J W Booth AUTOBIOGRAPHY c13

Chapter 13 Value Added Tax in Theory.
Democratic governments have always had to walk a tightrope between political expediency and case of collection when selecting items for indirect taxation, or so I have always been led to believe. Now I am not so sure that there is any real conflict in this. C1ear1y it is easier to collect a tax from a few large outlets than from many small ones, but such a tax must still be paid by a wide spread of the population at large. However, it is politically desirable to avoid stressing this latter aspect. Nothing is certain except death and taxes, but people do not like being reminded of the second any more than the first.
I doubt if anyone has ever devised a worthwhile tax on the few, although I am sure it would be popular with the many. Income tax and surtax on the very rich rose to about 96% in the immediate postwar period but never yielded any significant revenue. People who were that rich either emigrated or used their surplus money to avoid the tax rather than to pay it.
If any political party found a means of financing a country by taxing only a third of the voters they could remain in power for ever. Any opponent, who proposed to cut the rate and spread it fairly by taxing everyone, would be defeated by a margin of two to one. The present uproar over the Community Charge- in 1990 - has much less to do with fairness and the plight of the poor, than with the fact that many of those quite comfortably off have long avoided rates by living in other peoples houses and will now have to pay. For them it is not a question of whether the charge is greater or less than the rates were. Their rates were nil.
Traditionally Customs and Excise duties have been pitched at high rates for economic reasons and successive Chancellors have sugared the pill by concentrating on items which can be shown to be harmful if consumed to excess. Thus the two old faithfuls, Tobacco and alcohol are taxed at swingeing rates, justified by a pretence of price-rationing, but actually dictated by purely revenue considerations. This is one of the innumerable cases where public statements conceal real motives.
I remember one budget which raised the duty on spirits but lowered it on beer. The government proudly claimed that it had cheapened the working man's pint while soaking the bloated rich who drank spirits. In fact, beer consumption had fallen in the previous year while spirit sales were going up. In the following year, the reduction in beer duty was more than offset by a rise in consumption and the upward trend on spirits was maintained. Thus the tax yield for the year was up on both commodities.
On tobacco in particular, governments have always been in the cleft stick of revenue versus public health, Even if tobacco causes lung cancer, the duty on it used to be enough to fund the entire national health Service, whatever the ministry of health might say, the Customs and Excise didn't care how many people smoked and drank themselves to death as long as they did it duty-paid. But there was a limit to the amount one could charge as both tobacco and alcohol are non essentials which people may take or leave alone, as they choose.
The duty on road fuel, which started as a means of funding road building and maintenance, has long been an important source of general revenue and remains so. Commerce cannot do without it and a private motorist is hardly likely to cut down on the use of a car costing thousands of pounds, because petrol duty has gone up a few pence a gallon, hydrocarbon oils now yield more than spirits or tobacco, but all three, plus odds and ends like entertainment and betting duties, are not enough. A broader basis had to be found.
Purchase Tax, which had started as a wartime measure to price-ration very limited supplies of luxury goods, was first adapted to assist the Government to cope with postwar shortages. When these shortages had been overcome it became a pure revenue-earner. Rates varied between 125% and 33% ad valorem and it was no longer restricted to luxuries, most furniture was taxed at 33%, clothing at 66% and, for a time, ordinary electric fires at l00%. This latter measure was designed to cut down demand, not so much for the fires, as for electricity itself, as generating capacity was overloaded.
Manufacturers and wholesalers were registered with the Customs and Excise and could sell to each other free of tax. Purchase Tax became chargeable on sale to an unregistered person, such as a retailer, and had to be collected by the seller and paid to the revenue quarterly, all the returns being checked by visiting officers. The value for tax was the wholesale/retail price, which was all very well where a wholesaler actually sold to a retailer. Then manufacturer sold direct to a retailer, or even to the consumer, we ran into endless problems of 'uplift' or other adjustment of the price charged.
There was also great scope for argument about liability in borderline cases, compounded by some of the most bizarre official rulings that ever came out of King's Beam House. The wretched officer had to try to justify such rulings to the uncomprehending trader even when he was equally baffled himself.
Furniture was chargeable but builders fittings were not, which led to the invention of two-legged tables and backless wardrobes designed to be fixed to the wall. Floor coverings generally were chargeable: but if linoleum was cut into squares below a specified size, it was deemed to be free as tiles. I never discovered the reason for this odd arrangement, but the effect was that shops, hote1s and other large buildings all took to using lino tax-free in this form. Only hospital authorities, who could not accept the risks to hygiene posed by tiles, used it in the roll and paid tax on it.
