Clause 1. — (Purchase Tax.)

Orders of the Day — Finance Bill – in the House of Commons at 12:00 am on 16th November 1955.

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3.35 p.m.

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

I beg to move, in page 2, to leave out lines 1 and 2.

If the Amendment were carried it would have the effect of excluding from the provisions of the Purchase Tax increase those articles which are at present in the 50 per cent. group and which are intended, under the Chancellor's Budget proposals, to be charged in future at the rate of 60 per cent. One can best summarise the range of articles which are included in this category by saying that they are, broadly, the range of what are known as durable consumer goods. They include motor cars, television sets, wireless sets, household appliances like washing machines, washing-up machines, refrigerators, and other things of that sort.

But, of course, the group goes somewhat wider than those articles which comprise the main part of it and to help hon. Members to know exactly what is covered by the group I will follow the example which my hon. Friend the Member for Rossendale (Mr. Anthony Greenwood) put forward last night and, without wearying the Committee, give a number of, but not an exhaustive list of, the items which are included. There are space heating appliances; garden ornaments; clocks, watches made from, or partly, gold, silver, or other precious metals; musical instruments, including gramophones, radiograms, and so on; the greater part of gramophone records; walking sticks other than those made wholly of wood; smokers' requisites, except matches and mechanical lighters; trunks, bags, wallets, pouches, purses and such things as attaché cases, and so on; photographic cameras and accessories thereto; pictures, prints, engravings; jewellery and imitation jewellery; and the main category of goods, the cars, television sets, wireless sets, refrigerators, and so on, which I mentioned earlier.

The Amendment is very important, because we understand from the figures which were given by the Financial Secretary in the Second Reading debate that nearly 50 per cent. of the total increase in revenue in the Purchase Tax is to come from this change from 50 to 60 per cent. in this group. One of the first questions we want to ask about the group, and I hope that the Economic Secretary, if he is to reply, will be able to answer, is: what part of this £30 million comes from motor cars? I imagine that it is a very substantial part of the total.

We know, for instance, that when, in the 1951 Budget, my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) made a series of very selective increases in the Purchase Tax, of which the increase in Purchase Tax on motor cars was an important part, when the tax went up from 33⅓ per cent. to 66⅔ per cent., the increase in revenue then was £17 million. But, of course, the number of cars being sold on the home market was very much smaller than it now is. I think that I am correct in saying that at that time about 100,000 to 120,000 cars were sold on the home market, whereas today the figure is very nearly four times as many.

Therefore, although the amount of additional revenue per car which will come as a result of this change will be only one-third or a little less than one-third of the additional amount which came as a result of the 1951 Budget, we would have thought that the total amount of increased revenue would be at least as much as in 1951. I hope that the Economic Secretary will be able to confirm that £17 million to £20 million out of the £30 million total will, in fact, come from the increase in the Purchase Tax on motor cars.

We must obviously ask ourselves to what extent the increase in taxation upon this range of articles is justified. It can no doubt be argued, and, perhaps, will be argued from the Treasury Bench, that an increase in tax on goods of this sort is at any rate less regressive than certain increases in the Purchase Tax which we have already discussed and which we will further discuss today. It can be argued that the range of goods which come primarily within this group are not the type of goods which are necessarily bought by those who are very badly off and who are suffering most from the increase in the cost of living.

In considering everything which the Chancellor has done in this Finance Bill, we must remember—and I am sure that the Chancellor would agree, because he would wish to be fair—that every increase in taxation under this Bill must be set directly against remissions in taxation of almost an equivalent amount in the last Finance Bill.

Therefore, while one would admit that taxation on motor cars, television sets and the other goods which I have enumerated might not be so undesirable as certain other categories of indirect taxation, it would certainly be my view that increases in tax upon these items are very much less desirable than the maintenance of Income Tax at its April level.

Photo of Sir Raymond Gower Sir Raymond Gower , Barry

Does the hon. Gentleman suggest that the best way to judge the value of the Budget is by reference to a previous Budget?

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

Any Chancellor who did not wish to hide his past would certainly be prepared, in putting his Budget before the House and the country, to have it judged as part of a continuing policy. I would say that that was particularly the case when we were dealing not with a Budget introduced at the normal time but with an emergency Budget introduced to undo to an almost exactly equivalent amount what was done in a Budget six months previously. I should not think that the hon. Member would seriously dispute that.

I say that these taxation increases, while they may not be so regressive as certain increases in indirect taxation of which one could think, and with which we were dealing yesterday, certainly have a regressive effect when taken in conjunction with remissions in direct taxation such as those made in April for which we are now paying. In other words, I think that the people who did well out of the Budget in April are, broadly speaking, a better-off category of people than those who will pay even for this category of tax increases, let alone those which we discussed last night.

In addition, there is the general question, quite apart from the fairness or the unfairness aspect, of the desirability of, within one tax year, giving away direct taxation and clawing back an equivalent amount in indirect taxation. This would be a point to which the Chancellor would want to give very careful consideration. After all, it is undoubtedly true—this is a matter beyond the small change of party controversy—that the level of costs generally in this country must be a matter of grave concern to all of us and especially to the Chancellor.

There can be no doubt, if one is considering the broad economic record of the country in the last year, that one of the most disturbing factors is that our exports have been occupying a steadily diminishing share of the world total. Why? I would not attribute it solely to any one reason, but I agree with the Financial Times which, in its leader a few days ago, pointed out that one factor had been that the level of costs in this country was rising more rapidly than have been the level of costs in the countries of our major competitors.

I thought that the Chancellor would have been extremely doubtful about the wisdom of any operation which, whatever its effect upon the total of purchasing power might be, inevitably had the result of raising the general level of costs and, therefore, making us, to a further extent, less competitive than we would otherwise be. It may well be part of the Government's argument in dealing with the Amendment that here in this middle category of goods we are dealing to a far greater extent than in the case of the other categories affected by Purchase Tax with a range of goods where the pull of the home market is directly competitive with the export market. The Government may say that there is a real danger that our producers are not exporting as vigorously as they might be, because of a fairly easy home market. I have no doubt that here, to a much greater extent than on previous parts of the Purchase Tax, we shall hear this argument from the Government.

3.45 p.m.

The Economic Secretary to the Treasury, I think, in his speech winding up the Second Reading debate—I am not quite sure of that—made some play with this argument; but it has not been the way in which Purchase Tax changes have been primarily presented by the Government. Indeed, it is worthy of note that the President of the Board of Trade who, I am sorry to say, is not here and who ought to be concerned—and no doubt is to some extent concerned—more directly with our export trade than any other right hon. Gentleman in the Government, rather contradicted this view in the speech which he made during the debate on the Budget proposals. He said: It may be said that despite the rightness of Purchase Tax proposals, they do not affect and cannot affect, at any rate directly, the place where the real pressure is and that is at the heavier end of the engineering industry. That is quite true …"—[OFFICIAL REPORT, 27th October, 1955; Vol. 545, c. 417.] and then he went on to a rather theoretical argument as to why the Chancellor had not reduced investment allowances.

There was no doubt that the President of the Board of Trade, the Minister most directly responsible for our export trade, made it quite clear that in his view the Purchase Tax changes proposed did not touch that end of our industry where it was most desirable, if one was to have a direct effect upon exports, that one should have a squeeze upon the home market.

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

Can the hon. Gentleman give the reference to that speech?

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

It was made on 27th October and I think that the quotation will be found at column 417. I have no doubt that the hon. Gentleman will find it quite quickly.

It is clear what the President of the Board of Trade had in mind. I hope that this range of tax changes will not be justified by Government spokesmen on the ground that here we had the Chancellor being selective and very carefully considering exactly how he could help our export trade, because that, quite apart from the fact that it would almost directly contradict everything said to the Committee from the Treasury Bench throughout the whole of our debate yesterday, would not be true and would not be in accordance with the views expressed by the President of the Board of Trade.

