates of future expenditure. Thus, the incidence of tax will be taken into account automatically when the grants to these bodies are settled."—[Official Report, 16th May, 1972; Vol. 837, c. 417.] He went on to elaborate the position.

Generally speaking these microfilm facilities are provided by those who, one way or another, will be relieved of the tax. Other than that it is intended to be a comprehensive tax. There are clearly some line-drawing problems. I believe it is right to draw them where we have drawn them for the reasons I have given. I cannot advise the House to accept the Amendment.

Mr. Dalyell

I do not want to make heavy weather of this because we recognise that there are so many separate institutions which might have been hit and which have been greatly alleviated. Nevertheless, there is a fundamental question here and that is the extent to which we want to use the fiscal system biased in favour of things that society wants to do and against those things that society does not want to do. We come back to all the arguments we had in Committee on recycling pollution related to the use of the fiscal system. I know that in modern technical industries there is every reason for encouraging the use of familiarity with microfilms and I would have thought, on that principle, that there was an argument for biasing the tax system in this direction.

Here again we come to the related point whether microfilm has the closest affinity with books. I would argue that it does have a closer affinity with books than with film. It was when the Financial Secretary produced his argument on this that I felt I had to intervene. I would have sat there mouselike——

Mr. Hamling


Mr. Dalyell

Yes, post-prandial, mouse like. When the Financial Secretary says that everyone taking snapshots of the family holidays and everything else will want to be zero-rated, when he brought out this great panoply of unlikely events, I thought it sufficient to make this point.

Mr. Sheldon

By leave of the House. The reply by the Financial Secretary was much less than adequate and I should be failing in my duty if I did not criticise him for this. I would never have described my hon. Friend the Member for West Lothian (Mr. Dalyell) as "mouse like". Whatever his mood, he made a powerful point. He wanted to see a bias in favour of these new systems. Perhaps he was leaning over the other way. At any rate it is a better way to lean when talking about books and the dissemina-

tion of information rather than taking the attitude of the Financial Secretary who is doing his best to bring them into the tax bracket.

Of course these things are not in wide use in the home. It is well known that microfilm is a method of obtaining the advantages of making available large amounts of material which otherwise it would not be possible to do. It is not good enough to talk about those cases where it does not matter, because there are many cases where it does matter and those cases are obviously with the research worker, and in private libraries, an area which unfortunately we have not mentioned. These will obviously be subject to this tax and it is something that we should deplore.

It was wrong to talk about this "slippery slope". The same thing can be said about books. It can be said that books resemble novelettes, novelettes resemble comics, comics resemble give-away sheets and therefore we had better tax books as well. The slippery slope is there no less than it is with microfilm. It is said that microfilm may be used in projectors, but anyone who knows anything about these things knows that anyone who took a microfilm from the library and tried to put it in a projector knows as much about the technology of this as the Financial Secretary seems to know.

It is not good enough, when we have something as closely akin to books, and even more closely akin to books than the sound records for the blind which are zero-rated, that these, too, should not be zero-rated. If the Government have seen fit to zero-rate those products they should zero-rate the other products of the same kind of technology.

I must therefore ask my hon. Friends to divide the House.

Question put. That the Amendment be made:—

The House divided: Ayes 186, Noes 208.

