I think that it would be for the convenience of the Committee if we were to discuss with this Amendment the following four Amendments: Amendment No. 13, in Clause 3, page 2, line 41, after "Kingdom" to insert:
with the exception of any goods for which bills of lading specifying a British port of entry had been despatched by an exporter to the United Kingdom before 27th October 1964 ".
Amendment No. 14, in Clause 3, page 3, line 43, to leave out subsection (8).
Amendment No. 20, in Clause 4, page 4, line 35, at the beginning to insert:
(1) Duty under section 3 of this Act shall not be charged on goods for which a contract has been entered into before 27th October 1964, expressly or impliedly making the buyer liable to purchase the goods specified at an agreed price.
Amendment No. 22, in page 4, line 35, at the beginning to insert:
(1) Duty under section 3 of this Act shall not be charged on goods for which part-payment of not less than 25 per cent. has been made before 27th October 1964.
Yes, Dr. King; I am obliged.
I shall try to deal with the point raised by these Amendments fairly shortly, without in any way, I hope, leading the Government to suppose that we take the matter lightly. Quite the reverse—we take it very seriously indeed.
Amendments Nos. 19 and 14 are, basically, alternative. Amendment No. 19 deals with the position when a contract has been entered into before 27th October, 1964, that is, the date from which the surcharge is run, and Amendment No. 14 is alternative to that since acceptance of No. 19 would remove the need for subsection (8) which ensures that, whatever contracts have been entered into, the burden of the surcharge falls on the United Kingdom buyer. However, I hope that the Government's attitude will be sympathetic towards the main point which we are putting forward under the umbrella of Amendment No. 19.
Amendment No. 13, the Liberal Party's Amendment, is to some extent on the same point as Amendment No. 19, and it seems to us to be an added indication of the general support there is in the Committee and, perhaps, also in the country for the point which we are advancing.
As the Bill stands, goods under contract before 27th October will have to be imported regardless of the surcharge. Specific agreements have been made, and the goods will come in whether there is the surcharge or not. Two consequences flow from this. First, in such cases the surcharge is not achieving its objective, which, presumably is to reduce imports. That is what we have been told on more than one occasion, first, in the White Paper and thereafter in debates in the House. The second consequence is that manufacturing costs and prices all down the line in respect of the particular class of goods will be increased to no practical purpose whatever.
Proof of the existence on 27th October of a binding contract would not be difficult to produce. The Liberal Amendment has suggested a highly practical way of doing it. The Government may think that that method is not entirely suitable, but, if I may presume to speak for the Liberal Party as well as for my right hon. and hon. Friends, I am sure that we should not mind what method was adopted provided that one were found, as, in equity, it should be. We believe that it is perfectly simple to find a method. Here is one. There may be others. Let the Government choose what they regard as appropriate.
Administrative machinery to check the validity of submissions for exemption would have to remain in existence for only a short time. What we propose would be easy to do and, second, it would not require the establishment of a complicated apparatus which would have to remain in existence for months and months. It would be a once-for-all operation and very quick.
The cost to the Government in loss of surcharge by the exempting of imports of this kind could not be very great, and it would present no argument for not doing what we suggest. It would be a once-for-all cost, and, judging from pre- vious Government statements, revenue raising was not, in any case, the main reason for the introduction of the surcharge.
I refer now to something said by the Financial Secretary in his maiden speech at the Dispatch Box, if I may so describe it, which we very much enjoyed on 24th November. I fancied myself back in court at one point, but that did not detract from the attention which we paid to his remarks. The hon. and learned Gentleman said:
It is essential, if this charge is to operate, that it should bite and bite at once, and take effect at once."—[OFFICIAL REPORT, 24th November, 1964; Vol. 702, c. 1215]
That is entirely true if it is to deter imports, as we understand the object to be, but the effects of the surcharge will be judged by businessmen, if not by the Government, on its purely economic aspects. Penalising those whose goods must come in anyway, because the importers are bound by contract to import them will not affect the economic basis for any later decision about whether or not to import additional goods. Why should it? All it will do is merely annoy those who are bound by contract, and this is one factor out of many which has already affected confidence in the Government's intentions.
I could give many examples of the way in which individual firms are affected. I am sure that the Minister without Portfolio will not wish me to weary the Committee with detail. Many of my hon. Friends, and, I am sure, members of the Liberal Party could produce many examples of extreme irritation at this situation. I produce only one example, which, I admit, is extreme, from a steel company which says in a letter which some of us have received:
Imports cannot be halted because irrevocable letters of credit have been opened. The balance of payments is in no way improved, and the sole result will be that many firms like ourselves who cannot pass on price increases to their customers or to the general public because they are committed by firm contracts face financial ruin through absolutely no fault of their own.
