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Clause 13—(Valuation Of Goods)

Volume 529: debated on Wednesday 7 July 1954

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10.0 p.m.

I beg to move, in page 9, line 18, to leave out from "seller," to the end of line 19, and to insert:

"mainly sells to persons whose purchases are substantially greater than those made by the majority of retail traders."
This Amendment implements a promise made in Committee to re-examine the working of Clause 13 (2), which was criticised during that debate. It introduces no change of principle, but merely provides more clearly that businesses who specialise in supplying stores and other big buyers are excluded from the subsection.

No doubt the hon. Member for Stechford (Mr. Roy Jenkins) will be glad to see that although the Clause, in its origi nal form, did not contain a double negative, the Amendment eliminates the negative altogether. It also meets the point raised by my hon. and gallant Friend the Member for Rochdale (Lieut.Colonel Schofield), who expressed concern about textile firms whose main business was with small people catering for the export trade.

The Solicitor-General is quite right in saying that the Amendment clarifies what the Government have in mind, as compared with the original form of paragraph (c) of subsection 2. In Committee hon. Members on both sides drew attention to its complete obscurity. Although now, by this draft and in the few words he has spoken tonight, the Solicitor-General has made clear what the Government are trying to do he still has not explained why the Government are doing it or what paragraph (c) is all about.

In the Committee, the right hon. and learned Gentleman most courteously spent much time explaining what he wanted the Clause to mean, but he did not go to any trouble to explain its purpose. My hon. Friends the Members for Blackburn, East (Mrs. Castle) and for Islington, East (Mr. E. Fletcher) sought in vain to find out what the Government thought they were adding to the Bill by paragraph (c), and all they got was a very welcome assurance from the right hon. and learned Gentleman that the matter would be considered again and that we should see it at a later stage if it was possible to make a better draft.

Now we have this allegedly better draft and it is clearer, but we have not yet been told why the Government find it necessary to have it at all. It was the hope of my right hon. Friend and myself that we could persuade the Government to drop this paragraph altogether, because it adds nothing to the Bill. Our Amendment to that effect was not selected and I should be out of order in discussing it now. All I would now ask the Solicitor-General, or whomsoever is to reply, is the purpose of the Clause, as it will stand when amended. This is a very narrow point.

As was stated in Committee, the Government, by including this paragraph (c) in its new, amended form, are raising a point which was not in the Grant Report. Throughout the debate on uplift and in Committee the Government have always said that they could not accept this or that Amendment because it was not in the Grant Report. They would stand foursquare on the Majority Report of the Grant Committee. The right hon. and learned Gentleman quite fairly said in the Committee that the present matter was not included in the Grant Committee Report, and that the reason he was putting it in was to eliminate—I think the word he actually used was "forestall" tax avoidance. The right hon. and learned Gentleman has not told us how that is to be achieved.

Under subsection (2), we understand, uplift will be retained, first of all in those cases where the price payable is lower on grounds of quantity and, secondly, in those cases where the trader in question is performing wholesaling functions or enjoys other special advantages—and the right hon. and learned Gentleman attempted to explain that; but now, with the proposed Amendment to paragraph (c), we have a third condition, which is that the seller must not sell mainly to big buyers.

What we do not know is how this will be defined. How do we measure the sales of the seller? How do we measure the size of the big buyer? What we think—and this anxiety may be shared on the other side of the House—is that it gives a great deal of discretion to the Customs and Excise in their application of Purchase Tax. There are bound to be big differences between one trade and another. There are bound to be big differences in the organisation of the retail trade and in the average sizes of purchases of some of the big buyers in one retail trade as compared with another.

It therefore seems to us that Customs and Excise will to some extent be bound to follow different rules and different standards in the application of this paragraph, which widens the area in which they are free to exercise discretion—and that is always a thing about which the House must be wary.

It is true that the right hon. and learned Gentleman has avoided some of the ambiguities and obscurities which shrouded the original draft. He seemed in Committee to be very concerned that traders might be tempted to make token or dummy sales to ordinary retailers at "phoney" prices. He has got away from all that in the new draft—we make no complaint about that—and it is clear that in addition to those who are cut out of the new uplift provisions on grounds of quantity sales, in addition to those who are cut out because they exercise wholesaling functions or enjoy other special advantages, there is now to be a third class of those who sell to big retailers only.

Had the right hon. and learned Gentleman attempted to tell us why it is necessary to have these three classes, I suppose he would have said that it was designed to help small shopkeepers. He has not told us that, however—although it is probably in his mind—but, as my hon. Friend the Member for Blackburn, East pointed out in Committee, in a very effective speech on Purchase Tax and uplift—which she said had been one of her preoccupations for some years—the small shopkeeper survives and is popular for quite other reasons. He survives and has his clientele because of the convenience of the situation of the small shop, the nearness to where people live so that customers can slip round the corner and buy what they want without having to pay the bus fare into the town or city or he survives because of the personal service given by the small shopkeeper.