Division No. 285.] AYES [8.0 p.m.
Abse, Leo Barnett, Guy (Greenwich) Bradley, Tom
Albu, Austen Barnett, Joel (Heywood and Royton) Broughton, Sir Alfred
Allen, Scholefield Benn, Rt. Hn. Anthony Wedgwood Brown, Hugh D. (G'gow, Provan)
Ashton, Joe Bidwell, Sydney Buchan, Norman
Atkinson, Norman Blenkinsop, Arthur Buchanan, Richard (G'gow, Sp'burn)
Bagier, Gordon A. T. Booth, Albert Butler, Mrs. Joyce (Wood Green)
Barnes, Michael Boydon, James (Bishop Auckland) Campbell, I. (Dunbartonshire, W.)
Cant, R. B. Horam, John Owen, Dr. David (Plymouth, Sutton)
Carmichael, Neil Houghton, Rt. Hn. Douglas Padley, Walter
Castle, Rt. Hn. Barbara Howell, Denis (Small Heath) Palmer, Arthur
Clark, David (Colne Valley) Huckfield, Leslie Pardoe, John
Cohen, Stanley Hughes, Rt. Hn. Cledwyn (Anglesey) Parry, Robert (Liverpool, Exchange)
Coleman, Donald Hughes, Mark (Durham) Pavitt, Laurie
Concannon, J. D. Hughes, Robert (Aberdeen, N.) Peart, Rt. Hn. Fred
Conlan, Bernard Hughes, Roy (Newport) Pentland, Norman
Corbet, Mrs. Freda Janner, Greville Prentice, Rt. Hn. Reg.
Crawshaw, Richard Jay, Rt. Hn. Douglas Price, J. T. (Westhoughton)
Crosland, Rt. Hn. Anthony Jenkins, Hugh (Putney) Probert, Arthur
Crossman, Rt. Hn. Richard Jenkins, Rt. Hn. Roy (Stechford) Rankin, John
Cunningham, G. (Islington, S.W.) John, Brynmor. Reed, D. (Sedgefield)
Dalyell, Tam Johnson, James (K'ston-on-Hull W.) Rhodes, Geoffrey
Darling, Rt. Hn. George Jones, Barry (Flint, E.) Rodgers, William (Stockton-on-Tees)
Davidson, Arthur Jones, Dan (Burnley) Roper, John
Davies, Ifor (Gower) Jones,Rt.Hn.Sir Elwyn(W.Ham,S.) Ross, Rt. Hn. William (Kilmarnock)
Davis, Terry (Bromsgrove) Jones, Gwynoro (Carmarthen) Rowlands, Ted
Dell, Rt. Hn. Edmund Jones, T. Alec (Rhondda, W.) Sandelson, Neville
Dempsey, James Judd, Frank Sheldon, Robert (Ashton-under-Lyne)
Doig, Peter Kaufman, Gerald Silkin, Rt. Hn. John (Deptford)
Douglas, Dick (Strilingshire, E.) Kelley, Richard Silkin, Hn. S. C. (Dulwich)
Douglas-Mann, Bruce Kerr, Russell Silverman, Julius
Driberg, Tom Kinnock, Neil Skinner, Dennis
Duffy, A. E. P. Lamond, James Small, William
Eadie, Alex Lawson, George Spriggs, Leslie
Edelman, Maurice Lewis, Arthur (W. Ham, N.)
Edwards, Robert (Bilston) Lewis, Ron (Carlisle) Stallard, A. W.
Edwards, William (Merioneth) Loughlin, Charles Stewart, Donald (Western Isles)
Ellis, Tom Lyon, Alexander W. (York) Stewart, Rt. Hn. Michael (Fulham)
Evans, Fred Mabon, Dr. J. Dickson Stonehouse, Rt. Hn. John
Ewing, Henry McBride, Neil Strang, Gavin
Faulds, Andrew McCartney, Hugh Summerskill, Hn. Dr. Shirley
Fitch, Alan (Wigan) McElhone, Frank Taverne, Dick
Fletcher, Raymond (Ilkeston) Mackenzie, Gregor Thomas,Rt.Hn.George (Cardiff,W.)
Foley, Maurice McNamara, J. Kevin Thomas, Jeffrey (Abertillery)
Forrester, John Mallalieu, J. P. W. (Huddersfield, E.) Tinn, James
Freeson, Reginald Marquand, David Tomney, Frank
Gilbert, Dr. John Mason, Rt. Hn. Roy Torney, Tom
Ginsburg, David (Dewsbury) Mayhew, Christopher Tuck, Raphael
Golding, John Meacher, Michael Wainwright, Edwin
Gordon Walker, Rt. Hn. P. C. Mellish, Rt. Hn. Robert Walden, Brian (B'm'ham, All Saints)
Gourlay, Harry Mendelson, John Walker, Harold (Doncaster)
Grant, George (Morpeth) Mikardo, Ian Wallace, George
Grant, John D. (Islington, E.) Millan, Bruce Wells, William (Walsall, N.)
Griffiths, Eddie (Brightside) Milne, Edward White, James (Glasgow, Pollok)
Hamilton, James (Bothwell) Mitchell, R. C. (S'hampton, Itchen) Whitehead, Phillip
Hamilton, William (Fife, W.) Molloy, William Willey, Rt. Hn. Frederick
Hamling, William Morris, Alfred (Wythenshawe) Williams, Alan (Swansea, W.)
Hannan, William (G'gow, Maryhill) Morris, Charles R. (Openshaw) Wilson, Rt. Hn. Harold (Huyton)
Hardy, Peter Morris, Rt. Hn. John (Aberavon) Orme, Stanley
Harper, Joseph Moyle, Roland Oswald, Thomas
Harrison, Walter (Wakefield) Murray, Ronald King
Hart, Rt. Hn. Judith Oakes, Gordon TELLERS FOR THE AYES:
Hattersley, Roy Ogden, Eric Mr. Ernest Armstrong and
Healey, Rt. Hn. Denis O'Malley, Brian Mr. James Wellbeloved.
Heffer, Eric S. Orbach, Maurice
Adley, Robert Buchanan-Smith, Alick(Angus,N&M) Dixon, Piers
Alison, Michael (Barkston Ash) Bullus, Sir Eric Eden, Rt. Hn. Sir John
