HC Deb 12 July 1972 vol 840 cc1764-73
Mr. Geoffrey Finsberg (Hampstead)

I beg to move Amendment No. 221, in page 37, line 14, leave out "1st October 1972" and insert "31st March 1973".

I must declare an interest as Chairman of the all-party Retail Parliamentary Group and a member of the executive of the Multiple Shops Federation. I regret that the hon. Member for Manchester, Wythenshawe (Mr. Alfred Morris) is now absent, because he would otherwise have been supporting me on this Amendment as my Vice-Chairman.

I believe that as the Bill is now drafted there is a danger of double taxation being imposed by the disappearance of purchase tax and the imposition of VAT. There is still considerable anxiety in the retail trade about this.

The Retail Consortium is made up of the Multiple Shops Federation, the Co-operative Union, and several allied bodies representing all retail interests in this country. They are worried. For several years sale-or-return schemes have been in operation for purchase tax. These have been approved locally by the Customs and Excise authorities and have been working extremely well. Now, at the last gasp of purchase tax, there is a sudden change of view on the part of Customs and Excise.

12.45 a.m.

I should like to read an extract from a letter dated 8th June from the Commissioner of Customs and Excise to the Secretary of the Retail Consortium. It says: …if a sale or return arrangement is to succeed in deferring the tax point until the goods concerned are purchased by the retailer, it must at all times be possible for any of the articles so purchased from the registered supplier to be identified to the supplier's delivery document by means of adequate records kept by the retailer…this conclusion is not dependent on any new legal provisions but is implicit in the existing law. The purpose of the new regulations is merely to codify the requirements and place certain statutory obligations on retailers to keep and preserve the necessary records. Here comes the rub: Whilst it may be the case that certain sale or return schemes which have hitherto been accepted do not strictly comply, I am afraid that in the light of the regulations envisaged by Clause 53 (7) of the Finance Bill we have no option but to require, at any rate from 1st October, 1972, that such schemes are modified to take full account of the law if they are to continue to succeed in deferring tax liability. Surely my hon. Friend the Financial Secretary can see how difficult this must make things for the trade. It has for years in various parts of the country had acceptable sale or return schemes—there is no argument about that—and yet, just at the conclusion of purchase tax, the Customs and Excise says that in the light of regulations envisaged the schemes already in existence, which have benefited traders throughout the country for years, may have to be modified. I suggest that this is not as helpful as it might have been.

My hon. Friend has made certain very welcome concessions, for example on television rentals. I should like him to consider the case of mail order. I am refer- ring not to the squares in newspapers but to the large general catalogue mail order companies trading in the United Kingdom—the Mail Order Traders Association, all thoroughly reputable. They have been in touch with the Customs and Excise for the past 15 months. It must be appreciated that the particular problem of these companies is that their catalogues, running into nearly 1,000 pages, have to be printed and distributed and goods priced several months—not weeks—before 1st April, 1973.

The mail order companies raise the following points: first, the length of the tax pause; secondly, how much prior notice will be given of the length of the tax-free period as it is necessary in the case of mail order, because of its forward planning, that prior notice should be as possible.

They then ask, however, if concessions are to be given in respect of television rental charges to avoid the unfairness of double taxation, whether the same principle, apparently accepted by the Treasury, cannot be applied to goods sold on sale or return or credit prior to VAT day which have borne purchase tax but which are still being paid for on extended credit terms after 1st April, 1973, and which as far as I can see will in turn attract VAT. For goods sold on 20 or 38 weeks' credit in the major mail order catalogues prior to 1st April, 1973, what will be the position concerning the balance of the payments at the end of that period?

Having said that, I want to say only two more things briefly. First, there is the question of the tax pause in general. If it is too long, it will presumably cause price-cutting and deferment of order. If it is too short, it will not permit stocks to be disposed of without loss. I remind my hon. Friend that both when SET was halved and when purchase tax was reduced most of the major reputable retailers—the Co-operative movement, Marks and Spencer and the like—made reductions and passed them on.

Therefore I urge that the existing arrangements should continue until the end of purchase tax, since they have been approved previously, and I hope that my hon. Friend the Financial Secretary will agree that the principle of double taxation is one which is utterly repugnant to this House.

In the light of what I have said, necessarily briefly, I hope that my hon. Friend will find it possible to accept the Amendment.

Mr. Higgins

Several of the issues raised by my hon. Friend the Member for Hampstead (Mr. Geoffrey Finsberg) were raised on an earlier Amendment, when I said that there were some points which I should have to return to at this later stage. However, I think that the two Amendments should be read in conjunction.