It is the case that while my right hon. Friend the Member for Leeds, South did, in his 1951 Budget, introduce certain increases in Purchase Tax which overlapped, shall we say, those which we are now considering in the Amendment, he was very much more selective. He did not take the category as a whole and, furthermore, he was manifestly in a position in which, as a result of the rearmament programme, there was a pressure on certain selected sectors of our industry quite incomparable with anything which we have today.

It may be said that in connection with the motor industry which, as I hazarded a guess, is the one most directly affected by this category of changes, there is a special case for an increase. Let us see whether that is so. Even were it so, it would hardly be an argument for an equivalent increase—except under the new theory, enunciated by the Financial Secretary to the Treasury, of equality of misery so far as Purchase Tax is concerned; from which nothing can be excluded in case something be unfairly treated. Assuming that there is a special case so far as the motor car industry is concerned, let us try to examine it and see whether, in fact, it holds water.

Is there a special case for saying that this increase in Purchase Tax will have the effect of increasing the motor industry's urge to export? I think that we should go back as a starting point to considering the total motor industry exports, and the share of the production of that industry, a falling share at present, which is being exported. As a result of these changes, are we likely to get the developments which we should like to see? A thing which must be considered is that if this is the point of view of the Treasury Bench, whether correct or not, it is a complete turn-round from everything we heard from the Conservative Party about the effect of Purchase Tax on industry throughout the whole period from 1945 to 1951.

We then heard a constantly expressed view that a successful exporting industry could only be founded upon a very prosperous home market; that exports could be only the overspill from a very big home market. I have no doubt that hon. Members opposite find this change of viewpoint rather difficult to stomach. I think it probably fair, and it is reasonable at this stage, to comment on something which, in the debates so far during the Committee stage of this Bill, has been rather striking. It is the fact that hardly any hon. Member opposite has supported the Chancellor's Purchase Tax proposals.

The only hon. Member who did so, and he was speaking from a very limited point of view indeed--and he also, perhaps, took a little away from the force of his remarks by afterwards asserting that he represented no one at all—was the hon. and gallant Member for Ilford, South (Squadron Leader Cooper). Apart from that, there has been a great paucity of speakers from the back benches opposite. I think we can all understand that. We all sympathise with the Government backbenchers. We all realise the power of the Patronage Secretary in these matters. We understand that the back benchers on the Government side are not given that encouragement to express themselves during the Committee stage of the Finance Bill in a way which one would like to think happened in the House of Commons when they were representing the views of their constituents. We all understand that. But what is perhaps—

Photo of Mr William Morrison Mr William Morrison , Cirencester and Tewkesbury

Order. There has not been any other speech on this Amendment except that of the hon. Gentleman, and it is with the Amendment that we are dealing.

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

Naturally, I am grateful to you for your assistance, Sir Charles. If I may explain, I was endeavouring to explain the attitude which is expressed by the subsection which we are seeking, by this Amendment, to delete. The Amendment is concerned only with that matter. We are witnessing a very sharp reversal by hon. Members opposite of the attitude which they had previously taken over a long period. In passing, and without endeavouring to put the point at any length, I was seeking to comment on that fact, and on certain ways in which it had expressed itself in our discussions.

Photo of Mr William Morrison Mr William Morrison , Cirencester and Tewkesbury

But there has not been any other speech on this Amendment, and we are dealing only with this Amendment, as the hon. Gentleman knows.

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

I am sure, Sir Charles, that in opening this debate you will allow me to say what course the debate will follow afterwards. What I wish very much to do is to express the view that in the course of this debate—as, I am sure you will agree, is good for our debates—we should have a clash of opinion and an extreme exchange of views across the Committee, in which hon. Members on this side, who support the Amendment and propose to vote for it, will give their reasons for so doing, and in which, subsequent to my speech, we shall hear hon. Gentlemen opposite, who will no doubt vote against the Amendment, giving us their views and reasons. That is what we have not had so far in this Committee stage, and that is what I think we can quite reasonably hope to have in the future.

It was certainly the case in past Budget debates. I hope that I may be allowed to make a passing reference—as many hon. Members have done already—to the 1951 Budget, when we did not have as many back bench speeches from the Labour Party as some of us would have liked, yet those we did have were, at least to a substantial extent, in support of the then Government's proposals. There is something highly undesirable in a situation in which no single back bencher supports these Purchase Tax proposals and yet the Government are assured of their majority in the Division Lobbies. However, I have no desire further to develop that point, though I am very glad that was able to complete it.

The other point which, I think, is of major importance to the motor car industry is this. Assuming it were possible, or that it were desirable, to reduce the home demand for motor cars at present—I shall have something to say about the substance of that point in a moment—it would appear to hon. Members on this side that there is a far more effective and desirable way by which the Chancellor could do it than the one which he has, chosen. Perhaps I may illustrate what I mean by saying that there is something not merely unfair but almost ludicrous about a situation in which there is an increase in Purchase Tax on motor cars from 50 per cent. to 60 per cent. in order to choke off the home demand, when at the same time every business firm buying a motor car is enabled to write off, I think, 40 per cent. of the cost in the first year in which it is borne.

There is no doubt that the Chancellor will to a very large extent recognise the force of what I am saying. When he introduced the investment allowance in 1954, the Chancellor specifically excluded motor cars from the operation of that allowance. In those circumstances, if he is convinced that he needs to choke off home demand for motor cars—and I am deliberately leaving open this question at the moment—I cannot understand why he does not also exclude them from the provisions of the initial allowance. It was certainly the case until fairly recently that an overwhelming part of the demand for new motor cars came from business firms who were enabled to make use of this initial allowance.

A few years ago the figure was 80 per cent. of all the new cars sold in this country. They were purchased by business firms and subject to this arrangement. Possibly that figure is now somewhat smaller, because of the substantial increase in the number of cars going to the home market, but it must still be very large. I think it most undesirable that, at a time when the Chancellor has such a weapon ready to his hand, he should not use it, but instead use this weapon of a general increase in the cost of cars, and the whole range of articles coming within the same category, with all the undesirable and, in many cases, unfair effects that follow, when, as I say, this weapon is so easily available to him.

4.0 p.m.

The more important point is whether or not it is desirable at the present time to squeeze the home market for motor cars. I think that a few months ago there may have been more of a case for doing this than there is now, before the Australian and the New Zealand markets substantially shut down on British cars which considerably affects the motor industry in this country.

I suppose that the point of view of right hon. Gentlemen opposite is that if the position is such that the motor industry can sell the whole of its output quite easily—some of it abroad and some of it at home—then the industry will, perhaps naturally, perhaps inevitably, not make any great effort to increase its export sales; but that if, for some reason or other, either part of the existing export market or part of the home market is closed to the industry, then it will make a greater effort to sell that part of its output, and will tend to go into the export market to do so.

It might have been argued, perhaps as recently as September this year, that some shrinkage in the home market might have produced a greater desire on the part of the motor manufacturers to export their products. But in the last two months or so, we have had the position in which the motor industry is having its very important markets in Australia and New Zealand restricted to such an extent that its sales in those markets in 1956 will, I understand, be less by about 35,000 cars than they were in 1955.

One other point must be borne in mind. During the past year, the British motor industry has announced vast plans for capital development, directed largely not merely to the modernisation of the industry or to the production of improved models but to expansion. Many of us may well very much doubt whether the motor car industry is producing new, good export models as quickly as it should. Some of my hon. Friends, and, in particular, my hon. Friend the Member for Edmonton (Mr. Albu), have been very doubtful indeed about the wisdom of the new huge plans for expansion which the motor car industry is undertaking.

There might well be a case for a certain amount of Government supervision over what is being done in this vitally important industry, which, if it is done on false assumptions, will do very grave harm indeed.