Allason, James (Hemel Hempstead) Burden, F. A. Edwards, Nicholas (Pembroke)
Amery, Rt. Hn. Julian Butler, Adam (Bosworth) Elliott, R. W. (N'c'tle-upon-Tyne,N.)
Archer, Jeffrey (Louth) Campbell, Rt.Hn.G.(Moray&Nairn) Emery, Peter
Atkins, Humphrey Carlisle, Mark Eyre, Reginald
Balniel, Rt. Hn. Lord Chapman, Sydney Fell, Anthony
Barber, Rt. Hn. Anthony Chichester-Clark, R. Fenner, Mrs. Peggy
Batsford, Brian Churchill, W. S. Fidler, Michael
Bell, Ronald Clark, William (Surrey, E.) Fisher, Nigel (Surbiton)
Bennett, Dr. Reginald (Gosport) Clarke, Kenneth (Rushcliffe) Fletcher-Cooke, Charles
Benyon, W. Clegg, Walter Fookes, Miss Janet
Biffen, John Cooke, Robert Fortescue, Tim
Biggs-Davison, John Corfield, Rt. Hn. Sir Frederick Foster, Sir John
Blaker, Peter Cormack, Patrick Fowler, Norman
Boardman, Tom (Leicester, S.W.) Costain, A. P. Galbraith, Hn. T. G.
Body, Richard Critchley, Julian Gilmour, Ian (Norfolk, C.)
Boscawen, Robert Dalkeith, Earl of Glyn, Dr. Alan
Bowden, Andrew Davies, Rt. Hn. John (Knutsford) Goodhew, Victor
Brinton, Sir Tatton d'Avigdor-Goldsmid, Sir Henry Gorst, John
Brocklebank-Fowler, Christopher Dean, Paul Gower, Raymond
Brown, Sir Edward (Bath) Deedes, Rt. Hn. W. F. Grant, Anthony (Harrow, C.)
Bruce-Gardyne, J. Digby, Simon Wingfield Gray, Hamish
Green, Alan Mather, Carol Sharples, Sir Richard
Griffiths, Eldon (Bury St. Edmunds) Maude, Angus Shaw, Michael (Sc'b'gh & Whitby)
Gurden, Harold Mawby, Ray Simeons, Charles
Hall, Miss Joan (Keighley) Maxwell-Hyslop, R. J. Sinclair, Sir George
Hall, John (Wycombe) Miscampbell, Norman Skeet, T. H. H.
Hall-Davis, A. G. F. Mitchell,Lt.-Col.C.(Aberdeenshire,W) Soref, Harold
Hamilton, Michael (Salisbury) Mitchell, David (Basingstoke) Speed, Keith
Hannam, John (Exeter) Moate, Roger Spence, John
Harrison, Brian (Maldon) Money, Ernle Sproat, Iain
Higgins, Terence L. Monks, Mrs. Connie Stainton, Keith
Hill, John E. B. (Norfolk, S.) Monro, Hector Stanbrook, Ivor
Hill, James (Southampton, Test) Montgomery, Fergus Stokes, John
Holland, Philip More, Jasper Stuttaford, Dr. Tom
Hornby, Richard Morgan, Geraint (Denbigh) Tapsell, Peter
Hornsby-Smith,Rt.Hn.Dame Patricia Morgan-Giles, Rear-Adm. Taylor, Sir Charles (Eastbourne)
Howe, Rt. Hn. Sir Geoffrey (Reigate) Morrison, Charles Taylor,Edward M.(G'gow,Cathcart)
Howell, David (Guildford) Mudd, David Taylor, Frank (Moss Side)
Howell, Ralph (Norfolk, N.) Murton, Oscar Taylor, Robert (Croydon, N.W.)
Hutchison, Michael Clark Neave, Airey Tebbit, Norman
Iremonger, T. L. Noble, Rt. Hn. Michael Temple, John M.
Irvine, Bryant Godman (Rye) Normanton, Tom Thomas, John Stradling (Monmouth)
James, David Nott, John Thompson, Sir Richard (Croydon, S.)
Jenkin, Patrick (Woodford) Onslow, Cranley Trafford, Dr. Anthony
Jessel, Toby Oppenheim, Mrs. Sally Trew, Peter
Jones, Arthur (Northants, S.) Owen, Idris (Stockport, N.) Tugendhat, Christopher
Jopling, Michael Page, Rt. Hn. Graham Turton, Rt. Hn. Sir Robin
Joseph, Rt. Hn. Sir Keith Parkinson, Cecil van Straubenzee, W. R.
Kaberry, Sir Donald Percival, Ian Vaughan, Dr. Gerard
Kellett-Bowman, Mrs. Elaine Powell, Rt. Hn. J. Enoch Vickers, Dame Joan
Kershaw, Anthony Price, David (Eastleigh) Walder, David (Clitheroe)
Kimball, Marcus Proudfoot, Wilfred Walker-Smith, Rt. Kn. Sir Derek
King, Evelyn (Dorset, S.) Pym, Rt. Hn. Francis Walters, Dennis
King, Tom (Bridgwater) Quennell, Miss J. M. Ward, Dame Irene
Kinsey, J. R. Ramsden, Rt. Hn. James Weatherill, Bernard
Kirk, Peter Rawlinson, Rt. Hn. Sir Peter Wells, John (Maidstone)
Kitson, Timothy Redmond, Robert White, Rogert (Gravesend)
Knight, Mrs. Jill Reed, Laurance (Bolton, E.) Wilkinson, John
Knox, David Rees-Davies, W. R. Winterton, Nicholas
Lamont, Norman Rhys Williams, Sir Brandon Woodhouse, Hn. Christopher
Le Merchant, Spencer Ridley, Hn. Nicholas Woodnutt, Mark
Lewis, Kenneth (Rutland) Rippon, Rt Hn. Geoffrey Wylie, Rt. Hn. N. R.
Lloyd, Ian (P'tsm'th, Langstone) Roberts, Michael (Cardiff, N.) Younger, Hn. George
Loveridge, John Roberts, Wyn (Conway)
McAdden, Sir Stephen Rossi, Hugh (Hornsey) TELLERS FOR THE NOES:
MacArthur, Ian Russell Sir Ronald Mr. Paul Hawkins and
McLaren, Martin Sandys, Rt. Hn. D. Mr. Marcus Fox.
McNair-Wilson, Michael Scott, Nicholas
Madel, David Scott-Hopkins, James
Marten, Neil