"Financial ruin" may be too strong a term but to penalise in financial terms firms whose only crime is that they honourably entered agreements which they thought they would be able to keep in circumstances which existed at the
time, is going too far and there is an element of retrospection in this matter to which we object.
The object of Amendment No. 20 is to exempt goods in transit or not entered with Customs before 27th October. The arguments in favour of this Amendment I can again sum up briefly by saying, first, that it is customary, as the Minister will know, in raising import duties to give at least a week's notice. In this instance this was not done, with the result that numerous cases of hardship are being brought about. There is substantial evidence of this. I hope that the Minister will take it as read, but that it exists in good quantity there is no doubt. Including goods in transit or those which for one reason or another have not been entered with Customs before 20th October does nothing to reduce imports, but merely creates unnecessary hardship. As in the case of the other type of goods I referred to, costs and prices all down the line in respect of goods in transit will be raised to no purpose whatever.
The cost to the Government of accepting this Amendment on a once-for-all basis must be small. To return to what the Financial Secretary said on the fateful evening of 24th November, if I may speak like Edgar Lustgarten about so a criminal trial—for we have a heavy representation of the legal profession on the Government Front Bench at present:
it is imperative for the success of this scheme that we should establish that it is non-discriminatory and that we should establish that it is non-protective."—[OFFICIAL REPORT, 24th November, 1964; Vol. 702, c. 1215.]
I do not want to talk about it being non-protective, which it obviously is, whether we like it or not, but I shall discuss whether it is non-discrimatory.
The argument of the Financial Secretary was a largly hypothetical one. The fact that some goods coming from a great distance may be in transit for two or three months does not get round the fundamental point of the argument, which is that the object of the surcharge is to reduce imports. One might ask why the Government should be so concerned about discrimination in regard to this tiny matter when they completely fail to take into account what one might call world opinion by introducing the surcharge in the first place. To suggest, as he did, that discrimination cannot be justified in this example when there is discrimination against exporters to Britain from all all over the world through the very introduction of this surcharge, seems to make no sense whatever.
Here we have two broad categories: those who entered into contracts before 27th October and those who have goods in transit. Both are categories of persons or firms which are entirely innocent and both are now to be put into difficulty and penalised by the action which the Government have taken. Many of us feel that this broad measure has not been too well thought out, as evidenced by the substantial number of Amendments already put down in the name of the Chancellor of the Exchequer and I hope the Government will be able to say tonight, "Yes, we agree there is a category of persons here whose interests should be looked at again and whose cases should be examined."
I do not think that anyone on this side of the Committee would be unhappy if the Government said that they could not accept the particular wording of this Amendment or that they wanted to do this in another way, but I hope very much that they will be reasonable in the matter and say to the Committee that they think there is good case here and they will be willing, if not to accept these Amendments, at least to table their own at a later stage. What is happening at the present in respect of goods in transit and under contract is not reducing imports but putting up prices unnecessarily and creating If the Government do not wish to accept these Amendments they must take the responsibility for doing these things and I suggest that it is a heavy one.
I hope I am not out of order in congratulating my right hon. Friend the Member for Taunton (Mr. du Cann) on his elevation. I listened to his speech and noticed that he used the word "ruin" and then withdrew it. I want to cross the t's and dot the i's a little more closely on this situation out of my own direct knowledge.
As hon. and right hon. Members opposite may or may not be aware, most important import business is not done directly between as it were sellers on the Continent and buyers in this country but through the use of agents. It is a daily experience for me as a banker for one of those agents to come to me, possibly a man with very modest capital, and to say, "I want to open a letter of credit for £100,000 for sale from Germany", and I say to him, "What is going to happen to it?" He says, "I have a firm contract, from a buyer in England for this sale."
If I am shown the buyer's contract and I am satisfied that the contract is firm and binding and I am satisfied with the bona fides of the agent, I am inclined to meet his request and open a letter of credit on his behalf for the amount of the purchase, because I know that when the goods arrive here—and they are fully insured—full payment will be received. But the agent has contracted at a firm price. He has contracted to his seller in Germany at one price and to his buyer here at a firm price.
There is no provision in any of these contracts for the interposition of a duty, of the sort we are now discussing, of 15 per cent. on the value of a contract. It may be argued that, though a very large and disqualifying impost, 15 per cent. does not mean ruin to the buyer. But it falls not on the ultimate consumer, but on the agent, who has firmly contracted to both the seller and the buyer and who expects to make a margin of perhaps 1 or 2 per cent. on a transaction of this magnitude, because he is dealing between two first-class principals.
