New Clause.; — (Reduction of Purchase Tax from Five or Ten per Cent. to One per Cent.)

Part of Orders of the Day — Finance Bill – in the House of Commons at 12:00 am on 3rd July 1957.

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Photo of Mr Clement Davies Mr Clement Davies , Montgomeryshire 12:00 am, 3rd July 1957

The Economic Secretary, in his short intervention, made the statement, with which everybody agrees, that all taxes are unpopular. He added that Purchase Tax was particularly unpopular.

I agree; this is a bad tax. I do not think it could have been introduced at any time except during war. I doubt very much whether it would have been introduced by any Chancellor of the Exchequer in peace, or could ever be continued except in a time of full employment. If there came a period of unemployment of any considerable extent one of the first things that would have to be tackled is the doing away with the Purchase Tax. The tax is wrong in its conception.

I remember criticising the tax when it was introduced by the late Sir Kingsley Wood in his war Budget, in 1940. It was introduced to stop the manufacture of luxury goods, and it was confined largely to luxury goods in those days. Its other purpose was to turn the minds of manufacturers to the making of essential goods, particularly those needed for war purposes. The money to be saved by discouraging the purchase of luxury goods could have been invested in war savings, so helping to win the war. That is how Purchase Tax started.

The range of Purchase Tax increased, and after the war, in conditions of full employment, it was put not only upon luxury goods but upon ordinary every-day articles. It started as a 33¾ per cent. tax and went up in some cases to as much as 100 per cent. That is why one objects to it. It certainly has affected our export trade, which is cushioned upon our home trade. If inland trade is discouraged we find it much more difficult to build up exports. The tax also discourages production. It has a double economic effect.

I agree with what was said by the right hon. Member for Easington (Mr. Shinwell). One of the first effects of the tax is to reduce purchasing power, particularly that in the hands of the housewife, and that affects the whole market. The worker finds that he is not earning enough and then, as the right hon. Gentleman rightly pointed out, the worker asks for an increase in pay. Very often he does not want to do so, but is compelled by the inflation of the prices of things required for his home. I hope that the time is coming when, whatever Government may be in power, the tax will be done away with altogether.