§ 6.30 p.m.
§ LORD BARNBY rose to ask Her Majesty's Government whether they can explain the delay in announcing the conditions upon which exporters can obtain, on certain merchandise regularly exported in volume, the export bonus. The noble Lord said: My Lords, the purpose of this Question is to seek an explanation, hitherto not vouchsafed to repeated delegations from the industry, of the delay in according to manufacturers of wool tops the subvention provided under Section 7(5) of the Finance Act (No. 2), 1964. First of all, I should declare an interest. I am a board member, unpaid, of a body which has for long dealt rationally with redundant equipment in the wool combing industry. This association, I should add, functions with the benevolent familiarity of the Board of Trade.
§ The export of wool tops by the United Kingdom is not insignificant. In 1964, it 1148 totalled in value £45 million—an appreciable contribution to the country's export achievement. Indeed, it is an important part of the £160 million of the total exports of the wool textile industry, which places the industry among the top eight exporting industries. I believe it is the fifth—
§ LORD BARNBY
The sixth, the noble Lord, Lord Rhodes, with his knowledge, corrects me. The Act requires a 20 per cent. content of British wool to qualify for rebate. There have been protracted negotiations by authoritative bodies—the statutory Wool Export Council and the British Wool Federation with both the Board of Trade and Customs authorities; but the frustrating debate still continues. There has been helpful consideration by senior officials, but down the line less higher ranking officials, perhaps quite properly in their attempt to defend the taxpayer, have shown costiveness and delay and have advanced many complications. It will be agreed that uncertainty is a discouragement to business and this instance is certainly no encouragement to the export of wool tops to these high values.
Business in this industry is habitually done on slender margins, often as low as 1 or 1½ per cent., with long-term credits thrown in. It is often thought that we disregard cost calculations for heavily depreciated buildings and machinery in calculating prices to overseas customers. Such narrow margins would bring blushes to those in other industries when they think of the margins which they customarily secure. It will be seen that an incentive of the order proposed in the Act of 1¼ per cent. is of great encouragement if exports are to be achieved. What applies to tops would also apply to noils and other by-products. I cannot omit mentioning that the industry here meets subsidised exports from Australia and also competition from exporters in the Argentine and Uruguay who benefit considerably from tax concessions. Indeed, it can be said that this latter assistance also applies to competitors from European countries.
I would seek to forestall technical representations of complications which may be advanced by the noble Lord who is to reply. By his long association with 1149 the wool industry, he is familiar with all these matters and understands the problem perfectly. But he enjoys our sympathy since, whatever may be his own inclinations, a Minister must often conform to policy reactions of his Department. All the same, this offers to him an opportunity to secure accelerated equity. From a lifelong intimacy with the industry and as past head of its senior trade organisation, for a long period, I could weary the House with technical explanations. This would involve an explanation of the diversity of content or the material price ratio of the content of exported merchandise. Wool values could well vary up to 20 per cent. within twelve months. This would make it difficult to calculate the wool content value on the day a contract was made. The date of contract and the date of delivery might vary up to twelve months, or again the date of arrival might vary as against the date of purchase or sale contract or the ownership of the wool.
I would mention that certain by-products are necessarily a blend of constituent parts from various producers, which would make it impossible to calculate any average in the blend. Merchandise manufactured from British wool automatically attracts a subvention because it meets the required 20 per cent. proviso; but how on earth can the British part and the imported part be separated in a blended product? That is beyond the wit of man. I think that your Lordships have had a sufficiency to understand how complicated this matter can be. The rules of the House prevent me from replying to anything which the noble Lord may say, but I assure him that the present delay is a serious grievance in the industry. I am sure that he is personally sympathetic, and I hope that his sympathy may bring a favourable decision, which will avoid any possible unintentional miscalculations as to the composition of the product, or technical content ratios; it would, if granted, swiftly avoid inescapable long delays for the payment of the bonus. Admitted, this may be a difficult matter in interpretation. But there has been, one understands, a suggestion that each individual trader may average his raw material cost over an extended period. That is just not a practical proposition; it is just cuckoo-land. The 1150 average of each individual firm, the date of purchase, the date of sale contract, the date of delivery—they would all vary tremendously within the twelve months.
There is talk about arrival on premises. Whose premises—the buyer's, the railway company's, the commission comber's? Again, there is discrimination between a topmaker with combs or one without combs. There is talk of freight included—inland or marine; in United Kingdom or foreign bottoms, or freight excluded? Then, there is cost of labour directly employed. Is that in handling or in manufacture? It may include the cost of independent contracts, as set out in the regulations. Who is to be the independent contractor; and how many are permitted?