As the Minister without Portfolio will appreciate, these are the facts of life. When my right hon. Friend the Member for Taunton used the word "ruin", he withdrew it, but there are cases when the word "ruin" would literally apply, cases when a firm with a capital of £10,000 has a contract of this sort and when the imposition of the 15 per cent. duty would mean £15,000 loss, which would be ruin to the firm which in good faith had contracted as an agent.
Perhaps I should correct this misapprehension at once. Both the right hon. Member for Taunton (Mr. du Cann) and the hon. Gentleman have overlooked the fact that Section 10 of the Finance Act, 1901, in the case supposed by the hon. Gentleman protects the parties to the contract and enables the seller to pass on the impost to the buyer and enables him to pass it on to his buyer and so on down the chain, so that there is no question of any party being ruined.
I cannot say that my client has had access to Section 10 of the Finance Act, 1901, as the hon. Gentleman has had, and I doubt whether many hon. Members on either side of the Committee have consulted it. We have not had a reference to it before.
That is indeed a point for which I am grateful. It is a perfectly good point and would seem to do away with the argument which I was propounding. However, it does not in any way change the fact that although the agent may not suffer the loss, the ultimate buyer does, even if he is not ruined. I am very glad to have the hon. Gentleman's assurance that the agent does not suffer, but it does not in any way improve the position of the ultimate buyer.
This difficulty has occurred more than once. It is due to a difference in the use of the word "agent" by a lawyer and a business man. A business man uses the word "agent" when he means "principal" and a lawyer uses the word "agent" when he means "agent". My hon. Friend will find that his agent is in law the principal in many cases, really the buyer, and he will therefore suffer a great loss because, although commercially he is an agent, legally he is a buyer, and under the Section mentioned by the hon. Gentleman, the loss will fall on him, although for practical purposes he is still an agent.
I am grateful to you, Dr. King, for your interposition, for I am the least suitable to take part in the legal struggle which we are now having between eminent members of the Bar. The fact is that there is a loss which will fall on the man who, although contracting as a principal, is in fact an agent and who obtained his credit because he had sold the goods on, as it were. I am glad to have the confirmation of the hon. Gentleman that he will not suffer. I do not suppose that my client will be in a position to brief the hon. Gentleman—he is probably not able to afford it—but, however that may be, the position is clearly doubtful, if we are to judge by the interposition of my hon. and learned Friend the Member for Darwen (Mr. Fletcher-Cooke).
The hon. Gentleman shakes his head. This is a matter of administrative convenience which raises very important problems. We have decided that this tax shall bite, I think the word is, from midnight of the day on which it was introduced. That has been done for reasons of administrative convenience. It is not proper that Her Majesty's subjects should suffer the sort of loss, if not ruin, which the Clause unamended would inflict, and I therefore hope that my hon. and right hon. Friends will do their best to convince the Government that this is an injustice which we ought not to tolerate.
I think that what is common to the Amendments which are being debated together is the restrospective effect of the Clause, and it is that to which hon. Members on this side of the Committee object. I shall not directly follow the right hon. Member for Taunton (Mr. du Cann) but concentrate very briefly on Amendment No. 22 and give a specific example. I shall not keep the Committee very long, but this is a point which I particularly want to make.
In my constituency we have an industrial project which occupied the attention of the House for quite a long time, the plup mill at Fort William. This is one of the very hopeful projects in the North of Scotland, as hon. Members on both sides will know. This project is directly relevant to the Amendment, I assure you, Dr. King, and you may remember that this project attracted a loan of some £8 million which was to be interest-free to the end of 1966.
The interest was waived to 1966 and the value was about £1·3 million.
The fact that this assistance was made with the agreement of both sides in this Chamber was an indication of the importance which hon. Members attached to the scheme. Certain machinery necessary in the work of the mill was purchased from abroad, from Sweden, because no similar machinery was made in this country. It was ordered way back in 1963 and by now some 30 per cent. of that machinery has been paid for. None the less, delivery has not yet been made. Therefore, all that machinery will now become subject to the 15 per cent. import charge.
