Clause 1. — (Rates of Tax, and Descrip Tions of Chargeable Goods.)

Part of Orders of the Day — Finance Bill – in the House of Commons at 12:00 am on 19th May 1958.

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Photo of Mr Donald Chapman Mr Donald Chapman , Birmingham, Northfield 12:00 am, 19th May 1958

I am coming to that point. Having demolished the argument of the hon. Gentleman that one can never decide what are essentials—and we do that every day of our lives in framing indirect taxes—when we come to the question of Purchase Tax at differential rates there are several principles which we have to guide us. In the first place, we have, broadly, to make value judgments about what is essential and what is a luxury. We have to do it not as something which is clear cut and easy but as something which is difficult and often hard to decide. Nevertheless, it is essential for those who believe in some progress in our system of taxation to decide these things.

5.30 p.m.

The second principle in determining our rates of tax is that we must bear in mind national needs, not only as regards what is essential but, to take the 1951 example quoted by the hon. Member for Gillingham, in terms of whether, at a particular time, because of some crisis in our economy or some difficult period through which we are passing, we must, unfortunately, use the Purchase Tax as a deliberate weapon to damp down consumption of certain kinds of goods or, as in the particular case mentioned, to free particular commodities or raw materials for a rearmament drive or whatever else may be needed. In other words, the second principle is based upon the day-to-day need of the economy in the levels of consumption of commodities or raw materials.

In the third place, we must remember—and here I remind the Chancellor of what is wrong with the Purchase Tax—that beyond that point we become too rigid in our approach to the question. The hon. Member for Kidderminster tried to taunt me about the Purchase Tax on motor cars. I have always stated my view about the Purchase Tax on motor cars in this way. We cannot, in this country, afford a motor car industry which is largely geared to the home market; it must be primarily an exporting industry. If there has to be a Purchase Tax on motor cars, I am willing to see a high rate of Purchase Tax, much as I dislike it from a constituency point of view, because, first of all, I believe that the motor car is, relatively, a luxury. It cannot be said to be a luxury in black and white, clear-cut terms, but I believe that, in all the decisions we have to make, it is relatively a luxury, for a start. Secondly, I believe that we must keep the industry exporting at a high level and, if we freed it from Purchase Tax, a great many cars would come on the home market, to the disadvantage of our export trade.

Within that general situation which I have outlined, our approach must be flexible. For example, when the motor car industry fell on difficult times and the export trade pretty well dried up, or was drying up to a large extent, with consequent unemployment within the industry, that was a time to make some reduction in the Purchase Tax as a temporary measure. That is the third principle I bring into the discussion of Purchase Tax. Whatever rates we fix, we must be willing to move them as and when occasion demands and the industry concerned may be in difficulties. In this connection, we shall come to the taxation on bicycles a little later. This is a clear-cut case for the application of the principles I have been advancing.