Question accordingly negatived.

Mr. Sheldon

I beg to move Amendment No. 39, in page 109, line 4, at end insert: '7. Original works of art'. We have had debates on different aspects of this Amendment on the Floor of the House, in Committee upstairs and on Schedule 5 in Committee upstairs, and each time we have dealt with it in a slightly different way. Amendment No. 39 represents the ideal Amendment. It covers original works of art comprehensively, it zero-rates them and adds nothing to them that might make the category less easy for the Government to concede. Amendment No. 39 is basically the right Amendment to enable the Government to show what they have in mind for the relief from taxation of the artist.

The Amendment seeks to zero-rate original works of art. If accepted, it will mean that living artists will have the advantage of seeing their work carrying no tax throughout their lifetime. It would also mean that we shall put these works of art in the same position as books. There are those who hold the view, and I believe rightly, that works of art of this kind are in a similar position to books in that they spread knowledge and an understanding of the civilising process. Therefore, they should receive the same exceptional treatment as do books.

Mr. W. R. Rees-Davies (Isle of Thanet)

Is the hon. Gentleman talking only about works of art by riving artists, or about original works of art? An original work of art may be a work by Rembrandt or Turner, or it may be an original work of art by a living artist. What in fact does the hon. Gentleman mean by the phrase?

Mr. Sheldon

This was the ideal Amendment which we wanted to see introduced relating to original works of art by a living artist, but we are prepared to see the provision spread a little more widely, we hope that at a subsequent stage the Chancellor of the Exchequer, before introducing this tax next April, will accept something on these lines.

We are seeking some assistance from the Government in this respect. We believe that an artist can be closely compared with an author. We believe that pictures by artists living today represent the product of the civilisation by which we wish our times to be remembered. If we are to offer any help to the artist, that help must be forthcoming from the Government—but not by way of grants.

It is extremely difficult to devise means of helping artists. Artists are not always very approachable and frequently shun the kind of institutions that are set up to assist them. They tend to be very naive and certainly they are not knowledgeable about financial matters. They need held and they deserve help, but it is difficult for the community to provide the help artists need.

Mr. Simon Wingfield Digby (Dorset, West)

Does the hon. Gentleman seek to include modern tapestries in the phrase "works of art"? There is quite a revival in modern tapestries, some of which are definitely works of art.

Mr. Sheldon

I am not prepared to specify any further. I am sure that that would be one of the categories which could usefully be included.

It is extremely difficult to help these people. Although the Arts Council receives large sums of money, the difficulty is in knowing how that money is to be dispersed to those artists who are most in need of it. We shall only find out in the course of time the artists who should have been helped and the other artists for whom help was not quite so necessary.