Photo of Mr Ellis Smith Mr Ellis Smith , Stoke-on-Trent South

A number of the expansion programmes that are being carried through are based upon a world survey which has been made by the motor car firms.

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

I am very glad that that has been done, but I do not think that world surveys, by whoever they are carried out, are necessarily infallible. Certainly, at present, if the motor car industry is not finding it possible not only to export its products, but even to maintain its share of the world export trade, it causes a certain amount of doubt about the world survey, by whoever it has been carried out.

All I would say is that, in my view, there is a case for a certain amount of Government supervision here. But that is something which is clearly and specifically rejected by hon. Members opposite. Even at the present time, when the Government feel that they have, to some extent, to place some restrictions on the capital investment programme of industry, and to an even larger extent on the public sector of industry, they deliberately wash their hands of any attempt directly to control where the pressure shall be applied in private industry. That may be arguable—

Photo of Mr William Morrison Mr William Morrison , Cirencester and Tewkesbury

It may be arguable, but I do not think that it arises on this Amendment.

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

I am sure, Sir Charles, that you do not wish unduly to restrict the debate, and I am equally sure you will agree with me that it is very important, when we are considering the provision in the Finance Bill by which the tax borne by one industry alone will be increased by something between £15 million and £20 million a year, to consider the market prospects for that industry, whether they are sufficiently helped and whether the result of this change will be what the Chancellor no doubt desires, an increase in exports rather than a surplus capacity in the industry. That, I am bound to say, appears to me to be the central point of the argument on this Amendment.

I was saying that the Treasury Bench deliberately washes its hands of any control at all. If the Government are to allow these vast expansion plans—plans which they are not prepared to control or endorse in any way—they ought surely to be very careful about not changing the whole prospect of the industry after the plans have been announced and, to a large extent, undertaken.

I should have thought that it was at least the case that these changes, so far as the motor car industry is concerned at the moment, were far more likely to produce surplus capacity, short-time working, and even unemployment, rather than the increase in exports which the Chancellor will no doubt say is what he wants. I find it very difficult indeed, on the figures available to us, to relate what the Government have done in this category alone—let alone in the others which we have been discussing—to any direct desire to stimulate the export trade.

Let us look, for instance, at a comparison between what has happened recently and what it is proposed should happen. If we compare the first seven months of this year with the same period in 1954, we find that the output of passenger cars in this country increased by 20 per cent., that home supplies increased by 39 per cent., and that exports increased by only 2½per cent. Therefore, one sees here the overwhelmingly larger part of the increase going to home demand.

When we look at motor cycles, we find that their output increased by 3·8 per cent., that home supplies increased by 20 per cent. and that exports decreased by 22 per cent. Yet what does the Chancellor do? He increases the tax on motor cycles by 5 per cent. and on motor cars by 10 per cent. In an examination of these figures, I cannot see any close relationship, even in the case of these metal-using exportable goods, between the export record of the industry and the burdens which the Government are imposing upon it.

It seems to me that here, as in the other category of goods, it is not possible to relate what the Government have done to any clear view of our present economic difficulties. What we have now is the familiar situation in which the Chancellor rashly gave away money earlier this year which he is now trying to claw back, but is prevented by his own self-esteem from clawing back in the way in which he gave it. Therefore, he has to turn largely from direct to indirect taxation, and, assisted by the Financial Secretary, who, apparently, cannot bear to see any article not bearing Purchase Tax, he is forced to make a general increase in the tax which is unfair to many industries, which will further increase costs in this country, and which will do no good at all from the point of view of the objectives which the Chancellor has in mind.

Photo of Mr Frederic Harris Mr Frederic Harris , Croydon North West

I intend to take only a few moments of the Committee's time, but I would suggest to the hon. Member for Stechford (Mr. Roy Jenkins) that he could have said in about 10 minutes what he took nearly 40 minutes to say.

There cannot be any doubt at all that in the group of goods covered by the increase in the Purchase Tax from 50 to 60 per cent., the home trade at the moment, fortunately, is a very strong trade indeed. Therefore, it is surely not wise for the, Government to endeavour by fiscal methods to regulate where they want those goods to go for the benefit of the country.

Two points must emerge from whatever action is now being taken. One is that home consumption of these goods and of the materials contained in them must for the time being come down, and, secondly, it must develop the intensity of endeavouring to obtain export markets. One regrets the difficulties created for the moment in Australia and New Zealand but, nevertheless, there are still other markets to be further developed, and I am sure that our manufacturers will be the first to appreciate that point.

I rise only for the sake of obtaining information. I want to ask the Financial Secretary to the Treasury to explain something which I find it difficult to understand. Why, in this group, is there not a similar tax on caravans, motor boats, and motor launches? It is extremely difficult for me to justify a tax of 30 per cent. on household goods while caravans and motor launches do not come within this group.

Photo of Mr Frederic Harris Mr Frederic Harris , Croydon North West

I am very sorry, Sir Charles. I wanted to know why these particular items are not included. I will try to get that information elsewhere.

Photo of Mr Donald Chapman Mr Donald Chapman , Birmingham, Northfield

I want to come back, in a moment or two, to what was said about the motor car industry by my hon. Friend the Member for Stechford (Mr. Roy Jenkins), in his very lucid speech. My hon. Friend set the stage for our debate this afternoon with a brilliant speech that will help us a great deal. Before I come to the question of the motor car industry, I also want to say a word or two about the speech of the Economic Secretary to the Treasury last night on the general question of Purchase Tax.

I think the hon. Gentleman did a service to hon. Members in narrowing to some extent the points at issue between the two sides of the Committee, and I was particularly grateful for his intervention. First of all, one of the points he made about Purchase Tax generally was one which fails completely. The hon. Gentleman was at great pains to say that in 1951, his hon. Friends on the Government side of the Committee had been protesting that action was not being taken in time to deal with the economic crisis of that year, and that the Purchase Tax—the hon. Gentleman implied—should have been increased.

Has the hon. Gentleman looked up that debate since 1951? If he does so, he will find that his hon. Friends, far from complaining that the Purchase Tax had not been increased because of the inflation of that time, went so far as to say that insufficient goods were being released from the imposition of the Purchase Tax. Indeed, the right hon. Gentleman who is now Viscount Chandos said: Today, I must recall my satisfaction that the Treasury Bench have taken the advice which we gave in the Finance Bill debates last year. They have eliminated from the Purchase Tax a number of household necessities—not all of them—and I think that that is a reform which was long overdue."— [OFFICIAL REPORT, 11th April, 1951; Vol. 486, c. 1057] Was that a protest that taxes were not being sufficiently increased? It is rather ironic not only that the hon. Gentleman was wrong, but that he was wrong on precisely the articles of household use which are the subject of so much dispute this year. These are the articles which his hon. Friends were so glad to see being released from Purchase Tax in 1951, and they asked for more all through the debate.

Concerning the group at present under discussion, I want to go into the question, first, of the industries which my hon. Friend the Member for Stechford mentioned. He referred to the motor car industry, and, although I sit for the constituency which is interested in that industry I make no claim to special knowledge about the situation, although, of course, I try to keep abreast of the movements in that industry.

4.15 p.m.

Can the hon. Gentleman tell us whether any consultations took place, or whether, in any continuing sense, consultations have been taking place, with the motor car industry over the last two or three years about the state of its production, particularly for exports? My own feeling is that nothing at all has been done. We know very well that the industry has expanded, as my hon. Friend said, by scores of thousands of units of production in the last two or three years, while the increase of exports has been very small.

Then, in a situation in which the industry is being hard hit by import restrictions, in Australia and New Zealand particularly, the Chancellor chooses just this moment to use the fiscal weapon to control production, which can only make things worse.