I do not want to play politics, as the hon. Member for Ebbw Vale (Mr. Michael Foot) said, in any party sense at all. I have already had correspondence with the Board of Trade on this matter and I would not raise it now if I had received satisfaction on that occasion. I have no desire to embarrass the Government on a matter of this kind. I know they face a difficult situation, which I feel some hon. Members on this side of the Committee have tended to exploit. I quite understand that if the Government are going to make exemptions of a general character that would impair the effectiveness of the general measures they propose, but I think that if the Government were to accept my Amendment, No. 22, it would in no way impair the effectiveness of the import surcharge
My case is quite simple. To make this machinery subject to the import charge makes no sense at all in the terms in which the charge was levied or in the terms of regional development which the Government propose in the Highlands area. First, the object of the import surcharge is to save foreign exchange—in the words of the letter
which I received from the Board of Trade on 18th November,
to achieve an immediate reduction of our import bill and so arrest the deterioration of our balance of payments".
But, in fact, no foreign exchange is being saved in this case. More than 30 per cent. of the machinery has already been paid for; the foreign exchange has already gone. The remainder is, naturally, subject to a firm contract.
Secondly, the value of the interest waiver, to which the hon. Member for Lichfield and Tamworth (Mr. Snow) drew my attention, of £1·3 million, which the House as a whole recognised as being necessary, will be reduced by the amount payable in import surcharge. This, again, does not seem to me to be logical. Thirdly—and I have only three points to make—I believe it ought to be taken into account that when the pulp mill is completed it will save in the first year of its operations three times the value of the foreign machinery in foreign exchange gained.
I would beg the Minister to look at this question again. I think it is a very special case indeed, and to make an exception in the case of the pulp mill, and in the case of other firms similarly situated, would not in any way impair the effectiveness of the Goverment's measures but would remove some very unreasonable and possibly damaging anomalies.
I shall take up only a very few minutes of the Committee's time, but I also have a case in my constituency—I am sure that almost everybody here has a case from his constituency—of somebody who will suffer because of this imposition. I understand the surcharge is not chargeable on raw materials. At least, it is supposed not to be, although there is some dispute as to what is a raw material and what is not. I presume that it is not be placed on raw materials because they are basic to manufacturing the goods which will be re-exported from this country. Now we come to the question of expensive machinery which is even more basic because it fashions raw materials into goods to be exported.
I have a constituent, who is known to an hon. Gentleman opposite as well, because he is building a factory in the north of England, who got a contract for machinery for making paper sacks. This machinery is extremely expensive, and were it not for certain help which, I believe and am confident, he will receive from certain quarters to help with these difficulties, he would probably not be able to go ahead with building the factory, plus the fact that he is having to pay a surcharge on his raw material which is paper.
This puts people in the most difficult situation. I hope that the hon. Gentleman and the Financial Secretary will think about these things. It is all very well making fine legal points to people who try to argue in a commonsense way in this Committee, but it does not wash a lot with hon. Members.
I do not want to flatter the Government too much—I am much too modest to wish to do that—but I think that it would not be untrue to say that they have some regard for contracts, at any rate in principle, and that, despite anything that may occur to them to do themselves, they believe that contracts should be kept. At any rate, I am sure that they believe that other people should keep their contracts.
I am sure that the Government do not want the position to arise in this country—I know that they do not wish to damage our industry—in which traders are literally forced to break contracts involving large sums of money with countries abroad who have already been offended by matters which it would not be fair to the Government to mention. This machinery comes from one of the countries which has already been offended in a way which I am too modest to describe in the presence of the Government.
I hope that the Government will look at this very seriously and consider whether they have now come to the conclusion that contracts should be honoured, or whether they really believe that it is a good thing for industry to be pushed into the position in which it is forced to break contracts.
I do not want to repeat the general argument so well put by my hon. Friend—[HON. MEMBERS: "Right honourable."] I accept the correction, and offer him my congratulations on this happy event—by my right hon. Friend the Member for Taunton (Mr. du Cann), because he has done it so well already.
I want to do what others have done, namely, to relate this problem to a case in my constituency. The firm I have in mind is very much affected by the proposed action of the Government. This firm is called DIAC (Aircraft) Limited, and it describes itself as prototype experimental production machinists and 3-D copying specialists, electronic and mechanical fabricators and assemblers. It may be that from that description hon. Members are not fully aware of what the firm does, so I shall try to put it in the plainest terms. It is a medium-sized firm employing about 170 people including the office staff, and is engaged in highly sophisticated production techniques mainly for the aircraft and electronic industries.
This firm has had on order—and I have a copy of the contract here—for the past eight months, for delivery during the next few weeks, a unique type of vertical milling machine called a copying mill. This machine will be associated with a completely automated tape path control system developed by Ferranti. [Laughter.] I do not think that there should he any ribaldry over that. This firm is unique in its achievements and has few competitors in the world. I welcome the fact that a firm in my constituency is so advanced in the automation field that it is capable of engaging in this type of work.