If we are not in a position to arrive at a proper judgment of the situation, then much of the money poured into helping the arts will be wastefully used. I make no complaint about this since it is an essential part of the process, but perhaps only part of the money will go to those artists whose work will be valuable in the context of time.

If it is difficult to apply money usefully in that way, what we should be sure of is that under no circumstances should artists be taxed. If we cannot help them, let us not hinder them. If we cannot help them to create works of art in the way they wish, let us not put any barrier in their way. Surely the Chancellor of the Exchequer should do all in his power to assert the right of artists to conduct their operations free from the encumbrances of a tax of his own devising. It is one thing to have an anomaly of an existing tax which by force of circumstance unfortunately bears on the category one does not wish to tax, but it would be wrong to devise a tax which would have a bad effect on artists of our time when action can be taken to remove them from the ambit of tax. I cannot believe that the Government have such a course in mind. I am sure that over a period of time they will find some way of assisting these people to escape the burden of a tax which they have devised.

8.15 p.m.

Mr. Rees-Davies

I shall be very brief. I am afraid that confusion has been worse counfounded by this Amendment. It is designed and intended to assist the living artist. It does not make plain the range of works of art covered. Is it only the painter, or does it include the printer, the lithographer, and the tapestry maker? Does it include the potter? How wide a coverage does the hon. Member for Ashton-under-Lyne (Mr. Sheldon) envisage by the term "work of art"? Who will derive benefit from the Amendment? If it be only living artists, why is there no reference to the fact that the first £5,000 will not be subject to VAT anyway? If that be so, it will be only the better-off artist who sells a substantial amount of his work who will be subject to tax.

I hope that my hon. Friend will be able to say something about the situation in France. As I understand it, specific exemption from VAT is given to living artists in France and I have considerable sympathy with that view. It seems to me that the problems of the living artist are totally separate from the problems involved in other works of art, but if we can do something to help living artists in a narrow way, such as painters and those who paint water colours, then I feel we might reasonably do something for them.

Mr. Sheldon

The lion. Gentleman does not seem to realise that this point was covered in the debates in Standing Committee where an Amendment of this kind was resisted by the Government.

Mr. Rees-Davies

That may be so, but the hon. Gentleman made the point that he was seeking to assist the living artist and not to cover original works of art by those who are dead. Therefore, if the Amendment is accepted, it would surely go very much wider than the hon. Gentleman claims. It is important not to mislead artists throughout the country. A painter is not the only person who regards himself as an artist. Would a very fine piece of jewelry design qualify as a work of art? I do not know. It would have to be carefully designed.

Picasso creates not merely paintings but pots and plates which are great works of art. Are they to be treated as exempt? Is a magnificent original design to be exempt when it is reproduced in copies thereafter?

These are all difficult problems, but the civilisation of France can probably give us a guide. I am sure that the Treasury has examined the French precedent. I understand that in France there is a partial exemption for a limited class of living artists, and I should like to hear the Financial Secretary's views on it. I am opposed to the Amendment as it stands.

Mr. Hugh Jenkins (Putney)

The hon. Member for the Isle of Thanet (Mr. Rees-Davies) is opposed to the Amendment because of its catholic wording. If the hon. Gentleman does not like the wording which my hon. Friend the Member for Ashon-under-Lyne (Mr. Sheldon) has so effectively expounded, I am sure that my hon. Friend will say that if the hon. Gentleman accepts the principle he will be prepared to leave the final wording to the Government and will not press the point. If the Government wish to introduce a narrower form of wording with a more precise definition, they should have no difficulty. The drawing of lines should present the Treasury with no problems. The French can draw lines. However, in this case the hon. Gentleman seems to have some trouble in drawing a line. In an earlier debate he explained how difficult it was to draw lines and how if one moved a little bit one way one would be on a slippery slope and treading on all sorts of other problems.

They have no such trouble in France. The French Government even make different rates of tax. The very thought of that here casts the Government into great confusion. The French exclude amateur productions and educational productions, for example. All these things are possible in the Six. Why not in this country? I agree with the hon. Member for the Isle of Thanet that what constitutes a work of art is a very wide area. Every play and poem which has ever been written is a work of art, at least in the estimation of the author. I agree that this is a wide definition but that is nothing against the Amendment; indeed, it speaks in its favour.

Surely the Government do not wish to define "work of art" so closely as to exclude many things which other people think of as works of art? No doubt, if the Government accept the Amendment, they will wish to be generous and to have a wider definition of what constitutes a work of art.

I was at a loss to understand why it was that Mr. Speaker failed to select Amendment No. 40, which sought to include the words plays, printed, duplicated, manuscript or performed". It merely sought in effect to add the word "performed" to what is already agreed to be properly excluded—that is to say, to plays printed, duplicated or manuscript, which are already zero-rated. I was astonished that it was not selected, but I now see the reason.

