Orders of the Day — Purchase Tax (Greeting Cards)

– in the House of Commons at 12:00 am on 28th March 1950.

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1.0 a.m.

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

I beg to move: That the Purchase Tax (No. 7) Order, 1949 (S.I., 1949, No. 2443), dated 28th December 1949, a copy of which was laid before this House on 30th December, 1949, in the last Parliament, be approved. I should like to explain frankly, and I hope briefly, the difficulties which have given rise to this Order. This is a rather smaller matter than most of those which we have been discussing today. Its difficulties illustrate all too well the problems we have in administering the Purchase Tax. In the Finance Act, 1948, as approved by this House, we overhauled all the Purchase Tax and we sought to achieve two objects—on the one hand, to maintain our general disinflationary policy by taxing luxuries and less essential goods more highly, and, on the other hand, to lower taxation on the more essential goods. In order to do that it became necessary to make a distinction between the more essential goods, and the less essential goods in each of the various groups subject to Purchase Tax. I wish it had proved as easy to find satisfactory lines of demarcation as it is to point out the oddity of some of the lines of demarcation which we had to adopt.

In group 34 in the Purchase Tax Schedule of the 1948 Finance Act, which consists of diaries, calendars, greeting cards and similar articles, the lowest rate of Purchase Tax applied was 33⅓ per cent. Where the goods in question were pictorial they came under the general heading in group 25 of the Schedule, consisting of pictures, prints, engravings, photographs and similar articles, which were taxed at 100 per cent. That was, in fact, a general distinction similar to that between the utility and non-utility goods in other parts of the Schedule which were subject, of course, to a low rate and a high rate of tax respectively.

Before we introduced this Order which we are discussing tonight the tax on greeting cards was, therefore, the House will recognise, at the same rate of 100 per cent. and, indeed, it was at the higher rate of 125 per cent. between November, 1947, and the Budget of April, 1948. There was one further complication. In group 25 it had been decided, to meet views expressed in the House, that relief should be given to reproductions of works of artistic merit, which was done by applying a rate of 66⅔ per cent. to reproductions of works executed more than 100 years ago.

The result of that series of decisions by the House was that we had three different rates of tax for different types of greeting cards at the same time. After a time the trade represented to us that this three-tier system, and in particular the distinction between pictorial and non-pictorial greeting cards, was very hard to work satisfactorily. We took note of that and, in consultation with the trade, the Customs made a prolonged effort to frame administrative rules which would provide workable definitions on the lines which this House had laid down. I should like to pay tribute to the help we received throughout from the trade in attempting to find a solution, and also to assure the House that we have tried to find a solution which would be fully acceptable to the trade as well as to the Customs.

In fact, I am afraid that that attempt to work out satisfactory definitions proved to be so difficult that by the late summer of last year it appeared, I think, both to the trade representatives and to the Customs, that it was essential to simplify the matter by applying a uniform rate of tax to all greeting cards and other articles in this group, except for those of the very plainest type. Therefore, after much consultation with the trade, and in the belief that the trade would find the proposed new arrangement more workable than any other that could be devised, the Order now before the House was made on 28th December, laid before the House on 30th December, and came into force on 1st February. What the Order does is to apply the 33⅓ per cent. rate to any calendars, postcards, greeting cards, etc., which, in the words of the Order, do not incorporate any pictorial representation, any decorative pattern or device, or anything attached by way of decoration, and which are on single colour paper. The reason why this simplification was laid before the House at the end of December was that, from the trade's point of view, it enabled them to switch over to the new arrangement at their new seasonal operations in the new year.

Although the simplification contained in this Order was drawn up in consultation with the trade, after it came into operation the representatives of the trade informed us, as they had not done before—I do not believe they had become aware of this point before—that further difficulties had been caused by the new definition. For instance, business calendars became chargeable at 100 per cent., whereas before they had been at 331 per cent. We were anxious to find a definition which would be as acceptable as possible to the trade manufacturing these cards.

Therefore, we did not hesitate at that stage to ask the Purchase Tax Committee of the Printing and Allied Trades, which was dealing with this matter, to put forward its own proposals, in the light of this further experience, for the most practical definition between articles to be charged at 100 per cent. and 33⅓ per cent. It seemed to us that we ought not to be afraid to change our minds. I am glad to say that after this further protracted and, I hope, final consultation we have now reached the stage where both sides are very near to agreement on a new formula that should provide a practical solution.