Here I am trying to put the alternative to the hon. Gentleman by saying that we should have said that the motor car industry would have been better assisted, instead of this 60 per cent. tax, if there had been, as there has been in past years under the previous Government, consultations with the industry about its production and its export prospects. Then the Government should have agreed when the inflationary crisis yawned that there would be a direct effort to increase the number of units sent abroad in exports.

Photo of Mr Roger Cooke Mr Roger Cooke , Twickenham

Will the hon. Gentleman allow me to interrupt him, in order to save trouble, because this is a subject I know something about? There have, in fact, been consultations between the motor industry and the Government on a formal basis, through the medium of the National Advisory Council of the Motor Industry, at least three or four times every year, on broad plans for the expansion of the industry. They have also been on a daily basis with regard to exports and trade features all over the world, on which there has been consultation between the Government and the industry every day of the week.

Photo of Mr Donald Chapman Mr Donald Chapman , Birmingham, Northfield

I can only say that the motor car manufacturers must have been very ineffective in their representations if, in fact, they now find, on the appearance of the Chancellor's Budget, that it contains a tax to which they are totally opposed, and which, they say, will solve none of their problems. Either they negotiated very badly or the negotiations were the farce that I really think they were.

Photo of Sir Austen Albu Sir Austen Albu , Edmonton

Perhaps they used the hon. Member for Twickenham (Mr. Gresham Cooke).

Photo of Mr Roger Cooke Mr Roger Cooke , Twickenham

The hon. Member for Northfield (Mr. Chapman) was speaking about an export production plan. Negotiations took place on this aspect of the matter, but not on the taxation aspect.

Photo of Mr Donald Chapman Mr Donald Chapman , Birmingham, Northfield

How the hon. Gentleman can differentiate between one and the other I do not know. The fact is that present taxation plans are related to exports, so that if the hon. Gentleman argues that these things are in watertight compartments the consultations must have been a very poor show.

This would be the alternative to a tax—proper consultations on export targets and anxiety to get increased exports. Secondly, the Government should give more encouragement to the motor car industry by saying, "We do not propose to alter taxation rates and alter export targets this way and that for the next few years," so that the industry would lose what it has at the moment, namely, a considerable feather-bedding by having an easy home market, and in order that it could develop the kind of models which are more suitable for the export market.

If, indeed, the industry had that kind of long-term consultation, if it knew what was in the mind of the Government for the next years ahead in regard to taxation and export targets, I think there would be a much better chance of developing the kind of models which would sell much better in the export markets. Instead of that, we have this clumsy imposition of an increased Purchase Tax.

I now turn to the other industries which my hon. Friend listed as being affected by this bracket of tax, namely, those producing television and radio sets, and heating appliances. Can the Economic Secretary tell us whether he has seen reports of the investigations recently made about our export markets in relation to such industries? These industries are considerably featherbedded by having easy sales upon the home market, and I very much doubt whether a tax increase of 10 per cent. will result in a greater proportion of their products being sent to the export market. By the time somebody has set his mind upon having a television set worth £90 he is not going to think twice about paying £95, or whatever the increase in tax may make it.

The Government could have proceeded by taking these industries into their confidence. They could have said to the radio and television industries, "We want some exports on a reasonable scale from you, because they are on a small scale at the moment." It is said that our television and radio sets are not suitable for reception abroad, but as far as I can discover it would be quite easy for these industries to make sets which would be suitable for such reception. It would mean the challenge of adapting their products, and it could be done if the Government went to them, four-square, and said, "This is the kind of thing that we want done." I do not believe that the imposition of this tax will do the job as well as the alternative method which I have just suggested.

I am quite sure that, upon reflection, the Chancellor and the Government must be regretting their decisions about Purchase Tax. I know of no newspaper or responsible person who has welcomed them. No political party has welcomed them. Even the Liberal Party has joined us upon this issue. Has the Economic Secretary seen the sort of thing that the Financial Times has said about the tax, which destroys his arguments upon the general grounds for the tax?

Photo of Mr William Morrison Mr William Morrison , Cirencester and Tewkesbury

We are not dealing with Purchase Tax generally; we are dealing with a specific Amendment.

Photo of Mr Donald Chapman Mr Donald Chapman , Birmingham, Northfield

I did not want to go too far, but I thought it was understood from last night's debate that, as we finished rather early, a number of more general points which were intended to be raised last night could be dealt with today, Sir Charles.

Photo of Mr William Morrison Mr William Morrison , Cirencester and Tewkesbury

I certainly never said that. I have no doubt that what the hon. Gentleman is referring to is the debate on the Question, "That the Clause stand part of the Bill."

Photo of Viscount  Hinchingbrooke Viscount Hinchingbrooke , South Dorset

Can that situation be cleared up, Sir Charles? Last night, during the discussion upon the first of this important group of Amendments, I asked whether the debate could go wide. That was agreed to by both sides of the Committee —[HON. MEMBERS: "NO."]—with the reservation that points could be taken up later in the debate on the Question, "That the Clause stand part of the Bill." The debate did, in fact, go wide on the first of the two Amendments, and the understanding was that as the three Amendments were all similar in character—making the same sort of changes in the structure of the tax—the same kind of debate could take place. If that is not the case, and if we are narrowed down in our discussion of this Amendment and the one following, can it be made clear that we can raise the general issue of Purchase Tax on the Question, "That the Clause stand part of the Bill"?

Photo of Mr William Morrison Mr William Morrison , Cirencester and Tewkesbury

Yes. We are dealing with a specific Amendment to leave out certain lines. This is not a debate upon the Question, "That the Clause stand part of the Bill." The question is simply one of raising the rate of tax. We cannot have a debate ranging over the whole field of Purchase Tax.

Photo of Mr Donald Chapman Mr Donald Chapman , Birmingham, Northfield

I do not want to raise Questions about commodities in any other tax bracket. Perhaps I can conclude my remarks shortly, and leave my more general remarks to a later stage.

By now the Government must be regretting the Purchase Tax increases which they have imposed. The Financial Times has been saying that the Purchase Tax proposals are far from justified. It says: There is only one verdict on his"— that is, the Chancellor's— 5th Budget—that it was a psychological muddle. It also says: What was planned to produce slack may well produce tension. This remark applies exactly to the sort of commodities which come within this tax bracket. In the end, its only effect will be to infuriate the trade unions and provoke wage demands, because the prices of the commodities which the workers are quite rightly demanding—as part of the results of the increased production which they have achieved in our factories—are continually increasing. All that we shall get is further incitement to a continuation of wage demands.

It boils down to the fact that we could have had a just mixture in the Bill, or the Chancellor's general financial plans—

Photo of Mr William Morrison Mr William Morrison , Cirencester and Tewkesbury

General financial plans are not being discussed. I have said that several times, and I am not going to say it any more. If the hon. Gentleman will not obey my Ruling he must resume his seat.

Photo of Mr Donald Chapman Mr Donald Chapman , Birmingham, Northfield

I am sorry if I am ranging rather widely, Sir Charles. Instead of the increase in this tax bracket we could have had a mixture of the sort of direct control that we have advocated from these benches, and a taking into the Government's confidence of the industries concerned—the arranging of physical export targets with them—and then, only if it proved necessary as a last resort, the imposition of this sort of financial penalty. That would have been a far better proposal than this.

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

It would be helpful to the Committee, Sir Charles, if you could assist us about the Ruling which you have given to my hon. Friend. I am sure the Committee understands that what we are debating is simply a proposal to increase the rate of Purchase Tax from 50 per cent. to 60 per cent. upon the range of goods which is already charged at 50 per cent. My hon. Friend the Member for Northfield (Mr. Chapman) was referring to the Government's claim that there is a need to create slack in the economy and to damp down industrial activity, and I should have thought that that was in order in the debate upon the Amendment, because the Economic Secretary last night told us, in regard to the primary essentials that we were then debating, that the idea was not to reduce consumption but to skim off a little purchasing power, so that more slack would be available for other things.

