HL Deb 24 February 1959 vol 214 cc480-6

4.57 p.m.

LORD GRANTCHESTER rose to ask Her Majesty's Government what are the reasons for, and what is likely to be the effect of, Notice No. 77K, dated February, 1959, issued by the Commissioners of Customs and Excise, relating to purchase tax on second-hand gem jewellery. The noble Lord said: My Lords, the notice which has been issued by the Commissioners of Customs and Excise, and to which I have ventured to draw your Lordships' attention, affects all those who are engaged or employed in the jewellery trade. There are throughout the country, I believe, some 5,000 firms, small and large, wholesalers or retailers, or both; possibly another 5,000 dealers trading on their own account, and some hundreds of manufacturers. There is in this trade no very clear demarcation between different categories of traders. The term "whole-saler" is somewhat of a misnomer: perhaps "factor" would be a more accurate description, as so much business is done between one firm and another. A shopkeeper may buy a lot, out of which he may choose a few items from his stock: the remainder he may pass to an intermediary, to sell to a retailer in another part of the country where, possibly, the taste is rather different; other pieces may go into the export market.

My Lords, London is still the principal market for unset stones, but the manufacture of designed and decorative jewellery in this country is insignificant. This trade, which was formerly an important part of the jewellery business, has been virtually killed by purchase tax. There is, I suppose, no limit to the anomalies and curiosities of purchase tax; the jewellery trade provides a few examples. Perhaps I may mention one. Unset stones are not liable to purchase tax, and so, if you buy a diamond for, say, £1,000, and want to spend £50 mounting it into a ring, purchase tax is payable not on £50 but on £1,050. In consequence, this part of the trade, which is not unimportant in relation to the tourist and foreign visitor, has passed to centres like Paris, Rome and New York, where craftsmen still find employment. The poorness of the display in London is one of the characteristics on which visitors comment, and it certainly loses this country business which otherwise would come our way. Practically the whole business which is done now in mounted jewellery is in second-hand pieces which come on the market. This trade is now threatened by the action of the Customs and Excise Department in the notice to which I am drawing your Lordships' attention.

The authority under which purchase tax is levied was originally Section 18 of the Finance Act, 1940, now replaced, I think, by Section 10 of the Finance Act, 1944. This section was very widely drawn and only an understanding reached with the trade has made it workable. In effect, the understanding has been that purchase tax should not be charged on second-hand articles. I do not think that in any trade purchase tax is levied on second-hand goods, perhaps for the very good reason that if it were it would be paid many times on the same article.

I do not wish to weary your Lordships by going into the details of the notice to which I have drawn attention; but, briefly stated, its effect is to make purchase tax payable on second-hand jewellery when it comes into the hands of a wholesale trader. That would mean, for instance, discrimination in favour of a private buyer at an auction sale, as opposed to a dealer in the trade. As your Lordships are fully aware, there are important sales of jewellery held in London, part of the very valuable art business which is done in our famous London auction rooms. Noble Lords will appreciate the confusion which would be introduced by having to discriminate as regards the payment of purchase tax between one buyer and another. This notice, if I may say so, is a deadly blow against London as the principal centre in the world for the sale of art treasures and valuable jewellery.

May I read a few words from the opening sentence of this Order, as it purports to disclose the reasons for its issue. I will abbreviate, so far as possible, the sentence: The Commissioners of Customs and Excise announce that owing to serious abuse of … the concession under which secondhand goods are permitted to be sold free of purchase tax, they are obliged to withdraw the concession from articles of gem jewellery with effect from the 1st of March 1959. First I should like to ask the noble Earl, Lord Dundee, who is to reply to this Question, to give the evidence of what is referred to as "serious abuse". For instance, how many prosecutions have there been? How many convictions have been secured? What is the proportion of those who are alleged to have abused the concession to the number of persons engaged in the trade? I think that we should have plain answers from the noble Earl to these simple questions. When he has answered them I would ask whether he considers that collective punishment of a group of traders, which also affects the general public who have any second-hand jewellery they may want to sell, is a conception of British justice of which he approves. I suggest that it is not likely to find much favour in this country.

I imagine that this notice has been issued by some over-zealous official, possibly without reference to the Treasury at all, and without any idea of the disturbance and other consequences likely to follow from the notice. The existing arrangements have been working for some fifteen years, and here is a notice which upsets these arrangements, issued in February to come into operation on March 1. If the Minister is not prepared to withdraw this unfortunate notice straight away, I would press him most strongly to postpone its operation until full consideration can be given, in consultation with the trade, to the consequences to which I have drawn your Lordships' attention.

5.7 p.m.

THE EARL OF DUNDEE

My Lords, the noble Lord, Lord Grantchester, began by pointing out that this is a question which affects all the firms—I think he mentioned the number of 5,000—employed in the jewellery trade in the whole country. He will be aware, of course, that the withdrawal of this concession has resulted from representations made a year ago, and on many other occasions, by the firms who manufacture and sell new jewellery, which is subject to purchase tax, who have found that they are being gravely injured because they are being undercut and undersold by new jewellery falsely stated to be second-hand, which thus escapes purchase tax and draws their legitimate and honest trade away from them.