Against those advantages, the big store can offer a wider choice of goods and advantages of large-scale buying. In the Amendment, the Chancellor—and the right hon. and learned Gentleman in commending it to the House—is saying that those advantages must be offset by the discriminatory tax.

What I do not think the House is clear about is why it is necessary to add this, because in paragraphs (a) and (b) the particular purchasing advantages, if they are held to be such are dealt with. They deal with the man who enjoys special purchasing advantages, and all the rest. For some reason, the Government want to get a particular kind of seller in order to make certain that the Customs and Excise can catch the sale at both ends. First, they found him in the obscure way in which we dealt with the matter in Committee, and now they find him as a seller who mainly sells to those who make big purchases.

The right hon. and learned Gentleman should explain why it is that such transactions are not brought under paragraph (a), and what is added to the Bill by paragraph (c). I concede that paragraph (c) is an improvement on what we had in front of us earlier, and, certainly, the improvement has been made in response to the criticisms both of my hon. Friends, and also of the hon. and gallant Member for Rochdale (Lieut.-Colonel Schofield), who produced some very obvious criticisms of paragraph (c) as it originally stood.

The paragraph is still very imprecise, and leaves a great deal of discretion in the hands of the Customs and Excise. Simply because it increases the area of what might be regarded as arbitrary taxation, it is right that the House should be very careful about it, and that we should have a far better explanation than we have had this evening of why the Amendment has been introduced, or why paragraph (c) is in the Clause at all.

With the leave of the House, I will certainly endeavour to give the right hon. Gentleman the answers to the questions he has put to me. I dealt with this matter pretty fully in Committee, and I thought that I had explained what paragraph (c) was intended to deal with. Because I did not wish to weary the House by repeating the explanation, in moving the Amendment I dealt merely with the drafting changes.

The first criticism made in Committee, which the right hon. Gentleman has repeated, was that paragraph (c) was not one of the recommendations contained in the Grant Report. Of course it was not. We know that perfectly well. We have never said that we would stick absolutely rigidly to the four corners of the Grant Report, as the right hon. Gentleman suggested. We said that we would adhere to the main lines of it, and this paragraph (c) follows from the recommendations of the majority in that Report. It follows, and has to follow, if effect is to be given to those recommendations.

The right hon. Gentleman started by saying quite accurately that paragraphs (a) and (b) set out two of the conditions which have to be satisfied, namely, that the goods have to be bought in normal retail quantities, and, secondly, that the retailer performs no wholesale functions and has no special buying advantage over the generality of retailers. I quite agree that paragraph (c) imposes an additional qualification, namely, that the supplier mainly sells goods in the normal retail quantities, but that is also a factor which affects prices. To give an example, a manufacturer who specialises in selling to a few big stores can usually sell much more cheaply to the small retailers because he recovers his overheads on the large orders and avoids the risk of catering for the general retail trade.

10.15 p.m.

As I think I made clear in Committee, this paragraph (c) is necessary for two reasons. First, the one to which the right hon. Gentleman has referred, the necessity of forestalling tax avoidance practices under which suppliers to the big stores might make token or dummy sales to small retailers with a view to avoiding uplift. That is one object. The other is to see that the manufacturers or wholesalers who cater for the big stores are not put in the same assessment category as those who cater for the general retail trader and incur greater distribution costs.

I hope that I have explained to the right hon. Gentleman the object of subsection (2, c). He has criticised the wording of it but it is desirable that there should be some measure of flexibility. The wording of the Amendment now is that the seller
"mainly sells to persons whose purchases are substantially greater …"
"Mainly" is a word which is frequently found in tariff definitions and in practice has not given rise to any difficulty in application. It will usually be taken a; relating to whether more than half the supplier's home trade in the class of goods being valued is with the ordinary retailer or other small buyers though his trade in other goods may also be taken into account if it affects the price; and "substantially" is necessary so that the supplier will not lose the benefits of subsection (2) merely because he sells in quantities only slightly above the average sales to retail traders generally.

I have replied to the questions which the right hon. Gentleman has put to me about the reasons this subsection is necessary. I have only repeated what I said about that in Committee. So far as the Amendment is concerned, the right hon. Gentleman recognises that it is an improvement on the original wording of the Bill, and I entirely agree.

