The hon. Member for Stechford (Mr. Roy Jenkins) really asked this question: will a cut in the rate of tax on companies be in the best interests of the nation? I think that is a question which I should try to answer. I should like to answer it from the business man's point of view. I probably cannot put my case as fluently as the hon. Member for Stechford put his case, but I should like to set out the case as the business men see it and as they see the operation of the 6d. reduction in the standard rate of tax.
I am putting the point of view not of the great corporations but of the smaller business men—units employing, say, fewer than 1,000 people—who are the majority of the employers in this country. They still have the ownership and direction of their business in their own hands, and personal contact between the owners and the directors of the businesses and the workers is direct.
I would remind hon. Members that businesses of that nature can have new capital only for expansion either from the resources of the families engaged in them or from what is left over through profits after they have paid taxation. On the point that is often made that a reduction in taxation will increase dividends, that does not apply to that sector of our economy, because there are no dividends, and on the point that may be raised that it would induce the owners to increase their own drawings, my experience would tend to make me believe that that would not be so since they themselves are pay- ing so much in personal taxation. To those people the 6d. reduction is of vital importance, and on their behalf I welcome it and thank the Chancellor for it.
The right hon. Member for Leeds, South (Mr. Gaitskell) put the point this way on 20th April:
There is not the slightest doubt that companies are once again the favourite children of the Chancellor. On his own admission, they receive£40 million—I am told that the actual figure is£45 million—out of the£100 million which these changes in the standard rate and other rates will cost, if we exclude the allowances."—[OFFICIAL REPORT, 20th April, 1955; Vol. 540, c. 198.]
I should like, as far as I am able, to try to answer the point, because that really is the issue between us. Will it be a bad thing or a good thing for the nation that the£40 million which the right hon. Gentleman calculates will go to private companies should be given to them? In passing, I would say that the Chancellor is not giving largesse to the companies to the extent of£40 million; he is merely taking from them£40 million less than he was taking previously. The private trader has earned that money in straightforward and open competition.
The right hon. Member for Leeds, South asked whether that was the right or the wrong thing for the Chancellor to do. Both sides of the Committee ought to be clear on this matter. We are all agreed that a mixed economy such as we have today must continue. Only the Communists want full-blooded nationalisation of everything. If that be so, and I understand that at present the mixed economy consists of 80 per cent. private enterprise and 20 per cent. nationalised enterprise, it must be in the interests of the whole nation, including the workers as well as the smaller taxpayers, that the 80 per cent. private economy should be kept in the highest state of efficiency.
Incidentally, I would remind the right hon. Member for Leeds, South and other hon. Members opposite that it is the private sector which has the most difficult task in the whole economy. It is the pricate sector which has to face competition in both the home market and the export market. The nationalised sector, consisting of coal, gas, electricity and transport, on the whole represents sheltered industries.
At present, those of us who are engaged in trades where we have to try to sell abroad are very conscious that competition, from Germany in particular, is increasing considerably. The Germans had many of their factories destroyed during the war, but they have rebuilt them and have some very fine modern factory layouts, and those factories are filled with the most up-to-date machinery. We shall increasingly feel the competition from the products of those modern factories. This is true not only of Germany, but also of Japan and Italy.
On the other hand, far too many of the factories in this country are between 30 and 50 years old. A few weeks ago I sold a factory which was 100 years old. I was very glad to get rid of it. I got a very good price for it. One of the greatest needs of industry today is modern factories. During the war industry had to bear 100 per cent. E.P.T. plus Income Tax at 10s. in the£, and there was not a great deal left to meet the charges for modernisation and re-equipment.
Therefore, as a business man, I welcome the 6d. reduction, and I can assure the Chancellor that by business friends—I am speaking mostly for men in medium-sized businesses—will use the reduction to good advantage for the benefit of the nation. Provided that the bigger companies do not distribute the benefit in increased dividends, which I am sure they will not do, this cut can obviously be of benefit to the whole nation.
I will give an example from an industry with which I am associated to show how the 6d. reduction will help. We are faced with three main expenses. First, there is the very difficult problem of paying for new machinery. The Midlands hosiery trade could buy a circular knitting machine pre-war for about£250. Today, such a machine costs about£1,100; it is true that it is rather different but, on the whole, it does the same sort of job. It is true that we can write off the original cost of£250, but we have to find new capital for the remaining£800.
If we are to compete in America, we must continue to have the finest new machines, so we want the Chancellor to leave us with as much of our profits as he can to enable us to reorganise and re-equip our factories. To that extent the 6d. reduction is fully justified, I support it with very great pleasure, and I am very grateful to the Chancellor for it.
Our second burden is that it is costing us about four times as much to carry our raw materials. Before the war our Merino wool yarn 64's cost about 3s. 6d. per lb. Today, they cost 14s. or 14s. 6d. per lb. Therefore, to carry the same volume of work in progress and in stock we need four times the amount of capital. I am again speaking of the small and medium-sized family businesses. Where will the extra money come from to enable them to do the same work, if we are not to be allowed to have a little more of the profits which our trade has legitimately earned? Again, I am grateful to the Chancellor for the 6d. reduction.
The last charge is perhaps the worst. One of my factories is having a new wing added to it. The cost is almost fantastic when compared with pre-war. The cost of building a modern factory is very great. Also, it is not possible to get a firm price for the work because the contract is subject to changes in labour and raw materials costs. We estimate that the cost of the work will amount to about 70s. per square foot; it is an enormous task for a medium-sized manufacturer to build a factory of any size at such a price. Where will the men running the smallish family businesses get the capital with which to keep themselves up-to-date unless more is left to them from their profits? These three factors are present not only in the hosiery trade, with which I am concerned, but in the general trade throughout the country.
I would remind the right hon. Member for Leeds, South that the private sector of industry is 80 per cent. of our economy. It will be admitted that we pay the highest wages in the country. We provide better conditions for our workers and treat them better than do the nationalised industries. Therefore, from the workers' point of view, it is in their own interests that the private sector should be maintained at the highest state of efficiency.
I have always thought that the Chancellor of the Exchequer has two nightmares to contend with. The first is that the nation should become teetotal and non-smoking. In that case, I do not know where he would get his taxes. The second is that private industry should fail to make profits. I would remind hon. Gentlemen opposite of a fact that they should never forget. It is that the Welfare State could not be maintained unless private industry made profits for it to tax. There would be no Welfare State if the private sector of industry followed the example of some of the nationalised industries, and produced losses. There would be no old-age pensions and no welfare pensions. The successful business man, conducting his business properly and well, and making good profits year in and year out, is the most practical supporter of the Welfare State.