Our intention is, therefore, to replace this No. 7 Order very shortly by a new Order, which should clear up the uncertainty and provide the best possible definition. The House may very well ask why, if we are going to do that, it is necessary to approve this Order tonight. The reason is quite simple. If this Order were not applied, the tax rates would revert to the even less satisfactory position which prevailed up to 1st February, and then return again, after a very short period, to the arrangement which we propose in the intended new Order.

Photo of Mr Herbert Williams Mr Herbert Williams , Croydon East

I understand that if we repeal an Act of Parliament which destroys another, that does not revive the original. Do I understand from this that if we repeal the Order, it revives the Order which preceded it?

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

If this Order lapses, the position returns to what it was before 1st February. That would mean operating three different structures of tax within a matter of a week or two, and I am sure that the House will agree that that would involve the maximum of disturbance to both the trade and the Customs administration. Therefore, as the simplest practical way out of this difficulty, I would ask the House to approve this Order tonight on the understanding that we shall very shortly introduce an amending Order which will establish what is now regarded, after these prolonged discussions between the people concerned, as the most workable and satisfactory arrangement.

1.11 a.m.

Photo of Mr Ralph Assheton Mr Ralph Assheton , Blackburn West

I am sorry that the Financial Secretary has had as his first task in his new office to defend this ludicrous Purchase Tax (No. 7) Order. It is a fine example of the ineptitude and folly of this Government and shows how the business community is harassed and frustrated at every turn. I am sure that the hon. Gentleman and others who have studied the canons of taxation will remember that a tax ought to be certain in its incidence and clearly understood by the taxpayer. Those are two points which should always be borne in mind when imposing taxes, but in this case neither of those canons of taxation was regarded.

The House ought to consider a little bit the history of this because I do not gather that the history was quite as the Financial Secretary has put it forward to us. The position was that before 1st February the Finance Act, 1948, was the governing document. Under that Act, Group 34 of the Schedule said that diaries, calendars, greeting cards and similar articles should be charged at 33⅓ per cent. tax. That was all right.

Then the Customs officers started trying to charge certain of these calendars and greeting cards at 100 per cent. on the ground that they were under another group, Group 25, which deals with pictures, prints, engravings, photographs and so on. The trade disputed from the start that the Customs officers had any right or authority to charge 100 per cent., and they paid under protest. The Government were quite clearly trying to dodge the decision of the House of Commons to charge these goods at 33⅓ per cent. and, by the back door, charging 100 per cent.

Legal opinion has been sought by various members of the trade, and the legal opinion has been that the Government and the Customs have not been right but have been wrong. So the Government come along with an Order to try to make it right. They therefore bring forward Purchase Tax (No. 7) Order which we are discussing tonight. This Order was made on 28th December and took effect on 1st February. The House has not had as early an opportunity as it ought to have done to discuss it because of the General Election. There was tremendous confusion in consequence of this. Before this Order was issued, a Treasury notice was put out expressing the Chancellor's intention of proceeding with the new Order, and all sections of the industry said that the new Order which it was proposed to make was quite impossible to interpret, and I am not surprised that they should.

I have some illustrations to show the House. If cards are on one of the kinds of paper which I am holding, the tax is 33⅓ per cent., but if they are on the other kind the tax is 100 per cent. Nobody on either side of the House could possibly tell the difference—certainly not the Financial Secretary. I have two simple calendars here. They do not differ very much, but one is charged 33⅓ per cent. and the other 100 per cent. Why is this one taxed at 100 per cent.? Because there is a naughty little line round "July," and the Treasury says that if a line is put round that "July" the rate of tax will be 100 per cent. instead of 33⅓ per cent. Here are two calendars which look very much alike. This blue one pays tax of 33⅓ per cent. This red one pays 100 per cent.

Is it surprising that stationers, master printers and greeting card manufacturers, object to this? They made no representation for a long time, and proceeded with the Order. Confusion was great, and different rulings were given in different parts of the country. Eventually, a new House of Commons was returned, and the Government found that it had only a small majority and consequently had to pay some regard to the representations being made by the trade.

