§ 7.22 p.m.
§ LORD ROCHDALE rose to ask Her Majesty's Government whether, in the interests of smaller manufacturers, they will reconsider their previous refusal to include consignments of plant and machinery of under £2,000 in value, within the concession of duty-free entry. The noble Lord said: My Lords, the noble Lord, Lord Lucas of Chilworth, in opening the last debate, apologised for the lateness of the hour at which he started to speak on a new subject. If he had grounds for doing that, I am afraid I have still more substantial reason for apologising for rising to speak on a new subject at this late hour. But this subject is one of considerable importance to many manufacturers, and so I feel justified in speaking upon it now. It is a matter of some technical detail, and it may be that some of your Lordships are not fully conversant with what exactly is involved. I am afraid I must, therefore, take a little time in explaining my point.
§ First of all, in order to make my own position absolutely clear, I want to say that I am not asking for any fundamental change or any far-reaching change, such as, for instance, the complete removal of import duty on all plant and machinery that is imported into this country. That is the last thing I want to do. I am far too conscious of the tremendous importance to this country of the machinery makers' industry. I have the greatest admiration for the work they do, and whenever I can I encourage British manufacturers to use their machinery and their tools. At the same time, it has long been recognised—and here I am going back to the Finance Act, 1932, Section 10—that there are occasions when some pieces of productive machinery, which our manufacturers, for one reason or another, are not producing, can only be obtained, if they are to be used in this country, by importing them from overseas. It is clearly desirable in those cases—and they should not be many—that our manufacturers should be encouraged in some way to use those machines so that they can compete with their corresponding 897 manufacturers overseas. It is for that purpose, when such a piece of machinery has to be obtained in this country, that it is reasonable, and always has been regarded as reasonable, that it should be allowed to be imported duty free. In exactly the same way there must be a number of machines which our competitors overseas can obtain only by coming to this country, and if one regards it as give and take in that way, then surely there can be no objection to the point I am seeking to make.
§ In March, 1952, owing to balance of payments difficulties, the Chancellor of the Exchequer suspended Section 10 of the 1932 Finance Act. This meant that all imported machinery then became liable to the full rate of import duty of 20 per cent. A year later, in March, 1953, the President of the Board of Trade set up a Committee under Sir Henry Wilson Smith to look into the long-term problem of the duty free import of machinery. It is almost exactly twelve months ago to-day that that Committee, in July, 1954, presented their Report, and in another place on July 29 last year the President of the Board of Trade announced his general acceptance of the Report, indicating that he was accepting it as a whole with one exception. The exception is one that I need not go into now. It needed legislation in order to bring it into existence. So the recommendations of this Report, which I have here, came into force on August 4 last year. The Wilson Smith Committee upheld the original "basic criterion for duty-free admission," namely, the nonprocurability of similar productive machinery in the United Kingdom. I would emphasise that it had to be productive machinery. In one respect the Committee, in their recommendations, went a stage further, and they suggested that the rules governing the issue of certificates should be made rather more flexible, so as to take into consideration cases where United Kingdom deliveries were unduly protracted.
§ So far one has no criticism whatever to make of the Report. But the Wilson Smith Committee introduced an entirely new consideration, and it was this: that no licences should be granted in the case of consignments of similar or closely associated machinery that came below a limit of value of £2,000. Now that is an 898 entirely new conception, and it never came into the picture before. And it is to this completely arbitrary—admittedly arbitrary—limit of £2,000 that I am objecting in my Question. This is by no means the first occasion upon which objections have been launched. The matter has been raised by correspondence with the Board of Trade. It has been taken up with the Consultative Committee which was established as a result of the Wilson Smith Report. There was a Question in another place on February 28. I put down this Question shortly before the Election, but as it was so close to Prorogation I removed it and put it down again shortly after the new Parliament assembled. I am glad to see that doing so has certainly goaded some of our friends in another place, because they put down Questions on this very matter on July 2 and July 7, and, if I am not out of order in quoting a rumour, I understand that the matter is actually being discussed on the adjournment in another place this evening.