I am informed that this machine is absolutely unique. None exists in this country, or, indeed, outside the United States of America. The machine costs a little over £40,000, and if, as a result of this impost, my constituents were to seek to cancel the order, they would incur a penalty of £10,000 under the penalty clause. That is a considerable sum of money for a small-to-medium-sized company. It is certainly not a sum which it took into account when it entered into the contract. With the installation of this machine Diac Ltd. expects to reduce to about six months processes which at present take up to four years. The machine is fully automated, and requires no additional labour force to operate it.
As I have said, my constituents are engaged in some of the most highly experimental and sophisticated subcontract work, mainly for the aircraft industry, working on such projects as the VCIO and TSR2, and also the Concord, in association with SudAviation. They are working on the very frontiers of technology, making equipment not for the aircraft age but for the space age. Surely it is wrong, by means of this indiscriminate surcharge, to penalise people like this. An extra £6,000 on the cost of this machine is not something which this firm can easily swallow.
A Government who proclaim their devotion to science and technology, and their application to our industrial processes, ought not to act in this way. Here we see the application of science and technology to industry, and yet this firm will be penalised if this impost goes through in the form contemplated.
Furthermore, the Government want more exports and we are absolutely with them in this, but here we have equipment of immense export potential and significance, the installation of which is being made more costly and more difficult. Again, we understand that the Government want to encourage automation and the most efficient use of labour resources. Why, then, must we hamper re-equipment which serves this very end?
Finally, I understand it to be the objective of the Government to reduce by their fiscal policies the pressure of demand at home. None of the products which this firm will produce is of a consumption kind. With the aid of this machine the firm will not produce things to sell in the shops. Therefore, it cannot be said that by installing these machines the firm will add to the pressure of demand here. Perhaps the Government would prefer Diac Ltd. not to import this machine. Perhaps they would prefer it to take the hint that it will have to pay an extra 15 per cent., and call the whole thing off. But would the Government feel that the £30,000 also saved, after paying the penalty for default, was an adequate compensation for the loss of an export potential and the failure to modernise plant and equipment?
My right hon. Friend made the point that the surcharge is said to be temporary. In recent days we have heard that its reduction, and possibly its total elimination, is to take place in a matter of months. We all hope that that is so, but if it is so, there is even less point in penalising the go-ahead, efficient firm, on which our industrial future depends, whatever the Government may be.
The truth is that we ought to be helping firms like this, not piling obstacles in their way. If the Minister could reconsider his proposals and work out a better set, we should be grateful. I do not profess to try to write them for him; I am only directing my arguments in favour of Amendment No. 20. If he could look at it again so that he could contrive a set of proposals which did not infringe nearly all the things which his Government believe in, I for one, on this side of the Committee, would be ready not to press this Amendment to a Division. I hope that, on reflection, the Minister will be able to say that he is taking this part of his proposals back to have another think about it and produce something less damaging to the progressive, efficient firms and to our national economy.
I do not want to weary the Committee, so I shall be very brief, but I would like to support, as simply and as quickly and as strongly as I am able, the arguments deployed by the right hon. Member for Taunton (Mr. du Cann). If I may, in parenthesis, offer congratulations as one West Countryman to another, I should like to take this opportunity of doing so.
Amendment No. 13, which is in the names of my hon. and learned Friend the Member for Montgomery (Mr. Hooson) and myself, is merely a device. We accept the Amendment proposed by the Conservative Party, No. 19, but it has been suggested that there are very real difficulties in applying this exemption. Therefore, my hon. and learned Friend the Member for Montgomery and I decided that this might be a way of making possible to make this exemption without undue difficulty or embarrassment for Her Majesty's Government.
I have had considerable experience over many years of the import and export business, on both sides of the Atlantic, and I am quite certain that by imposing this levy without warning upon all imported goods to this country with the exception of those which have appeared in the separate list, a great deal of hardship has been caused to a large number of small business people.
It is on that ground—perhaps only on that ground—that I would implore Her Majesty's Government to look at this matter again. It may well be that the larger companies can afford to take the loss, that they must accept to some extent the risks which are inherent in any business and which may occur at any time when new taxes or import duties are levied, but in this case it is an indiscriminate charge and it has caused a considerable hardship to a number of small business people, as I have stated.
I believe, therefore, that it would not only raise the stock of Her Majesty's Government in the country as a whole, but it would certainly be regarded as no less than an act of common justice if the Amendment—whichever Amendment it may be—can be accepted. Thus, many people will feel that their grievance has been removed, and I think that this would give great satisfaction to almost every section of the community.