Candles used for 'personal or domestic purposes' were charged, and the Board mysteriously ruled that this included those used by the Church of England but not by the Jews or Roman Catholics. I put it to them that, while not wishing to favour the established church, it seemed wrong to discriminate against it. I further pointed out that some of the candles in question were; made by disabled persons in Middlesbrough and were actually about four feet long. I could think of no domestic purpose to which they could be put and refused to even speculate about personal use.
After a hilarious correspondence they gave in and said any candles deemed unsuitable for such uses, in the opinion of the Surveyor would be free of tax. I freed the lot and that was that.
I recall that in the early days of P.T., retailers used to quote prices and tax separately, £50 plus £10 Purchase Tax, for example. The idea was to say in effect, 'I'm only charging £50, its not my fault if the greedy Government takes £10 on top of that'. The practice was quickly dropped, partly because it enabled anyone who knew the tax rate to work out the retailer's profit margin, but chiefly because the customer just did not like having the tax stuffed down his throat, he preferred to pay a tax-inclusive price and forget it.
Value Added Tax was, I believe, a French invention, 1ike the guillotine. The Board never really liked it and in the late sixties, a report was issued indicating that an extended form of Purchase Tax was to be preferred! A couple of years later, when the political pressure to line up with Europe on the point had become irresistible, there was a further report, based on much the same premises as the first, but reaching the opposite conclusion. VAT had arrived, and I was one of the fortunate few who were able to see a brand-new tax come out of the egg, so to speak. The effect on the Customs and Excise was rather like a cuckoo chick taking over the nest of its smaller foster-parents.
The first move was to set up courses for a number of 'corps instructors' who would spread the gospel through the staff generally and then become founder-members of a country-wide network of Local Vat Offices (L.V.O.'s.). Concurrently, Assistant Collectors destined to command these offices were given three-week courses in London. Each L.V.O. was, of course, to form part of the Collection in which it was located, but some Collectors feared that the Assistant Collectors would become too independent. A proposal to call t h e latter Vat Controllers was abandoned, partly for this reason, but chiefly because someone pointed out that they would inevitably be confused with the Fat-Controller so well-known to the readers of Thomas the Tank Engine. Most of the Department's top brass seemed to have known him from their cradles.
Vat differed from P.T. in that it covered a much wider field including both goods and services and was charged piecemeal on each transaction, instead of in one sum at a specified stage.
Take a simple case of a wooden table manufactured from £10 worth
of materials. P.T. rate 25% on the finished article; Vat rate 10% on both the materials and the completed table.
PURCHASE TAX.
Registered manufacturer sells the table to a registered wholesaler free of P.T. for £50. Wholesaler sells to an unregistered retailer for £80 plus £20 P.T. Retailer sells to customer for £130 made up of £80 cost to him plus £20 P.T. plus £30 profit.
The wholesaler includes the £20 in his quarterly return to C.and E.
VALUE ADDED TAX.
Registered manufacturer buys materials for £10 plus £1 Vat. Registered manufacturer sells table to registered wholesaler for £50 plus £5 Vat. Registered wholesaler sells to registered retailer for £80 plus £8 Vat.
Registered retailer sells to customer for £110 plus £11 Vat.
All three registered traders make quarterly returns to C.and E,
balancing the Vat they have paid to their suppliers (Input Tax) against the Vat collected from their customers Output Tax, and paying only the balance. Thus only the final £11 paid by the customer 'sticks' and remains "in the revenue, being l0% of the final tax-exclusive price.
The fact that I give this as the simplest case, without any sarcastic intent, shows just how simple this new tax was not.
Since most goods and services became Vatable, it follows that hundreds of thousands of traders had to be registered and the
Departments workload was vastly increased. It was claimed that there would be savings on valuation, which did materialise, and on liability problems, which didn't.
For a start we were given an insight into the mechanics of setting up a legal basis for the now tax. Devising the necessary Act of Parliament was the function of a senior lawyer called the Parliamentary Draughtsman. The Customs and Excise specialists explained what they wanted and the draughtsman produced a form of words which he considered met their requirements.