§ To all the overtures that have been made on this point, we have never received what we consider in any way a satisfactory answer. The argument put forward, which is most unconvincing to my mind, has been based on two points. The first is that if the cost of administering these duty-free certificates is to be kept within reasonable bounds, then the scheme has to be restricted. The Committee suggested that it be restricted by cutting out all claims for certificates that come below the limit of £2,000, and that is now being done. I gather that the £2,000 limit was based on the fact that in 1951, the last year when the old scheme was working, that limit would have cut out about 60 per cent. of the claims.
§ The second reason that has been given is that the Government are accepting the Report as a balanced whole, apart from one point that needed legislation, and that if the whole question of the value limit had not been accepted, then the question of the resumption of duty-free licensing would have had to be reexamined in toto again. I do not think that these answers are other than extremely weak. Before the war when this scheme was in operation there was no minimum limit at all, though (and I understand the Report describes this) there was an unofficial unpublished figure, 899 put down for the convenience of administration, of a £50 limit, which was later raised to £100 in 1947. No one could possibly object to small limits of that nature.
During the investigations of the Committee a great many industrial organisations gave evidence of one kind or another. I find in paragraph 68 of the Report this statement:
The question of the minimum value limit on applications has not been raised in the evidence we have received from industry.
I do not know how Her Majesty's Government have interpreted that phrase. I do not know how much weight they have placed on it. It could be grossly misleading, because, of course, industry did not give evidence on that point; it was not asked to do so. The question of there being an arbitrary limit was never put to those who gave evidence to the Committee, and the first time it appeared was when the Report was published. Therefore, to say that industry never gave evidence on the point and to suggest that industry did not mind a limit is, to put it mildly, unfair. The organisation for which I can speak with first-hand knowledge—the National Union of Manufacturers, of which I am President at the moment—gave evidence before the Committee, and at no time was any indication given to us that an arbitrary limit like this would be made. I assure your Lordships that if we had known about it, we would have given very strong evidence at the time and pointed out why we felt it would be wrong to incorporate such a provision.
§ The reason why we oppose this limit is that it discriminates against the small manufacturer in favour of the big manufacturer. Let me give a hypothetical case. I have here a number of actual cases which I could quote, but as time is getting on I am sure your Lordships do not want me to do that. Let me quote the case of a machine of the value of £450 which cannot be purchased in this country and therefore comes within the basic criterion and would be eligible for a duty-free certificate provided a sufficient number of machines were bought in one consignment to bring it about the £2,000 limit. A big firm wanting five of these machines would pay £2,250 and would get each machine for £450; but a little man who can afford to buy only one or 900 two machines has to pay full duty. Therefore, for an identical machine the little man has to pay £540 while the big man pays £450. That is an unanswerable case of unfairness. When we consider the proportion of industrial units in this country that are small units—I refer to those employing between 11 operatives and 100—we realise that this is a direct hit at the small man who is constantly being told to produce more and to be more efficient.
§ I have made some investigations into the amount of money involved. It is rather difficult to be specific, but so far as I can see the amount of money involved from the revenue point of view is comparatively small—I should say between £1 million and £2 million; but that is quite a large sum to place on the shoulders of small manufacturers. It may be argued against this that that is not the point. It will be argued (I hope my noble friend will not argue this) that all these applications under £2,000 increase the cost of administration. The fact remains that Her Majesty's Government are putting a completely unfair burden on the smaller manufacturers, and I should have thought that some more equitable procedure could have been adopted. I am the first to press Her Majesty's Government to cut down administrative costs and I appreciate that argument very well indeed; but this is a case where we have a thoroughly bad principle, discrimination at its worst, and I do not think it is a case of the means justifying the end.