We are not worried about the word "mainly." It is often found in statutes of all kinds and frequently in Customs tariffs; but surely the rest of the Amendment is much more vague. It does not say, as the right hon. and learned Gentleman seemed to imply, that the seller mainly sells in quantity. It states:

"mainly sells to persons whose purchases are substantially greater …"
Surely that is very vague. "Mainly" is a good working definition, but surely this must mean that the Customs and Excise Department will have a great deal of discretion in deciding whether the purchases of a retailer are or are not
"substantially greater than those made by the majority of retail traders."
and whether a particular seller is mainly dealing with people whose purchases are
"substantially greater than those made by the majority of retail traders."
I hoped that the right hon. and learned Gentleman would deal with that point, which is still very vague and imprecise.

Would it not appear that this provision is necessary where retailers who have a great number of retail shops buy centrally, so that the purchases by central buying can, therefore, be treated as not being normal retail purchases? That would seem to be desirable, and if that is what this is intended to cover I think it desirable and necessary.

I should like a further explanation from the right hon. and learned Gentleman. I am not denying that the Amendment is an improvement on the original subsection, in that it makes it positive rather than negative. It retains the word "mainly" which the right hon. and learned Gentleman attempted to define, but it does appear to be a case where this admittedly vague phrase is determined in practice by the Customs and Excise officers.

To adduce the evidence, may I remind the right hon. and learned Gentleman of the criticism that was made of this particular phraseology in Committee? I should like to direct the attention of the right hon. and learned Gentleman, as I have already directed the attention of the Treasury, to a particular case. It is said that "mainly" means more than half. But, in practice, that is by no means accepted in the application of this Clause. Outside this Chamber "mainly" apparently means "preponderantly, overwhelmingly"—not a particular percentage, but 80 per cent, to 90 per cent.

In Committee we argued about manufacturers engaged in trade and the amount of their trade distributed as between wholesalers and retailers. It was mentioned during that discussion that a working arrangement had been arrived at between the trade concerned and the Customs and Excise, whereby, in the case of a firm with more than a certain number of retail accounts and whose overhead costs came to a certain percentage, the Customs and Excise readily brought them under this Clause.

But, again, we come up against this word "mainly." Although the Customs and Excise arrangements, in their negotiations with the manufacturers concerned, related to 250 retail accounts, in this instance to which I have drawn the attention of the Department there are 1,200 retail accounts, as well as accounts of makers-up amounting to 600. Yet they are excluded from the operation of the Clause because of the word "mainly."

Another case on which negotiations were conducted between the Customs and Excise on these vague generalities concerned a firm 60 per cent. of whose products went to the Australian export market and 40 per cent. to the home market, until we had the stoppage of Australian exports. Unfortunately, the export trade dropped, so that the percentages were 40 per cent. export and 60 per cent. home market. It is not clear, even at this stage, although those percentages may vary month by month—

If I may interrupt the hon. Gentleman, the question of exports does not enter into this matter at all. There is no Purchase Tax chargeable at all in the case of registered firms who are exporting. Therefore, the hon. Gentleman is confusing the issue.

I have not made myself clear. I am not concerned with the question whether Purchase Tax is or is not paid. The assessment is made not on the payment of Purchase Tax but according to the proportion of home and export trade. If only 40 per cent. of one's manufacturing products were consumed at home and the Customs and Excise authorities made an assessment on that basis, it is obvious that one has suffered.

I suggest to the right hon. and learned Gentleman that although the Amendment improves the Clause it still does not satisfy the needs of firms in this difficulty, and it will certainly enable the Customs and Excise authorities to make an arrangement—euphemistically called a voluntary arrangement—with a firm for the payment of Purchase Tax at 40 per cent. Leaving out of account the question of production for export, I suggest that the Amendment needs to be re-examined, because it will still enable the Customs and Excise authorities to enforce the payment of Purchase Tax. The Amendment should be looked at again to meet the objections which I have mentioned.

Until the hon. Member for Gillingham (Mr. Burden) spoke I thought that I was fairly clear about the position. The hon. Member for Gillingham appeared to confuse the situation completely by suggesting that the Amendment was designed to deal with a situation where a large retailer was using a central buying organisation and arriving at an advantage as a result. I hope that that is not the position. I thought that that was dealt with by paragraphs (a) and (b), and that the Amendment was designed to deal with the situation where the seller, through an efficient method of distribution arising from an association with large retailers, is able to do something, quite independently of the retailers, at a lower cost than he would otherwise have been able to do it.

If I am correct in that interpretation of the position we ought to appreciate just how far we are leaning over backwards to help the small shopkeepers. We are saying not only that the big retail stores enjoy the advantage of buying large-scale purchases by virtue of doing their own wholesaling but also, that if the seller is able to do things slightly more cheaply and efficiently because the majority of his customers are big retailers—even though he is selling to some small retailers at the same advantageous price—he is still to be penalised further by having uplift placed upon his sales. If that is so, it makes the position better than it was under the Bill as originally drafted, although it is not really satisfactory.