My hon. Friend's points are concerned essentially with the transitional arrangements in the period when we are changing over from SET and purchase tax to VAT. As I said when we discussed the earlier Amendment, there is no perfect solution to the problem of tax-paid stocks at the changeover to VAT. Any stock taking scheme would be impracticable for Customs and Excise, and it would present tremendous difficulties for retailers if they were to attempt to calculate the tax element in their stocks at any given date. Similar objections apply to variations which have been suggested, such as those proposed in Committee by the hon. Member for Heywood and Royton (Mr. Joel Barnett).

What is required is a simple solution which will give a broad measure of relief to help facilitate the changeover. It is not some dogmatic view on whether double taxation per se is to be avoided at all costs, but, rather, an attempt to avoid disruption in the changeover. That is what we are seeking to do.

The Government's proposals for dealing with the problem are outlined in paragraph 27(a) of the White Paper. In brief, they divide the field into two sectors: on the one hand the classes of goods for which sale or return arrangements are generally suitable and for which no transitional period relief is provided: and on the other hand the remainder of the field for which the transitional period relief is envisaged.

It was on the earlier Amendment that we dealt at some length with the transitional period, its length, and so on. We discussed whether there were disadvantages if it were too long or other disadvantages if it were too short. It is important to hit a balance. We aim to to provide a period within which stocks of purchase tax paid goods can be run down and stocks of VAT paid goods can be built up.

I do not think that the House will wish me to go over areas that we have covered before. However, my hon. Friend the Member for Hampstead raised some other questions about the position where there are sale or return arrangements. He referred to a letter. There has been some correspondence between Customs and Excise and the Retail Consortium and others on this problem, and I have discussed it with various interests in the trade. Discussions have been held to try to find the best solution that we can. However, there are limits to how far we can go.

For the classes of goods listed in paragraph 27(a) of the White Paper as being suitable for sale or return arrangements and for which no tax-free transitional period is to be provided, all existing SOR schemes will be left undisturbed. In general, but with the important exception of gramophone records and tapes, these are goods which are readily identifiable, and no difficulty is anticipated in operating SOR schemes. It has been represented to us that there is a case for transferring gramophone records and tapes to the sector to which the tax-free transitional period will apply, and this is under consideration.

This is the opposite direction to that in which most interests are anxious to move. Most people are asking why they cannot have an SOR arrangement rather than why they cannot move from that to a transitional period arrangement. But we are considering the position of gramophone records and tapes, which is a trade in which there are special problems.

Mr. Joel Barnett

On sale or return, surely it is possible for goods which are not necessarily specified as being in that list to be put out on sale or return and therefore avoid double taxation if the supplier wishes to put them out on sale or return? It frequently happens in many trades for suppliers to put out goods on sale or return even though such goods are not in the list specified by the Government.

Mr. Higgins

I am sorry the hon. Gentleman has delayed me. I was just coming to that point. I have here a series of paragraphs which deal with various points. The point the hon. Gentleman has raised is covered by the next paragraph.

For goods other than those listed in the White Paper, for which a transitional period has been proposed by the Government, sale or return arrangements are not precluded—sale or return is a commercial arrangement and Customs has no power to stop it—but any such arrangements must confirm strictly to the law, including the regulations to be made under Clause 53(7) of the Bill, if they are to affect the date on which purchase tax would become due. This must preclude schemes, including existing or in some cases dorman schemes, under which goods adopted, that is, purchased, by the retailer are collectively identified by means of a stocktaking at the end of the period. Such schemes, if they became widespread, would result in a situation much the same as under a stock rebate scheme which the Government have already rejected. They could not be properly controlled. Moreover, they would result in widespread tax-free stocks in retail shops at the start of the transitional period—I emphasise "at the start of the transitional period"—and hence the virtual certainty to the public sales at tax-free prices. This would defeat the object of the exercise, which is to avoid any price "pick-up", if that is the right expression, and achieve a smooth transition to value added tax.

The hon. Member for Manchester, Wythenshawe (Mr. Alfred Morris), in an earlier debate, appealed to me to adopt a constructive response to the argument he put forward and that which he said my hon. Friend the Member for Hampstead would now put forward. We are anxious to be as helpful as possible to the trade. Customs would be prepared to consider whether it could accept schemes, which were otherwise satisfactory, based on identification of containers rather than of individual items, which is obviously not a practical proposition—for example, unopened cartons of tubes of toothpaste rather than individual tubes. This would mean that unopened containers could be held tax-free in retail premises and the goods would be "adopted" and the tax become due on break of bulk. We are prepared to consider this idea. We hope it might be possible in some cases to arrange suitable schemes which could be adequately controlled. I am sure the House will appreciate that it is necessary for the control to be adequate both to ensure a smooth transition and to avoid any loss of revenue.