Surely this debate, which is concerned with increasing the tax from 50 per cent. to 60 per cent., is an area in respect of which the Government's proposals for creating slack in the economy are relevant. Without going too wide, therefore, I presume that that point can be raised, provided that it is related to the particular items referred to in the Schedule.

Photo of Mr William Morrison Mr William Morrison , Cirencester and Tewkesbury

It can certainly be raised, but it cannot be gone into in detail. I would point out that the speech made in moving the Amendment took nearly 40 minutes, which is a very long time.

Photo of Mr Denzil Freeth Mr Denzil Freeth , Basingstoke

If I had been lucky enough to catch your eye last night, Sir Charles, I could not possibly have supported the Treasury Bench so wholeheartedly as I do today, upon this Amendment.

One thing which strikes me about the speeches made by hon. Members opposite today is the way they quote the Financial Times. The hon. Member for Northfield (Mr. Chapman) used such a quotation in order to confound us. That seemed to me rather like the Pope quoting from the Koran in order to help a missionary meeting in Mecca. I was also struck by the figures quoted by the hon. Member for Stechford (Mr. Roy Jenkins)—

Photo of Mr Denzil Freeth Mr Denzil Freeth , Basingstoke

—which he obtained from the Financial Times of 27th October. Those figures, together with the other figures quoted in that paper on that day, brought out very clearly the overlarge proportion of the increase in industrial production of the goods coming under the 50 per cent. to 60 per cent. range of Purchase Tax, which the home market is at present taking. I cannot help thinking that we have to take those figures with a certain degree of caution.

4.30 p.m.

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

What does the hon. Gentleman mean by "overlarge increase in industrial production"?

Photo of Mr Denzil Freeth Mr Denzil Freeth , Basingstoke

I meant to say "overlarge proportion of production."

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

What does the hon. Gentleman mean by that phrase? Many Government supporters think that production should be determined by the pull of the market. If the market pulls in any direction that is surely all right. I do not understand the hon. Gentleman's meaning.

Photo of Mr Denzil Freeth Mr Denzil Freeth , Basingstoke

I meant to say "an overlarge proportion of production" and I apologise if I said "overlarge production." If we are to be able as a nation to pay for our imports a certain proportion of our total production must go to export. If too large or too small a proportion is retained in the home market, we inevitably get the sort of balance of payments difficulty that we have been experiencing this year. I cannot think that anybody can disagree with that very simple analysis.

If that is true, the point I wished to bring out was that the figures for the first seven months—the first nine months in the case of motor cars—are inevitably distorted by the effects of the dock and railway strikes. [HON. MEMBERS: "Oh."] If hon. Gentlemen opposite think that we can have a lengthy dock strike and a not inconsiderable railway strike without disturbing the normal economic relationships they must be living in a cloud-cuckoo-land which, although delightfully comfortable, bears no relation to reality at all.

In trying to work out whether there has been too much consumer demand for the articles in the 50 per cent. to 60 per cent. Purchase Tax range, it is important to remember that because of the dock strike goods were not exported, and that many manufacturers sent goods on to the home market to relieve their overburdened storage capacity.

Photo of Mr Donald Chapman Mr Donald Chapman , Birmingham, Northfield

It is all very well to refer to two months of 1955, but has the hon. Member watched the figures for motor car exports, not for two or three months but over the last two or three years? That is not something which happened suddenly in 1955. An increasing proportion of the extra production has been consistently sold at home.

Photo of Mr Denzil Freeth Mr Denzil Freeth , Basingstoke

I am aware of that. [HON. MEMBERS: "Good."] If hon. Gentlemen will bear with my more pedestrian development of my theme, I shall no doubt cover the points that leap more readily to their quicker minds.

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

While this side of the Committee is bearing with the development of the hon. Gentleman's case would he tell us, since he is so concerned to put the responsibility for this situation upon the dock strike, why the gap between imports and exports was even wider from January to March? In view of the hon. Gentleman's reference to consumption, is he aware that the Economic Secretary himself, in winding up the Budget debate, went out of his way to say that consumption had been expanding very rapidly and was in full accordance with the Chancellor's forecast in April?

Photo of Mr Denzil Freeth Mr Denzil Freeth , Basingstoke

I was taking the first seven months and the figures given by the hon. Member for Stechford. I said that the increased consumption which the figures appeared to prove, in fact, overstated the case, and overstated the position as it would have been if there had not been the dock and railway strikes.

The fact is that we are not exporting a sufficient number of these hard-wearing durable goods. If a nation gets into that situation I fail to see how any Chancellor of the Exchequer, of whatsoever party, would not find himself bound to use the Purchase Tax weapon which is so readily to hand. I must confess that I cannot identify myself with my hon. Friends who object to Purchase Tax per se. I am not a believer in the economic price. For a Government to control, or to attempt to control, purchasing power by indirect taxation always seems to be a perfectly legitimate aspiration. It is quite reasonable for them to attempt to direct the flow of consumer demand by graduated taxes such as the Purchase Tax, which has been done by the Chancellor of the Exchequer on this range of goods.

If one is prepared to attempt to reduce home demand, the very real point to be answered is, do we succeed in increasing the proportion of goods which go to export? Alternatively—and this can be equally important—do we succeed in removing or restraining demand upon goods which have a high import content when sold on the home market? In regard to exports, I do not believe for one moment that the motor car industry in this country has been trying as far as it could to break into export fields. I noticed it very particularly when I was in Denmark this summer. Enormous competition was coming from the German motor industry, with its Volkswagen car.

Admittedly, the motor car industry has received a very unfortunate knock through the reduction of imports into Australia and New Zealand. It is a little hard to suggest that the increase in Purchase Tax from 50 per cent. to 60 per cent. upon motor cars is a clumsy imposition of tax, coming at the time of the Australian import cut, when, apparently, hon. Members on the other side of the Committee supported their Government's proposal to double the rate from 33½ per cent. to 66⅓ per cent. on the Purchase Tax on motor cars in April, 1951, when it was becoming painfully apparent that Australia would very likely have to make substantial cuts in her imports from this country in that year, as, in fact, happened.

On the purely political plane the argument is not as strong as has been advanced by hon. Gentlemen opposite. This increase comes at a time when the motor car industry has been turning to find outlets for the cars which it is unable to export to Australia and New Zealand. There are other export markets in the world. I do not imagine that an enormous fall in demand is likely to take place as a result of this increase in Purchase Tax. Some decline may well take place, but it will be very small and marginal. It will give an impetus to manufacturers to turn their eyes again towards the export field.

Our difficulties there are not those of price but of designing cars which foreigners wish to buy and which stand up to European road conditions. I believe very strongly that it is also a matter of sales technique, publicity and push, directions in which our manufacturers have been tending to fall down, especially in pushing their exports forward in the face of severe foreign competition. That is inevitable if the home market is very easy to sell in, and where minor increases in price have no deterrent effect at all.

It was, therefore, necessary—and I applaud the Chancellor—to use the Purchase Tax to cream off some of the excess purchasing power. The hon. Member for Stechford very rightly said that the main cause of the inflationary pressure was the bottleneck, as it were, at the end of the heavy engineering industry. The hon. Member shakes his head, but when he reads his HANSARD he will find that I am right. That is perfectly true—as the President of the Board of Trade said not so very long ago—but when we need to decrease the import bill and stop this inflationary pressure of demand, we have to decide whether it is to be done all on the investment side, all on consumption, or by a proportionate reduction in demand as between capital goods and consumer articles. The capital goods side is being taken care of by the credit squeeze, but the consumer side should also be subject to some degree of deterrent by the Government.

