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Purchase Tax (Stationery)

Volume 465: debated on Thursday 19 May 1949

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Motion made, and Question proposed, "That this House do now adjourn."—[ Mr. R. Adams.]

10.11 p.m.

Tonight I want to raise a matter the facts of which I do not think are disputable on any side of the House. It is the question of the evasion of Purchase Tax on stationery—a perfectly legal evasion—which has not been of serious consequence until quite recently. Before going into the details, I should like to say that, although I am a paper merchant, my branch of the trade, the wrapping paper side, is not directly affected by this matter, although my knowledge of the question arises from the fact that it deeply concerns an allied branch of the same trade.

In the Debate on the Finance Bill last year the hon. and gallant Member for Central Glasgow (Colonel Hutchison), in supporting an Amendment that was in my name, referred to the danger that was arising from the revenue point of view, of this perfectly legitimate evasion of this tax. I also referred to the matter in column 2121 of the OFFICIAL REPORT of 8th June, 1948. This evasion consists of two types. As is well known to the House, Purchase Tax is collected by manufacturers and wholesalers when they sell more than £500 worth of the commodity which is subject to Purchase Tax. But that does not apply, and it is not necessary, therefore, to register as a collector of Purchase Tax, if the firm buying the commodity does not buy it for re-sale but buys it for its own use. There are many such concerns who do not manufacture or sell Purchase Tax commodities.

The types of evasion open to such firms are of two sorts. First, the concern can manufacture stationery of various kinds for its own purposes, and for such a purpose, office machinery is in very considerable use. As is known, the term stationery covers a wide series of articles—not only letter headings and invoice forms, but account books and many factory forms and so on. Office machinery is capable, though in a much less efficient way, of producing many of these essential documents, and provided that the firm in question is not registered as a Purchase Tax gatherer on behalf of the Treasury, its goods are not subject to Purchase Tax.

The second form of evasion is one which is now largely increasing. Last year and during the war period this form of evasion was of little or no consequence. It consists of an unregistered user purchasing the paper, which is the raw material of the commodity subject to Purchase Tax, and sending it to a processor or convertor, who charges him for the work done upon the customer's own material. Thus, since the paper involved is not subject to Purchase Tax, the user can buy his paper free of Purchase Tax, and the conversion as such, except in one or two specified cases under the Finance Act, 1946, is not subject to Purchase Tax; he gets his conversion done without being chargeable to Purchase Tax.

I venture to say that the position, since the warnings were given to the Government a year ago, has become decidedly worse from the point of view of the revenue and the point of view of the inequity of this tax as between one user and another. We in this country produce practically all the printings and writings, which are the two types of paper which are mainly the subject of my remarks, and therefore the supplies are fairly adequate, and the licensing disappeared at the beginning of March. While licensing was in operation, these papers were canalised on the pre-war usage through the convertors and the processors, and outside buyers had little or no opportunity to get any quantity. Since March, however, not only has licensing disappeared, thus creating a freer market in this country, but prices this year have come down somewhat, and a buyers' market is tending to set in. It means that merchants and mills are more disposed to sell supplies to new buyers.

What type of buyer is coming into the market to avoid this tax? First of all, the great municipalities. As I said, this is perfectly legal; and I am glad they have the business acumen to do this. The London County Council, I believe, is saving between £50,000 and £100,000 a year by this means, mainly in educational stationery. Norfolk County Council, as the hon. and gallant Member for Central Glasgow mentioned last year bought a secondhand guillotine, saving three times its cost by chopping large-size sheets into small-size sheets, for which otherwise they would have been subject to Purchase Tax. I could mention many other local authorities, including Glasgow and Sheffield, that are doing the same thing. In fact, the "Teachers' World," in its issue of 14th July, 1948, drew the attention of the education officials of all the education authorities in the country to this method of evading tax. Many large banks, insurance companies and others are doing the same thing. It must in the course of this year make a deep impression on the amount of Purchase Tax collected.

It does seem unreasonable and unfair that one authority can get its requirements of this character at roughly three-quarters of the cost to a smaller local authority not so well placed to carry out the same procedure. Indeed, many large firms are doing this. A firm may buy £10,000 worth of stationery free of Purchase Tax by this method, while another firm, selling the same article that is subject to Purchase Tax, because it cannot avoid it in this way, has to pay £13,000, and for precisely the same quantity of stationery.