Because it was intended to spread the net as widely as possible, no attempt was made to list the goods and services to be charged at the standard rate of Vat. Instead, only the exceptions to the ru1e were defined, and listed either as zero-rated, a new concept, or exempt. Zero-rated items were regarded as chargeab1e so those dealing in them were to be registered and thus able to reclaim any input tax paid by them. Anyone dealing only in exempt goods or services was not registered and could not recover such tax. Those handling partly exempt items and partly chargeable ones were registered, but their entitlement to repayment of input tax was restricted. To enforce such restriction was so patently impossible that concessions were soon made which practically did away with the conception of partia1 exemption.
The Department apparently queried various items on which the proposed clauses might not meet their intentions. Marine salvage services, for example, were to be zero-rated, but salvage work on land, recovery of wrecked vehicles on the motorways and the like, standard rated. As drafted the clause simply said “Salvage” but the draughtsman explained that this word, used in an Act of Parliament without qualification, meant marine salvage only. He was right, of course, and the point has never been challenged.
On a number of other points he was less positive, saying that, in his opinion, the effect of the words used was that intended, but, if he was wrong, the matter could be clarified in the Courts. He was right about that too, and we finished up with a great deal of expensively acquired case law from both the said Courts and special Vat Tribunals. When it came to reading obscure and convoluted meanings into what looked like a simple form of words, the latter frequently began where the hair-splitters of the Board left off.
It occurs to me that if anyone ever succeeded in drafting unambiguous laws, he would be the ruin of the legal profession, but while the drafting is done by lawyers, I’m sure they have nothing to fear.
Since it is politically impossible to tax everything, most food and other basic necessities were zero rated and we soon realised that borderline cases on liability were likely to be at least as numerous as they had been on P.T. Many of them were old favourites including the builders’ fixtures.
The Department resisted zero rating children's clothing, which had given us so much trouble on P.T., but were overruled in the House. Not that, the Customs and Excise really cared whether or not such clothing bore tax. They were concerned about the weakening of the control of the clothing trade as a whole. Liability of most items depended on size limits for children. This was difficult enough to establish by measuring the garment, when little girls' knickers were bigger than their mothers' except when being worn, and officers had to measure them in stock, not in use. But we could live with this, and take the rough with the smooth when small women wore childrens' sizes and big girls wore adult ones. The real problem was that most
official checks were made on paper records after the goods were
long gone and the scope for fraud by misdescription was unlimited. The one Purchase Tax problem that Vat did solve was valuation. By it’s nature Vat could only be charged on the basis of the actual
price at each stage. If A sold cheaper than B, B's customers paid less tax and that was that. When you got into the realms of part exchange, of course, it could still get a bit hairy, but you can’t win them all.
Having grasped the rudiments of Vat, in so far as it had been defined, we were scattered all over the country to set up the machinery to register and control tens of thousands of traders in each area. We also had to sell the whole idea to the community at large. They greeted it with a mixture of horror and incredulity.
Chapter 13(b. Value Added Tax - Setting it up.
When the late George Formby sang the line, 'For a Nosey Parker, it’s an interesting job' he was referring to window cleaning, but it is equally applicable to Customs and Excise work. This was varied and interesting in itself, but I always felt that the scope it provided for shoving your oar into other people's trades was its real charm. Purchase Tax had added many new activities to breweries, distilleries, oil refineries, sugar factories and the rest, but Vat brought in nearly everything. Before we got to that stage, however, I had to cope with two problems. Setting up and staffing a new office and lecturing trade bodies about the new tax. As a by-product of Vat there was a large increase in C. and E. staff, I a1so found myself sitting on a selection board for recruits in the Newcastle area.
