New Clause. — (Reduction in Rates of Purchase Tax.)

Part of Finance Bill – in the House of Commons at 12:00 am on 20 June 1950.

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Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North 12:00, 20 June 1950

Yes, Sir, but the hon. Gentleman the Member for Chippenham used it in a letter to "The Times" last week. When we were reorganising Purchase Tax in 1948 we sought to reduce the rates on those goods which seriously affected the cost of living of the wage earner and left the rates high on goods like furs, jewellery, cosmetics, and so on, which surely cannot be held to influence the cost of living of the wage earner.

We also sought deliberately to use the tax as an instrument of planning—I know the right hon. Gentleman does not like the word "weapon"—particularly in encouraging exports in industries like the motor car industry, where, surely, it cannot be argued that the Purchase Tax has been a severe deterrent to exports. In making that differentiation we gave a net relief amounting to £39 million a year to the taxpayer. Incidentally, I remember that at the time we were attacked by the "Economist" for doing that on the grounds that we were weakly giving way to pressure and abandoning our disinflationary policy. That shows how newspaper criticisms change from time to time. As a result of those changes in 1948 we now have a tax which, despite some imperfections of detail, is surely not unsuitable for an inflationary period.

Today, quite apart from food, gas, electricity, water, and so forth, utility clothes—apart from furs and fully-fashioned stockings, which the right hon. Gentleman forgot—utility boots and shoes, utility household textiles and utility furniture are exempt. The hon. Lady the Member for Blackburn, East gave some figures of the extent of the supplies of these goods which are in the utility field, but I doubt even now whether it is fully realised how high the percentages are. According to the latest figures, which mainly relate to the second half of 1949, 96½ per cent. of leather boots and shoes are in the utility class; hosiery, 87 per cent.; cotton, linen, rayon and nylon cloth, 59 per cent.; wool cloth, 78 per cent.; towels, 73 per cent.; sheets, 76 per cent.; cotton blankets, 86 per cent.; wool blankets, 92, and so forth.

It is, of course, just for those reasons that a combined reduction in Purchase Tax and in food subsidies at the present time would occasion a rise in the cost of living and that the reductions proposed by the Clause would fall, as the hon. Lady said, very largely on the least necessary goods which do not enter to any significant extent into the cost of living of ordinary families. Actually, of the £300 million or so of Purchase Tax revenue raised in 1949 as much as £175 million came from the following items: non-utility clothes, textiles and fabrics, wireless sets, toilet requisites, perfume and lipsticks, and so on, stationery and office requisites, and passenger motor cars.