It is not permissible on an Adjournment Debate to say anything which would involve legislation. Many think that Purchase Tax should disappear so far as stationery is concerned, because it is becoming more and more inequitable as between the large and the small buyer. The small buyer has not the means of avoiding it as the large buyer has. A Member of Parliament buying 2,000 or 3,000 sheets of notepaper and envelopes, cannot very well avoid paying Purchase Tax, although he is an unregistered user, but a firm that can buy large quantities of this sort of stationery, can in most cases avoid the tax.

I believe that it would be possible to bring stationery within Purchase Tax in the processing, and although that has technical difficulties it would not, I believe, involve legislation. I think that at this early stage of what is becoming every month a bigger means of avoidance of the tax, we should have some expression of views from my hon. Friend the Economic Secretary, because I am satisfied that that great inequality will arise during the course of this year. Considerable diversion from the normal channels of trade is proceeding. There is a threat of unemployment in the printing trade and the Joint Industrial Council of the Paper, Printing and Allied Trades has written twice to the Chancellor of the Exchequer on this matter. The work-people in the processing trade are just as concerned as the masters that this diversion should not take place, and that there should not be a less economic form of production in the offices of this country than can be given by the printer. It is not fair or equitable that one type of user should be able to avoid the tax while another should be subject to it.

10.24 p.m.

I am, of course, engaged in the business of printing and stationery, and, therefore, I have a personal connection with this matter. I should like the House to understand that before I proceed further. I endorse wholeheartedly what the hon. Gentleman has said on this subject. The position has become completely farcical since paper is more freely available in the country to the general user. The printing trade as a whole, before the Budget, went so far as to prepare an elaborate circular which, I think, was sent to every Member of Parliament, pointing out that the payment of tax on certain forms of printing by non-registered customers was completely optional. I do not like to call it tax evasion; it is a matter of choice whether the customer chooses to pay Purchase Tax or not. I do not think that is fair to the potential taxpayer that he has his own choice whether he pays the tax or not. I suggest that a situation such as that is farcical.

My firm have been in close touch with the officials of Customs and Excise on this matter, and with their usual courtesy—they are a very courteous body of men and helpful in every way—they have collaborated with my people in making sure that any information which our customers may ask for, and do ask for, largely as a result of this circular and the general knowledge of the odd position of Purchase Tax with regard to stationery, is given to them. This statement has been prepared, and in fact has been vetted and passed by these officials so that there shall be no mistake.

As I understand it, it is normally better and more convenient for the purchasers of print to give the complete order to the printers to buy the paper from the merchant, complete the job and deliver it to the customer, in which case he pays the Purchase Tax at the present time. But if a non-registered customer goes through the more complicated and troublesome method of purchasing paper from one business entity and having it transferred to the printers to print on, he gets the job done, without paying Purchase Tax at all. That being so, it is the choice of the non-registered buyer of print whether or not he pays tax.

That surely must be farcical, and I urge the Economic Secretary to suggest to his chief that it should be done away with, because it is not fair to put traders in the position of virtually having to choose whether or not they pay Purchase Tax. In the printing trade, at least so far as I am concerned, we should like to have a hard and fast rule so that either everybody is liable to pay tax or nobody is liable to pay tax. It should not be optional on the customer to pay tax or not to pay tax according to the method he adopts in buying his paper and getting the printing done.

10.27 p.m.

My hon. Friend the Member for South-West Bethnal Green (Mr. Holman) and the right hon. Member for Epsom (Mr. McCorquodale) have not tonight argued in favour of removing Purchase Tax from stationery altogether, which of course we have the power to do by order. They have argued rather in favour of getting rid of what they regard as an anomaly as between those who buy stationery as such and those who buy paper in large sheets or rolls for conversion into stationery. The right hon. Gentleman says that at present it is optional whether the customer pays tax. It is, of course, optional whether the customer buys the paper in one form or the other, and one form is chargeable and the other is not. In a sense it is always optional on a customer, in choosing something which pays Purchase Tax or something which does not, to choose one of two different articles. In that sense it is optional whether he pays the tax, but that prejudices the argument a little.