§ It may be asked whether I have any suggestions of how we can get over this obvious difficulty. I know that some people have suggested that the £2,000 limit might be cut to £500. I do not think that that is necessarily a good suggestion. It would help a lot, but it would still leave a great deal of administrative work to be done. There is one other suggestion which I think is worth considering and I should like to put it to my noble friend. Seeing that the sum of money involved is so small, is it really necessary for there to be such a meticulous examination of all claims that come in under the £2,000 limit? Paragraph 30 of the Committee's Report draws attention to the immense amount of time used in the long-drawn-out investigations necessary for every one of these claims. Would it not be enough 901 to have a far more superficial examination for these smaller claims and then perhaps from time to time have something like a meticulous spot check? I understand that the idea of spot checking is in favour with Her Majesty's Government in certain directions these days, and that may be a solution of the question. So far all attempts to persuade the Board of Trade to change their attitude on this point have failed. I know that my noble friend has taken a tremendous amount of trouble to go into this point. If the answer he has before him is just another link in the chain of "Noes," then I would ask him not to use his brief, but to consider what I have said; and then perhaps he will be persuaded, if he thinks over it, to join with me in bringing further pressure to bear on the Board of Trade to change their policy. I beg to ask the Question standing in my name.
§ 7.40 p.m.
§ LORD JESSEL
My Lords, I hope your Lordships will bear with me if I make a few remarks on the persuasive speech of the noble Lord, Lord Rochdale, in favour of reducing the £2,000 limit at present imposed on the entry of duty-free machinery into this country. Although I do not agree with his arguments, and was not convinced by them, I think he was quite justified in raising this matter this evening, because it is of great importance to a great many manufacturers. My view on the question is, I suspect, the official one, so that if I anticipate any of the points which the noble Lord, Lord Mancroft, will make when he comes to reply for the Government, I hope he will forgive me. The noble Lord, Lord Rochdale, has referred to the Wilson Smith Committee which was appointed by the President of the Board of Trade to investigate the whole question of the entry of duty-free machinery. When this Committee reported in 1954 they gave as their considered opinion that the only possible method of limiting eligible applications was by fixing a minimum value, which could be considered. I do not think the noble Lord, Lord Rochdale, is really in disagreement with this principle; what he is arguing against is the specific figure chosen. My own view is that a manufacturer will import a machine he needs whether he has to pay duty on it or not, although if he can avoid the duty, so much the better for him. I suggest that 902 a duty of 10 per cent. on a machine costing less than £2,000 is not an intolerable burden.
I am sure the noble Lord, Lord Mancroft, will touch on the administrative problems which would be involved if the present minimum of £2,000 were to be reduced. I know that early in 1952 applications were coming in at the rate of 1,200 a month. I do not know what. the figures are tc-day—perhaps the noble Lord, Lord Mancroft, will tell us later—but I do know that if this minimum figure were to be reduced the Board of Trade would need a much larger staff to deal with the new flood of applications which would inevitably pour in. Then there is the additional burden on the trade associations, because they are constantly referred to on technical matters in respect of the machinery which is the subject of these applications. It may be that I am a little prejudiced, but I feel that a figure of £2,000 does rough justice. Let us remember that this is a concession that we are discussing. I contend that the duty-free concession should not be granted at all, unless, after proper examination, the applicant's case is proved, first, on technical grounds—and by that I mean, as the noble Lord, Lord Rochdale, said, that it has been clearly established that there is no comparable machine made in this country—and secondly, on what I may call economic grounds; that is to say, that it can be shown that the amount of money involved in duty payable would make some difference to the applicant's cost of production. And by that I do not mean the £200 or £300 about which the noble Lord, Lord Rochdale, has been worrying. We all know that if the minimum figure were reduced to £1,000 there would still be grumbles from those not allowed a duty-free licence to import a machine costing £900.
I believe that the consultative committee appointed by the President of the Board of Trade, which is composed of makers and users of machinery, is of the opinion that this £2,000 minimum is a fair figure, and I hope that the Government will follow the advice of that body. If they do not, I would rather see the concession tightened up and the minimum figure raised. In my opinion, it is not in the interests of British industry that we should go back to the 1949–50 position, where, more than 50 per cent. of 903 the machinery coming into this country was duty-free. I do not know what the proportion is to-day, but I think it is quite substantial. Perhaps the noble Lord, Lord Mancroft, will let us know the actual figure when he replies. In conclusion, I think we should remember that the whole scheme became a farce by 1950 and had to be suspended. None of us wants that position to occur again. I would urge the President of the Board of Trade to harden his heart and to resist the temptation to extend the concession on duty-free machinery.