When these complaints were made and strongly pressed in another place, in the form of Questions and also of a debate on the Adjournment a year ago, my right honourable friend the Chancellor of the Exchequer was very reluctant to take any action. He pointed out that he could not do so unless there was better evidence, but he promised to inquire into the matter. Since then, extensive inquiries have been carried out by the Customs and Excise, who have found that these malpractices are very widespread indeed. It is not so much a question of injuring the Revenue, because, as your Lordships will easily see, there are considerations on both sides when we consider how much tax is to be paid or lost; but it is a very serious question of honest jewellers being injured by dishonest ones.

The Chancellor of the Exchequer came to the conclusion that the only way to deal with this was not to impose a new tax—the noble Lord, Lord Grantchester, rather spoke of this as the imposing of a new tax—but simply to withdraw a concession which has hitherto been given in respect of second-hand jewellery. As your Lordships know, that applies only to jewellery which is not more than one hundred years old; antique jewellery of a greater age is altogether outside the scope of purchase tax. The class of jewellery which benefited from this concession was secondhand jewellery not more than one hundred years old.

LORD SHEPHERD

The noble Earl has used the word "concession". Has there ever been a purchase tax on secondhand jewellery?

THE EARL OF DUNDEE

I am not sure whether it has ever been collected, but it has been imposed by Parliament. The Chancellor of the Exchequer is permitted to make the concession, which I think he has always done. I do not think purchase tax has been collected, either on second-hand jewellery or on other second-hand articles; but it has been approved by Parliament, and we should not require legislation in order to impose it.

LORD STONHAM

Is this not in the nature, not of a concession but of an exemption from an order relating to second-hand jewellery? Can the noble Earl say whether the withdrawal of that exemption now means that if a member of the public sells second-hand jewellery to another member of the public, neither being dealers, purchase tax will have to be paid?

THE EARL OF DUNDEE

No; it affects only licensed dealers. As to the terminological point, I dare say that "exemption" is a better word than "concession".

The noble Lord naturally wanted to know why it was necessary to take such a drastic comprehensive step as withdrawal of exemption in order to deal with a certain number of cases of dishonesty. I cannot agree with the noble Lord in using the word "punishment"; I do not regard the withdrawal of an exemption as a punishment. It is simply a measure designed to make the intentions of Parliament effective; that is all. The question is: Could the purpose of Parliament have been made effective in some simpler way—for instance, by detecting and prosecuting everybody who had made false statements representing that new jewellery was second-hand jewellery? In order to obtain legal evidence to justify a prosecution in a case of this kind, it is necessary to take a great deal of trouble, and the process is extremely laborious and lengthy. I am not, of course, going to give any indication of the number of prosecutions which may result.

The noble Lord asked how many prosecutions there have been. The answer is that there have not been any yet; but how many there may be when the investigations of the Customs have been completed it would not be in the public interest to disclose. The point is, however, that my right honourable friend did not think, having regard to the difficulty of getting evidence, that the threat or likelihood of prosecutions—even if there were one or two—would be sufficient to put an end to this widespread malpractice. He felt that the only way of doing it was to withdraw the concession, which will certainly adversely affect a number of people. It will no doubt mean that some people will get less for their second-hand jewellery; and, on the other hand, that people who have to buy second-hand jewellery may have to pay more for it. My right honourable friend considered that it was better that that should be so than that honest traders should continue to be injured and undersold by the false representation of new jewellery masquerading as old jewellery taking away their legitimate trade.

LORD GRANTCHESTER

My Lords, I am sorry to interrupt the noble Earl, but does he really suggest to us that the Commissioners of Customs and Excise are entitled to refer to "serious abuse" if, after extensive investigation which he says has been carried on for a period of more than a year, they have not found one case with sufficient evidence to prosecute?

THE EARL OF DUNDEE

I do not think the noble Lord has been listening to what I said. What I said was that it would not be in the public interest to disclose the number of prosecutions which will presumably take place when these inquiries have been completed.

The noble Lord asked whether, if the Government would not withdraw this Order, they would at least consider deferring it. All I would say in regard to that is that the auctioneers, who, although this tax does not apply to auctions, may be indirectly affected by it—that is, Christies and Sotheby's—are making representations to the Chancellor of the Exchequer. My right honourable friend stated in another place this afternoon, in reply to a supplementary question, that he was willing to consider whether his decision might be deferred until he had had further opportunity of studying the representations which are now being made to him by the auctioneers. In view of that undertaking, which I happened to hear because I went up to your Lordships' Gallery in order to listen to it, I would rather not say anything more on the subject now.

But I am sure your Lordships would like to know that my right honourable friend has given that undertaking—not a definite undertaking to postpone it, but to consider whether he will postpone it until he has had more opportunity of studying the representations which are now being made to him by the auctioneers.

LORD GRANTCHESTER

I should like to thank the noble Earl for that assurance, and I would ask him to ask his right honourable friend whether he will also include, in considering the representations, not only Christies and Sotheby's, but the Association of Jewellers.

THE EARL OF DUNDEE

I have no doubt that my right honourable friend will consider all representations. I was only making plain the distinction between the interests of the auctioneers and those of the ordinary licensed dealers.