Well, there is a distinction between the finished stationery and the paper in the flat, as I think it is described when it is bought at the earlier stage. One way of getting rid of the anomaly would be to abolish the Purchase Tax on stationery altogether. That, I am afraid, we cannot do, as the right hon. Gentleman will realise, because it would mean forgoing something like £20 million a year, which is a quite important part of our Purchase Tax revenue.

The alleged anomaly is, I think, that some users of stationery obtain it by buying paper in the flat, in which case they do not pay tax. It is suggested that this practice is increasing, with the object of tax avoidance. I prefer to call it avoidance, because it is perfectly legal, and can fairly be called that. We do not believe that tax avoidance is the main object, although it may be one object, of those who prefer to provide themselves with stationery in that way.

As I think both hon. Members know, many of the largest users, the banks notably, did in fact obtain their stationery in this way, partly by their own manufacture, before there was any Purchase Tax on stationery. The reason for that is that there are considerable economies to be obtained if the consumer purchases the paper himself, provided he can do it on a very large scale, as the banks can. I think it is unlikely in practice that if any change of tax were made that those now producing their own stationery would in fact refrain from doing so. According to our information the situation would remain very much as it is. In any case, it is only the larger users who have the resources to buy their paper in this way, that is, in the flat, and thus avoid tax.

For those reasons, we do not believe that the printers and stationers are in fact being hardly treated or seriously prejudiced at the moment by the working of the tax. I do agree nevertheless that it could be argued that, despite this, there is an anomaly which could in theory be removed, as I think the hon. Member pointed out, by applying the provision which we have for making this tax effective on processes in certain cases as well as on actual products. Of course, such action, if I am correct in thinking that the tax at the moment has little effect in diversion of trade, would not, whatever else it might do, benefit the printers and stationers in any way.

There are, however, as we see it, two strong practical reasons against invoking this processing principle. The first is that it would mean registering all the businesses which use office printing and duplicating machinery, as I think the hon. Member would agree. These are very numerous and are often very small businesses. As a matter of fact they often buy their paper in a chargeable state in any case, and the tax is therefore collected now. If they were to be brought within these provisions they would then have to buy their paper tax-free, and all these numerous small firms would have to account to the Customs and Excise for the tax value of the office stationery.

There would be further complications, because, as the hon. Member will know also, fully printed circulars and one or two small forms of paper are not chargeable and no tax would be payable on them. As a result of all that, so far as these small firms are concerned, a great deal of time and trouble and manpower would have to be expended both by them and by the Customs and Excise. In our opinion, little if any extra revenue would be collected as a result, because of course, many of them are paying tax to some extent now. This is just the sort of operation which, if we can, we want to avoid; for nowadays we want to collect as much revenue as we can in an economical way.

The second objection is that these processing provisions, if applied to stationery, would automatically wipe out the £500 exemption limit beneath which Purchase Tax is not chargeable. It could thus be said that, having got out of one anomaly, we had got into another. In this trade we would be levying tax on people below that limit whereas in other trades we were not. I think that, there again, we should be accused of being unfair. That, in itself, would increase the complications and the labour involved and so, in our opinion, the change would really mean a retrograde step at a time when we are trying to apply the principle of de minimis to all taxes and controls.

Therefore, I think that my hon. Friend, and the hon. Gentleman opposite, although they made out a substantial case at first sight for the existence of an anomaly, will appreciate that, at present at any rate, there is nothing serious in the practical effects; nor is there any practical remedy in our opinion which would not lead us into equal or worse difficulties.

Might I ask the hon. Gentleman whether he will undertake to watch the situation very carefully during the next few months, because a selling organisation, representing a group of British paper mills, say that if the tendency which has shown itself over the last few months persists, they will have to reconsider their whole sales policy.

Yes, we shall certainly watch the situation carefully; and if there is any factual or statistical information which my hon. Friend can show to indicate what is happening, we shall be glad to have it.

Question put, and agreed to.

Adjourned accordingly at Twenty-three Minutes to Eleven o' Clock.