Now the Government come forward through the Financial Secretary to the Treasury and say that agreement has been reached with the trade, or nearly reached. That does not really represent the position at all—" agreement has nearly been reached with the trade." I was given to understand that the agreement was entirely on the question of definition, and that there has been no agreement reached that the tax 041 greeting cards or calendars should be at the rate of 100 per cent. instead of 33⅓ per cent.

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

I did not suggest that that was so. I said that agreement had been reached on the most workable definition which could be provided if we were going to have such a definition.

Photo of Mr Ralph Assheton Mr Ralph Assheton , Blackburn West

I understand that the Financial Secretary wishes to make it clear that there is no agreement on tax at the rate of 100 per cent., but only on the matter of definition. Of course the trade objected to this when the 1948 Act provided 33⅓ per cent. It is most undesirable to have such a tax imposed by an Order. It is a very undesirable method of taxing the people of this country because, if anything of this sort were introduced in the ordinary way in the Finance Bill it would have been pulled to pieces by half a dozen hon. Members who know about these things, and it would never have got through the House. All this foolishness would have been avoided.

I understand that the Financial Secretary is to introduce a new Order shortly, perhaps in the next ten days or a fortnight. I want to ask whether he can give an assurance about the rates of tax. Can he assure us that the rate will in no case exceed 331 per cent.?

Photo of Mr Ralph Assheton Mr Ralph Assheton , Blackburn West

The hon. Gentleman indicates that he cannot. Therefore, I will indicate to him that when the Order is introduced, whether within ten days or three weeks, we shall oppose it if the rate of tax is raised above 33⅓ per cent. as it is at present, because we on this side of the House are against increasing taxes. We favour decreasing them, not increasing them. I do not know what other hon. Members think, but it seems to me to be very unreasonable that a thing like a Christmas card should be taxed at a rate of 100 per cent. Can the Financial Secretary give any justification why a rate of 100 per cent. should be charged on Christmas cards? They are the sort of things which a great many people like to send to one another.

There may be a number of sophisticated Members of Parliament on the opposite side of the House who think that they receive too many Christmas cards, that they are nuisance and therefore feel that they should be taxed. But ordinary people do not feel like that. They like sending and receiving Christmas cards. I do not see why they should not. To charge tax at the rate of 100 per cent. on them is not what the people will want. What is more, it is out of line with the tax on other things. Why a rate of 100 per cent. on Christmas cards and 33⅓ per cent. upon roulette tables? Or, for example, on some other things used at Christmas, such as paper caps, false noses, and clockwork mice, on all of which the rate of tax is 33⅓ per cent. And fireworks, no tax at all.

I suppose the Financial Secretary thinks that the gentlemen in Whitehall really know better what the people of this country want. If he thinks that a roulette table is better for the country than a Christmas card, I doubt if anyone in the country will agree with him. The country is getting heartily sick of these punitive taxes and it is about time we made it clear that we do not like high Purchase Taxes on this side of the House. They raise the cost of living for everybody and they are interfering with trade, and particularly with the export trade. Imagine the confusion that manufacturers have to face in trying to make two different sorts of Christmas cards, one for the export trade and one for the home trade. You can only make these things pay if you have a considerable home demand to support your export trade.

In addition, Purchase Tax is a great strain and burden on traders and retailers, and, as we have seen, appalling administrative difficulties come out of it the whole time. This high Purchase Tax bears very harshly on all quality goods and that, of course, is quite contrary to the sort of attitude which the Chancellor ought to adopt towards the export trade, because it is the quality goods we want for export. Moreover, the price disparities between taxed and untaxed goods are so great that they are really in many cases quite absurd. We believe that taxation ought to be reduced and not increased. We know that the Chancellor is a killjoy and an austerity merchant and all that sort of thing. Now he has taken on the role of a sophisticated sort of Scrooge and superciliously sniffs at people—simple citizens—who want to send cards to their friends at Christmas time. I hope the hon. Gentleman will very shortly be able to re-assure us when he introduces this new Order, which he thinks is a better one, but if the tax is to be increased, I warn him we shall oppose it.

1.24 a.m.

