PURCHASE TAX CHANGES (Hansard, 10 February 1960)

THE EARL OF GOSFORD
My Lords, I beg leave to ask the second Question which stands in my name on the Order Paper.

§ THE EARL OF DUNDEE
No, my Lords. Her Majesty's Government have carefully considered this suggestion, but 1114 my right honourable friend the Chancellor of the Exchequer must be free to make any decision about purchase tax in the context of his Budget. Your Lordships will be aware that this tax, yielding nearly £500 million a year, is the second largest source of indirect revenue, and will remember that in the last Budget, for example, all the purchase tax rates except the lowest were reduced by one-sixth, at an annual cost to the Exchequer of about £65 million. That was one of my right honourable friend's major Budget decisions of the year. It is unrealistic to expect that he could have taken such a major decision in January, before carrying out his pre-Budget review of the whole field of taxation and expenditure.
Moreover, my Lords, even if my right honourable friend could foresee in January of any particular year that he would be able to make no purchase tax changes in his forthcoming Budget, he could not announce that decision then. For if in any one January he were to say that he would make no tax changes in his Budget, he would of course be pressed to make a similar statement in the following year; and if he were not in a position to deny such intentions then, it would (rightly or wrongly) be taken as evidence that tax changes were to be expected. The disturbance to trade which would result from that would be much worse than it is at present, when he makes no announcement at all.

THE EARL OF GOSFORD
My Lords, while thanking my noble friend for his reply, I would request that he ask his right honourable friend to think this matter over again. Does he not realise that the present practice causes loss to small traders, in particular, and inconvenience to the public; and that, in fact it is not sacrosanct that changes in the purchase tax happen at Budget time, because there have been many occasions when changes in the purchase tax have happened at other times in the year? Therefore I would ask my noble friend if he would approach his right honourable friend again.

THE EARL OF WOOLTON
My Lords, may I ask Her Majesty's Government whether the Chancellor of the Exchequer has taken advice on this subject from the people who are now collecting this tax on his behalf?— 1115 because, if I may respectfully say so, my own experience is rather opposed to the views that the Government have just expressed. Is my noble friend aware that there is, in fact, quite a hold-up in the placing of orders, and therefore disturbance to employment, as a result of the fact that people do not know what this tax is going to be?

§ THE EARL OF DUNDEE
My Lords, with regard to the hold-up in the placing of orders, I would suggest that it is most unwise on the part of retail dealers either to get rid of their stocks prematurely or to hold them up in anticipation of possible Budget changes. The reduction last year of one-sixth in the standard rate of purchase tax made a difference of about 7d. in the pound of the retail price. I am not suggesting that that is insignificant, but the loss which retailers run the risk of incurring by holding up or by prematurely getting rid of stocks may be very much more than 7d. in the pound, and they will do far better to wait until the Budget statement is made before deciding upon any action. The other considerations which my noble friends have put to-day have all been considered by my right honourable friend the Chancellor of the Exchequer, but it seems to me that they do not in any way detract from the virtue of reticence.

§ VISCOUNT ALEXANDER OF HILLSBOROUGH
My Lords, in view of the undoubted history in this matter, of the accrued losses to the retail trade and in some respects to the wholesalers as well, may I ask whether, if the noble Earl is not going to make any move in the direction suggested to-day, he will undertake to consider legislation in connection with income tax and profits tax which would allow as a complete charge against assessments in both cases all losses sustained as a direct result of Treasury action in regard to this?

§ THE EARL OF DUNDEE
My Lords, I am sure the Chancellor of the Exchequer will be glad to consider anything that is suggested to him by the noble Viscount, but I do not think he could accept responsibility for losses which result not from Treasury action but from the unwise reactions of people to the expectation of such action.

LORD HAWKE
My Lords, would my noble friend not agree that the whole question would be solved if the financial year and the calendar year were to correspond; and would Her Majesty's Government appoint a working party to discover what are the merits and demerits of such a proposal?

§ THE EARL OF DUNDEE
My Lords, that point was very carefully considered last year. I should have thought that if the Budget date were changed from April to January, there might still be people asking whether the changes in purchase tax ought not to be announced in June. But it is a different question. It was all considered, and I am afraid my right honourable friend did not arrive at a conclusion favourable to the proposed change.

§ VISCOUNT ALEXANDER OF HILLSBOROUGH
My Lords, in view of the noble Earl's reply just now, may I ask whether it is not quite unreasonable for traders to have to incur heavy losses by the expectation that, immediately after a Budget prices must be at once reduced? If no action is going to be taken in the direction I suggested, will he consider having a properly audited assessment of the cost to the retailers, and repay that amount of the tax which they have already paid in purchase tax to the State?

§ THE EARL OF DUNDEE
My Lords, I will certainly ask my right honourable friend if he will consider that. I would, however, point out that traders, although they have been accustomed to anticipate a reduction in tax, might also, in some circumstances, have to anticipate an increase.

LORD SALTOUN
My Lords, is it not the case that such losses are incurred by traders quite irrespective of gambling and of whether the purchase tax is going to be increased or reduced? They are incurred in the course of their ordinary business. If that is so, and if these losses are innocently incurred, will Her Majesty's Government consider at least some form of simple insurance against such losses?

§ THE EARL OF DUNDEE
My Lords, our advice is that the losses would be much smaller than they are if people did not gamble.

THE EARL OF GOSFORD
My Lords, is my noble friend aware that shopkeepers could hardly prevent Christmas shoppers from buying Christmas presents—which is the reason for this Question? Surely the time when the shops are empty is just the time when such tax changes should take place. I know a case of a firm of stationers in my locality who, through no fault of their own, lost £350 in one particular year due to this tax change.

§ THE EARL OF DUNDEE
My Lords, I know that the Christmas shopping argument was one of the reasons for changing the date of the Budget, but I am afraid that that does not affect the disadvantages of announcing a change in tax two or three months before the Budget.

§ LORD WILMOT OF SELMESTON
My Lords, would the noble Earl consider again the answer he gave to the noble Lord, Lord Saltoun? These losses which occur are in no sense due to gambling, but are caused by the taking off of tax on the normal stocks. It is quite impossible for the trader to recover from the customer the tax which has already been paid. It is in no sense an anticipation or a gamble, but an ordinary risk which people cannot avoid.

§ THE EARL OF DUNDEE
My Lords, I am entirely aware of that. What I thought my noble friend suggested was that people took action in anticipation of an expected Budget change which they would not have taken if they had not expected such a change. That was all I meant by"gambling."

THE EARL OF WOOLTON
My Lords, may I ask whether the noble Earl has considered this question? Is there any reason why people who, under legislation, collect taxes on behalf of the Government should then be left with a deficit when the Chancellor of the Exchequer has changed his mind? Secondly, I wonder whether it would help the House if the noble Earl were to give the amount that is lost to the retail trade as a result of this change in any one year? I declare an interest, my Lords.

§ THE EARL OF DUNDEE
My Lords, I will certainly see whether that figure is available.