Clause 1. — ;(Charge of Income Tax for 1955–56 and Surtax Rates for 1954–55.)

Part of Orders of the Day — Finance Bill – in the House of Commons at 12:00 am on 27th April 1955.

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Photo of Mr R.A. Butler Mr R.A. Butler , Saffron Walden 12:00 am, 27th April 1955

Yes, and the picture was taken down from the wall. I have replaced the picture, and, gazing into those eyes, I came to the conclusion that this was the best thing to do this year, and that it was the simplest and the most effective way of helping the nation as a whole.

In making that decision, I was fully aware of the type of argument which would be used against a reduction of the standard rate of tax, even though it was accompanied by many other benefits which we shall be discussing under Clause 2. I knew that to give so many hundreds of thousands of pounds to large companies, or to remit so much taxation to Surtax payers or rich men would produce a most salacious and tantalising opportunity for retorts about the small amount released to the small men at the bottom end of the scale.

I was aware of the opportunity which would at once be seized, prior to the General Election, by the Opposition to attack me on this score. Because I had been through it in 1953, why did I want to go through it again in 1955 and do it just before an Election? The answer is that my opinion still is that those in my position have to take decisions which are in the best interests of the economy, and as my hon. Friend the Economic Secretary said in his excellent speech, this move actually will prove—I think that my words will be shown to be correct as time goes by—to be the best in the interests of the economy as a whole.

Let us consider why it is good in the interests of the economy. It is good, first, because it will reduce the general weight of direct taxation, which weighs far too heavily at the present time on enterprise. My hon. Friend the Member for Louth gave examples from his own business, and other hon. Members who have spoken have indicated that that is correct. There is no doubt that the general weight of taxation on industrial enterprises and on persons at the present time is too great, and that we cannot hope to get the best out of a willing animal if we pile so much on its back. That is why I have attempted to reduce expenditure, and that is why I am very glad to be in the position to reduce the general weight of direct taxation.

The second point was that raised by the hon. Member for Stechford (Mr. Roy Jenkins) on the question of investment. I said in my speech last Friday that I had a dual policy of discipline and incentive. That dual policy is proving successful, and I think it will be proved to be successful as the months go by. But if we are to have discipline, which we have in our restriction on borrowing and in our restrictions on hire purchase and in other ways, we must have incentive to match.

The hon. Member for Stechford, as usual, made a point which was quite reasonable in saying that the last reduction in Income Tax in 1953 did not immediately result in an increase in investment. He doubts, therefore, whether this method this time will be as effective as the proposal to introduce the investment allowance, in which I indulged in the previous Budget. The answer to that can be given—I speak from memory, but one knows these documents so well now—from Table 27 of the Economic Survey, dealing with the metal goods industries. If one looks at the table on investment, the answer is that when the right hon. Member for Leeds, South (Mr. Gaitskell) took off the initial allowance and introduced other measures to reduce investment in the private sector and to push the whole of the metal goods investment, for example, into defence, he was doing something which was legitimately defensible. But it meant that when I succeeded to my office there was a distinct lag in investment in ordinary manufacturing industry, which had been deliberately put into defence.

What the British economy has now done—speaking quite apart from party or from either side of the Committee, it is really very creditable—is to swallow the defence programme, which the right hon. Member for Leeds, South had so much to fear when he was in office. We have even swallowed it at a slightly larger figure, and we have also managed to increase our national product and to increase production as well. I believe that that process can be continued only if we give this further incentive through the reduction of direct taxation.

The answer to the hon. Member for Stechford is that we are now seeing the effect of the institution of the investment allowance instead of the initial allowance, and in the coming year and years we shall see the effect of the 1953 Budget, the effect of the introduction of the investment allowance, and the effect of the present Budget. Therefore, we shall not only see increased production—or, rather, maintained production; it is no good exaggerating one's words—but we shall also see the improvement in investment which we all so much want to see.

5.15 p.m.

The next point which I have to answer in the debate is whether we helped enough people in introducing the Income Tax change. I gave an answer yesterday in which I referred hon. Members to the "National Income Blue Book," which showed that there were some 25·3 million people with incomes; that is, counting husband and wife as one, which is a quite legitimate thing to do, at any rate from the Income Tax point of view. Looking to 1955–56, the calculations are that 17½million people will be paying Income Tax. Therefore, there are only about 7¾ million people who will be left out of these benefits, taking into account the 2,400,000 who have been exempted altogether. Of the 7¾ million people, 4 million will benefit from the increases in National Insurance pensions which are being introduced. This means that all except about 3¾million people are affected one way or another by the Government's Measures in the general move that we are making.