Photo of Mr Herbert Williams Mr Herbert Williams , Croydon East

I thought we should have got some further statement from the Government Front Bench in view of what my right hon. Friend has said. I understood from what the Financial Secretary has told us that there is to be an Order which is satisfactory in character and is to reduce the rate of Purchase Tax to which we took exception. When my right hon. Friend was speaking, the Financial Secretary shook his head, and therefore I think he was not as candid with the House as he ought to have been. He led us to believe he was going to do things. That is what he led me to believe. [Interruption.] Then I am very sorry he is so incompetent in explaining what is in his mind. He said he had negotiations with the trade. [Interruption.] I do not know whom hon. Members are ordering about; that is a matter for Mr. Deputy-Speaker.

The Financial Secretary led me to believe, and certainly led hon. Members near me to believe, that he was going to introduce a new Order which abated the grievances about which we complain. In the middle of my right hon. Friend's speech, when he asked him a specific question, the Financial Secretary shook his head, and therefore I am saying quite deliberately that he may have unintentionally deceived the House as to what is in view in respect of the new order. On the one hand, he is saying he is going to placate us, and then he is going to scourge us with whips. This tax was introduced in 1943, and the Financial Secretary will remember the arguments I made then. I really think we ought to have some further statement from the Front Bench in explanation of what they previously said in view of the fact the Financial Secretary did say things which I misunderstood and which my hon. Friends misunderstood.

1.25 a.m.

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

First I would correct the hon. Member for East Croydon (Sir H. Williams) on a point of fact. He said that Purchase Tax was introduced in 1943. It was actually introduced in April, 1940, by a Government supported by the Conservatives and Liberals and not by the Labour Party. I should like to answer the questions asked by the hon. Member for Blackburn, West (Mr. Assheton). He asked me when the amending Order would be introduced. We hope within the next 10 days, if possible. He asked me to assure him that it would not contain the 100 per cent. rate. I certainly cannot give that assurance—[HON. MEMBERS: "Oh!"]—because, as I thought I made clear, the purpose of the new Order is to provide a more workable definition for the distinction between the 33⅓ per cent. rate on the one hand and the 100 per cent. rate on the other hand.

May I just correct him on an important point? In fact, this does not imply that either the proposed Order or the No. 7 Order raises the rate of Purchase Tax on greeting cards or even on other items, because what he has failed to realise is that it was not the No. 7 Order but the Finance Act, 1948, which imposed the 100 per cent. tax on the pictorial type of cards. In group 25 under the 1948 Finance Act the 100 per cent. rate is made applicable to pictures, prints, engravings, photographs and so forth. I think he knows that it is a basic principle of Purchase Tax that wherever two rates are applicable to any commodity the higher rate is applied. That has been the case throughout the life of the Purchase Tax, and therefore it was laid down in the Finance Act of 1948 that the 100 per cent rate should apply.

Photo of Mr Ralph Assheton Mr Ralph Assheton , Blackburn West

The case I was trying to put was this—that the group 25 classification of 100 per cent. on pictures and photographs should not be applied to Christmas cards because Christmas cards were specifically mentioned under group 34 of the schedule to this Act of Parliament. I am advised that a legal opinion has been given that the Treasury and the Customs were wrong in charging Christmas cards under Group 25. That is a point the right hon. Gentleman did not meet.

Photo of Sir Herbert Butcher Sir Herbert Butcher , Holland with Boston

I do not know where we are getting to. According to the 1948 Act, group 25 applies to pictures, photographs and that sort of thing. But I understood this order we are discussing dealt with greeting cards under group 34. The right hon. Gentleman says "Oh, yes, but the principle of taxation is that whenever we have two charges, we always twist the taxpayer for the most we can get out of him." If you specifically refer to greeting cards in one group you are pretty nearly guilty of sharp practice if you charge on them a higher rate applicable to another group. We find that the amount of agreement with the trade is extremely limited. Is the right hon. Gentleman telling us now that the trade have agreed that greeting cards are no longer greeting cards but photographs or pictorial representations, because if they have, they should be punished by paying tax at the highest rate. If they have not agreed, we are entitled to know before we part with this order, what exactly they have agreed to.

Resolved: That the Purchase Tax (No. 7) Order, 1949 (S.I., 1949, No. 2443), dated 28th December, 1949, a copy of which was laid before this House on 30th December, 1949, in the last Parliament, be approved.