I said that I would not weary the House with too much technical data; and your Lordships will appreciate that it is a technical matter, involving very large sums, and it is entitled to a rapid and favourable decision. I venture to suggest to the noble Lord that if he still finds great difficulty in coming into agreement with the industry as to what is and what is not practical, would it be possible to invite a small committee, nominated by the trade, to come down and discuss it with the Board of Trade and the Customs authorities? Here I would say that there exists in this industry a statutory body dealing with all export matters. The secretary of that body is extremely well versed in all matters affecting wool textile export all over the world, and he would be, I suggest, a most valuable man for the noble Lord to recommend to confer with the officers of the Board of Trade and the Customs. I therefore suggest, as a quicker course, that the Government should use powers vested in them in Clause 7(5) of the Finance Act (No. 2), 1964, and make the provision forthwith that wool combed in the United Kingdom shall be regarded as ranking forthwith for subsidy.
We in the industry rejoice that we have the noble Lord, Lord Rhodes, as the Minister, because he understands this industry. He has this opportunity to clarify the position. But, what is more important, he has it in his power to impress upon the Government and the Departments concerned that exports are being jeopardised—and, indeed, it is disquieting how the curve of exports is going down—and to correct a deep sense of grievance 1151 among the manufacturers and exporters about this apparently inexplicable delay. I hope, therefore, that the noble Lord will feel able now to make a statement which will correct this unhappy state of affairs.
§ 6.45 p.m.
§ LORD RHODES
My Lords, I am obliged to the noble Lord for telling me in advance what he proposed to say tonight. I suppose that if his Party had been in Government I should have been making exactly the same sort of speech from those Benches. But I am not. I am undermined because I have the knowledge of the other side as well. While the noble Lord is regarded as an elder statesman of industry, and has put his points with clarity and with quite a lot of technical allusions, none the less he has put his case.
I would ask him, first, to consider what the position would have been if we had not introduced a scheme at all. This has nothing to do with my reply, but I must draw his attention to the scheme—and it is encouraging to know what an enormous value is placed on it. The export rebates scheme gives exporters relief from certain indirect taxes which enter into the costs of production and transport of exported goods. That is clear. It is not, as the wording of the noble Lord's Question might be taken to imply, any sort of bonus or subsidy. The Finance (No. 2) Act, passed last autumn, stipulates that goods must be produced or manufactured in the United Kingdom in order to qualify for the rebate, and it has been laid down in the Export Rebates Order, 1965, that goods shall be treated as produced or manufactured in the United Kingdom if, and only if, 20 per cent. or more of the costs of their production or manufacture is attributable to United Kingdom expenditure. The noble Lord must agree that 20 per cent. is a very low proportion to take as the criterion.
The House will appreciate that a minimum standard had to be laid down to ensure that the rebate should not be paid on imported goods resold for export without any process or with only very minor processes carried out in this country.
§ LORD BARNBY
With the indulgence of the House, may I remind the 1152 noble Lord that there is a 20 per cent. import duty on these manufactured goods? Therefore the 1¾ per cent. proposed in the subvention would have little effect against the 20 per cent. duty.
§ LORD RHODES
I am afraid that I must say to the noble Lord that that has nothing to do with it at all. Imported wool into this country carries no duty. It is one of the arrangements made with the Commonwealth countries that it comes in duty-free. You cannot have it both ways: you cannot have it processed in and then do the processing here. The re-export of goods of that kind might afford little or no benefit to the United Kingdom balance of payments; moreover, they would not, in general, have borne the full burden of the United Kingdom taxes which the rebate is designed to offset. I venture to suggest that we have not been ungenerous in placing the qualifying percentage of United Kingdom costs as low as 20 per cent.; indeed, this view has been generally shared by the industrial interests concerned.
I would emphasise, too, that there has been no delay in announcing the 20 per cent. condition. Let me correct the noble Lord on this point. The necessary Statutory Instrument and Notices giving full details were published in the middle of January, well before the first claims for rebate had to be lodged. Any doubt since then, in the case of the wool textile trade, has been mainly due to the trade's requests for reconsideration of the condition and for special treatment. I know that that is the case because I have been doing a bit of it myself. I have sent it to the Customs, it has been back to me, back to the Customs, and back again to me. I have tried my damnedest on this job to do it for the trade, and I am afraid that I cannot.
We appreciate that there are special difficulties in respect of wool tops and products associated with them. There is the question of the price of the raw wool from which the tops are made—that is in answer to the noble Lord's comments about that. Some of this raw wool is British, and in those cases, of course, the United Kingdom content of the tops is 100 per cent. and the export rebate entitlement is clear. Other tops, however, are made from imported raw wool, mainly merino and crossbred, and the 1153 more expensive qualities, especially if they are not dyed or bleached in the United Kingdom, may fall below the 20 per cent. level because the cost of the raw wool is high in relation to the cost of the processes performed in the United Kingdom. The noble Lord understands this implicitly.