Support for this case is given in Economic Conditions in the United Kingdom published by O.E.E.C. this year, which states: Considerable emphasis must, therefore, be placed on preventing a further rise in the import bill. In deciding how strictly home demand must be restrained, it should be remembered that the recent acceleration in the increase of wages and earnings will tend to encourage further increases in consumption. It is against that background, just as much as against the background of the figures quoted by the hon. Member for Stechford, that these increases in tax have to be judged.

Paragraph 27 of the same O.E.E.C. publication reads: Under these circumstances, it may still prove desirable to put greater emphasis on restraining consumption I think, therefore, that my right hon. Friend has been exceptionally wise in increasing the Purchase Tax, and particularly in increasing it in the middle range of articles, which are not so much necessities as comforts and, in a great many cases, luxuries.

If that is so, and if, as is the case, every Chancellor since the war has used Purchase Tax for this purpose, since it is a tax whose effect is immediate, which can reduce overall demand, discourage the purchase of goods with high import content and help to turn manufacturers from the easy home market to the more difficult export markets, it is strange to find hon. Members opposite moving an Amendment to reduce the increase which the Chancellor has made—an increase which they must know is necessary if we are not to allow the present inflationary conditions to get out of hand.

This proposal, together with the others in the Bill—and other measures announced in previous weeks—must be considered as part of a general plan. The great merit of the proposals—and of this increase in particular—is that they restrain demand upon a range of articles of which a far greater number can be exported than are now being exported, and which, in many cases, have a very high import content indeed. When one considers the past record of hon. Members opposite in relation to Purchase Tax, it is very strange that they should now wish to reduce it.

4.45 p.m.

Photo of Sir Austen Albu Sir Austen Albu , Edmonton

We on this side of the Committee welcome the fact that a Government supporter has at last spoken in support of the Government. It is good that the hon. Member for Basingstoke (Mr. Freeth) should have done so, even if it took him rather a long time to relate the Amendment to the very interesting Second Reading theme of his speech. His remarks probably gave a good deal more pleasure to the Treasury Bench than to his hon. Friends about him, because a speech more out of keeping with the views normally expressed by the Conservative Party I have rarely heard.

The hon. Gentleman's speech was in favour of measures of planning, measures of relatively direct control, by means of Purchase Tax, particularly as it affects goods which involve a high proportion of imported raw material or that have a high export potential. They are exactly the measures used, in very much more difficult circumstances, by Labour Chancellors of the Exchequer in the very difficult years after the war, when we were trying to build up our export trade. I do not doubt that, in future, we shall have occasion to refer to the hon. Gentleman's speech for some arguments.

If one is to use Purchase Tax for planning purposes one must have some principle on which to base one's views about it. What I find so difficult about the changes proposed—and particularly in this great, bulky section in which the tax is raised from 50 per cent. to 60 per cent.—is that they seem to be entirely and absolutely contradictory. I believe that they are contradictory because no hon. or right hon. Gentleman opposite has ever seriously considered what type of industry is capable of expanding its exports, and what kind of home market each particular industry requires. If we look round, we find complete contradiction.

The argument frequently used about the exporting industries is that they must have a good home market, in order that their costs may be reduced by having a substantial production at home to reduce overheads, and so forth. That argument is most applicable to the mass-production industries, because they, and some other industries such as chemicals and steel, are industries with a very high capital content in their cost of production. The same argument cannot be used about what hon. Members sometimes call the high-quality-class exports, because those are of articles in which the main content is craftsmanship and labour. When we examine what has been done with Purchase Tax in the Finance Bill—and even within the single range of goods affected by this paragraph—we see complete contradiction.

In contrast to the increases in taxes which are being put on the mass-production industries, such as motor cars, radio sets, and watches—and watch making is a new mass-production industry which we are trying to encourage—industries which depend on a large home market to keep down costs of production, we are reducing the taxation, or exempting altogether from taxation, the craftsmanship industries—goldsmith and silversmith wares and some types of cut glass. I cannot believe that the cut glass, goldsmith and silversmith industries need a home base for their exports, because they do not have high overheards, but how we can be expected to build up a large motor car industry without a home market I cannot understand.

Like my hon. Friends the Member for Stechford (Mr. Roy Jenkins) and the Member for Northfield (Mr. Chapman) I think that the motor car industry is too big at present. I cannot accept what the hon. Member for Twickenham (Mr. Gresham Cooke) has said, because I do not think that the heads of the motor car industry ever consult each other and there can, therefore, be no consistent planning of a capital investment programme. Once we allow the capital investment programme to be undertaken without taking any steps to control or direct it, it is of little use later to put up the Purchase Tax from 50 per cent. to 60 per cent. in the hope of restricting home demand, and either create unemployment, or reduce the utilisation of the capacity of those plants and so put up costs that we lose export trade.

I do not want to repeat the arguments about the difficulties of exports. Although I have a reputation for attacking the industry, that is quite untrue. I do not believe that the industry is to blame entirely, or even largely. One has to face the fact that other countries are making their own motor cars and that our markets are disappearing. The Australian market is disappearing and may probably go for ever when the British Motor Corporation and General Motors, of America, as well as some others, have set up their own factories. It is no good trying to force people to export goods to countries which are quite unable to take them.

What, therefore, can be the effect of the increase in tax? I do not think there will be any effect at all, which only makes it more nonsensical. I do not believe that an increase of £40 or £50 in the price of the average car, when practically the whole of it can be got back in initial and depreciation allowances, will really affect the sales of motor cars at home. And so the industry will go on at its present home level, consuming raw materials like machine tools and the equipment of the engineering industry at its present rate, and increasing the imports of steel, and so on. That is my own view.

There is one question which should be answered by the Economic Secretary, for it is extremely relevant. It may be difficult to do so, but I should like the hon. Gentleman to tell us what revenue will be obtained from the increase in tax, particularly on motor cars. I would like him to state the net revenue after allowance has been made for the increase in initial allowances that will be returned to the purchaser who buys a car for business purposes, as most people do. The hon. Gentleman may not be able to give these figures but the point is relevant as long as the Chancellor of the Exchequer maintains the initial allowance on the purchase of motor cars for business purposes. It is very relevant when considering the deterrent effect of the increase of Purchase Tax and the revenue that will be obtained from this increase.

In referring again to the possibility of using the increase in the tax as a means of forcing the export market, I would mention two speeches which were made only yesterday. Mr. Henry Ford says that he does not think there is any real future for the export of British motor cars in the United States, where a buyers' market is now going up; and Sir Leonard Lord gave a serious warning to the shareholders of the British Motor Corporation, which produces about half the cars in this country, that it cannot expect to continue the output, exports and profits it has obtained over the past few years.

The effect, therefore, of the tax on this now becoming dominant industry, with its enormous ancillary effects throughout the economy, may be very serious indeed. I am not in the habit of taking very gloomy views about our industries, but I have grave doubts as to what the effects may be in the next few months in the towns where motor cars are manufactured.

To return to the question of the use of the tax for purposes of planning, I realise, of course, that the Economic Secretary said last night that the increase in Purchase Tax as a whole was more for reducing the total demand on the economy than for tax purposes; but I think I am right in saying that throughout our debates on the Budget, and on the Finance Bill, Treasury Ministers have said that they hoped that at least this section of the tax increase—that is, dealing with durable consumer goods—would have substantial effects in reducing the demand for steel and other raw materials involving imports in particular, and would have an effect on increasing our exports.

The Government must relate this argument in industries which are the mass-producing industries to the industries in which they have reduced the tax altogether and which do not have the kind of fixed charges that the mass production industries have. One cannot make sense of the various changes in the Bill, particularly those we are now discussing, simply on the basis of economic planning, which was the argument used by the hon. Member for Basingstoke.

Even in the subsection which we are now discussing, there are the two classes of goods. On the one hand, there are motor cars and radios—the mass production industries—and clocks and watches, some of which are mass produced and some not. Then we have the leather goods, which used to be the cream of the British craftsmanship manufactures on which our exports were based. I always thought it was complete nonsense to link the two classes together. In the Paris Exhibition before the war, leather goods were the main feature of the British exhibit. They included leather crops, riding kit, handbags and goodness knows what—the great craftsmanship tradition of British industry.