Mr. Rees-Davies

On a point of order, Mr. Deputy Speaker. Perhaps the Chair has been slightly indulgent. The hon. Gentleman is now on Amendment No. 40, which has not been selected by the Chair. The hon. Gentleman cannot include manuscript plays as being original works of art. There are many other matters to be debated, and I invite the Chair to call the hon. Gentleman within the terms of order in this matter.

Mr. Deputy Speaker (Sir Robert Grant-Ferris)

I shall not define a work of art, but I hope that the hon. Member for Putney (Mr. Hugh Jenkins) will not go too far outside the terms of Amendment No. 39. The hon. Gentleman knows that Mr. Speaker has ruled Amendment No. 40 out of order. I took it that he was making a passing reference to it. I hope that he will now proceed.

Mr. Jenkins

You are entirely correct in your interpretation of what I was about, Mr. Deputy Speaker. It follows from that that the hon. Member for the Isle of Thanet must be hopelessly in error, as, indeed, is normally the case. You are quite correct, I was referring to Amendment No. 40 as a preliminary to saying that when I realised the wide interpretation which can be put on, "Original works of art", I realised that Mr. Speaker had, in excluding Amendment No. 40, considered that I could make my speech on this Amendment because a play performed can be a work of art. Therefore, it is possible for one to refer to plays. Whether "Oh Calcutta" is more or less a work of art than "Othello" is a matter which no doubt could be debated at great length, if we had time to do so, with great profit and interest to us all. That one or both are works of art cannot be doubted. I hope that my hon. Friend the Member for Ashton-under-Lyne will not object if I stretch his interpretation of an original work of art in this way.

I hope that the Minister will say that on reflection he would like to re-appraise the Government's attitude to the arts. There may be another opportunity for him to do so tomorrow, so he has time to consider the matter. If he gives some indication to my hon. Friend that there has been a change of heart and that the Government are seriously concerned about taxation of the arts, I hope we will not press the Amendment to a Division. However, if there is no such evidence no doubt my hon. Friend will press the matter.

When one considers the large number of my hon. Friends who have added their names to Amendments which seek to secure the zero-rating of the theatre, and that hon. Members of the Liberal Party, who are unfortunately absent at the moment, put down an Amendment to the same effect, one sees that there has been since the Committee stage a swing towards the feeling that the arts should be zero-rated, not least among supporters of the Government. The whole area of the arts is unsuitable for taxation in any shape or form, so I hope that we shall hear something encouraging, something of a civilised character, for the first time from the Minister. Do not let him fob us off about the difficulty of drawing lines. The Minister is in the business of drawing lines and if he cannot do so for the purpose of excluding the arts from taxation, then he does not deserve to be sitting where he is.

8.30 p.m.

Mr. Dalyell

I propose to be constructive. I can tell Treasury Ministers where they can get the money needed for the Amendment. They can get it by not spending considerable sums of public money in helping the National Gallery to retain pictures such as Titian's "Death of Actæon"in this country. [Interruption.] I do not concede here that I am a philistine. I have as great an interest in pictures as any other hon. Member.

Mr. Rees-Davies

I was merely repeating what I said earlier. How Titian comes into this argument confounds almost everyone.

Mr. Dalyell

I congratulate the hon. Member on being the new Deputy Speaker. I will take my orders from you, Mr. Deputy Speaker, and not from him. There is a real issue here. However much we love Titians, they are not part of our culture, and if the National Gallery wants to sell these pictures to Maribou, California, where undoubtedly they will be well looked after, this may well have a rationale about it.

If considerable sums of public money are to be used, it is much more important that they be used for encouraging living artists, rather than for keeping Tintoretto's or any of the other great artists' works in this country. What kind of discussion has gone on as to what the balance of priority ought to be? I hope that there has been some discussion in the Treasury about to what extent we should use public funds for helping living artists as opposed to retaining pictures, however famous, and using vast sums of public money to do so.

The balance as far as I am concerned comes down very strongly in favour of helping the living artist and for that matter, of course, preserving some of our own heritage. Titian and the like are international. They are the heritage of the world. I see no over-riding reason why we should spend considerable sums of public money to keep these pictures here. We would do better to use the money to enable the Treasury to accept an Amendment such as this.