§ 7.47 p.m.
§ LORD MANCROFT
My Lords, there was no need for my friend Lord Rochdale to apologise to your Lordships for bringing this matter forward, even at this intolerably late hour, because it is one of great importance. My task has been made slightly easier for me by the noble Lord, Lord Jessel, who has almost made my speech for me. Of course, the Wilson Smith Committee recognised fully that the value limit of £2,000, which my noble friend Lord Rochdale has explained so lucidly to the House, was inevitably a somewhat arbitrary measure and would give rise to various anomalies; but they could not find an alternative. It is clear also that the Committee gave the most thorough consideration to the effect of the value limit on the smaller firms to which the noble Lord, Lord Rochdale, referred, but they concluded that it was essential, in spite of the fact that it would bear rather hardly on some smaller firms, as it undoubtedly has done. Her Majesty's Government considered that the whole revised scheme of duty-free licensing recommended by the Committee hung closely together and that the £2,000 limit was an essential part of it. The choice lay between accepting the Wilson Smith Committee point of view or rejecting the whole system of duty-free licensing of machinery altogether. The Government took the view that the national interest would be best served by the limited scheme of licensing which the Committee recommended. In short, we gave industry half a loaf (or perhaps half a lathe, as my noble friend Lord Rochdale would prefer), rather than no bread at all.
My noble friend mentioned the point contained in paragraph 68 of the Report. It is true that the Committee took a large 904 amount of evidence from users and makers of machinery on the general question of duty-free licensing, but they did not specifically consult industry about their proposal for the £2,000 limit. It seems to me that there would have been as little point in their doing so as for the Chancellor of the Exchequer to ask the taxpayers whether they would prefer larger or smaller tax concessions.
In accordance with another of the Wilson Smith Committee's recommendations, a Consultative Committee has been appointed, again consisting mostly of industrialists. The function of this Committee is to keep under review the general policy and administration of duty-free licensing of machinery and to represent industry's views to the Government. This Committee have received and considered representations about the £2,000 limit, and fully agree that it must be maintained as an indispensable part of the revised duty-free licensing arrangements. The Committee, I know, have investigated various schemes, including one or two of those mentioned by my noble friend Lord Rochdale, and for various reasons—and certainly difficulties of administration and the amount of extra work which would be required were among them—they have not so far been able to find a satisfactory alternative. I do not know whether they have looked at the question of spot checks or not. I must confess that it does not appeal to me a great deal. I can see a serious risk of breach of some of our agreements in that, but I will make certain that the idea is investigated.
The answer to Lord Jessel's question as to how the scheme is working is that it has been in action eleven months now, and in those eleven months 4,600 cases have been examined. Of 3,700 applications that have been fully dealt with, about 50 per cent. have been granted duty-free licences. I fully appreciate the validity of many of the points which my noble friend Lord Rochdale has made. They are old and familiar ones. I have heard them before, and I still appreciate their validity. I sympathise with the firms that are hard hit by the limit. Her Majesty's Government have recognised from the outset that this or any other value limit is inevitably an arbitrary measure. They share the view of the Wilson Smith Committee that the field of duty-free licensing of machinery should 905 be more restricted than before, and I was glad to hear my noble friend Lord Jessel support that point of view. The Government have accordingly given, and are still giving, a great deal of thought to the possibility of devising other means of keeping within bounds the number of applications for duty-free licensing of machinery. So far, however, it has not been found possible to devise any method which would achieve this end without introducing even greater difficulties and anomalies. But if it is any comfort to my noble friend Lord Rochdale, the search continues. I hope, therefore, that he will not take my answer as the blunt "No" which he rather pessimistically foreshadowed. It is not that. At present, I can see no alternative and I am afraid that we shall have to continue this method, which I know causes great inequality, as any anomaly must. But at the moment we can find no other way of solving this almost intractable problem.