Why should this type of article not also be exempted in the same way as goldsmiths' and silversmiths' wares and cut glass? Why are we distinguishing between the great British tradition in craftsmanship? The proof is that the argument about craftsmanship is complete and absolute nonsense and is not believed except by a few hon. Members opposite who have no experience of modern British industry.

Modern British industry and exports are dependent either on the export of capital goods or on the export of goods which are competitive in world markets because of quality and price. As far as I can see, everything that is being done in the Bill will make the situation worse and not better. If there is any reason in these ups and downs, I hope that the Economic Secretary will make it clear, because I certainly cannot find it.

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

This has been a most interesting debate, and I will certainly try to deal with some of the subjects that have been raised from both sides of the Committee. Perhaps I might begin by answering the question put to me by the hon. Member for Stechford (Mr. Roy Jenkins) at the start of his speech about the revenue that we expect to get from the increased tax on motor cars. These figures must inevitably be approximate and provisional. The best estimate I can give is that the total extra revenue from the increase in the Purchase Tax rate of from 50 to 60 per cent, will be £30 million; and of this, almost exactly half—that is, about £15 million—will come from motor cars. I cannot, of course, answer the question as to what the net figure will be after calculating the effects of the initial allowances. I do not think that the hon. Member for Edmonton (Mr. Albu) could seriously have expected me to give him that figure today.

Photo of Mr Ernest Fernyhough Mr Ernest Fernyhough , Jarrow

Are the Government's calculations on the basis that as many cars will be sold at home next year as last year to bring in that revenue? If that is the basis, the Government are defeating their object, because the vehicles will not have gone for export.

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

I am not arguing the matter. I am answering a question, by giving the best estimate that the Customs and Excise have been able to make.

Photo of Sir Henry Legge-Bourke Sir Henry Legge-Bourke , Isle of Ely

I think my hon. Friend will agree that, in general, the calculations made at Budget times in previous years of the amount that would be obtained from Purchase Tax have generally been underestimates in comparison with the amounts which have actually come in. Does this same trend apply to motor cars in particular?

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

I am not normally unreasonable in giving way, but if at the start of one's speech one is asked to give a figure and does so, it becomes difficult if from that information too many supplementary questions arise.

The hon. Member for Edmonton made an interesting speech. I think he is a little pessimistic about personal relations in the motor trade, and I thought he was a shade unfair about Sir Leonard Lord's speech, for there were two things he rather forgot. First, Sir Leonard Lord made it absolutely plain that the reason why it would be unreasonable to expect profits to be higher was because we intend to keep our prices at theft present level as long as we possibly can. That was not at all a discreditable thing to say.

Also, it is worth pointing out that the British Motor Corporation is at present making 10,000 vehicles a week. By next summer, the figure will rise to 12.500; and reading the extract, as I did this morning and as I have just done again, I do not think it presents a very gloomy picture. It seemed to me quite a reasonably optimistic statement.

5.0 p.m.

The hon. Member for Stechford said a number of things in his speech. There is one basic point which I should like to answer right away. It is this. The Government believe, as they have always done, in using Budgetary policy and monetary policy to influence the economic situation, but, quite frankly, we do not believe in the use of Purchase Tax as what one might call a precise instrument of economic planning, and I am perfectly ready to differ from the hon. Gentleman on that point. The idea that in economics there is a number of sharp weapons at one's disposal is, I honestly believe, a mistake and a fallacy.

This Purchase Tax range, as hon. Members have pointed out, covers things like cars, television sets and refrigerators, and generally the class of goods, as the hon. Member for Stechford said, which economists call durable consumer goods. In earlier debates, I have explained to the House why the Government felt it necessary at the present time to introduce a Budget to moderate consumer demand, and I do not intend—indeed it would not be in order—to rehearse all those arguments again this afternoon. I think that the Committee may agree with me that it would be most inequitable in the light of the Government's general policy to increase the Purchase Tax on other goods and to exempt this range. As a number of hon. Members have admitted, this range does not include what one might call basic necessities.

Photo of Mr Albert Hunter Mr Albert Hunter , Feltham

Mr. A. E. Hunter (Feltham) rose

Photo of Sir William Anstruther-Gray Sir William Anstruther-Gray , Berwickshire and East Lothian

If one hon. Member is on his feet, another hon. Member may not intervene unless he gives way.

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

When the hon. Member for Stechford said that this part of the Government's proposals was less regressive than some of the other parts, I think that he had very much in mind the point which I have just made.

Photo of Mr Albert Hunter Mr Albert Hunter , Feltham

Surely the hon. Gentleman does not regard vacuum cleaners as outside the range of necessary goods.

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

I think that, in general, it is fair to say that this section does not consist of basic necessities, and I am not sure, quite honestly, that I would look on vacuum cleaners or washing machines as absolutely in that class of goods. [HON. MEBERS: "Oh."] This section of the range is rather of goods on which people spend the extra money when they have got it, and for this reason it is not only, I think, equitable to tax these goods, but it is also a reasonable way of attacking excess consumer demand at the point where it is most pronounced.

It is our belief that the increase in tax on these goods will help our exports, and I should like to develop this point. The very rapid increase in demand for durable consumer goods in this tax range has caused very heavy pressure on the resources of the metal goods industries which are the backbone of our export trade, and I suggest to the Committee that this argument about metal goods is none the less real because of its not being, I admit, easy to demonstrate with absolute precision.

There is one point which I think supports my case. It is precisely in the areas where the metal goods industries are concentrated that the excess demand for labour, and, therefore, inflationary pressure in our economy, are at their strongest. I think that it is significant that the ratio of unfilled vacancies to registered unemployed in October of this year was five to one or even more in the Midlands area, compared with a national average of approximately two to one. This inflationary pressure, I suggest to the Committee, must be relieved if we are to make way for more exports. There can be no doubt at all that the very heavy pressure of consumer demand on this section of the economy is having an adverse effect on our export trade. I should like to say, arising out of what the hon. Member for Northfield (Mr. Chapman) said—

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

Would the hon. Gentleman carry this analysis a little further? When he is referring to the heavy pressure of the metal-using industries—and that is a fact which I do not think anyone would oppose—does he envisage that the effect of this increase in tax in this particular range of goods would be primarily to cause more of these goods themselves to be exported, thus involving no movement of manpower or resources from the production of these goods to others, but simply a higher proportion of exports, or is he envisaging that the effect will be to cause a diminution in the production of these goods, so that more people will be transferred from these goods to other goods which may be exported, or which may not use metal?

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

That is a perfectly fair question. I think that the answer is that it will be rather different in different areas of the country. In some areas, no doubt, the first of these alternatives would be true and, in other areas, the second. I do not think that I can fairly be more precise than that. One will have to see what happens.

There is, of course, a precedent for an increase of Purchase Tax on this type of goods in the Budget of 1951, because the right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell) then increased the Purchase Tax on motor cars, wireless sets, television sets and a range of other domestic appliances from 33⅓ per cent. to 66⅔per cent.

In those debates, in 1951, I think it fair to say that the right hon. Gentleman the Member for Leeds, South made considerable use of the argument about inflation and also the argument about exports. For example, he said on 10th April, 1951—I think this was in his Budget speech … in choosing the articles"— for increased tax— we must turn to those whose production for the home market we want to discourage because their production and sale at home is likely to conflict most seriously with the needs of export and defence."—[OFFICIAL REPORT, 10th April, 1951; Vol. 486, c. 859.] He returned to this theme, in the June debate initiated by my right hon. Friend the present Minister of Pensions and National Insurance. He then said: … if we cut down the amount going to the home market, provided the export demand is there, as in present circumstances for the most part it certainly is, then I do not think that there is very much doubt that the export trade benefits."—[OFFICIAL REPORT, 19th June, 1951; Vol. 489, c. 369.]