This board was chaired by a retired Assistant Secretary, backed by three other members, a retired Principal, one of my Surveyors and me. The Principal bad a tendency to act the Devil's advocate and urge the merits of any candidate I didn't fancy, but after the Chairman had mentioned that he was only empowered to pass such as were acceptable to the C. and E. representatives, we got on fine. ;
The applicants were mostly of mature years already in employment, many getting higher salaries than we were offering, but attracted by security or tenure and the hope of promotion. Shades of 1938! Some were quite lyrical about their present jobs and qualifications but few had any idea of the nature of the work they were seeking, most of them had a vague idea that they would be working in Vat, but even this was not true, as they were being recruited into the Department in general, not Vat in particular. We rejected one who sold himself to us so well that we thought he should remain in the sales job he already had, the principal dissenting to no avail. On the other hand, a colliery shot-firer who had never done a clerical job in his life struck us all as the best man we had seen, and we accepted him with alacrity
Women were not excluded but I do not remember any. I do remember one who appeared before a board for promotion from Clerical officer to Executive Officer in the Civil Service generally on which I sat in Edinburgh. It was the end of a very wet week in November and she was our last victim on Friday afternoon. She was a very ordinary looking girl from Cowdenbeath, of all places. We were in two minds until the Chairman asked her the mandatory question about recreations. She hesitated and then said, 'I do a bit of shooting'. Startled, the Chairman asked, “How did that come about” With unanswerable logic, the candidate replied, 'Well we got this puppy one Christmas, and when it grew up, someone said it was a gun-dog, so I bought gun and learned to shoot'. 'What do you shoot we asked. 'Oh, rabbits, hares, birds, anything that comes near enough'. She got in by a landslide.
Concurrently, we found a vacant Government office in Newcastle and set up shop. I also had to face the dread prospect of public speaking.
Although I have always had a tendency to talk too much, as my few friends will testify with tears in their eyes, I had never spoken in public, except to make feeble contributions at Federation councils. I didn't much like the prospect of making my debut on an unpopular subject before a hostile audience. As so often in life, the most daunting prospect turned out to be much less formidable in practice. Nobody was an expert on Vat at first, but I could be confident that my audience knew even less about it than I did. We always pointed out that it was the Government, not the Customs and Excise, who had imposed it, and that we were only required to launch it and make it work. If they didn't like the baby, it was unfair to blame the midwife rather than the father.
We always stressed the point that Vat, like all indirect taxes, was paid by the consumer and registered traders were required to collect it on our behalf. When I told Mike Neville, a freelance broadcaster in Newcastle, that this made him a tax collector rather than a tax-payer, he said that was the nastiest thing anyone had ever called him. Mr. Neville, who was as charming in the flesh as on the screen, was only joking, but many other traders took this point quite seriously and even demanded payment for their services.
At a large meeting of the Chamber of Commerce in a cinema one man said, 'This makes me a part-time tax-collector, and I want to know what I shall get out of it'. In rising to reply, I said in an audible aside, “Well I've been a full time tax collector for more years than I care to remember, and I don't get all that much out of it myself'. This crack was well received, and I went on to point out that there was nothing new in the collection of taxes by traders. We didn't collect beer duty in the pubs. Brewers had always collected it and they had to hand it over on the due date, even if they hadn't sold all the beer concerned by then.
Quarterly Vat returns were timed to allow an interval for bills
to have been paid and in practice most traders got a short period of interest-free use of the money, moreover, there was limited provision for waiving Vat on bad debts. Regular repayment traders made monthly returns to minimise the time for which the money was laid out, so for the first three months we achieved the near impossible feat of running a tax at a loss. Luckily this didn’t last long.
The commonest trade complaint was that, although official checks were to be based on their existing records, they would be forced to incur expense in bringing these up to standard, buying accounting machines and paying accountants. The latter, who stood to make a killing out of Vat anyway, built up these fears for their own ends and one accountant actually complained to me that my officers were taking the bread out of his mouth by explaining the tax to traders for nothing. I said that, as the Board had provided these officers at heavy expense, they wore unlikely to call them off at his behest, and I wouldn't either.
During this period Vat was prominent in the newspapers and on the who1e we got a very good Press. About the only time we ever did. The very first lady Commissioner of Customs and Excise paid us an official visit and was photographed in my office. Mindful of protocol, I carefully explained to the reporter that I was only the Vatman and that the Collector was my boss, having control of all C. and E. matters locally, including Vat. For the photograph the Collector was on one side of the Commissioner and I was on the other. To my horror they printed it showing only the lady and I. If the Collector suspected me of complicity in that he never said so.
A press report of one public meeting referred to me as 'an amiable civil servant'. I gleefully circulated the cutting for the benefit of any of my staff who had mistakenly supposed that I was a miserable sod.
Soon after Newcastle LVO was set up, chances of promotion to Deputy Collector arose at four different places and I applied for all four in order of preference. My fourth choice was Glasgow, so naturally that was the one I got. In a farewell speech, I said that, having launched Vat on Tyneside and seen it on its way, labouring heavily and taking in water at every seam, I was now departing hastily before it sank. Like the man who sold a horse which dropped dead soon after, I could then say, 'How was I to know. It never did that when I had it'.