10.30 p.m.

My hon. Friend the Member for Carlisle (Mr. Hargreaves), with his practical experience, made a very valuable point of which the Government must take notice. The best that can be said for the Amendment is that it is some improvement on the words that stood originally in the Bill, which we criticised so successfully in Committee. All that the Solicitor-General has done has been to repeat in very much the same language the speech which he made on 26th May, when he commended the original form of words which, because of our criticism, have now been withdrawn.

The Solicitor-General has added nothing of substance to what he said then. What is even more serious is that he has repeated something to which I take violent objection. He said that there must be a measure of flexibility in this matter. As my right hon. and learned Friend the Member for St. Helens (Sir H. Shawcross) has said, that is something which ought not to be in legislation of a quasi-penal nature. The Government must take the trouble of putting their legislation in clear, precise and definite a form as possible.

It is really shameful that the Government should produce legislation of this kind. It is even more scandalous that a Law Officer of the Crown should justify it on the ground that there should be a measure of flexibility. I was brought up to believe that the cardinal principle of our jurisprudence was that the law must be clear and intelligible. The Government are going entirely against that principle.

What is the result of the Solicitor-General's clamour that there should be this flexibility and that this provision should be expressed in loose, ill-defined words? Does it help him? Does it mean that because the provision is loose and flexible the taxpayer is to have a disadvantage? If that is the Solicitor-General's idea, I hope he is profoundly mistaken. The Commissioners of Customs and Excise will have to take notice not only of what the Government show to be their intentions, but of the comments of my hon. Friend the Member for Carlisle, Surely the result of this flexibility must be that the benefit of any doubt must be given to the taxpayer and not to the Revenue. Therefore, I should have thought that from the Solicitor-General's point of view it defeats the object which he wants to achieve of having the law clearly understood and, therefore effectively administered.

We, on this side of the House, are obviously in the procedural difficulty that we cannot very well vote against the Amendment in its entirety, because we think it an improvement on the original words, though it is not very much of an improvement since it still contains very vague words such as "mainly," and "substantially greater," and nobody knows what that means, and "the majority of retail traders." Does that mean a majority in numbers or in value or in a particular industry?

In form, the Solicitor-General is moving an Amendment to leave out all the words in subsection (2, c) after the word "seller." We have on the Order Paper an Amendment, which has not been called, to leave out all the words in lines 18 and 19 of the Clause. I would have preferred to have left them out; and if it were possible I would have voted to have left out all the words proposed after "sellers," but I would not support the words that the Solicitor-General wishes to insert. If I did that, the result would be that subsection (2, c) would read, "that the seller." I do not think that that would be any more ridiculous than the words the right hon. and learned Gentleman has proposed.

Amendment agreed to.

I beg to move, "That further consideration of the Bill, as amended, be adjourned."

We have made considerable progress today. We have dealt with all the new Clauses, and completed the Amendments as far as Clause 13. When I looked at the Order Paper yesterday, I thought it doubtful whether we should get through the new Clauses on the first of the two days, and still less that we should get so far in the Bill. We pass next to Clause 16, which deals with investment allowances, on which we have two important Amendments, but I feel it would be much more appropriate to consider them tomorrow afternoon. There is not much more ground to cover before we complete the Report stage, and in the circumstances I hope the Chancellor of the Exchequer will accept the Motion.

I understand that if this Motion had not been moved we would have reached the Amendment to Clause 16, page 11, line 19. It is true that we have made good progress but the Government would have preferred to make further progress tonight for the reason that they want to be absolutely sure of reaching the other business down for tomorrow night at the reasonable hour already defined by my right hon. Friend the Leader of the House. We do not expect to be longer than about 8 o'clock in finishing this stage, making allowances for the normal difficulties of navigating. If we could have that understanding, as far as an understanding can be reached on such business, I am perfectly ready to agree to the Motion.

It may well be taken as reasonable, if the right hon. Gentleman does not rise to correct me, that we should achieve that business at the hour I have mentioned. That will enable us to take the business without keeping the House late tomorrow night, which we have no desire to do. Thus we could do two evenings preserving our tempers and without ruining our constitutions. Pending any unfavourable news which may break in, it would not be a bad thing for the House to rise early to enable us to regain our constitutions and physiques. Subject to human fallibility, I suggest that we accept the Motion.

Question put, and agreed to.

Bill, as amended (in Committee and on recommittal), to be further considered Tomorrow.