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

As it has always been the Conservative Party's case that, as a result of the Labour Party's policy, by the end of 1951 this country was only miraculously snatched from disaster by the Conservative Party, can the hon. Gentleman, who presumably believes that, explain why he regards that as an encouraging precedent so that the Committee may support a repetition of that policy of 1951?

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

The answer is a simple one. My right hon. Friend, now the Minister of Education, said most frequently in the 1951 debate that in his view that Budget was quite inadequate because it increased expenditure by several hundreds of million pounds and only increased taxation by about £150 million. If the hon. Gentleman will look at HANSARD for that time, he will find that although we had a large number of Divisions on matters of detail on that Finance Bill, we did not vote against the main tax increase proposals of the right hon. Gentleman the Member for Leeds, South.

I want to say two things in conclusion to the hon. Member for Stechford. The first is this. He seemed to suggest that there was some inconsistency between the line which the Treasury Bench has taken in the Budget debates and what was said by the President of the Board of Trade earlier. I have looked up that passage, and I do not think that is quite true. The sentence which the hon. Member for Stechford quoted was related particularly to the argument whether or not he should have suspended the investment allowance. If he will look at HANSARD he will find that the President of the Board of Trade said: To some extent these taxes do affect the demand on the metal-using industries. That is useful. And over the whole field less money becomes available to buy other goods and the general effect is a fall in the levels of consumption. But a reduction in the general level of demand is, I would emphasise, really essential to an expansion of our export trade."—[OFFICIAL REPORT, 27th October, 1955; Vol. 545, c. 416.] That is precisely the case which I have myself been trying to expound during these debates.

I am not in the least convinced by what the hon. Member for Stechford said today about the relation between the April Budget and the Budget which my right hon. Friend has just introduced. The object of this Budget, we have made perfectly plain, is to moderate the level of consumer demand. The object of the April Budget was to strengthen the longterm earning capacity of this nation. After all, a large proportion of the reliefs given in the April Budget went not to consumers but to companies.

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

A certain amount of relief which was given to companies is to be taken back by this Budget by means of the increased Profits Tax. If the April Budget was designed to strengthen the earning capacity of companies, why is the Chancellor now weakening that earning capacity?

Photo of Sir Edward Boyle Sir Edward Boyle , Birmingham Handsworth

In his April Budget my right hon. Friend strengthened the future capacity of companies to increase their capital equipment and thus help to earn real wealth for this nation. We do not regret the measures now taken, as we believe that the present Budget is necessary as part of a general operation to eliminate inflation from our economy.

Photo of Mr Jo Grimond Mr Jo Grimond , Orkney and Shetland

Even if we accept that the Purchase Tax is not a precise instrument for attacking the consumption of any particular commodity, but is simply used to reduce the general level of consumption, I do not see why this instrument was chosen. It is a very inconvenient instrument which puts traders to a great deal of trouble.

The Government could have chosen some other method of achieving this objective. They could have reduced the bread subsidy, which would have taken spending power out of the pockets of the people. They could have reduced initial allowances.

But I am not at all convinced by the argument that continual increases in taxation will stop inflation. That seems to be the basic difference between the Committee and the Government Front Bench. I do not want again to go over the arguments against Purchase Tax, that it increases the cost of living; that its effect on exports is doubtful, and that it puts traders to a great deal of trouble. I am entirely convinced by the arguments used by the Chancellor of the Exchequer in 1950. I think that must have been a vintage year for him, and I hope that the Chancellor will return to his older ways and that we may regard this Budget as a temporary aberration.

I find it difficult to believe that it is to be the official policy of the Conservative party to turn the Purchase Tax into a general sales tax and keep it as a permanent part of our economy. If the Government had just come into office and had found an inflationary situation, they might conceivably have taken this as an instrument readily to hand, but they have been in power for five years, and surely they should be thinking more fundamentally about ways of checking inflation.

I think the people must be a little bewildered by these changes in the attitude of financial leaders. The same thing happened over the Petrol Duty. Increases in that duty were bitterly attacked by Tories, and in due course the duty was increased again by a Conservative Government. If we want to make an impact on the people in this country, greater consistency must be shown.

But it is only useful in this debate to argue within the ambit chosen by the Economic Secretary. He wants to reduce consumption. He wants to take some of the extra spending power out of the home market, and he hopes thereby to drive some goods into export and lessen the amount of money that people have available to spend at home. But I know full well that he will not be anxious to put an undue burden on any particular part of the population.

I want to draw one matter to his attention. I think that he will agree—indeed, he said this himself—that one should look at the Government Measures as a whole. I suggest that these increases that we are discussing, when taken in conjunction with certain other measures of the Government, are going to put a severe burden on people in country districts and remote areas. I am, in fact, now making a constituency point, and, after all, it is a perfectly proper and human point to make. What will happen to people like my constituents? They will have to pay heavy extra postal charges, and they rely a great deal upon the postal and telephone services.

5.15 p.m.

Photo of Sir William Anstruther-Gray Sir William Anstruther-Gray , Berwickshire and East Lothian

Order. The postal charges have nothing to do with this Amendment.

Photo of Mr Jo Grimond Mr Jo Grimond , Orkney and Shetland

I appreciate that, Major Anstruther-Gray, but it has been part of the Government's case that we must look at all their measures together. I was merely indicating that these people will have to pay extra on those services. Transport is also more expensive because of the Purchase Tax on motor cars.

Now I understand that there is to be a 60 per cent. tax on various appliances which run on Calor gas—bottled gas. These articles have always been exempted in the past because they do not use coal and, therefore, they ought to be encouraged. They are of considerable importance in country districts, and I wonder whether the Government really intend to increase the tax on these articles to 60 per cent.

On their own showing, the Government want all parts of the community to bear their share of the measures taken against inflation, and I do not argue against their main case just now, but I do wish to draw attention to the heavy burdens which are going to be placed on people living in country districts and remote areas particularly as a result of this very steep increase in tax on a class of appliance which has never been taxed before.

Photo of Mr Albert Cooper Mr Albert Cooper , Ilford South

I thought that in the beginning of his speech the hon. Member for Orkney and Shetland (Mr. Grimond) touched the nub of the problem which faces the Committee. I should like to remind my hon. Friend the Economic Secretary of his own speech during the debate on the 1951 Budget. He said: I should like to say a few words about the size of the Budget. Despite what has been said by hon. Members opposite, I am sure that we on this side of the Committee are right in saying that the size of the Budget today is in itself inflationary. That gives me the point which I have been trying to make for many months past, that the means by which we would go a long way towards solving our economic problems is not by further increases in tax but by substantial reductions. If I were to develop that theme now I would undoubtedly be called to order by the Chair, but I would say to my hon. Friend that if his words were true in 1951. they are equally true today.

On the subject of making concessions to individual sections of the community, I would again draw my hon. Friend's attention to his speech in the same debate. He was dealing with the question of the increase in Purchase Tax on wireless sets, and he said: Thus I rather regret that the Purchase Tax on all wireless sets is to be doubled, because the simple plug-in set is a great solace to many people."—[OFFICIAL REPORT, 16th April, 1955; Vol. 486, c. 1510 and 1513.] I would have thought again that if that was true in 1951, it is equally true today. The Economic Secretary ought to find it in his power during the course of these discussions to introduce a suitable Amendment to give practical expression to the views which he put before the House in what I would say was a most excellent maiden speech.

I should like to say a few words about the speech of the hon. Member for Edmonton (Mr. Albu). Earlier this afternoon he dealt with the question of silverware and cut glass. He emphasised that this sort of article is produced by small industries and he did not think there was any need to give them any assistance at present.