With the cheaper qualities of tops and those most highly processed in the United Kingdom, it seems that the 20 per cent. criterion will usually be met—or it is more likely to be—but there is some uncertainty caused by fluctuations in the price of raw wool. There was a period of high prices last year reflected in recent and current exports of tops. We appreciate that, in a very competitive market like wool, uncertainty whether a particular firm's tops will qualify for the rebate at any one time may inhibit competitive tender. There is also the problem of identifying the import consignment and, therefore, the price of the wool used in making any export consignment of tops. Imported raw wool may be placed in a common stock from which it is drawn indiscriminately when required for processing. Again the noble Lord will understand this rather technical reference.
The solution to these difficulties most favoured by the industry was that a new criterion should be substituted for, or added to, the present one; that the exported tops made from imported wool should qualify for rebate if they have undergone in the United Kingdom certain processes, which would be specified, irrespective of the actual United Kingdom percentage in their costs. This, of course, the noble Lord agreed would be a solution. It would probably be a radical solution, but we are not fully satisfied that a case for it has been made out. In any event, it would require a new Statutory Instrument which could not properly have retrospective effect, so that it would not dispose of such difficulties as have already arisen since the beginning of the export rebates scheme.
As an alternative solution, the industry have put forward three proposals for averaging the prices of imported raw wool so as to give all exports of wool tops the benefit of the export rebate. When the wool trade put up suggestions 1154 about the averaging of its content, one has to take notice of it, because they know what they are at. They are very knowledgeable on this; but so are we. One proposal is to apply an average United Kingdom content to all export of tops, those made from United Kingdom wool as well as those made from imported wool, thus giving a higher figure for the latter. Another proposal is to apply a similar average to all the exports of an individual firm. The third is to average the prices over a five-year period.
May I assure your Lordships that these proposals have been very fully and sympathetically considered—and I mean that. But the law and our international commitments oblige us to pay rebate to particular claimants individually, and to relate it to the actual goods exported by each claimant; and therefore I am afraid that we cannot treat the whole trade as a single unit. Further, the various kinds of tops, merino and crossbred, each of which may be in the natural state, or bleached or dyed, are separate and distinguishable commodities, and we do not think that it is legally open to us to treat them for the purposes of the export rebates scheme as identical. To do so would, in any case, produce anomalous results—for instance, a firm dealing wholly in unbleached and undyed merino tops might not qualify for rebate, but another firm might qualify for rebate on exactly the same type of goods by averaging them with other types in which it was also dealing. This, it seems to us, could only lead to indefensible distortions of trade.
As regards the third proposal, averaging prices over five years is precluded because there is no suggestion that any of the tops being exported now were, in fact, made from wool imported as long as five years ago. The normal through-put period is a great deal shorter. However, as supplies of raw wool from the various overseas sources reach their peak at yearly intervals, the Customs have now been able to offer the industry a measure of averaging which will go some way to avoid the uncertainties caused by fluctuating prices. The noble Lord shakes his head. I am saying, after sympathetic consideration, what we can do and how far we can go. I have taken it up with the Customs myself, so I hope he will do a bit of nodding instead of shaking.
1155 The offer that we are making is this. In calculating the United Kingdom content of wool tops for the purpose of the export rebates scheme, claimants may take the price of the raw wool as (1) the average price for the preceding twelve months—and, of course, taking the high costs prevailing over the last twelve months it will work itself out; or (2) the average price for the preceding quarter; or (3) the current price. Perhaps I should make it clear that the prices to be averaged are the actual prices paid for raw wool of the type in question taken into the factory during the selected period. They can have it which way they want it. As I have said, that may be the claim period during which the goods are exported for the quarter or twelve months preceding that period, entirely at the exporter's option. They may exercise this option in the way most favourable to them, and they may exercise it afresh for each quarterly claim. It will apply retrospectively from the beginning of the scheme.
I should like to assure the noble Lord, and the trade, for which I have a great affection, that this offer, though it may not go as far as the industry would have 1156 liked, is made in a spirit of helpfulness and sympathy with the difficulties to which the noble Lord has drawn attention. I hope that he and the trade will agree that the arrangements that I have outlined should be given a fair run, so that their actual results can in due course be assessed in the light of the practical working of the rebate scheme as a whole. It has been a technical subject. To the noble Lord and myself this does not represent much difficulty at all, because we have been born and bred in it. But I do ask the noble Lord to take back to the trade what I have said about giving it a fair run; and I am perfectly certain that as time goes on he will find that it is not so bad as he made out.