Mr. Andrew Faulds (Smethwick)

I had not intended to make any observations but I must do so in view of what has just been said by my hon. Friend the Member for West Lothian (Mr. Dalyell). I think that he is treading dangerous ground here. It is surely not a question of zero-rating for the theatre or the retention of international masterpieces in this country. It surely should be for the Treasury, for the preservation of our enormously varied cultural activities, with their great contribution to the national life, to make it possible for both things to be done. We should have both the retention of international masterpieces in this country, which I do not want to see sent to Maribou or anywhere else, the zero-rating for this extraordinarily valuable part of our cultural life, the theatre, not only in terms of its contribution to the lives of us all, but in terms of things such as the export trade, which surely the Treasury should appreciate. I would not like the House, and certainly not the Treasury, to think that all of us endorse the comments of my hon. Friend the Member for West Lothian.

Mr. Higgins

There has been some discussion in the debate as to what is or is not a work of art. I think that most of us feel that the hon. Member for Putney (Mr. Hugh Jenkins) produced something of a work of art in getting into order his concern about the live theatre, which is well known to us all.

I was a little worried when the hon. Member for Ashton-under-Lyne (Mr. Sheldon) said that we had discussed works of art in each forum for this Bill, because we discussed it on the Floor of the House in Committee and also upstairs in Standing Committee. I suppose that he would now describe the discussion on the Report stage as the "Flora forum".

Two serious points have been raised on this matter, one of them in the House in Committee and one upstairs. The first referred to the question of our international art market and the other related to the works of living artists. While I cannot go along with the hon. Member for Ashton-under-Lyne in thinking that this is an ideal Amendment, it is true that it comprehends both questions, so I shall deal with both.

First, I will deal with the question of the works of living artists or, as the Amendment calls them, "Original works of art"—or artists' sale of their own work. That was one of the most enjoyable, as well as one of the deepest, debates we had in Committee. We went at great depth into the position of the living artist. The Committee reached a decision on that issue.

My hon. Friend asked about the position in France, where there is a system of exemption for works by living artists. It is important to notice that the small-trader exemption in France is a great deal lower than that which we are proposing in this Bill. We would not wish to go to a very complex system of VAT with multiple rates and exemptions of the kind existing in France. We believe that there is a strong case for a single low rate.

The £5,000 exemption is of considerable importance to the living artist when beginning his career. Once he gets beyond that point he may well prefer to deduct his input tax on some of his materials. We discussed figures said to relate to a particular sculptor and how much he paid for rent although his taxable turnover was less than £5,000. The Committee doubted whether such a sculptor existed and whether he paid that rent with such a taxable turnover. The £5,000 exemption will be of help.

We cannot accept what the hon. Member for Ashton-under-Lyme says, that we must give relief to this group by relieving them of VAT rather than through the system of grants. It would not be right for me to pursue that point. It is not right that we should rate the artists' sale of their own work in the way suggested. This is a comprehensive tax. This set of products and producers should fall within its scope. That is the basic line we have taken throughout our debates.

The subject of existing works of art, in particular on the London market, was debated in the House. My right hon. Friend pointed out the considerable disadvantages which might arise from the fact that works of art might flow over the course of a long or indefinite time from taxable to non-taxable traders, with a partial cascade effect, where tax would accumulate. The suggestion was made that the answer was to make some provision whereby the works of art in the London market might be taxed not on their full value but on the margin, by the operation of a scheme of a kind covered in the provisions of the Bill, providing an order is made.

Following the statement made by my right hon. Friend in Committee on 11th May, at column 1596 of the OFFICIAL REPORT, to the effect that I had asked the Department of Customs and Excise to have further urgent discussions with the trade to ascertain whether it is possible to find a way round this problem, a series of discussions has taken place with the various interests involved to see whether a satisfactory scheme could be produced to protect the position of the London art market, which is important with regard to invisible earnings. The primary purpose of that scheme would be to avoid the accumulation of tax which would occur in circumstances to which I have referred.

The Department of Customs and Excise had a number of meetings with the trade. A satisfactory scheme can be devised, under which dealers would need to record each purchase of goods within the scope of the scheme and to maintain a stock-book with each item being allocated a unique reference which would remain with the article while in stock. The difference between the dealers' buying and selling prices would be regarded as tax inclusive. The dealer would account for the tax on the basis of that difference. Any cost incurred by the dealer while the work was in stock, for example on cleaning, would not be taken into account in determining the margin.

To avoid disclosure of the margin—a point on which dealers laid great stress—no tax invoices would be issued even in respect of dealer-to-dealer sales. It follows that the purchasing dealer would not be able to claim any deductible input tax in respect of the purchase of the work of art. Those are the broad details of the scheme.

One of the major problems thrown up in the course of discussions was the treatment of imports of secondhand works of art. The dealers' working party made it clear that this was all important, because they felt that without free movement of imports the position of London as a major international centre of the secondhand market would be in jeopardy. This is a point which arises on a later Amendment.