Mr. Geoffrey Finsberg

My hon. Friend has spoken about breaking down and has instanced toothpaste. Does it mean that if, for example, teaspoons, which are normally supplied in containers of one gross, are broken down into 12 packets of one dozen each, those could be separately identified and it would be only on the unopened, say, eleven-twelfths that the problem would arise? But suppose instead of the gross being broken down into 12 packets of one dozen each they were broken down into 144 packets of one each. Is that the kind of thing which he envisages might assist the trade?

Mr. Higgins

No. I should not wish to go further than I have already gone. My hon. Friend is an expert in these matters, and he knows that this is a complicated area. The essential point is that such arrangements would have to conform strictly to the law, including regulations under subsection (7),but Customs and Excise are prepared to look at proposals which are based on the identification of containers rather than individual items. It is essential that Customs and Excise should look at specific proposals. The essential feature from their point of view would be their ability to control the scheme effectively. We should have to judge any given proposal on its merits, because there are problems, and ultimately there would be considerable difficulty if this were carried too far.

1.0 a.m.

We do not wish to be dogmatic about the situation. We wish to examine the position on its merits and, as my hon. Friend knows, discussions on these subjects are continuing. I am merely seeking to set out the broad framework within which I think these discussions ought to proceed.

Mr. Joel Barnett

Is not the hon. Gentleman exposing the nonsense of the scheme itself? Is not he saying that to assist traders the best thing that can be done from now on is for suppliers to supply goods on an agreed sale-or-return arrangement and then to invoice them at the date of the tax-free period?

Mr. Higgins

No. There are considerable complications here, and I am seeking to outline the broad framework of what is involved. Obviously it is a question of its being a practicable scheme which can be controlled. If sale-or-return arrangements are introduced, they must be within the terms of subsection (7), and also be such that Customs and Excise believe that effective control can be exercised. I do not wish to go into further detail now.

If one were to proceed on the basis which I have suggested, it might be that storage considerations would impose limits on the extension of such modified arrangements but, combined with the transitional period, they would provide reasonable relief for there tail trade. I thought it right, in response to my hon. Friend, to seek to respond in a constructive way.

My hon. Friend also raised some questions about mail orders. I think I am right in saying that if mail order goods are sold before 1st April, 1973,—and "sold" is a precise expression—but payment continues to be made after that date, this does not affect the tax position. It is determined by the point of supply. If it is before 1st April, 1973, VAT will not apply. I think that the answers the point made by my hon. Friend, but if not perhaps he will pursue the matter in correspondence with me.

That being so, I cannot recommend the House to accept my hon. Friend's Amendment which would nullify the effect of any regulations made under subsection (7) for the purpose of strengthening the power of Customs and Excise in relation to sale-or-return arrangements. I hope that my hon. Friend will accept what I have said as a statement of the overall framework within which I am sure we shall succeed in bringing about a situation in which the transition from SET and purchase tax to VAT can proceed in a reasonably orderly manner.

Mr. Geoffrey Finsberg

Perhaps I may respond to my hon. Friend's invitation and discard the other 30-minute speech that I had prepared. My hon. Friend has an open mind, and I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Dr. Gilbert

I beg to move Amendment 133, in page 37, line 15, at end insert 'but not longer than six years'.

Subsection (7) of Clause 53 gives power to the Treasury to make orders requiring traders to preserve purchase tax records for, as the Bill now stands, an unlimited period. We have had many discussions in Committee and on the Floor of the House about the powers of the Inland Revenue and I do not seek to rehearse them now. There is no point in leaving an open-ended power of this sort. We cannot envisage circumstances in which the Treasury would require documents of this sort to be kept for more than six years. We do not consider this a particularly important Amendment but we consider it to be a perfectly logical one and hope that the Government will have no difficulty in accepting it.

Mr. Higgins

The object of the Amendment is to place a limit of six years on the period for which the regulations may require records of goods received on sale or return terms to be preserved by retailers or other unregistered traders.

Dr. Gilbert

We know that.

Mr. Higgins

The House has asked us on a number of occasions to make clear what we propose in regulations which are to be made under the Bill and, where possible, to give advance notice of what those regulations are likely to contain.

I have to advise the House that the Amendment is unnecessary because our intention is that the regulations to be laid before the House soon after the Bill receives Royal Assent will provide that the limit of time for which the records in question should be retained by retailers will be only two years.

This conforms with the Commissioners' normal requirements for the preservation of records by registered purchase tax traders. That is our intention and it will depend on the regulation and whether the House approves it. We will await that event. I hope that in view of the fact that I have met the hon. Gentleman, not 100 per cent., not 200 per cent., but 300 per cent., he will feel it right to withdraw the Amendment.

Dr. Gilbert

I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

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