The proposal as it was originally examined would have produced some discrimination against United Kingdom artists, because a new United Kingdom work of art would be taxed on the full value on first sale after 1st April, 1973, whereas a foreign work of art executed after 1st April, 1973, would never attract United Kingdom VAT on the full value unless it was imported as a new work of art before its first sale.

This potential discrimination would be resolved if relief for imports were restricted to works in existence on 1st April, 1973, while all works executed after 1st April, 1973, whether new or secondhand, were liable at import to VAT on the full value. This is the treatment for imports which would remove the discrimination which would otherwise have been involved between the British artists and the foreign artists selling in this country.

The coverage of the scheme is not finally settled, but it will be based on Chapter 99 of the Customs and Excise Tariff and will cover essentially paintings, engravings, sculptures and antiques over 100 years old.

The position of the United Kingdom artist and the position of the London art market arose on the Amendment. We believe that this arrangement will be acceptable to the trade. Final details must be settled before a Treasury order can be made. I believe that a satisfactory arrangement can be made and I hope that it will meet with the approval of the House.

Mr. Rees-Davies

Does the question of the auction house in the London art market arise at this point or later? Questions were raised earlier about the amount chargeable on the auction of works of art, whether it should be 1 per cent. The question is whether the amount should be based on the commission charged by the auctioneer or on the value of the work of art as a whole. Has my hon. Friend arrived at any conclusions?

Mr. Higgins

I have thought it right to outline the scheme, although discussions are still continuing on some of the technicalities. In due course an order will be made, when the matter can be discussed and the House can reach a decision.

A dealer's margin is the realised auction price less the dealer's purchase price. This margin would then be regarded as tax inclusive and the dealer would eventually account for one-eleventh of the margin as VAT, unless the work of art were exported, in which case the zero rate would apply.

8.45 p.m.

sAuctioneers' service charges—in other words, their commission—are separately liable to VAT. But this sum would be a deductible input tax to the dealer. I think that that answers my hon. Friend's query. It is quite a complex and technical matter, and it has taken a good deal of discussion to arrive at a satisfactory solution. It will still be the case that VAT will apply but under the terms of the Clause, providing that the House agrees to the order, with regard to the special provisions made for certain second-hand goods. There are other items which will be covered by orders in this respect and on which representations have been made.

That is the broad picture. We thought it right to outline the present state of play in this respect. We recognise the importance of the London art market and, that being so, we believe that this is a satisfactory, workable and practicable scheme.

I have sought to cover both the main areas covered by the Amendment, works of the living artist and those of the London art market. For the reasons that I deployed at greater length in Committee I cannot recommend the acceptance of the Amendment with regard to the living artist. With regard to the London art market, I think that we have gone a long way to meet the points which were made in Committee.

Mr. Dalyell

Has any reflection taken place in the Treasury on the issue that I raised, namely, the distribution of public funds three ways as between the living artist, our own heritage and famous international pictures?

Mr. Deputy Speaker (Sir Robert Grant-Ferris)

Order. I do not think that we can talk about expenditure when we are concerned with exemptions from the tax.

Mr. Robert Cooke (Bristol, West)

I am grateful for what my hon. Friend the Financial Secretary said. It is fair to say, however, that one would have to be an expert in these matters to be able to appreciate the finer points contained in his remarks.

I believe that it would be right to use a slight different phrase for the art market. I prefer to describe it as the international market based on London, which is what we have been trying to preserve. We hold the international market for a great many sides of art here in London and we are determined to keep it.

As a result of what my hon. Friend said, assuming that the later Amendment is made and that the order is approved—and I cannot conceive of circumstances in which the House would wish to do other than approve it—there will be no disincentive for anyone wanting to use the international market based on London to sell goods which he has brought in, say, from America, tax free. In other words he can sell them here tax free and take away the proceeds. There remains no impediment for a person who wishes to avail himself of the services of London to continue to do so whatever domestic tax or taxes this House may decide to approve for the benefit or otherwise of British subjects here in Britain.

Mr. Sheldon

The concession that the Financial Secretary has made is ingenious and one of the most thorough that we appear to have received. For that, the Opposition must thank the hon. Gentleman. However, it does not cover the position of the artist selling his own work. Over the next few months, before the introduction of the tax, I hope that further thought will be given to this point with a view to producing a fully rounded concession of a type which would meet the wishes of the House.

What I am pleased about—and I think the whole House must express its appreciation of this—is the way he has worked out in a very complex form, and obviously as the result of a great number of detailed negotiations, a solution to the problem of maintaining the position of the London art market and enabling it to continue to play its important role, not only for art but also for our own economic position. We must express the full gratitude of the House for this concession and, with your permission, Mr. Deputy Speaker, and that of the House, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Higgins

I beg to move Amendment No. 41, in page 109, line 6, at end insert: