I beg to move, That the Bill be now read a Second time.
The Chancellor believed from the outset that this savings Budget of his would be widely recognised as a powerful counter-inflationary measure. The slenderness of criticism against it has already affected the course of history in a way that not even he anticipated.
For four days we debated the Budget, and at ten o'clock on the fourth night, when a notable dinner was taking place elsewhere in the building, not a voice was raised against the passing of the final Budget Resolution. What a difference it would have made if that historic dinner party had been interrupted by the ringing of the Division Bell!
This afternoon we start on the Finance Bill, which, I imagine, will, in the next two months, engage the attention of the House every now and then in the intervals between restrictive trade practices and the death penalty. Today, instead of pushing stolidly through the 36 Clauses of the Bill from start to finish, I want to take the House behind the scenes and try to show how the material of the Bill as a whole is woven of different strands.
At least five Clauses arise directly out of commitments publicly entered into at various times. Clause 5, for instance, is necessary to enable the United Kingdom to implement obligations under the U.N.E.S.C.O. Agreement, which was ratified in 1954, regarding import duty on films produced by the United Nations and its specialised agencies. Clause 11 was foreshadowed by my right hon. Friend the Lord Privy Seal, when he was Chancellor, in answer to a Question on 3rd November, 1954, after hon. Members on both sides had made approaches to him about the unfairness of treating as income for the year of payment accumulated arrears of pension remitted from overseas which, in normal circumstances, would have been spread over a period of years.
Again, Clause 32 fulfils assurances on the tax side given in connection with the transfer of responsibility for certain pensions to the United Kingdom Government under the Pensions (India, Pakistan and Burma) Act, 1955. I think that Clause 28 will be generally welcome, because it removes an evident unfairness concerned with compulsory purchase. It provides that where, within three years after a death, property is acquired by an authority that possesses compulsory purchase powers, the Estate Duty assessment may be reopened and duty charged on the amount of compensation only, if that amount is less than the market value at the date of death.
I want, here and now, to acknowledge the initiative of my hon. and gallant Friend the Member for Cheltenham (Major Hicks Beach) in raising this point on an earlier Finance Bill. We are now fulfilling our pledge to him, and making this change in the law retrospective to 18th November, 1952, that being the date from which Estate Duty valuations ceased to be based on strict existing-use value and became based on full market value.
Outstanding in importance among these Clauses in discharge of previous commitments, is Clause 12. My right hon. Friend, in his stern statement to the House on the economic situation on 17th February last, made the announcement that investment allowances would be suspended from that date—with certain exceptions—and in their place the former initial allowances would be restored. The exceptions he then mentioned were expenditure on the construction of ships and on scientific research assets, and expenditure incurred under definite contracts entered into on or before that date.
In his Budget speech, my right hon. Friend announced a further exception in favour of approved fuel-saving equipment installed by way of replacement or modification in existing industrial premises.
I doubt whether I need spend time justifying to the House, or to my hon. Friend the Member for Kidderminster (Mr. Nabarro), the inclusion of fuel-saving equipment among these exceptions. The fuel-saving plant that will qualify for the allowance will be prescribed by Order, in accordance with subsection (4) of the Clause.
The next strand I want to pick out consists of Clauses that need to be enacted to protect the Revenue—a phrase which emphatically does not imply that the Commissioners of Inland Revenue are defenceless young maidens in need of protection, but simply that bits of the revenue are rather elusive and tend to slither out and away if there are any faults in the law.
Clause 2 deals with strengthened cider and perry. The sole object here is to ensure that cider and perry which are artificially raised to an alcoholic strength comparable to the strength of British wines shall pay, as is right and fair, the same duty as British wines. If we did not make that change, obviously the yield of revenue duty on British wines—which is imposed purely for revenue purposes—would tend to fall away; and wherever we have a revenue duty it is, I think, universally accepted that a fair balance ought to be held between competitive products.
I am sorry to hear that some people, misinterpreting what my right hon. Friend said in his Budget speech, have quite wrongly supposed that he was in some way specially wishing to penalise these strengthened ciders and perries, or, by taxing them, to imply some imputation against them. Let me give the assurance publicly that nothing was further from our minds than that.
I have heard it suggested that one or more manufacturers may seek to escape the duty by lowering the strength of their products. Well, we certainly shall not look on that as evasion. We have no desire at all to tax as British wines drinks which are not of competitive alcoholic strength. It is solely to protect the revenue from British wines that we have felt it necessary to tax the strengthened ciders and perries, which I estimate to have been, even at the recent peak level, less than 3 per cent. of the total amount of cider and perry sold in this country.
Another loophole in the Customs and Excise field we are closing by Clause 6. A number of hon. Members have sent on to me at various times complaints from their constituents that there seems to be an unsatisfactory tax situation where a commercial van is bought and windows are then put into the sides of the van behind the driver's seat so that it is turned into a kind of shooting brake. The van is a commercial vehicle and, therefore, has borne Purchase Tax at the rate of only 30 per cent. of the value of the chassis.
Some people who have had this conversion done have discovered that they have thereby rendered themselves liable to extra tax on the vehicle as a car—that is to say, at 60 per cent., not on the chassis only but on the whole vehicle. They have been particularly and justifiably wrathful if they have discovered that other people in the neighbourhood have managed to carry out a similar conversion without incurring any liability to extra tax.
The truth is that there has been here a flaw in the law, which we propose to rectify. Under the existing law the extra tax is due if the conversion is carried out by someone
in the course of or for the purposes of his business.
The man who buys one of the conversion kits which are now on sale and does the conversion for himself in his own backyard—provided that he is not doing it
for the purposes of his business"—
can escape paying any additional tax.
This is not fair as between one person and another, and it also makes the present law impossible to administer effectively. There is a good deal of money in it, too. The tax that can be avoided in this way may well amount to £150 or more per vehicle. Now that this loophole has been discovered, more and more use is being made of it, and we must get the law into such a shape that it will treat everyone alike.
The law is not changed as regards any vehicle as made by the manufacturer. The law is only changed as regards certain conversions.
Clause 6 will have the effect of making all these conversions liable to tax. I am saying nothing whatever against those who have successfully used this loophole and, so to speak, driven a way through it. They did nothing which the law, in its faulty form, did not allow them to do. The new Clause will operate from 1st June, so if any hon. Member is converting a van at week-ends he had better spend the Whitsun Recess getting it finished—or else inveigle his friends into finishing it for him, as Tom Sawyer did.
I raise no objection whatever to this special action being taken to cover this relatively small number of vehicles, but since the Chancellor has now decided to stop up this loophole, why does he leave open the infinitely greater loophole of restoring initial allowances of 30 per cent. to all the private motor cars that are chargeable to trade accounts and on which the full remission of tax is made both for revenue and for Purchase Tax purposes? Surely that is a far vaster field of new revenue than this with which the right hon. Gentleman is now dealing.
I conceive it to be my duty today to explain to the House what is in the Bill rather than to range over all that might be in the Bill. We are taxing a great many things, but one thing which I do not want to tax is the patience of the House this afternoon.
In Part II of the Bill, Clauses 16 and 17 are to protect the Revenue. Hon. Members on both sides of the House have from time to time called attention, quite rightly, to cases where people who have earned big money in the entertainment world have seemingly been more successful than the rest of us ordinary mortals in keeping the collector of taxes at arm's length. When I was questioned in the House about a glaring case in November, 1954, I told the House then that I had already instituted action to see whether the tax machinery in this field could be improved, and we have now been helped by the attention given to this in the final Report of the Royal Commission on the Taxation of Profits and Income.
Let me say at once that there is no reflection whatever on the entertainment profession as a whole. The root of the difficulty is that in every other profession the ordinary employee has his tax deducted automatically under P.A.Y.E., whereas the P.A.Y.E. system is impossible to apply to entertainers because they either have no employer at all or seldom work for one employer for any length of time. Furthermore, theirs is a precarious life and livelihood, often with spells of glittering income followed by drab days. If, therefore, the tax due is not collected quickly, and falls heavily into arrear, it may become harder to collect it at all.
We are tackling this in two ways under these two Clauses. Neither of these Clauses in any way alters the existing basis of tax charge, or makes anything liable to tax which is not liable now. The changes are solely to help the Revenue to obtain the information it requires, and to collect the tax as quickly as possible on the due date. Although there is already statutory power to get information about payments to employees and about payments in the nature of commission for services rendered, that power does not at present extend to cover fees paid for services rendered or to certain payments in respect of copyright.
Clause 16 will close that gap, and Clause 17 will help by enabling the assessment of tax on the earnings of people in a particular profession or trade to be concentrated mainly in a few specified tax offices. The intention is to use this power to make directions only in relation to professional entertainers, and even in their case the right to assess them in the specified offices will not normally be exercised in the case of those who work outside London—like the resident Blackpool comedians.
For one thing this will help in getting the expenses claims of this class of taxpayer, which often give rise to difficulty, to be dealt with more expeditiously, expertly and uniformly. Unless a taxpayer wishes to be dishonest—and the great majority are completely honest and straightforward in their dealings with the Revenue—people are likely to be the gainers rather than the losers by having their tax affairs dealt with by tax officials who are familiar with the special problems and needs of their profession.
The proposals in these two Clauses are the outcome of very careful study of how best to meet the special cases of Income Tax difficulty which arise in the entertainment profession, and we lay them before the House as being, in our judgment, the most fair and effective way of making sure that tax which is justly due does not slip through the net.
It is to protect the Revenue against very different risks that we have Clauses 25 and 26 in Part IV of the Bill. Clause 25 is known as the Heelex Clause. A provision of the law which was meant to exempt a closely held company from Profits Tax if all its income was charged to Surtax, was interpreted by the Court of Appeal in the case of Heelex Investments Limited as exempting also the whole of the profits of the subsidiaries of such a company, although in their case the undistributed part of their profits had not been charged to Surtax. This was certainly not the intention of the framers of the law originally, for it is quite anomalous, and Clause 25 is designed, therefore, to validate the practice which was in force before the Heelex decision. In other words, it declares that henceforward the law shall be what, until 1955, it was believed to be.
Clause 26 remedies another defect in the Profits Tax law, which has acquired a name almost too apposite to tax discussions—the case of Universal Grinding Wheel. The Universal Grinding Wheel Company redeemed its £1 redeemable preference shares at a premium of 7s. a share, and claimed that the 7s. was not a distribution and, therefore, not liable to Profits Tax. The point at issue was taken to the courts and finally decided by their Lordships in another place in favour of the company.
Whatever may have been the merits in that particular case, the interpretation thus placed upon the law leaves a wide loophole for tax avoidance by other companies if they choose to take advantage of it, for its effect is that sums paid out of distributable profits are not to be regarded as distributions for Profits Tax purposes if they are paid out to shareholders either by way of premiums on redeemable preference shares, or indeed, in the form of securities or other assets transferred to shareholders on a reduction of the ordinary capital, even though the market value of the assets transferred exceeds the nominal amount of the reduction.
It is only fair and right that this should be remedied and Clause 26 does that by ensuring that the amount treated as applied in reduction of capital, and so excluded from being a distribution liable to Profits Tax, shall not exceed the amount subscribed by the shareholders, including any premiums they have paid to the company. Both of these Clauses will apply from the day after Budget day.
The House does not like retrospective legislation, and there is no need to make these provisions retrospective, because there is no evidence that the Heelex and Universal Grinding Wheel decisions have yet been exploited by other companies. But they have received so much publicity that there is not the slightest doubt that they would be exploited if Parliament did nothing. Indeed, the probable reason why further advantage has not been taken of these loopholes since they were discovered is a certainty in everybody's mind that Parliament would quickly stop them up.
The third strand I can pick out in the weave of the Bill is a set of Clauses to effect minor improvements in the tax laws, generally in favour of the taxpayer—but not, I grant, in every case—that would be too much to hope for, Clause 3 makes a small change for the better in the system of Imperial Preference.
Clause 4 removes anomalies in the Excise Duty chargeable on mobile concrete mixers and on tower wagons, which are the movable structures used in attending to street lights or lopping trees or repairing bridges, like the one in Parliament Square this afternoon. Subsections (4), (5) and (6) of the Clause deal with two other small points arising under the Vehicles (Excise) Act of 1949.
Clauses 9 and 10, in Part II, are designed to clear up the law relating to employments at home and abroad. They are based in general, though not in precise, detail on recommendations in the final Report of the Royal Commission. The ordinary person who works in the United Kingdom for a United Kingdom employer will not be affected. The aim is to remove various anomalies in the law relating to the tax liability of people working in the United Kingdom for foreign concerns, and also people working wholly or partly abroad for United Kingdom concerns.
I will not trouble the House with all the existing anomalies, but the broad effect of Clause 9 is that people who work wholly in the United Kingdom will henceforth, whether they are working for a United Kingdom concern or a foreign concern, be chargeable to tax on the whole of their earnings. The person who does his work wholly abroad will be liable to tax on that part of his earnings which he remits to the United Kingdom in any year in which he is resident here for Income Tax purposes; but he will not be liable to tax at all in any year in which he is not so resident.
Yes, that is the purpose of Clause 9. I was going on to add that in the case of a person who works partly in the United Kingdom and partly abroad, tax liability will depend upon the facts of the particular case. Nothing in all this, of course, affects the operation of double taxation agreements—and perhaps this bears upon what I have just said to the right hon. Gentleman—many of which provide that employees of overseas concerns are exempted from United Kingdom tax in any year of assessment in which they are here for less than half the year.
Clause 10 will be helpful to a good many people who leave this country to take up full-time duties which are performed wholly abroad. Hitherto, such a person's tax liability has been affected according to whether or not he maintained a place of abode in the United Kingdom. Henceforth, his liability will be the same, whether a place of abode in the United Kingdom is maintained or not. This should be particularly helpful to married men who want to keep up a home here for their families while they themselves are working for the time being abroad.
Clause 13 gives effect to a recommendation of the Royal Commission on capital allowances for the cost of preparing, cutting, tunnelling or levelling land in the course of the construction of an industrial building. Clause 14 provides that in certain circumstances capital expenditure on dredging shall qualify for capital allowances, at the rates given for industrial buildings.
Clause 15 will remove a clear injustice where the present law in certain cases renders the same income liable, rather surprisingly, to both Estate Duty and Surtax. A number of hon. Members have written to me in justified indignation when this has befallen a constituent of theirs, so I am counting on Clause 15 to reduce my correspondence and my unpopularity.
Another provision to relieve the taxpayer is in Clause 27, which deals with a rather technical point of settled property burdened with an annuity which passes on the death of the life tenant during the lifetime of the annuitant. Two recent Estate Duty decisions, known as the Longbourne and Lambton cases, have a harsh effect in increasing unfairly the duty payable on the death of the life tenant. This Clause should correct this and restore what was the former practice before these two decisions.
Perhaps I should mention also Clause 33, which achieves a small, though necessary, tidying up of the law following upon changes made by Northern Ireland in their rules for the distribution of intestate estates.
We often have Questions asked about the National Land Fund. The Government have not finished their study of the future of this Fund, the size of which was criticised by the Public Accounts Committee some time ago; but I hope that there will be a welcome for Clause 29 and its widening of the powers under which the Inland Revenue may accept certain objects, such as pictures, in satisfaction of Estate Duty and be paid the equivalent money out of the National Land Fund. This particular power under the 1953 Finance Act is restricted by two requirements—that the object in question shall be, or shall have been, kept in a certain class of building, and that the Treasury shall consider it desirable for the object to remain associated with that building.
Clause 29 will provide that a work of art which the Treasury is satisfied is preeminent for its aesthetic merit may be accepted without these requirements having to be met, There may be works of art of pre-eminent merit offered to the nation in circumstances where there is no possibility of fulfilling the conditions which at present govern acceptance. I hear some right hon. and hon. Members whispering about the wording of the Clause. The wording does not mean that Treasury Ministers are setting themselves up as art critics, though I am quite sure that the taste of my close colleague, the Economic Secretary, as that of the Chancellor also, is impeccable in these matters. What the words mean is that the Treasury will have to be satisfied by outside expert advice that a work of art is pre-eminent before the Clause can be used. This extension will, I think, be of value, as also will subsection (2), which deals with an Estate Duty point.
There are experts in this country. I am very willing to discuss this matter further in Committee. My sole desire is to find a solution generally satisfactory to the House. I wanted to make it quite clear that the Financial Secretary is not to have the last word.
Now I come to the greater strands—the strands which determine the main pattern of the 1956 Budget—the Clauses designed to have the impact which my right hon. Friend desires on our economic and monetary situation. In his Budget Speech he mentioned the technical reasons why he proposed that the nationalised industries, instead of raising their capital requirements by borrowing on the stock market, should have them met by advances from the Exchequer, as, indeed, the National Coal Board has always done.
Last year, 1955–56, stock issues for these boards were made to a total of £387 million. Further large issues by some of them would become necessary in the near future if no different arrangements were made. These stock issues carry a Treasury guarantee, and they therefore involve Government credit.
When the Government borrow for their own purposes, the issues can be timed to take full advantage of market opportunities. The Government can also pursue a flexible policy as to the terms, which may be medium, short, or long, to suit the conditions of the market at the moment. Issues for the nationalised boards have to be made not necessarily when the market is suitable, but when the boards require capital or when they have reached their bank overdraft limits. The terms of the issue also have to reflect the capital structure of the undertaking. There is not the same flexibility to adjust the terms of issue to the market.
As a result, the gilt-edged market is liable to get clogged with these stocks issued under Government guarantee. When they are not fully taken up by the public and the institutions, they have to be supported by the Exchequer until they are fully absorbed, and, to do this, the Exchequer has itself to borrow on Treasury bills.
Two weaknesses arise. Savings are not being attracted for the financing of capital expenditure, and additional Treasury bills increase the liquidity of the banking system and make it that much more difficult to operate monetary control successfully. For these reasons, since the Exchequer, in present circumstances, is having to bear the burden of providing at least the bulk of the capital finance for these industries, it really seems the better arrangement that the Exchequer should be in full control. We are proposing this not as a permanency, but to meet the immediate situation. Clause 34 limits the new power to make advances to a total of £700 million, and it also sets a time limit of two years from 31st March, 1956. For these next two years the nationalised boards will look to the banks only for short-term needs.
Sometimes a Financial Secretary dreams of the possibility of having a lazy summer when there is no Finance Bill, but that can only be a dream, because the Income Tax is an annual tax and even if there were one year a Budget with no tax changes whatever, we should still have to have a Finance Bill to fix the rate of Income Tax for that year. We do this in Clause 7, which maintains the rates of Income Tax unchanged in 1956–57.
The rates of Surtax for 1955–56, that is to say, the Surtax which becomes payable on the 1st January, 1957, were fixed in the Finance Act, 1955. The rates of Surtax for 1956ß57, the current year, will fall to be determined 12 months' hence, because that Surtax will not be payable until January, 1958. Such tax increases as there are this year come in Clauses l and 24.
My right hon. Friend's measures to stimulate savings, on which I want to close my speech, will cost a certain amount in loss of revenue. He thinks it essential this year to fortify the Revenue and make good in full by other means any loss of revenue which is entailed by the savings measures. Clause 1 needs to be read in conjunction with the First Schedule, which looks complicated with all its tropical references to Negrohead and Cavendish, and so forth, but what the elaborate figures in page 51 of the Bill amount to in practice is 2d. on a packet of 20 cigarettes.
The Tobacco Duty is a remarkable money-raiser. At the old rate of tax the estimated revenue for the current year was £680 million. At the new rate it is £707 million. After having surveyed the whole field of indirect taxation, my right hon. Friend reached the conclusion that this is where he could best secure part of the extra revenue which he needed. The change has been made on purely revenue grounds. The figures in the First Schedule will preserve the preferential margins in favour of Commonwealth tobacco.
Hon. Members on both sides of the House have asked why the Chancellor does not propose, in this Budget, to extend the Tobacco Duty relief which certain classes of old-age pensioners enjoy, so as to take account of the higher tax. One reason is that this is a very small increase in the duty compared with the increase of six times this amount which the right hon. Member for Bishop Auckland (Mr. Dalton) proposed in his Budget, in 1947. It was that enormous increase which gave rise to the relief scheme, because it then had the effect of raising the cost of a packet of cigarettes by nearly 50 per cent. The increase this time, far from being 50 per cent., is only about 5 per cent. All that a person, young or old, needs to do if he wishes to take avoiding action, so to speak, is to smoke 22 cigarettes where he smoked 23 before.
Yes. But there is another cogent reason in the Chancellor's mind. The Tobacco Duty relief scheme, which the right hon. Member for Bishop Auckland devised in 1947, is not really fair between one old person and another. It was found to be workable only if it was confined to those who drew retirement pensions or widow's or widowed mother's allowances under the National Insurance Act, or non-contributory old-age pensions or blind pensions under the Old Age Pensions Act.
Old people who draw only war disability pensions are outside the Tobacco Duty scheme. So are those who draw only railway pensions or police pensions or Service pensions or war widows' pensions or industrial disability pensions. Nor have any Government been able to find means of overcoming the practical difficulties in the way of bringing them in. As my hon. Friend the Member for Taunton (Mr. du Cann) and others rightly said in the Budget debates, the Tobacco Duty relief scheme is far from fair as among the old people themselves. Though my right hon. Friend appreciates the case which can be made for those who would gain advantage if the weekly coupon were increased, neither he nor the House can overlook the fact that this would add to the injustice between one type of pensioner and another.
I had better stick to what I was about to say, because I fear that I have to weary the House for some minutes longer.
The other important tax increase, balancing the Tobacco Duty, is on the side of direct taxation. With effect from 1st April, tax on distributed profits will rise from 27½ per cent. to 30 per cent. and the tax on undistributed profits from 2½ per cent. to 3 per cent. The usual provisions which have appeared in previous Finance Acts will apply for accounting periods which begin before and end after 1st April. All this is dealt with in Clause 24 and the Third Schedule.
There are special Profits Tax provisions relating to building societies which limit their liability to 2 per cent. of their profits computed without any deduction for interest paid on deposits or shares. The Royal Commission went into this highly complicated matter, and though my right hon. Friend is not implementing the recommendations because they would have the rather odd result of reducing the Profits Tax paid by building societies at a time when all other bodies are having to pay more, he has decided to leave the special rate for building societies unchanged at 2 per cent.
There are certain other bodies which, under the law as it stands, are charged on their profits at the undistributed rate and do not pay the higher rate applicable to distributed profits. Their treatment will be unaltered, but they will, of course, pay at 3 per cent. now instead of 2½ per cent.
The Chancellor, as I said on 19th April, is not prejudging the recommendation of the Royal Commission in favour of a single undifferentiated rate of tax on profits, whether distributed or undistributed. He has not rejected that idea, but he has not reached a final conclusion on it. Its effect, of course, would be to increase the charge on companies which make low distributions and reduce the charge on companies which make high ones, and while a time may come when it is right to take that step this certainly does not seem to my right hon. Friend to be the moment.
The Profits Tax is high already because, of course, it is additional to the charge of Income Tax on company profits which at the standard rate of 8s.6d. amounts to 4#x00BC per cent. and he would not have wished to raise Profits Tax further but for his overriding need to retain in full, and more than in full, his prospective Budget surplus.
The House may be interested to know the total yield of last autumn's increase in the Profits Tax combined with this one. The yield of the two increases taken together is estimated to be £11 million in the current year, £60 million in the coming year and £68 million a year thereafter. The sole reason for these increases in Profits Tax and Tobacco Duty is to cover certain losses of revenue ensuing from the range and vigour of the new plans to induce people to save. This is the last and dominant strand in the Budget pattern.
Clause 8 gives a direct tax concession, and one which the National Savings movement has been longing for. It exempts from Income Tax but not from Surtax the first £15 of interest received in the Income Tax year from deposits in the Post Office Savings Bank or the ordinary department of a trustee savings bank. This is planned as a direct inducement to the small saver to lend to the Government, so the relief is in favour of individuals only, and does not extend to trusts or corporate bodies. It also runs for Income Tax only. For Surtax purposes, the interest which ranks for exemption will be treated as if it were a net amount of interest received after Income Tax had been deducted at the standard rate, exactly as happens when a Surtax payer receives interest from a building society which is also not subject to Income Tax in the hands of the recipient.
Can my right hon. Friend say why there is this, in my view, wholly unjustified discrimination against the Surtax payer? Surely, the Surtax payer should be given the same incentive to save as any other earning member of the community?
My right hon. Friend is anxious to give all members of the community an equal opportunity and incentive to save, and that is why he is offering a wide array of savings media. If my hon. Friend will examine them, he will see that some of them are more favourable to certain classes of potential savers, and some are more favourable to others. This is one that is specially favourable to the small saver.
The relief is limited to deposits in the Post Office Savings Bank and the ordinary department of the trustee savings banks, because the distinctive feature of these two is that they are limited by statute to a rate of interest not exceeding 2½ per cent. and also that all the money deposited with them is directly lent to the Government. Other savings banks or similar organisations do not lend their deposits to the Government, but invest or use them at their own discretion, and they are not limited by statute to paying a low rate of interest if they invest the money well and can earn more.
Clause 30 enacts the Budget proposals for reducing Stamp Duty on conveyances of property, other than stocks and marketable securities. Ever since Mr. Lloyd George, 46 years ago, increased the duty on conveyances of property to 1 per cent.—it is now of course 2 per cent.—exception has been made for small transactions below some figure or other; and in this Budget, my right hon. Friend, carrying forward his desire to encourage home ownership in which he was so brilliantly successful at the Ministry of Housing and Local Government, proposes to extend and adapt this relief to modern needs.
The top limit for the low duty of per cent., which was fixed at £500 so long ago as 1910, will be raised to £3,500, and the full rate of 2 per cent. will not apply unless the consideration exceeds £5,000. The reason why the new rates will take effect from 1st August is because that is the first convenient date after the Finance Bill is likely to be on the Statute Book.
Hon. Members may recollect that the Provisional Collection of Taxes Act—under which resolutions relating to Income Tax and Customs and Excise may have the force of law as soon as they have been passed in Committee of Ways and Means—does not apply to the stamp duties. That is why alterations in stamp duties cannot become law until the Finance Bill does.
Clause 35 contains the only legislative provision that is necessary to pave the way for my right hon. Friend's bold initiative in launching Premium Bonds. I think that the country is looking for bold initiatives, and the significant fact is that this is one that so far has attracted much more widespread approval than criticism. When the Government borrow, the National Loans Act, 1939, charges on the Consolidated Fund principal and interest and sinking fund payments and the administrative cost of raising the money and issuing the securities; but none of those are prizes, so subsection (1) is needed to bring the prizes in.
Subsection (2) makes it clear beyond doubt that the Premium Bond scheme is not a lottery under the Betting and Lotteries Act, 1934, an Act which, as a matter of fact, does not define the word lottery. This subsection (2) makes it an absolute condition that the amounts subscribed for the securities must be repayable in full in the case of every security. which is the sharp distinction between the Premium Bond plan and the gamble where the gambler risks his stake.
I have said that the Betting and Lotteries Act does not define what a lottery is. What we are doing is putting on record in the Statute Book that a Premium Bond is not a lottery. That is exactly what my right hon. Friend said, for practical purposes, in his Budget speech.
I have purposely left to the last the generally welcomed but not uncomplicated Part III of the Bill. This puts into legislative shape, in modified form, recommendations of the second Millard Tucker Committee, to whose chairman and members I would again like to express the Government's thanks. The present law allows no relief from Surtax, and only the very limited life insurance relief from Income Tax, on sums set aside to provide for retirement by those who cannot participate in a pensions scheme established by an employer.
The Committee's general view was that the self-employed, who include professional men, ought for tax purposes to be treated no less favourably than employees in the matter of provision for retirement. It is true, of course, that neither the Committee itself, nor the Royal Commission on the Taxation of Profits and Income, which reported last year on the same subject, were unanimous about exactly what should be done. No one has said precisely the same thing, and this puts responsibility on the Government to try to lay before the House a set of proposals which we hope will be generally acceptable.
My right hon. Friend's plan is that full relief from Income Tax and Surtax shall be granted on sums set aside by self-employed people to buy deferred annuities for their retirement, subject to certain limits; and, also, that the income arising in the hands of the insurance company or trust fund from the investment of these premiums shall be exempt from tax, too. It will be a condition of tax relief that the contributions will not be returnable except on death, and that the annuities shall be non-assignable and non-commutable.
The maximum premium that will qualify for tax relief will be 10 per cent. of a person's earnings or £500, whichever is the less. If he should die before the annuity comes in payment, and if, under the policy, the premiums paid go back to his estate, they will not be chargeable with Income Tax or Surtax, though they will, of course, form part of his estate for Estate Duty calculations.
Under the Government's plan, a man will also be able, with benefit of tax relief on the premiums, to arrange for an annuity to himself for his lifetime, and for an annuity to his wife for her lifetime should he predecease her, so long as the annuity for his wife is no greater than the annuity for him. We are not proposing to extend the tax concession to any scheme which provides for payment of a lump sum on retirement. It is quite true that there are lump sums provided for employees under statutory pension schemes; on the other hand, the large numbers coming under approved superannuation funds get no lump sum.
We are doubtful about offering such extensive tax relief as is here proposed, in order to give people a chance to get part of their money out at the end in the form of a tax-free lump sum. We want to be sure that our scheme appeals only to those who genuinely wish to provide for pensions on retirement.
It may help when we come to the Committee stage if I explain now why we are not adopting certain features of the Millard Tucker plan. That plan would have granted higher premium limits to people who would have been able to take advantage of such a scheme from 1939 onwards, if a scheme had then been in operation. I see the force of that argument, but to those who are disappointed that we are not incorporating this feature I am bound to say that it would be contrary to precedent to have retrospection of this kind in a new tax relief. A similar claim for additional relief because the new relief is, so to speak, coming along late could be made with equal justice in many other connections—for instance, on the concessions in Clauses 13, 14 and 22 of this very Bill.
Administratively, it would be extraordinarily difficult to go back to 1939. Under the Tucker plan, the amount of extra relief would vary according to the number of years since 1939 during which the taxpayer had held no pensionable employment. In many cases, the precise facts might be exceedingly hard to establish, and a lot of money would depend on those facts. What we are doing, however, for the benefit of the late entrants is to be found in Clause 22, which, I hope, will end a controversy that has raged for at least 50 years concerning the taxation treatment of life annuity payments.
We accept the recommendations of the Tucker Committee that these payments should be exempt from tax to the extent that they consist of a return of part of the purchase price paid for the annuity. This exemption will apply from this year to annuities already in payment, as well as to future annuities purchased. The person, therefore, who is by now too far advanced in his working life to gain much advantage from Clause 18 of the Bill will, nevertheless, thanks to Clause 22, gain greater value for his retirement from any sum which he puts down in payment for a life annuity, because his tax liability on the annuity will be diminished.
We considered whether we could extend the plan in Clause 18 to what the Tucker Committee calls "partially-provided-for employees"—that is, employees who are in a pension scheme which provides benefits below the usual level. It is not on grounds of principle that we have been led to omit this, but because, on examination, the Tucker Commitee's proposal seems to us to be unworkable, and we cannot see how any alternative means can be devised for measuring the extent to which a particular pension scheme falls short of a given standard. But these people, too—the employees with only small pension rights—will equally be able to benefit from the tax relief on annuities given in Clause 22.
Hon. Members who are interested in tax avoidance—interested with the most honourable motives, I mean—will notice that by Clause 21 we guard against any of the bodies which will gain tax exemption for their income on invested premiums under Part III, being tempted by any of the clever gentry to participate in the famous operation known as dividend stripping. I do not believe that any of them would. But in the debate on the autumn Budget, the Government made clear their intention that dividend stripping was to stop absolutely and not to be allowed to restart in any circumstances, and Clause 21 appears here in recognition of that pledge.
The House may also care to notice Clause 31 in connection with Part III, because we are taking the occasion of launching these new plans for the benefit of the self-employed, to get rid of some arbitrary features of the present law relating to stamp duties on the purchase of life annuities.
I have no doubt that Part III of the Bill will receive close examination in Committee. We are breaking fresh ground here in the tax field, and I am not going to assert complacently that we shall get everything perfect first time. But we are grateful for the welcome given to the Government's intention to legislate on these lines, a welcome which, I think, has become the wider since the Finance Bill revealed that the premiums would qualify for tax relief if paid into a trust fund, as well as if paid to an insurance company.
We set great store by Part III as an inducement to savings. We set great store by it too, as an act of justice to the self-employed. It is as a well-planned and imaginative set of measures to change spending to saving, to do justice between one taxpayer and another, and to furnish fresh arms for the battle against inflation, that I commend this Finance Bill to the House.
The Financial Secretary to the Treasury has taken us through the Bill with all his customary courtesy and clarity, but even his usual dazzling brilliance of style has not been able to break through the inevitable dullness of the Bill. It is called the Finance (No.2) Bill, a point which will not have escaped the notice of the House. I am probably right in saying that it is one of the dullest Finance Bills the House has seen for many years.
In my comments on the Bill and on the right hon. Gentleman's speech, I should like to approach the subject from three angles: firstly, to offer a few thoughts on what is actually in the Bill; secondly, to say a little about what ought to be in the Bill and what is not; and thirdly, to deal with some of the background of the Bill and the assumptions and the economic policies on which the Chancellor has based his Bill.
The real proof—this is one reason why it is such a dull Bill—is that we did not, in fact, have a Budget last month. The Chancellor's real Budget was in February. The April Budget, apart from a number of technical changes, was largely a no-change Budget, seasoned with some pious aspirations about reductions in Government expenditure, on which we are still awaiting an announcement from the Government.
Perhaps, therefore, I might begin by commenting on one or two of the things that are in the Bill. I will proceed through the Bill more or less from Clause 1 to Clause 35, rather than pick out the strands from the tangle, as the right hon. Gentleman tried to do. First, there is the Tobacco Duty. We voted against it on the Report stage of the Resolutions, and we shall certainly seek to amend it in Committee. We warned the Chancellor that this would have an effect on the cost of living, the cost of living index and wage claims.
Our main protest, however, is against the shabby treatment of old-age pensioners, on which the right hon. Gentleman's comments this afternoon were far from convincing. He gave no reason whatever why the Chancellor is discriminating as compared with the procedure that was followed in the minor change in the Tobacco Duty that was introduced by Sir Stafford Cripps. One understands from the Chancellor's remarks that about £2¼ million of revenue is involved. Surely that would have made it possible for him to have extended this concession to old-age pensioners? If the Chancellor is not satisfied with the existing scheme, why does he not do as my hon. Friend suggests? Better still, why not withdraw the necessity for it by giving a decent old-age pension? If the right hon. Gentleman came forward with that proposal we could understand his arguments. but nothing said this afternoon will convince this side of the House.
I must ask the Chancellor if he has noticed the effect of the change in Tobacco Duty. The Financial Secretary said that the change was equivalent to twopence on a packet of cigarettes; but it is not. If the right hon. Gentleman will look at the figures, he will see that it is equivalent to 1¾d. and that the tobacco manufacturers and distributors have taken this opportunity to put a farthing on to their margins in the case of cigarettes and a halfpenny an ounce on pipe tobacco.
I do not know whether that was in the mind of the Chancellor, but we are familiar with what happened at the time of the autumn Budget, when one industry after another took advantage of the increase in Purchase Tax to increase trading margins by putting up prices more than by the amount of the increase in Purchase Tax. The experts are capable of working this out in detail. If the Chancellor realised that the effect of the change in duty would be to increase the cost of a packet of cigarettes by less than the full twopence, why did he not take more revenue? It would have been better in the form of revenue for the Treasury than by way of increased margins for the tobacco trade.
The second change I want to comment upon is the change in the law of Income Tax. I shall not refer to changes in residence, because that is a point for the Committee stage of the Bill. The Financial Secretary referred to the change in the law about remittances and said that there had been an assurance given by the present Lord Privy Seal in November, 1954. If I remember aright, in answer to a Question by the hon. and gallant Member for Knutsford (Lieut.-Colonel Bromley-Davenport) on 3rd November, 1954, he then said that he would give effect to that assurance in his next Budget; but this is the third Budget since then, so once again the Government are a couple of Budgets late.
The Financial Secretary also referred to Heelex and the Universal Grinding Wheel cases, and these reflect the disappointment of the Board of Inland Revenue at certain judicial decisions taken over a year ago. During the Budget debate, when the Financial Secretary was dealing with some remarks of mine about tax avoidance, he and the Chancellor tried to take these two examples as cases of the eternal vigilance of the Treasury on the subject of tax avoidance and of the speed and power and impressiveness of their decisions.
I do not think they are good cases to take. It is less than fair to the companies concerned to treat them as major and unscrupulous cases of tax avoidance. What the Chancellor is really asking the House to do—as was made clear this afternoon, to be fair to the Financial Secretary—is to tighten up the drafting of certain provisions on which an unexpected ambiguity developed when they were tested in the courts a year ago. If that is the best the Chancellor can do by way of the ever vigilant Treasury looking for methods of tax avoidance, we are bound to ask why it was that these court decisions are over a year old and why we have not seen anything done about them until now?
Now I turn for a moment to Clauses 18 to 23, which give effect in the main to the second Report of the Millard Tucker Committee. In the Budget debate I said that we recognised there was a strong case in equity for doing something for the self-employed and professional taxpayers in this respect. We drew attention to what the Financial Secretary would no doubt call a yawning gap between their treatment and the treatment of the beneficiaries of the generous top-hat schemes in industry.
The Financial Secretary said a moment or two ago that the Treasury did not want to see this system used to pile up large tax-free lump-sum payments on retirement. Yet that is exactly what some of the top-hat schemes do. Indeed, there was a recommendation in the majority Report of the Royal Commission last year that legislation should be introduced to eliminate lump sum payments; but here again the Chancellor has not acted.
We say that whilst the principle underlying these Clauses is welcome, if the Chancellor was trying to close or to narrow the yawning gap he would have done better also to have tightened up on the generosity of tax concessions to these over-generous top-hat schemes in industry. However, these Clauses, too, arc more appropriate for consideration during the Committee stage of the Bill, and my right hon. Friend the member for Smethwick (Mr. Gordon Walker). If he is successful in catching your eye, Sir, later this evening, will have something more to say about them.
The Financial Secretary said very little about the suspension of investment allowances, and I do not propose to detain the House long at this stage. Both in the debate in February and in the Budget debate, a number of us dealt at some length with the grave consequences of the panic of the Government in the face of the rising figures of capital investment. I should at any rate warn the Government now that we shall hope on the Committee stage to move Amendments seeking to retain investment allowances for a number of types of investment of great national importance affecting exports and the balance of payments.
Stamp Duty was referred to by the right hon. Gentleman. and Clause 31 is purely a matter of administrative convenience. However, he referred to Clause 30 as dealing with something dear to the heart of the Chancellor, namely, Stamp Duty on house purchase and other conveyances. Now the Chancellor, in his modest way, takes credit to himself for encouraging home ownership by this Clause. In commending it to the Committee in the Budget Debate the Chancellor said that the owner-occupier was his first love—
I am glad to accept his assurance, but I must tell the right hon. Gentleman that such feelings of affection are not reciprocated towards him. That is because whatever he may do in a small and quite welcome way about Stamp Duty will be more than lost in a year or two by the increased mortgage payments resulting from his Bank Rate policy. For instance, on a house costing £2.500 at the building society rates of 1951, the payments were about £191 a year. Now, of course, they have gone up to over £216, and this morning we heard that the building societies had agreed to recommend a minimum for new entrants to building society policies of 5½ per cent. That represents an increase of 10s. a week already, and these increased charges offset completely anything which the Chancellor is offering on Stamp Duty.
As my last commentary on what is in the Bill, I turn to the ingenious Clause 35 referred to by the right hon. Gentleman, namely, the amendment of the National Loans Act, 1939. It has surprised many people, inside and outside the House, that the Chancellor was able to give legislative effect to his proposals in so small and neat a Clause. But the Chancellor must not think that the desire of hon. Members to talk on this Clause will be commensurate with the brevity of his drafting; he must expect—I think he will—some lengthy debates on it during the Committee stage.
I set out our general opposition to this during the Budget debate. Since then, there have been many expressions of opinion in different parts of the country, some highly critical of the Chancellor. I should have thought the right hon. Gentleman would have treated some of those expressions with a little more respect than he has shown so far. I am not surprised that Gallup polls have shown a balance of support for the scheme, indeed, on hearing the Budget I said publicly at that time that I had no doubt this would be popular. Of course, just because it is popular it does not follow that it is right, and I am surprised that it is not more popular on some of the figures. Also I am surprised that the right hon. Gentleman is going on with this scheme in view of the strong degree of opposition which has developed.
Perhaps I might refer to one point which is being held against me in view of my comments. I should be out of order in referring to a debate that took place in another place, though it always seems very odd that words used here are quoted in another place but we cannot reply to what is said there. However, not only there but elsewhere it has been pointed out, as though I was not aware of the fact, that there seems to be some discrepancy between my comments on the Chancellor's Budget and the fact that a number of Labour Party and other organisations frequently run lotteries, pools and raffles to raise funds for highly desirable purposes.
I do not deny that those things go on. I spent a lot of time looking into them in connection with a report which I helped to write last autumn. What I made clear in the Budget debate was this. I was one of those who supported the Small Lotteries and Gaming Bill, and I said on that occasion, there is all the difference in the world between a small private lottery run to raise funds for some desirable local purpose and the establishment, with all the power, equipment and machinery of the State, of a State lottery.
The Chancellor tells us that his Premium Bond scheme is not a lottery. The Financial Secretary has been following that argument this afternoon. This classic of prevarication is answered by Clause 35 (2), which says:
Nothing in any enactment relating to lotteries shall be taken to apply in relation to securities issued under the National Loans Act, 1939, by reason of any use or proposed use of chance to select particular securities for special benefits…
That provision means that, whatever the Chancellor may say, his Premium Bond scheme, which he says is not a lottery, is in the eyes of the law a lottery within the meaning of the Lotteries Act, and he needs special legislation to ensure that this lottery which he says is not a lottery is in the eyes of the law not a lottery.
I turn to the real criticism of the Bill—its omissions. I do not propose to go into detail now about the suggested improvements in the tax system, which can be dealt with in new Clauses. No doubt we shall have an Order Paper full of proposals concerning petrol and diesel oil duties, Purchase Tax so far as such Amendments are in order, Entertainments Duty on sport, on the living theatre, and on cinemas, especially the small cinemas which are having a very rough time, specific reliefs in the field of direct taxation, especially in relation to child allowances, disabled persons, and very many more.
I hope the Chancellor will take full account of this. I hope the Government will realise that this time we shall need adequate time to debate the new Clauses. In 1955, although we had two Finance Bills, there was no debate at all upon the new Clauses. It was precluded by the Financial Resolutions. I think it was the first year since the war in which Parliament had not been able to debate the tax system by means of new Clauses. Indeed, it was probably the first time for very many years. Thus, it is most important that on this occasion we shall have at least a double ration of time so that the new Clauses can be adequately debated.
A treble ration, as my right hon. Friend suggests, would be no more than just. The rules of order would preclude the moving of new Clauses which would involve additional Government expenditure such as increases in old-age pensions. Similarly, they would preclude the moving of new Clauses which imposed any charge whatever on the taxpayer. This means, unfortunately, that we cannot follow up on the Committee stage the attack we made upon the Government—and the very valuable advice that we gave the Chancellor—for their failure to deal with the growing scandal of tax avoidance.
I am well aware that attacks made from this side of the House in the Budget debate have caused some uneasiness in certain quarters. The Chancellor himself—this is most unusual for him—in his reply to the Budget debate seemed testy about our raising the subject. He told us that the Inland Revenue officials are a fine body of men.
I will not go into the whole question 'of the right hon. Gentleman's reply. I would even have missed that dinner for an hour to reply to it, and the right hon. Gentleman would have heard the reply that night.
It would have been discourteous to the right hon. Gentleman not to have heard the reply which gave him so much delight.
If the Chancellor can just stop preening himself on his oratory and concern himself with these matters, he said that the Inland Revenue officials are a fine body of men. He suggested that we should leave it to them and that when any particular method of avoiding tax obtruded itself on his or the Inland Revenue's attention he would propose methods for dealing with it. It is true that the Board of Inland Revenue as a tax force is probably the best of its kind in the world, but it our duty to ensure that we do not make their task impossible. It is Parliament's duty to help them.
I must make it clear at this point, because of some misunderstanding, that I am dealing now, and have in the past been dealing, with tax avoidance and rot tax evasion. Evasion, as the Chancellor rightly said, is illegal. It is a matter for the Board of Inland Revenue and the Director of Public Prosecutions. It is not a matter for Parliament.
On the other hand, avoidance means taking advantage of loopholes in the law so that legally, but often unscrupulously, taxpayers are able to avoid their proper liability. I have noticed that a number of newspapers have criticised the speeches made by some of us. It has been said we suggested that taxpayers were behaving illegally. This criticism was made in Punch and other learned journals. They said that it is the duty of Parliament to put the matter right by altering the law. That is exactly my point.[interruption.] I am glad that I have the support of the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke). I hope I shall take him much further with me as my argument develops.
In the Budget debate I suggested to the Chancellor that he should propose to Parliament the changes in the law which are necessary to close these loopholes, and that he should do it quickly. There is too much delay even when the Treasury becomes informed about some of these matters. In his brief reference to tax avoidance in his speech on that Monday evening, the Chancellor took credit for the fact that the 1954 Finance Act dealt with the racket in the reconstruction of companies. That happened in 1954, but my hon. Friend the Member for Ashton-under-Lyne (Mr. Rhodes) was pressing this point on the Government in 1952 and there was more than a year's crop of reconstructions, with tax avoidance on a very big scale, before the Government took action.
The right hon. Gentleman took credit for the attack on dividend stripping last autumn; but the previous Chancellor had known about it for six months at the very least, and probably twelve months, before action was taken. Millions of pounds were lost to the Revenue. Now we are told that the Government are making a further attack with Clauses 25 and 26. As I have said, I do not think that this is part of a major drive against avoidance so much as a tightening up of the drafting of the law on Profits Tax because of these unexpected loopholes.
In fact, we must ask the Chancellor whether in the cases of the Heelex and Universal Grinding companies tax avoidance was being practised, and if so, why the Chancellor did not stop it at that time. I think he knows perfectly well that he did not require any new legal powers to stop it. I am sorry to see the Solicitor-General looking so pained, but I think he will remember that in relation to Profits Tax, though not Income Tax, the Chancellor has power to deal with any case where the motive for any act is avoidance of Profits Tax or where the principal effect is a reduction in tax liability. Since that would appear to have been the case in those two instances, I am surprised that the Chancellor did not use the existing legislation to deal with the matter.
I should like to make one or two major suggestions to the Chancellor. I hope that he will even at this stage incorporate these things in the Bill. If he will not do that, perhaps he will bear them in mind for the autumn Budget. I want him to give them full consideration. I do not propose again to deal with the subject of capital gains from the point of view of avoidance, but they have, of course, a very important relevance to the question of avoidance and we have seen very many cases mentioned by the Financial Secretary where taxpayers turn taxable income into non-taxable capital gains, purely for the sake of avoiding taxation.
Many years ago Parliament intervened to deal with what was then technically called "bond washing," but the Chancellor will find that bond washing has not been ended by that particular provision. All that has been ended is collusive agreements to sell securities cum dividend and buy them back ex dividend afterwards; but there is nothing in the world which prevents the sale of those securities other than in collusive agreements and in conditions which will lead to very big tax free gains both to seller and purchaser.
I want particularly to draw the attention of the Chancellor to the use of trusts and covenants for avoiding tax liabilities. That is a major weapon in the hands of the tax avoider. The House may remember my quotations during the Budget debate from an interesting document circulated by a firm of tax avoidance consultants. There were some twenty headings and pointers covering the elimination of tax liabilities on Estate Duty, on Surtax, Profits Tax, tax on the income necessary to pay school fees, company reconstructions to eliminate director control for taxation purposes and with the advantages that flow from that while leaving directors in full effective control and so on.
It is clear from studying that document—and apparently the Chancellor has had one with him for years—that the principal instrument in this Poujadiste Utopia was the use of the discretionary trust and covenant. If the Chancellor will study the document—I do not want to give it further detailed advertisement—he will find that a great number of the methods for the avoiding of tax and entirely eliminating death duties, Profits Tax, Surtax and so on have been going on because of the use of the discretionary trust and covenant.
Obviously, as the Financial Secretary said, we must allow for a certain degree of exaggeration in a touting circular, but does the Chancellor really deny that these things are going on and are on a very big scale? If he does not deny it, why has he not acted before? In particular, why has he not acted on the recommendation of the Royal Commission on the Taxation of Profits and Income? I am not referring to the minority Report, the Memorandum of Dissent, but to the main Report. There the Commission referred to the avoidance of Income Tax and Surtax. The Commission could not, of course, refer to death duties because they were not within its terms of reference, but it rightly referred to what it called:
…the use of covenants for the purpose of discretionary trusts.
In Paragraphs 156 and 157 the Commission said:
We think that a disposition of this kind ought not to be allowed to rank for tax purposes…
We recommend that a new statutory provision should be added to the code for the purpose of rendering covenants of this kind nugatory for tax purposes. Payment under such a deed should not be regarded as deductions from the income of the covenantor…
Referring particularly to covenants in favour of relatives, the Commission said:
We feel little doubt that a number of such understandings do exist and are no better than a fraud on the system. Obviously the Revenue authorities have little opportunity of detecting or of analysing them their exact status in law. It is unfortunate that the phrase 'gentleman's agreement' seems to have obtained some currency in this connection.
Those are strong words. They are in an important State document, the Report of the Royal Commission on the Taxation of Profits and Income. I must presume that the Chancellor has read that Report. I must presume that he has read those very words and yet here we have the Chancellor, the ever watchful Chancellor, vigilant to protect the Revenue against depredations of this character, coming forward with a Finance Bill of 35 Clauses with no attempt to implement the important and unanimous recommendation of the Royal Commission. We shall want to know why he has not acted and I hope that he will tell us that tonight.
I should like to mention another example of which the Chancellor could have made mention in the Bill. That is the case of the tax loss companies. We are only too familiar with the buying and selling of companies which have made tax losses. There is no motive in buying them, except the avoidance of taxation. We see this touting round for companies with tax losses which goes on throughout British industry and trade. One has only to look at the advertisement columns of the accountancy and other journals. There is a valuable weekly journal called Taxation and I hope that the Chancellor reads it regularly—if he does, he will learn a great deal from it. In that magazine there is a section of advertisement called "Business opportunities" where sometimes there are seven, eight, ten or even twelve of these tax loss companies advertised. In last week's issue there are advertised:
Furniture Company, manufacturers or dealers, required with income tax losses £15,000–£120.000.
Hotel Loss Company required. Apartments and licensed trading.—Brief particulars to Box 1190.
Required for housing project, suitable Contracting or Development Company with substantial carry-forward income tax losses.
Share capital of Amusements Company for sale. Main objects miniature railway operators, caterers for public and private amusements of all descriptions. Agreed tax losses over £20,000. Still trading.
I do not know how they can still be trading and have tax losses.
South Africa.£20,000 Company Registration available. Taxation losses forward approximately £15,000. Purchaser must commence business before 31st December next, to benefit.
£5.000 Loss Company for Sale. Extremely comprehensive objects.
That is a typical quotation from this magazine. There will be more such advertisements next week and the week after, until the Chancellor stops it.
Can the Chancellor say what economic purpose is served by this kind of thing and by allowing this form of tax dodging to continue? It is legal, but it should be made illegal. It does not help British trade or industry; its only consequence is to reduce the revenue which should legitimately be paid to the Board of Inland Revenue. Of course, as hon. Members on both sides of the House know, the film industry spends almost more time buying and selling tax loss companies than it does in producing films.
In previous debates I have referred to another problem.
Would the right hon. Gentleman make it clear-because we are given to understand from the newspapers that he will be Chancellor of the Exchequer one day—that that to which he really objects is all forms of wealth creation, other than that created by salaries and wages and that he believes that these are all forms of wealth creation which should be proceeded against, because they are wealth creation?
I had hoped to carry the noble Lord with me. This is tax avoidance rather than tax evasion. We have today in this country a very high superstructure of taxation. The noble Lord will probably say it is too high, and in many respects I agree that many of our taxes are too high. The reason is that this tax superstructure is on too narrow a base of taxable income. Whereas very many hon. Members and taxpayers all over the country have to pay the whole amount of their tax liability, a number of people are getting away with it and are not having to pay. I have mentioned one or two ways in which that is done. I put it to the noble Lord that if some of these gentry could be caught by changes in the law, the result would be that other taxpayers would not be called upon for as heavy a burden as they are paying at present. I hope that I have raised the noble Lord's hopes.
I think that this problem is so serious, that, as we shall probably have an autumn Budget, the present Government will act before that eventuality arises and I hope that they will reject the noble Lord's contention that tax dodging and wealth creation are the same thing.
I wish to refer for a moment to the very serious problem resulting from the different treatment of business expenses under Schedule D and Schedule E. Here, again, I think we shall have the sympathy of the noble Lord. The House knows the kind of anomalies that are created, ranging, for instance, from the vicar who is visited by his bishop on some official business and who gives him a glass of sherry and cannot charge that for Income Tax purposes, to the business man who can get away with thousands of pounds, including, in the words of the Royal Commission, those
who enjoy the reality of personal income from escaping taxation upon it because it is not received in monetary form or in a form that is convertible into money.
I hope that the Financial Secretary will deal with it.
These are the things that I had in mind in the Budget debate when I referred to tax avoidance. From the economic point of view, it is not only tax dodging, but there is also a great deal of waste because of the anomalous way in which the tax laws are drawn in that expenditure is encouraged which, from the national point of view, is uneconomic but which, in effect, is Government subsidised in that it is exempt from its proper share of taxation.
This includes the large proportion of contributions made to trade associations. While the Board of Trade is going through the motions of restraining these associations from imposing restrictive practices, the Government are subsidising them. Many of their activities are of great value such as those which contribute to research, export promotion and so on. But there is no reason why the Chancellor should subsidise, for instance, the trawler industry's lavish expenditure on advertisements of a political character in which it puts its case against the Icelandic fishermen. I am not saying whether it is a good or a bad case, but I am saying it is wrong that such advertisements should have been paid for by such a large extent by the Chancellor.
Then there are these trade association dinners. No doubt the Chancellor goes to them sometimes and courteously thanks the associations for their hospitality. The boot is really on the other foot. The Chancellor is paying for the dinners and the associations should be thanking him. Every night at almost every West End hotel there is some great dinner being given. The Bottlers were up last week, and people travelled from all over the country to attend the dinner. Their fares, their night's accommodation, their tickets for the dinner and their drinks were paid for pretty well by the Chancellor. I know that the right hon. Gentleman does not want to be unpopular, but I submit that this is not in the public interest or in the economic interest of the nation.
There are many contributions by firms, such as, for instance, as my hon. Friend the Member for Reading (Mr. Mikardo) will agree, to bogus provident associations which make it a condition of membership and benefit that the participants shall not be members of trade unions. Here, again, the Chancellor is subsidising this kind of Tolpuddle mentality. I suggest that if the law were altered either to tighten up the type of payments that would benefit or to exclude them from tax remission, the industry and trade of the country would be a great deal healthier, and so would the Revenue.
There may not be anything wrong in firms providing large sums for these associations, but I do not see why the Chancellor should pay for them, and I am sure that when he considers the matter further he will come to the same conclusion. The Chancellor may be very pleased with the buoyant revenue from spirits, but, of course, he pays most of it himself. I am not suggesting that British business men are taking in one another's washing, but it is true that they are busy standing one another drinks and sending the bill to the Chancellor. We are told that in some West End hotels the waiters, instead of asking for tips, ask for the bills which they can then sell to some business man who can use them in his expenses account.
I suggest to the Chancellor that business entertainment should rank for tax expenses to only 50 per cent., if that is not too high and that he would be surprised at the revenue he got. It would relieve the Board of Inland Revenue of an inviduous and, indeed, impossible task. It would swell the revenue and discourage this uneconomic, wasteful and inflationary expenditure.
The Chancellor should also take the same line with regard to advertising. This was proposed by my right hon. Friend the Member for Bishop Auckland (Mr. Dalton) in 1947. The scheme was dropped by Sir Stafford Cripps in return for an undertaking that advertising expenditure would be held down to the level at which it was then running. That was in 1948, when it was running at £121 million a year. In 1953 it was up to £230 million a year, and today, what with I.T.A. and the rest, it is probably running at over £300 million. It has more than doubled, and perhaps trebled.
I am not suggesting that all advertising is wasteful. Where it expands the market sufficiently to enable an industry to lower its production costs it may be very useful. Overseas advertising is obviously essential, but a great deal of advertising today is not only wasteful, but quite contrary to all the Chancellor's ideas of restraining home consumption on which he treated us to such eloquent passages in his Budget speech.
Does not the Chancellor agree that advertising is aimed at increasing home consumption, and is that what he wants? If it is not, why does he pay for it? Of course, much of it does not have any effect on demand at all. We have all seen the I.T.A. advertisements for the different brands of petrol, with all those mysterious additives. I do not suppose that one motorist in a hundred could tell what petrol he was using. This sort of advertising does not increase the total demand for or lower the cost of petrol. All it does is to transfer consumption from one brand of petrol to another. When one petrol company advertises, they all have to do it in self-defence. As a result, the consumer pays, and the cost of living goes higher still. I suggest to the Chancellor that he should revert to the proposal of my right hon. Friend the Member for Bishop Auckland, when he would find that the revenue he received would astound him. It might well be of the order of £100 million.
Finally, I want to turn to the background of the Bill, to the Chancellor's general economic strategy which underlies it. In the Budget, the right hon. Gentleman nailed his colours to the mast. He was going to stop the rise in prices and he was going to do it in four ways. First, he was going to do it by the incentives which he was giving, or thought he was giving, to private savings; secondly, by increasing the above-the-line surplus; thirdly by promising to cut Government expenditure, and, fourthly, by continuing with the credit squeeze and reliance, or, as we would say, the over-reliance, on the monetary weapon.
We have debated private savings in the Budget debate and since, but I want to ask the Chancellor one or two things about the Government surplus. Combined with the promise to cut Government expenditure that has impressed some observers with the Chancellor's sense of purpose. But I do not know whether hon. Members have really considered to what this public saving amounts. There is an increase to £460 million as against £445 million on what we should have achieved had we made no tax changes, £15 million more than if there had been no Budget at all.
In our view such a surplus is not in itself a solution because a Budget surplus created by a buoyant revenue is one of the normal results of inflation, and if inflation continues we get a still bigger Budget surplus. There is all the difference between a Budget surplus which has a bite in it, and one which is the scum or the spray on the inflationary tide. I do not think that there is any suggestion at all that the Chancellor is producing a disinflationary surplus with this Budget or with any of his policies. I must tell him that since the Budget, which is only three weeks ago, the inflationary process has gathered momentum. The wage-price spiral seems to be taking another turn. We are threatened with increases in coal and steel prices.
The latest figures of prospective investment expenditure are much higher than were expected when the Chancellor framed his Budget and certainly the Stock Exchange continues to show a general expectation of inflation continuing. Certainly, if the City had thought that the Chancellor's Budget had done the trick, there would have been a vastly different reaction on the Stock Exchange.
Again I must press the Government about the Chancellor's pledge to cut £100 million of Government expenditure. This is big talk. This is strong stuff, and we should like to know when the House is to be given details. The financial year is already on its way. There is less than eleven months left. Meanwhile, other expenditures are mounting up. There are the increases in Civil Service and teachers' salaries, which we all welcome, but they add to the Chancellor's burden and to the £100 million which he has promised to cut. There is the likelihood of increased expenditure on Germany, where the Government seem to have been extremely careless in the original drafting of the Convention. All these things are adding to the £100 million which the right hon. Gentleman has pledged himself to cut from the estimates for this financial year. I hope that we shall be told when we may expect a statement and, in particular, whether we can expect the statement before the Whitsun Recess.
Or is the whole thing part of that confidence trick which the Government put over every year on the Defence Estimates? During the Budget debate I mentioned that the usual procedure was to fix a high figure for defence to impress our Allies and then proceed to under-spend it. My hon. Friend the Member for Dudley(Mr. Wigg) put a Question to the Minister of Defence a few days ago. He asked for the original Government Estimates on defence expenditure for each year and the subsequent expenditure at the end of the year. For some reason the Minister of Defence cannot give us the figures for 1955–56 but we can use the Chancellor's own figures. For 1953–54 the Government underspent their Estimates by £153 million. In 1954–55 they underspent by £120 million and for 1955–56 they underspent the Defence Estimates by £89 million. I wish the Chancellor to tell the House whether his figure of £100 million is simply a repetition of that performance; that the Estimates are not real Estimates, but will be underspent over the year.
I think that we are driven to the conclusion that the Chancellor is relying not on the Budget, but on the monetary weapon. We have to warn him of the dangers which he is facing. Let me also warn him that the monetary weapon is failing him. Perhaps I may briefly summarise what this monetary weapon is achieving. First, it adds greatly to Government expenditure at least £150 million a year compared with 1951—and this is inflationary. Secondly, it adds greatly to our overseas expenditure. Again, the estimate is that we are spending about £150 million more across the foreign exchanges as a result of high Bank Rates. The Government forget that when the classical Bank Rate weapon was invented, many years ago, we were a creditor nation; and higher interest rates brought in more money from abroad as interest payments. But now we are a debtor nation, and these high interest rates increase payments to overseas creditors.
Thirdly, the policy is becoming frustrated as other countries follow our lead. Fourthly, there is the most damaging effect on the sterling area and on the Commonwealth as more and more Commonwealth countries go to the dollar area for their borrowing. We warn the Chancellor that the Commonwealth as we know it, as an economic unit, cannot stand a continuance of the 5½ per cent. Bank Rate. If he wishes it to continue as an economic unit, the sooner he can reduce the Bank Rate the more likely he is to achieve his object.
Fifthly, there is the effect, which some of us have mentioned on our acceptance business, an essential element in our invisible earnings. More and more traders are turning to New York, Zurich and Amsterdam. Sixthly, we see the effect on essential social investment. Take housing, for example. Repayments on a £1,700 house with interest charges at 5½12 per cent. is now £68 13s. a year, over 25s. a week in interest alone; against £32 19s. or less than 13s. a week in 1951. That is an increase of 12s. a week for interest alone. Put in another way, over sixty years repayments on a £1,700 house at the 1951 interest rate amounted to £1,976. Now the repayments on that house are £4,122 over the sixty years.
If the Chancellor wishes to have a debate on housing, we shall be glad to join in, but I do not think there is time for one this afternoon. The right hon. Gentleman knows very well that the increase in production and in the financial position which he has been able to celebrate is due to the fact that for four or five years after the war we built factories and power stations, even though we failed to build the number of houses which we should have liked to build, because the other things were more urgently needed. The Chancellor is now cashing in on that.
Seventhly, there is the incalculable effect of the Chancellor's Bank Rate on industrial investment. The small man is being squeezed and the big man is getting away with it. Some essential developments are being held up and the high interest rates are failing to restrain many inessential ones. Finally, I must ask the Chancellor if this high Bank Rate is working in restraining home consumption and stabilising prices. There are many anxious voices being raised in the City. There has been an important debate in Lloyd's Bank Review and in The Banker. Articles have been written which I am sure the Chancellor has studied. I do not wish to go into the points raised, but orthodox supporters of the use of the monetary weapon are worried about what is going on at present. I am sure that this worry is shared by some hon. Gentlemen opposite.
Many different reasons are put forward. People say that high taxation, to get the same effect as the pre-war Bank Rate of 5½ per cent., would need a present-day Bank Rate of 11 per cent. and that would worry all of us.
If the Chancellor is to relate the Bank Rate to monetary policy, some people say that with present taxation rates the Bank Rate should be not 5½ per cent, but 11 per cent. I do not take that view, and I hope that it is not in the mind of the Chancellor.
Another argument sometimes used is that, with the post-war notions of liquidity, the persistence of Treasury Bill borrowings is frustrating the policy. That point has been put by some hon. Gentlemen opposite. There are some who call for compulsory minimum liquidity ratios as in the United States, and others for a big funding operation—not very easy when short-term borrowing is at 5 per cent., as I am sure the Chancellor will agree. Others see it in the changed emphasis from the old pre-war 8 per cent. cash ratio to the post-war liquidity ratio basis, and they point out that the Bank Rate today does not have the necessary effect; whereas a minimum cash ratio plus open market operations on long-term securities would force the banks to take action.
Whatever view one takes about these arguments, and, to quote the words of the Chancellor, "You pays your money and you takes your choice," one thing seems to be true: the policy is not working, and very many eminent authorities of all political parties are extremely worried about the situation. Many of us are coming to think that the main effect is purely an impact effect, due to the widening margin between bill rates and bank deposit rates. If that be true, and if the effect is only temporary, it suggests that to maintain the present degree of squeeze, the Chancellor will have to keep on increasing the rates until he gets to a truly penal level.
I am sure that is a point which is worrying the Chancellor. I am afraid that he will have to go through an agonising reappraisal of his financial policy to reach the conclusion to which he is being driven. Some newspapers say that the right hon. Gentleman is already going through that reappraisal and the movement of short-term interest rates is some sign of a slight change in his attitude.
I realise that in what I have said there has not been very much about the Bill itself. That is for the reason, which I gave, that there is very little economic interest in the Bill. I have given the reasons why we do not intend to oppose the Bill—there is so little in it of the vicious character which we were opposing last autumn—but, I have also given reasons why we consider it totally inadequate and why from the point of view of the Inland Revenue and the economic position of the country, the reliance of the Government on the monetary weapon, which really underlies the Bill, is so very dangerous.
I have given the Chancellor many questions to answer. I am alarmed to hear that we shall not have an answer from him tonight. It has been suggested that the Chancellor is not to address the House on the Second Reading of the Finance Bill. I ask the right hon. Gentleman to reconsider that decision. That is not a reflection on the Economic Secretary, whose contributions to debates we all enjoy, but we should have liked to hear the Chancellor himself. Until this precedent was created by the Lord Privy Seal last autumn, I think it is true to say, there had not been a case for very many years in which the Second Reading of the Finance Bill was not graced by a performance by the Chancellor himself. I hope the right hon. Gentleman will not follow that precedent, but will answer us tonight. I hope he will give a clear answer to some of the points I have put before him.
This is the first occasion on which I have had an opportunity of addressing the House during the debates on these financial affairs. We have all enjoyed the speech of the right hon. Gentleman the Member for Huyton (Mr. H. Wilson). I am not going to attempt to answer the last part of his speech, but this morning, or yesterday, I received by post from New York the monthly letter of the First National Bank of New York, which contains an extremely interesting article headed, in inverted commas, "The Euthanasia of the Rentier". That article refers to the continual rise of interests throughout the world and also to what happened before the policy of Lord Keynes started. The article says:
The crowning blow was the policy, adopted twenty years ago, of using central banks to augment loan funds and drive interest rates down.
This was during the Great Depression when over-saving was alleged to be the cause of unemployment and falling prices. The celebrated British economist. J. M. Keynes, seeking 'full employment, rejected the principle that people needed rewards for saving. He urged Communal saving through the agency of the State,' and the use of central banks free from the restraints of the gold standard to insure an abundance of money for capital investment. He prescribed 'euthanasia' for the rentier; painless death for people living on interest.
The article went on to say:
The views of Lord Keynes…had great influence on public policy, most notably in the English-speaking and Scandinavian countries inclined toward socialism.
The article goes on to deal with the very points with which the right hon. Member has been dealing and, quite frankly, it does not suggest what is the solution. I left this country for India before Lord Keynes had become the great economic figure he was and I came back when the economics of this country were ruled by Lord Keynes. I have a very great wish that Lord Keynes could be here today to tell us what are the answers when we have inflation, not only here, but in America, in Scandinavia, in France, in Germany and everywhere. If Lord Keynes could do that for us, we would indeed have a useful answer to the right hon. Member today.
Another point on which the right hon. Member dilated at great length and which is very attractive to one who in early youth spent his time as a company lawyer was that of tax avoidance. I should dearly like to go into the various headings of what the right hon. Member suggested were forms of tax avoidance in respect of which there should be legislation. All I can say is that it is terribly easy to talk about tax avoidance under the various heads about which the right hon. Member talked, but terribly difficult to suggest any effective legislation to stop that sort of thing.
One factor to which the right hon. Member particularly referred was that of covenants and gentlemen's agreements. As to covenants, he did not go on to say that the authors of the Final Report of the Royal Commission made it quite clear that no legislation was possible and that all they could suggest was that the parties who made use of a covenant—both the donor and the donee—should enter into a declaration on every occasion that there was no secret agreement between them.
Of course it is very easy to make a great case against tax avoidance, but terribly difficult to stop it effectively. That is why year after year during the period when Lord Simon was Chancellor and Chancellors who followed him there was always a great delay before a prevalent type of tax avoidance could be effectively legislated against in this House.
Whilst it is true that on one aspect of the question the Royal Commission came down against legislation, will not the right hon. and learned Member agree that in paragraph 157 the Commission recommended:
a new statutory provision should be added to the code for the purpose of rendering covenants of this kind nugatory for tax purposes.
Of course I agree that there are such phrases, but "covenants of this kind" is the sort of phrase used in a Report and not the sort of thing which can be put into legislation. That is the sort of problem which we lawyers have to tackle.
I really rose on this occasion, however, because I suppose I am one of the oldest of the originally self-employed people in this House. I want in particular to thank my right hon. Friend the Chancellor for having brought in proposals to carry out at any rate the bulk of the recommendations of the Millard Tucker Committee on pensions. I do not think my right hon. Friend has either had proper thanks for what he is attempting to do or that the country appreciates how far and to what a large number of people those proposals apply.
The Millard Tucker Report divided the possible beneficiaries of these proposals into various classes, of which the self-employed class who at present are not entitled to benefit under any pensions scheme, amount to about 2 million. The largest class to benefit is, however, employees who are not employed either by the State, the nationalised industries, or any firm which has a pensions scheme. Of those, there are9½ that was the estimate of the Committee. So, all told, Part III of the Bill does in fact put an opportunity—not before the whole of these 11½ million, because quite obviously some of them will be too old to take advantage of these proposals—at any rate before a vast number of young people to make, I shall not say ample, but adequate provision for their old age.
Most of us who have had anything whatever to do with the professions during these latter years have been terribly anxious as to what was happening to all the professions. So many of the best of the young men and young women were going off into safe, salaried and pensioned posts in Government service, industry, or elsewhere. One of the factors—not the only factor, but one—which undoubtedly was inducing them, or rather was inducing their parents to persuade them to do that, was the fact that there was no pension scheme for self-employed which could provide even adequately for their old age.
Therefore, this is a great opportunity to a vast number of these young people, which I hope will be taken advantage of to a great extent I see no reason why that should not be so. It will enable the professions to retain some of the best brains, which lately they have been losing so frequently.
My right hon. Friend dealt with a great number of points, but, while we welcome the proposals in the Bill, we are to some extent disappointed by some of them. We should have preferred to see the 10 per cent. limit raised to 12½ per cent., as the Millard Tucker Committee suggested, and we should have liked some proposals by which older people could enter the scheme. We should also have liked proposals whereby those who are at present only partially insured could join the new scheme. An example is the position of consultant physicians in the National Health Service; they have a very small pension scheme, I believe, and they are a class which, if they were eligible, would doubtless wish to join the new scheme. I hope that in Committee, despite what my right hon. Friend said, it will be possible to persuade him to make amendments to the scheme. But, taking it by and large, we are grateful that the scheme has been placed before us, and I think a great many people throughout the country will be grateful, too.
In this connection, we welcome the concession on the taxation of annuities, which to some extent helps the middle-aged or elderly people who would otherwise receive no benefit at all from the provisions of this part of the Bill.
I thought my right hon. Friend passed over Clause 9 too lightly, since under this Clause arises a serious matter which we shall have to debate in Committee. As I read the Clause, it means that a person coming from the United States, Canada or elsewhere to take up a post for his employer in this country, and becoming resident or ordinarily resident here, will be taxed on the whole of the emoluments which he draws from the post, whereas at present he is taxed only on so much of those emoluments as he receives or brings over to live on here.
It is perfectly true that if I went to the United States as an employee of a British company and took up residence there, I should be taxed on everything I received from my British company, but the difference is that whereas I would welcome the lower rate of taxation in the United States, people coming here from Canada and the United States have to meet a very much heavier system of personal taxation.
Already people have made representations to me, and I am sure they have to other hon. Members, pointing out that this may lead to serious results. It may well mean that Canadian, American and other foreign companies who have branches in London will find it desirable to move them to Paris or some other convenient place outside the United Kingdom. We must consider the possible results of this proposal and not deal with it as merely a tit-for-tat in taxation. We are very anxious to develop our trade relations with Canada and this proposal may be a serious blow to those attempts.
Turning from what is in the Bill to what I should like to see in it, I am very disappointed that there is nothing in the Bill to assist us with our efforts to develop colonial businesses or similar overseas businesses. I am very disappointed that there is nothing in the Bill to correspond with paragraph 642 of the Royal Commission Report, which deals with the taxation of profits made by British companies overseas. The Report contains the following strong recommendation:—
These considerations, taken together, show that the present system of taxing overseas profits is neither fair to the individual trader who makes them nor conducive to the true economic interests of the country as a whole. Some change of system is urgently required; and the principle that should govern a revised system should be that overseas trading profits should be altogether exempt from United Kingdom taxation so long as they remain a, the service of the business in which they are made, but that once they are withdrawn from the purposes of the business by any form of distribution to proprietors, they should be taxed according to the scheme of taxation of personal incomes and as the personal income of each recipient.
We looked forward to the implementation of that recommendation and we are very disappointed not to get it. Although it would doubtless cost the Revenue money, the long-term advantage of developing markets for our industries is so obvious that I should have thought it necessary to do something of that sort at an early date.
I welcome the provisions of Clause 34, dealing with the financing of the nationalised industries. I am fully aware of the difficulties which have been caused by the issues—I will not say ill-timed—by individual industries at times convenient to them but not when there was likely to be any substantial subscription from the public, with the result, as my right hon. Friend has said, that in most cases Government Departments have had to take them up, which has meant large issues of Treasury Bills and pure inflation. In those circumstances, any method by which the Government can control the time at which and the amounts for which the nationalised industries go to the markets must be a very great advantage to everybody.
It may be perhaps a Committee point, but I am not sure that there is provision made that the method laid down in Clause 34 must be adopted by the nationalised industries for the next two years, or whether they are still free to borrow as they have done before. I understand that the arrangement is that they shall raise the necessary finance in the way indicated by Clause 34. If not, I hope that that will be arranged.
My only remaining point concerns the disappointment which is alleged to exist among the middle classes. Personally I do not know how one defines "middle classes" today—I wish I did.
That is as good a definition as any I have heard.
There is at any rate one very definite class which is suffering far more than any other from this inflation. It consists of those persons, professional or otherwise, who have to live on small fixed incomes and who are not employed in circumstances in which every six months they can get a rise in salaries or wages. It is they who are suffering today, and although a certain amount has been done for some sections of them, every time there is a rise in prices and a rise in wages—every time the spiral goes up—they are just that much worse off.
It is perfectly true, I agree, to say that the only ultimate solution is to defeat the inflation, but who can tell how long it will take us to do that? Month by month goes by and still we do not see any immediate stabilisation of prices for these people. That is why it is a great disappointment to them that the Budget has given them no direct taxation relief. They cannot save. They have not the money to save. They are living to the full extent of their spendable money. This is a savings Budget, but those people cannot save. The only thing that could be done for them would be to give them some more or less direct taxation relief, yet to give such relief at this time to those whose numbers must run into some millions would be directly inflationary and might only make worse the situation which it attempted to help.
I have not yet seen any suggestion as to how this dilemma is to be tackled. I am sure that the classes I have mentioned have the sympathy of hon. Members on both sides, but no one has yet suggested what can be done towards their permanent help and the improvement of their conditions other than by ending the inflation. The right hon. Gentleman said that in his view this was not a Budget that would help very much in that direction. I take a rather contrary view.
I entirely agree with the right hon. Gentleman that if that £100 million which it is sought to save really comes from under-spending it is not true saving, nor what the country expects. But if the Chancellor could really get anywhere near that figure in real saving on Government expenditure; if, at the same time, capital investment is slowed down generally; if people can be persuaded to save instead of spending up to the hilt; if they can be attracted by the Premium Bonds, as I think they will be—and I ask my right hon. Friend to promise that the Bonds will be issued before Christmas so that I can give one of them as a Christmas present to my grandchildren—if all those things can be done, I think there is a possibility that price stabilisation may come even more quickly than we think. Already I realise the Government are involved in extra spending at home—and possibly abroad. Nevertheless, if the combined effect is as we hope it will be, it may be that this time next year we shall be able to do something really substantial for that particularly hard-hit class of those who have to live on small fixed incomes.
As my right hon. Friend the Member for Huyton (Mr. H. Wilson) has said, this is one of the duller Finance Bills of recent years, and I think we shall probably have a rather difficult Committee stage on it. Therefore, I welcome his suggestion that we should be given reasonable time this year for a number of new Clauses. However, when there are a great many new Clauses one can never be certain which will be selected, so I wish to begin by referring to one or two points—by way of an insurance policy, perhaps—which may not be dealt with by new Clauses. If they are not so dealt with, I think that one should say something about them on Second Reading.
I want to refer, if I may, to the remarks made by the Financial Secretary on the Budget debate about Entertainments Duty. He then said that this year there had been a very comprehensive review, but that the Chancellor had come to the conclusion that this was not the time to take any action, and that any action he would subsequently take—and he gave some indication that some action was to be anticipated—would have to be on a very wide basis and would have to deal with Entertainments Duty as a whole, and that no individual or special concessions could be expected for this year. We do not know how long the right hon. Gentleman expects this Government will last and, therefore, we are not certain at what point in the career of the present Chancellor this action may be taken, but I should like to put to him very strongly that there are at least two sections of the entertainment world which need to know pretty soon what action is likely to be taken.
The right hon. Gentleman knows very well that there has been on the Order Paper for some time a Motion, signed, I think I am right in saying, by nearly two-thirds of the hon. Members of the House, concerning the living theatre. There is very great concern about the state of the living theatre, and I hope that we may be able to discuss, on some new Clause possibly, the remedies which should be applied. I would also suggest that if something is to be done within the next year we should be discussing now how it should be done.
There are considerations concerned with the living theatre which give one some anxiety. At present the repertory companies and certain other theatres obtain tax relief. That means that they are in a position which does at least help them to carry on in the face of competition from other forms of entertainment. If the tax on the living theatre is entirely removed, or even substantially reduced, the relative position of these repertory and similar theatres will be affected. It would be an unkindness to them if the tax were just removed without any compensating action by the Government in other directions.
I hope that the right hon. Gentleman is fully aware of that position. I have had it suggested to me that even in 1948, when the tax was reduced, the non-profit-making theatrical organisations suffered. It is suggested that, owing to the tax reduction, out of every £1,200 taken at the box office the theatrical companies received £100 less and the landlord of the theatre received £100 more. I do not want to labour the point, but I do wish to emphasise that it is not primarily the theatrical landlords who are in difficulty.
Anything which can be done should be done, bearing in mind the great importance to the theatre of the repertory companies, which serve as a nursery both for actors and playwrights, and also the national organisations like the Old Vic and Stratford. I put forward the argument to the right hon. Gentleman that on the question of the tax on the living theatre, even if nothing is to be done this year, it is very important that people should know the lines on which the Chancellor's mind is working. This applies even more strongly to the question of Entertainments Duty on the cinema. The amount of Entertainments Duty paid by cinemas is very considerable—far greater than on any other form of entertainment—and even with falling attendances it is about £33 million a year.
The position in the cinema industry is not a happy one. Attendances are falling and in spite of the increased price of seats the revenue of the cinemas is not adequate. I do not want to go into all the details which have been put fairly fully by the industry's representatives to the Chancellor, but I would urge that there are two sections of the industry which are very anxious indeed as to their future, and which really need to know what is to be done. I am referring, in the first place, to the small cinema exhibitors, some of whom are in a very difficult position and likely to go out of business. Proposals have been put forward for tax rebate. I do not think that they are very practicable, but an alternative form could be suggested which would help the small exhibitors.
It is true that some of them may go out of business anyway because the high cost of the new type of equipment which is necessary for up-to-date cinema exhibition will be beyond their means and we may not be able to do anything to save them. It is important that the small cinema should remain in being because it performs a service to the community especially in rural areas. The evidence is really incontrovertible that with the present very heavy weight of Entertainments Duty, which is far heavier on the cinema than on any other form of entertainment, many small cinemas will not be able to survive.
There is another aspect of the cinema world today to which I want to refer, and that is the fate of the producers. They are helped in various ways, partly by the National Film Finance Corporation and largely through what is known as the Eady Levy. I understand that the present Treasury attitude is to suggest that the Eady Levy has nothing to do with Entertainments Duty, and that the two are quite separate. As the right hon. Gentleman is aware, when the Eady Levy was first negotiated it was on the basis of the level of the Entertainments Duty, and when it was prolonged in 1954 for a further period the whole question of the duty was very much in the minds of those who made the agreement on the levy.
The position is that the levy agreement. is due to expire at the end of 1957. It may well be that the Treasury officials advising the right hon. Gentleman have told him, "This is quite all right; you do not have to worry about it. You have until October, 1957. If something can be done next year that will be in ample time, and we really need not concern ourselves at all this year. This is something that we can safely postpone."
I would submit that that simply is not true. The producers of films are now, of course, entering into commitments which will involve them in work going well beyond October, 1957. I have had representation from several of them, who tell me that they are already finding it difficult to raise adequate finance, because they do not know what is to happen after the levy agreement expires in October, 1957. Some time back, the President of the Board of Trade made a statement in the House when there were difficulties about negotiating the levy within the industry. The President of the Board of Trade at that time said that if no agreement were reached for a voluntary levy he would introduce a statutory one. Ultimately, agreement was reached and no statutory levy was required. I would ask the right hon. Gentleman to consult with the President of the Board of Trade on this matter, because it seems to me to be quite clear that the uncertainty both as to the future of Entertainments Duty and what I submit is closely linked with it, the future of the Eady levy is likely to cause considerable difficulty at the production end.
We have done a great deal in the last few years to try to stimulate the production of British films, because we believe that they have a value over and above the ordinary commercial value as an expression of what is called the British way of life. A good deal of American finance is coming into this country through the film world, but we do not want to be entirely dependent on that. That is why I urge that we should at least be given some indication what the Chancellor proposes to do about Entertainments Duty.
I turn from the question of Entertainments Duty—regretting that it is not possible to do anything about it in the Bill—to one of the major sections of the Bill itself. Part III deals with annuities and pension provisions. I am sure that we welcome, so far as it goes, the arrangement that is made to help people who have not been in a position to qualify for pensions. It is quite clear that these provisions will be of assistance to many self-employed and professional people. We also welcome—I myself referred to this in the House some time ago—a provision for adjusting taxation on annuities, which, I think, is only fair and right. But I must confess that I feel very great disappointment that the Chancellor is dealing with only one section of the community and leaving quite untouched the whole field of existing pension arrangements.
My right hon. Friend the Member for Huyton has already pointed out that leaving untouched what is commonly called the top hat schemes some of which provide extraordinarily generous lump sums for the recipients, was perpetuating an anomaly which was most unfair. I would also suggest to the Chancellor that there are other unsatisfactory aspects of the existing private pensions scheme. I will not go into the argument as to how much the community as a whole, including many people who have no hope of getting pensions of that kind, are in fact subsidising these pensions schemes.
There are other unsatisfactory aspects, particularly in that the person in employment which carries a private pension is virtually tied to that employment. I feel very strongly indeed that a tax concession should not be made for any pension scheme in which there is not a proper arrangement for carry-over or interchange of some sort when a man wishes to change his employment.
Some of these pension schemes may be very generous, but the more generous they are the more the employee becomes the slave of the pension scheme. I have had some experience in journalism. Some newspapers have pension schemes, some have not; some have very good pension schemes, some much less generous. But what happens to a journalist who has reached middle age and who, perhaps, has very strong conscientious feelings against continuing to work for a particular newspaper, because there has been some change of proprietorship or editorship, or for some other reason? Such a man may find it very much against the grain intellectually, possibly almost spiritually, to continue to work in his job. That is perhaps an extreme case, but it is a real one.
If that man leaves his job, the chances are that he may have no pension rights whatsoever, for some of these pension schemes are non-contributory so far as the employee is concerned, and if they are contributory, the employee who leaves usually only receives a small amount in the form of his contributions plus a moderate interest. He seeks other employment and may join another firm, where he may or may not qualify for a pension. His position is very difficult.
It seems to me that it puts upon the salaried professional person particularly a very great strain to realise that if he wishes to change his employer when he has reached middle age he may thereby be sacrificing provision for his widow and for his own old age. I feel that this kind of pension arrangement is not a satisfactory one.
The right hon. and learned Member for Kensington, South (Sir P. Spens) drew attention to the fact that the present proposals in Part III, while they are directed primarily to the self-employed and professional group, could, of course, in theory cover a very large number of workers. He suggested that there might be included in those provisions some 9 million workers who are working for firms not operating pension schemes themselves.
That is perfectly true, but, that being so, it is surely going to make employers who ought to have pension schemes adopt the attitude that everything is now perfectly all right and that employees can make their own arrangements under the Chancellor's scheme, while they, the employers, have no further need to worry. I should be glad to have the comments of the Government spokesman upon that. Employers may in effect be relieved of their proper obligations relative to other employers. That seems to me to be an important consideration.
It will be very difficult, with the kind of private enterprise schemes which are encouraged by the Bill, to bring in any large proportion of these 9 million workers. I seriously suggest to the Chancellor that he might well have considered something which has been discussed for the last few years in this country, and which has been discussed in very much greater detail in some of the Scandinavian countries, namely, a national supplementary pension scheme.
He wants people to save. We are with him in that. Apart from what he has done for the relatively small number of professionally self-employed people and business people, all he is really offering to the great mass of the working population is the Premium Bond. I seriously put to him the suggestion that he would have done a very much greater service both to the country and to the individuals concerned if he had sat down and worked out a supplementary pension scheme. Such a scheme would have achieved far greater savings than Premium Bonds are ever likely to achieve; and, in parenthesis, I might just say that anyone who happens to be lucky enough to have one of the prizewinning Premium Bonds is unlikely to save his winnings; experience we have of people winning on the football pools and in other such ways is that they "blow" the money within a few months.
It would have been very greatly to the interest of the country at this time, when the emphasis is upon saving, had a supplementary pension scheme open to everyone been introduced. I dare say that the Chancellor is well aware of this, but I would just mention the kind of proposals made in Sweden, a country which, as we know, is very advanced in these matters of social legislation. There is a proposal by a Swedish Government Committee for precisely such a scheme. There will be a basic scheme, as we have it now, for everyone regardless of earnings, and then a supplementary scheme which would be related to varying amounts of contribution and would produce variable additional pensions. Such a scheme would be very attractive indeed to many workers in this country who are not in the least likely to take advantage of the proposals in Part III of the Bill.
I noticed with interest that the proposed scheme in Sweden suggests that the pension would rise in nominal amount with any fall in the value of money. That really would be an incentive to save because, after all, one of the disincentives to saving at the present time is that we just do not know what our savings will be worth in time to come. The hole in the purse which was going to be stopped, according to what we saw on the Election posters, seems to be as large as ever.
A great opportunity has been missed. So far as the scheme goes, it is all right, and we shall no doubt discuss the details in Committee; but there has been no bold conception or initiative such as the Financial Secretary spoke of. What the hon. Gentleman was referring to was the Premium Bond. What I am suggesting would have been a far more bold initiative and would have led to far more substantial results.
There would have been one other very important effect. If such a scheme were started, for the first twenty or thirty years, at any rate, contributions would very much exceed amounts paid out. Though the position would right itself later there would be, for that period of time, a surplus. That surplus could surely be used as a basis for something which we are at the present time neglecting, namely adequate investment in the Colonial Territories. There is a Motion dealing with that subject now upon the Order Paper.
[That this House, being of the opinion that the development of raw materials throughout the Commonwealth is vital inassisting the balance of payments and is essential to the prosperity of the United Kingdom and of all other countries within the Commonwealth, urges Her Majesty's Government, by achieving an annual economy in national expenditure to make available an amount equal to five per centum of the annual revenue of the United Kingdom for the exclusive purpose of providing facilities of communication, water and power which are essential to such development.]
What I have in mind would be one possible way in which that extremely serious problem could be tackled during the coming ten or twenty years, at a time when these territories are at such a critical period of their development, and are being affected by the credit squeeze and financial policy in this country.
Only very recently I was speaking to one of the finance Ministers from one of the Colonial Territories who is now in this country; he is possibly having talks with the Treasury today. He was telling me that for the last few years he has been able to tell the officials concerned that they could have for development purposes about £9 million or £9½ million, which for a territory of that size is not unreasonable. He says that this year he has to tell them that they have to reduce that crucial development expenditure by £3 million.
That is a very small sum in the ocean of our finances but a very large one in a territory of that kind; and there is also the difficulty of raising money in the London market, an operation which again is affected by policies in this country. There is nothing in the Bill that will help in dealing with that problem.
The Chancellor, therefore, has missed a very great opportunity which he might have seized of a most fruitful social experiment, a tremendous incentive to saving and, for a period at least, a possible basis for some of the extra developments overseas which we are not at present undertaking because we say that we have not the resources for them. For all these reasons, while we welcome many of the minor provisions of the Bill, we think that on balance it is a disappointing Bill.
May I ask for the indulgence of the House on this, the first time that I have had the honour to speak in this Chamber? I am fortunate enough to represent the constituency of Leeds, North-East, where so many of those who work in other parts of that great and famous "city of a hundred industries" have their homes. All my constituents are, of course, concerned with the health of the economy and with the battle against inflation.
It is generally agreed that inflation will not be brought to an end until demand and supply are equal to each other. I welcome the Finance Bill and the Chancellor's pledge to cut Government expenditure, his savings drive and all his other measures to reduce demand, but it would be, of course, much more agreeable if part of the job of defeating inflation could be done by increasing supply. I wonder whether the Financial Secretary would agree—and I am not asking for any spending of money—that the Government should, as far as possible, foster increasing productivity so as to achieve a larger output at lower unit cost and so tackle inflation and all our other economic problems from the positive end as well as, and at the same time as, encouraging savings.
After savings, should not increased productivity be our main concern if we are, as hon. Members on both sides of the House desire, to defeat inflation, to maintain and improve the standard of living and to play our part, as the hon. Member for Flint, East (Mrs. White) has mentioned, in helping Commonwealth and underdeveloped countries? My own feeling is that the cut in Government expenditure and the Exchequer's financial control of nationalized industries, provided for in Clause 34—both admirable measures in themselves—afford the Chancellor an opportunity to improve productivity generally.
Hon. Members will know that there are now available techniques of progressive management, such as work study, incentive systems and cost control, which are tools to improve productivity. They offer us no panacea, but with the co-operation of wage-earners they can reduce effort and cost. Whilst the best of private enterprise already makes the fullest use of these techniques and is probably unrivalled in the world, it seems to me that there is further scope for them in large sections of private enterprise. in Government and in nationalised industries.
This is not distressing. If there were no slack to be taken up, we should have less hope in a competitive world. May I suggest that the Chancellor cannot only save his £100 million but can do it in a way which will spread the use of these management techniques throughout the economy to the permanent benefit of the country?
No one could expect the Government, in fostering productivity, to do more than two things—first, to set an example throughout the public sector of the economy and, secondly, see that taxation and social legislation encourage rather than discourage the dynamic democracy which we all want. The example has been set by both parties. There are organisation and method sections at the Treasury and in most Government Departments. There is the Government-sponsored British Productivity Council, in which employers and trade unionists all over the country—often with trade unionists in the lead—are together trying to spread modern methods.
So the example is being set by the Government. But might it not be worth the Government's while to see whether the terms of reference of their own oraginsation and methods advisers are sufficiently wide to yield the fullest economies possible? Might it not also be wise to let these experts loose on some of the manual as well as the clerical operations of Government, for instance the Post Office or the ordnance factories or hospital laundries?
The Government are already clearly taking productivity seriously, and I am only suggesting one or two extensions of their activities. Where, however, it seems that the full benefits of these new techniques have yet to be reaped—and in some cases even to be sown—is in the nationalised industries, other than the airlines. The Coal Board's latest Report shows that it is just beginning to put into effect the modern management methods recommended by the Fleck Committee. The Central Electricity Authority will presumably be acting upon the Herbert Report, which in paragraph 503 commented on the lack of "modern aids to good management". The British Transport Commission has only just set up a work study unit. The last Report of the Gas Council makes no mention of these matters.
It would seem that these great organisations have scarcely yet begun to take full advantage of these new techniques, with all the possible benefits to the public in the way of reduced costs. Now that the Chancellor is going to press the fee into the piper's hand, I hope that he urges the piper to use work study and cost control.
Surely the public expects all spenders of public money to use modern techniques to improve service while reducing costs. Private enterprise managers should be keen enough to improve productivity, because with them virtue and profit go hand in hand, but there are too many firms which have not yet seen the light. Perhaps competition—sharpened by the Restrictive Trade Practices Bill—will force them to modernise, even if the example of their leaders and of Government has failed.
In my own industry of building and civil engineering contracting, where the strongest competition prevails and obliges firms to seek efficiency, there is scope for improved techniques to reduce effort and cost. Some firms employ their own or outside productivity experts. Some use the new central advisory service. Far too many use neither.
It is clear that the Government are setting a good example, but should they not also further stimulate progress? While welcoming the annuity and Millard Tucker Clauses in the Finance Bill, I must regret the lack of tax relief for management. Our ablest brains and characters should find in management a reward equal to their heavy responsibilities, for they are heavy, as I hope to show.
Some say that the only trouble today is that people do not work hard enough. I suppose that there are some slackers at all levels. Application to work is still vital, but the better the management, the more likely it is that people will work hard.
Not that hard work is today the only criterion. What matters today is the effectiveness of work—the combination of output, quality and cost, which we call productivity—and the standard of productivity depends upon the standard of management.
It is far more sensible to criticise management, whether of nationalised industries, the local authorities or private enterprise, than it is to criticise wage earners, but if management bears this heavy burden, surely it should have a proper reward? Both in America and in Russia, the take-home pay of a manager is very considerably more, in comparison with the craftsman's net pay, than it is here. America and Russia think it worth while to reward management properly. I had hoped, therefore, that my right hon. Friend might have found it possible to increase the level at which Surtax begins, at least for earned income, if not for all income, if he wishes to encourage savings.
I hope that the Chancellor will follow this savings Budget with a productivity Budget, in which he will seek the cooperation of the wage earners and management. After all, the wage earners have, in nearly every case, accepted these new techniques, despite the understandable suspicion that increased productivity might mean unemployment. I think we would all agree that one of our main concerns must be to exorcise that nightmare, because I believe that it is a totally unjustified fear. We live in an expanding age: increasing productivity should mean more jobs, not fewer, though it still leaves us with the obligation to humanise, so far as the Government, the employers and the trade unions can, the mobility of labour which is so essential.
From the last Report of the Ministry of Labour, it appears that the Government already have a scheme in operation which can help in the very rare cases of wage earners whose craft is invented out of existence, and who, therefore, have to move elsewhere. From that Report, it appears that in 1954 104 people were assisted by the Government to remove their homes. Perhaps the smallness of the number indicates the smallness of the need, but I would suggest that it might be wise to make the principles behind that safety net scheme more generally known.
To sum up, if the Chancellor, who has given the country an admirable and necessary savings Budget, will use the £100 million cut in Government expenditure and his Exchequer control of the nationalised industries to lead public enterprise to modern managerial techniques, he will not only help to secure our expanding future, but will be creating the high standard of management and the mobility of labour which are two of the essentials of a dynamic democracy.
I do not know that I have ever listened to a clearer, more logical and more interesting maiden speech than the one which we have just heard. While it is customary for us on these occasions to make our offers of congratulations to the hon. Member concerned, I think that one must say here that there is a special need for us, on both sides of the House, to say how very pleased we were to hear the speech which has just been delivered by the hon. Member for Leeds, North-East (Sir K. Joseph), both in respect of its fluency and manner, and certainly its matter. Although perhaps it is rather exceptional, I want to say that, with very few reservations, one found a very great deal of sympathy with much of what the hon. Gentleman had to say.
I suppose that we might have expected such a speech of the hon. Gentleman if we had known something of his academic and business qualifications. Nevertheless, it is for all of us a very great ordeal to make our maiden speech in the House, where conditions are so very different from elsewhere. We must congratulate the hon. Gentleman especially on his success this evening and on the very stimulating ideas which he put forward, at the same time sincerely hoping that he will follow up some of the points which he has suggested initially this evening by taking part in further debates which will afford him his opportunities in the House.
I shall not be following up the points which the hon. Gentleman has raised in his speech, although I think that some of the points that I wish to mention tonight have some bearing on what he said. Somewhat exceptionally for me, I want to thank the Chancellor for one or two provisions in this Finance Bill, although there is no danger of those thanks extending over the whole range of the Bill. First of all, to deal with a constituency matter, I should like to thank him for the provisions in Clause 14, which I do believe will be of great value to us on Tyneside in some of the developments in the provision of dry docks which are of very great importance, and have indeed been a matter of concern for a very long time. I know that the hon. Lady the Member for Tynemouth (Dame Irene Ward) is also very much concerned about this and will be appreciative of the new provisions in regard to capital allowances for dry dock construction and excavation work.
Under the provisions of the Bill, this highly skilled and technical work is now to be brought within the capital concession provisions for the first time. We may need to follow up the details during the Committee stage, but nevertheless I am quite sure that we will value this provision as a means of re-ensuring the leading position of Tyneside as an area in which not only do we build the best ships but repair them most satisfactorily as well.
There is one other provision to which the Financial Secretary referred in his speech. By Clause 29, some extension is to be made in the use of the National Land Fund. I do not know the extent to which that will be used, but I am glad indeed that the National Land Fund is to be retained and that there is no proposal in the Bill to absorb it in the general Treasury revenue, as was feared at one time. I would suggest to the Financial Secretary that he and the Chancellor should consider some further use of this Fund at this time.
There have been representations for some time, from both sides of the House, for the use of, at any rate, the interest on, if not some of the capital of, the Fund, for some of the purposes for which it was originally intended when it was established by my right hon. Friend the Member for Bishop Auckland (Mr. Dalton), in particular, for the further development of the national parks. Many representations have been made on that issue, and the right hon. Gentleman has always been most sympathetic to them, so that we had hoped that some provision of this kind might have appeared in this Finance Bill. I know the technical limitations, but I think we can now arrange for the National Land Fund to be used for the existing statutory purposes set out in the National Parks and Access to the Countryside Act.
However, I hope that, when some of us put down a new Clause, as we hope to do, to this Finance Bill, to enable some of the resources of the National Land Fund, which has now reached the sum of £60 million, to be used for the development of our National Parks and other uses, the right hon. Gentleman will show his sympathy and support, and will make sure that the Chancellor, who I am sure is also interested in the matter, gives his support as well.
While I am mentioning this, I would add that I noted that my hon. Friend the Member for Coventry, South (Miss Burton), in the general debate on the Budget, raised the question of the need of finance for athletics and sport generally, and the rather parlous plight of our Olympic teams. Here is a perfectly reasonable use to which some part of the National Land Fund could very well be put, and even if it does not prove practicable at this moment, I hope that the right hon. Gentleman will give that matter consideration at the same time as he is considering the other proposal which I have just made.
The right hon. Gentleman and his friends have insisted all along that this is a savings Budget, and the Financial Secretary in his speech today has referred to the wide array of savings media, and seemed to suggest that he would be glad to have any suggestions for a further widening of this already wide array. I think that my hon. Friend the Member for Flint. East (Mrs. White) has made a practical suggestion. It is a matter of real concern that one of the avenues for saving for superannuation benefits has not yet, so far as we know, been adequately discussed in Government circles. The evidence grows clearer and clearer as to the wide discrepancy between the position of those who can benefit from what are called, not "big hat" but "top hat" schemes—perhaps they are the same thing—and the very modest sums that may be available under such schemes as exist for employees generally.
I do not know whether the Financial Secretary can recall two valuable articles by Professor Titmuss which appeared inThe Timesmore than a year ago. In them, he analysed the question of superannuation benefits, pointing out that while we may certainly have two nations in our community during working life, that division between the two will become even more marked after retirement. So the proposal of my hon. Friend about the urgent need to examine the possibility of a national supplementary superannuation scheme is a constructive and important suggestion which should be followed up with the Minister of Pensions and National Insurance, who would presumably have the main responsibility if such a scheme were developed.
I also want to follow in more detail another point made by my hon. Friend the Member for Flint, East regarding the investment needs of the Commonwealth and Colonial Territories. In opening the Budget, the Chancellor said how important it was to find extra savings for investment abroad, particularly in the Commonwealth and Colonies. We are all conscious of the urgent need and we are conscious, too, of the plight in which the Government's own action in relation to interest rates has put many of these territories.
In view of the fact that it is recognised that more investment is needed, and that the general public should have some means by which it can make a contribution, even in a small way, would it not be possible to consider the proposal—which I believe the United Nations Association, amongst other bodies, has submitted to the Treasury—of the Exchequer purchasing some of the International Bank bonds for reissue to the general public on much the same lines as existing Savings Certificates? In that way, as many as possible of the general public could be encouraged to contribute to that form of saving for the specific purpose of investment in Commonwealth and Colonial Territories under the aegis of the International Bank.
I am not asking for any decision at the moment. I am sorry that the Chancellor is not here, and even more sorry that the right hon. Gentleman will not reply to this debate. However, I ask the Financial Secretary to give serious consideration to this proposal. There is no doubt that the Premium Bond proposal has offended many people. I do not doubt that many people will contribute to it, but that is not the point. There is a reservoir of desire amongst the general public that could be tapped, with the support of the churches and other similar bodies, for the purpose of the suggestion that I have made.
Therefore, I hope that the Chancellor will not regard his Premium Bond proposal as being the only way in which he should try to encourage savings, since there are these other ways in which other groups of the community might be encouraged to take part. The tragedy of the proposal made by the Chancellor is that it makes no claim upon the idealism of the nation, whatever comments the Economic Secretary to the Treasury may make—and he has made some withering ones. In our view that idealism still exists inside the nation and it should be called forth, but that cannot be done by a Premium Bond issue.
I have referred briefly to those two main points on savings which I hope will be considered. Also, we cannot neglect the question of expenditure—and I re-emphasise the point made so ably by my right hon. Friend the Member for Huyton (Mr. H. Wilson) on advertising expenditure. I shall refer to one aspect of it, namely, in relation to the National Health Service and drugs, the issue which we were debating in the House two days ago.
It is fantastic that the Government should be calling for a reduction in our drug bill and at the same time, in effect, encouraging, through remission of tax, a form of high-pressure salesmanship practised on doctors and other members of the medical profession in respect of a mass of highly expensive drugs. This is one example of many that could be brought forward. It could be shown that some of the most vigorous of this high-pressure salesmanship is being carried on by American subsidiary firms in this country, of which there are many in the chemical, drug and pharmaceutical industries.
I ask the right hon. Gentleman to give serious attention to that matter. It seems absurd that when there is a call for a reduction in home consumer expenditure, the need for which we all recognise, the Government should allow this vast increase in advertising expenditure the only purpose of which is to increase home consumer demand. That, I fear, is typical of the atmosphere that is being created generally by the Government's actions.
Our main criticism of the Bill is that it does nothing to damp down the free-for-all atmosphere which we believe has been created largely by this Government. It is in this setting that we have the most doubts about the Premium Bond proposal. Indeed, one might wonder whether the Chancellor cannot take part in our debates today because he is hoarse as a result of the activities in which he may have been taking part, on the race tracks or elsewhere, advertising his own Premium Bond issue.
There is this fundamental issue which we ought to consider. There is widespread feeling in the country, that the concept of any form of community responsibility for our present position has been weakened by the continued insistence of the Government on the narrowest form of test of individual profitability. That has been the sole test and criterion that the Government have laid before the country. If this Bill proves, as I fear it may well do, to be no check to inflation, the Government must take the blame.
I hope the House will forgive me if I do not follow the arguments of the hon. Member for Newcastle-upon-Tyne. East (Mr. Blenkinsop). Were I to do so, I should very soon be controversial, and I know that on this occasion when I seek the sympathy and indulgence of the House in speaking for the first time I should avoid controversy.
I have the honour to represent the Billericay division of Essex, which stretches from the outskirts of Romford to the environs of Southend. It includes the dormitory town of Brentwood in the west, and to the south the villages of Laindon and West Horndon, whence many travel each day to London on the oldest, dirtiest and most dilatory trains in all England. On that there is no controversy.
The division is a happy blend of the old with the new, for in the north there is the old market town of Wickford, and Billericay, whence came the Pilgrim Fathers. Those who live there now are of the same independent and enterprising character as those who left to shape the new world across the Atlantic.
Yet to the south-east is the new town of Basildon, which among the new towns will be unique and the largest. It will be unique because it is the only new town which is taking the place of existing villages at present having a population of some 20,000, most of whom live in small wooden bungalows, all to be demolished, along 80 miles of unmade-up roads. It will be the largest because its population will be in the region of 90,000.
Since my right hon. Friend announced his proposals, I, like other hon. Members, have taken the opportunity to seek the views of my constituents about the Budget. When I have asked them for their opinions their thoughts have gone at once to the Premium Bonds. I can say with certainty that in this part of Essex, at least, the scheme is looked upon as being sensible, imaginative and something that will bring a little light relief to the picture of inflation wearily drawn by successive Chancellors. They say, in effect, that at long last we shall have a modicum of fun out of this dreary subject which has hitherto brought forth only admonitions and exhortations.
I cannot say that this feeling is unanimous in Essex, as it is not in the country generally. The proposal has caused concern to many in the Nonconformist churches. They adopt the argument used by the Primate in another place, that the health of a people depends upon its constructive spirit and that it is the duty of the State to reject any measure that will vitiate to any degree that constructive spirit.
The essence of gambling, so the argument goes, is the desire to gain something in return for giving nothing. All would agree that the "something for nothing" attitude is bad. But is that gambling? In my experience, it has been the very opposite. It has been a case of something to the bookmaker and nothing back. Surely, the pith of gambling is the taking of a chance, and that is something which cannot be divorced from our daily lives.
Gambling alone and taken by itself is scarcely wrong, but when taken to excess, the consequences, as distinct from the deed itself, can be evil. They can bring degradation and destitution to a family. The Churches can say that those who gamble in that way suffer from a moral disease. The desire for that kind of gambling is the outward expression of the disease.
We shall not cure the disease by the prohibition of gambling. If I might borrow an analogy used by my right hon. Friend in another context, it is like trying to cure chicken-pox by rubbing out the spots. That is precisely what many of these churchmen are trying to do. If they really believe that the Premium Bonds are morally wrong, let them go to the root of the trouble, if trouble there be. If they really believe that we shall become a nation of reprobate, profligate gamblers, is it not a confession that they will fail in their task to cure this moral disease?
Despite the arguments of the Nonconformist Churches, I for one am not convinced that the acquisition of these bonds will be gambling in the ordinary sense of the word. They are little more than a device to attract savings from those who are not saving at the present time. In the main, these are the hundreds of thousands of families who have a weekly budget. They have a weekly wage, and when they receive their wage packets at the end of the week they decide there and then how the money is to be spent. So much is put aside for the rent collector and the tallymen, for food, clothing clubs, hire purchase payments and so forth. A further sum may then be set aside for a weekly investment in the football pools. This seldom exceeds five shillings.
If these people are to be attracted to the new form of savings, the Premium Bonds must be of units that can fit into a weekly budget, so that they can be bought on a weekly basis. It is unrealistic to expect the wage earner with £8 or £9 per week to be able to afford a bond of £1 on the basis of a weekly budget.
If I may be allowed to venture one word of criticism, it is that the units are too large and that far more would be sold if they were available at 5s. If that were the size of the unit, it would mean that everyone who now invests in football pools would be able to take part in this new kind of savings. With that one reservation, I support the proposal, as I wholeheartedly support the Bill as a whole.
It is with very great pleasure indeed that I offer congratulations, not only on behalf of myself but I am sure on behalf of the whole House, to the hon. Member for Billericay (Mr. Body) on having successfully come through the ordeal of making a maiden speech. I suppose most of us look back with rather unpleasant memories to the ordeal through which we went. I am positive that the hon. Member now feels considerably relieved.
Whatever we may think about the Premium Bonds and the opinions which the hon. Member expressed upon them, he very cogently placed before us the reasons which he holds either in support of them or the reasons, as he said in relation to some of his constituents, for opposing them. Now that he has joined the great fraternity of those who have been through the ordeal of making a maiden speech, I sincerely hope that we shall have the pleasure of listening to him make many contributions to our debates.
I do not intend to cover a wide range of subjects in the short speech which I shall make this evening. I shall primarily address myself to the question of the exemption from Income Tax of savings invested in the Post Office and in the trustee savings banks. Before I deal with that, all I want to say about the Financial Secretary and the Chancellor is that their dialectical efforts to justify Premium Bonds as not being a form of gambling were beyond my understanding. Their argument was that if one puts £200 into the Post Office and draws out £5 as interest and then proceeds to bet with it at Littlewoods, then one is a gambler and a sinner; if, on the other hand, one hands over £200 to the Chancellor for him to do the gambling for one and to give us certain prizes, then we become saints and patriots. I want him to understand that the majority of people in my constituency, judging from the number of letters which I have received, certainly do not approve of the logic or principles put forward by the Chancellor about Premium Bonds.
We are all agreed with the need for savings. Other hon. Members have recognised that the conquest of inflation will largely depend upon the savings of the great masses of the people. We recognise that savings are indispensable, if we are to carry out capital investment to safeguard the country's future. I realise, with other speakers, that it is imperative that we should save sufficiently, not merely to develop this country, but to develop the Commonwealth and make it possible for prosperity to develop there and in return to be of assistance to us in the difficulties which now confront us.
I have been actively associated with the National Savings Movement and I am a trustee of the savings bank. Therefore, if I criticise some of these proposals, I want to make it abundantly clear that I welcome any assistance given by the Financial Secretary, or the Treasury in general, to this movement, which does a great deal to promote savings. If we are to encourage savings, then I cannot understand why the Co-operative movement has been excluded from the provisions of Clause 8.
Hon. Members opposite will probably know that from the inception of the Cooperative movement the preaching of thrift as a personal and social virtue has been one of its chief characteristics. That is why, in days gone by, many illustrious predecessors of hon. Members opposite played an active part in the development of co-operative societies in this country. Long before we had a Welfare State and long before any provision was made for illness, unemployment, or any of the adversities which people experience, it was felt desirable that self-reliance should he imparted by inculcating thrift in the people.
I submit that the co-operative societies played an important part in developing that self-reliance by the British people. It developed to such an extent that at present the thousands of societies—which incidentally are quite autonomous which are incorporated in the British Co-operative movement today have a capital of approximately £290 million. That £290 million belongs to 12 million people and the average shareholding, therefore, is about £20 per member. It seems ironic that we should proceed to grant exemption from Income Tax on #x0A3;15 drawn from any investment in the Post Office or in the Savings Bank and deny exemption to the ordinary small saver who has £20 in the Co-operative movement.
I well know the arguments put forward by the Financial Secretary, that it is by Statute that the rate of interest is fixed and that money invested in the Post Office is loaned to the Government. However, what in practice is the position of the Co-operative movement? There are millions of people who have very little experience of banks and precious little knowledge about current accounts, deposit accounts, and things of that nature. Consequently, their co-operative society is their bank. It is an easy matter to go to the village store and to pay in a sum on account, or allow one's dividends to accumulate, and to meet the people whom one knows to be in control of the society and to draw out what one wishes to draw at the time when one most needs it. The consequence of that position is something which I want the Financial Secretary to observe. The ordinary people treat the local society as a bank. The management committee of that society, knowing that, cannot possibly invest the savings of those people in the way that a normal business would.
It has obviously to maintain a large proportion of its assets in a very liquid form. In other words, if people are suffering from any adversity whatsoever they go to the local co-operative society to draw out cash to meet their requirements. The local management committee, knowing that, is obliged to retain a very high percentage of the shares and savings in the Co-operative movement in a liquid form. That is why, as was stated in the House yesterday, out of its total capital of approximately £290 million in all co-operative societies in the country, the Co-operative movement has only 20 per cent. actually invested in the trade. For all practical purposes the other 80 per cent. is invested in Government and local government securities.
Consequently, although by Statute the trustee savings banks and the Post Office are under Government direction, the Cooperative movement places its money in exactly the same way. That is to say, by reason of the fact that it has to keep so much on tap to meet the requirements of members, it places its money at the disposal of the Government and local government. I therefore see no justification for discriminating against cooperative societies in favour of any other form of savings.
I am sure that whatever views are held about the rights and wrongs of the movement, there is general agreement that the development of the Co-operative movement throughout the Colonies is deemed essential for bringing people along the line of self-government. I have served on committees to assist in that development on behalf of the Government. It seems anomalous that we should spend millions of £s to teach colonial people how to develop thrift and all the virtues associated with it by developing the Co-operative movement and should then proceed at home to penalise the small savings of those who prefer to invest through their co-operative society rather than through other institutions.
Likewise, I venture to say that the policy now pursued by the Government, so far from increasing the total savings, is calculated to effect the substantial transference of savings. I am not claiming that the 12 million people inside the Co-operative movement are more virtuous than the people outside, and it naturally follows, of course, that if we are now going to grant an exemption of £15 in the form of interest on investments in the Post Office or in the trustee savings banks, then a substantial number of people inside local co-operative societies are likely to transfer their capital from those societies to the Post Office or the Trustee Savings Banks. The result, of course, will be to impoverish the local co-operative society without swelling the aggregate savings of the whole country.
I am not asking for the Co-operative movement to be singled out for any favour in this direction. I believe that if savings are desirable, then all small savers should be encouraged. Consequently, I ask the Government to grant exemption to all small savers in receipt of a comparatively low rate of interest wherever they may have their savings or their investments. If that were done, we should maintain a greater measure of social equity and justice, and, at the same time, do a great deal more to promote savings than is being done under the Bill.
For these reasons, I hope that during the passage of the Bill through the House the Government will look into the matter to see if it is possible to encourage people not merely to place their savings in the Post Office or in the trustee savings banks, but to save in every direction and to give them the same privileges as are accorded to those who deposit their money in the places I have mentioned.
I think most will agree that the more we move to what is generally called an egalitarian form of society, the more we shall depend upon larger numbers of people for our aggregate savings. Gone are the days when a comparatively small number of rich people could provide all the savings required. Therefore, in the future, we must, in my estimation, depend more and more on the small saver.
It is totally unjust that under the Bill a person who deposits £600 in one place can gain exemption from Income Tax on interest of £15 whereas another person who invests £20, £30 or £100 in institutions such as the Co-operative movement cannot receive that benefit. In my opinion, that does not form an equitable or a sound Income Tax principle.
I do not want to attempt to make a proper Second Reading speech and I shall do my best to avoid slipping into an improper Committee stage speech. I hope that by this amount of self-denial I shall at least make sure that I am short.
There is one thing that I am tempted to say about what the hon. Member for Bristol, North-East (Mr. Coldrick) just said, and that is that I rather agree with him that it is not worth any elaboration to argue that a Premium Bond is not gambling or does not involve any loss. But if one says that, I think that honesty compels one to add that in its strict use the word "gambling" as a damnatory word, I think that all the early uses of "gambling" implied an excess—not merely taking a risk in the hope of profit, but doing it either cheatingly or excessively. We beg the question if we assume that Premium Bonds are necessarily gambling in that sense, and, indeed, I believe that they are not.
The one point I wish to make, very shortly only, because it has come to my attention quite lately is this. I have written to my right hon. Friend about it, but I thought that if any words of mine could have effect via HANSARD I ought to try to make sure, before we come to the Committee stage, that the question is in the collective head of the House, if it could prove to be practicable. I join with everyone who has referred to Clause 18 and, on the whole, welcomed it. I am sure we should all be grateful to the Chancellor for having been able to go so far as he has towards what is generally agreed, I think, to be the kind of improvement suggested by the Millard Tucker Report. But there is one particular sub-class inside the class aimed at by the Millard Tucker Report and thereby, I think, by Clause 18, which will be less benefited by the Clause than I hope and believe was intended.
That arises in this way in connection with professional and academic holders of pensionable office or employment. I think it is probably particularly true at Cambridge and Oxford, but it may be true at other universities, too, and, to some extent, outside the academic profession. If hon. Members will look at Clause 18 they will see that the drafting of the Clause excludes from the benefit of it anyone who is the holder of any pensionable office or employment. That is at the bottom of page 20 of the Bill. There is a considerable proportion of academic people who may hold a pensionable office with a salary—it used to be in my day when I had it, and I must avow my interest to this extent—of as low as £400; there are perhaps none as low as £400 now, but there are some not much higher.
So far as I understand the Clause, a person holding such a pensionable office would be excluded from claiming the benefit of the Clause for any other incomes which he might have and which were not pensionable. I think that is the effect of the Clause, and I also believe that those who instructed the draftsmen did not really mean thus to exclude a particular sort of professional from the intended benefit.
I do not know whether it is possible to draft an Amendment which would have the sort of effect which would seem to me equitable. All I want now to do is to warn the Government that I hope to raise the question in Committee and to say that I hope that, if the thing looks draftable, the Treasury may perhaps be willing to help those of us who are interested in drafting it. I do not, of course, ask the Government to do or say anything now which would in any way risk from their point of view giving me any right to claim later that they had promised me anything. All I ask is that they will look at the practicability of such a draft, and, if it seems practicable, that they will give any advice which the inexpert may require in that connection.
I should like to have said something about Clause 34 because the Financial Secretary prefaced his remarks on that Clause by saying that he was coming to the most important Clause of the Bill. As there will be a debate tomorrow, however, which will embrace the kind of points that I desired to make tonight, and as there are still a number of hon. Members who hope to speak, I think that I should resist the temptation. But I would ask the Economic Secretary to give us some indication of the general policy of the Government about the operation of this provision in relation to the size of the figures.
I have constantly advocated, particularly regarding the Coal Board, that we should face the realities of the situation; and that in spite of the howl which would probably go up about increased prices, we should allow the Coal Board to charge market prices for its products. Were the Coal Board allowed to do so, it would of course manage to raise a substantial amount of the money required for development out of its income. While I know that there are many facets to this subject, I hope that that aspect will not be lost sight of by the Chancellor. If his policy is to face fierce economic facts—and this one is an economic fact which is very fierce, when faced—this is one which deserves the closest attention.
I did not quite understand, when the Financial Secretary said that by the Government deciding when they should go to the market for their money, that could be done in the best way, why the nationalised industries have not been able to do that in the past. If a firm wants money from the market, it does not choose the worst moment to go to the market for it. But I agree that the nationalised industries have not chosen the best market and if the Government can make a better job of it, I shall be well content.
I was in Strasbourg during the Budget debate. On reading it, I noticed that the Chancellor said:
I am determined that this Budget shall dispel any lingering doubts…as to the determination of Parliament and the people to secure the welfare and solvency of the nation."—[OFFICIAL REPORT, 17th April, 1956; Vol.551, c.871.]
I should have been happier if it had been the determination of the right hon. Gentleman, and not that of Parliament and the people, to secure the solvency and welfare of the nation. It is apparent that
since about March reactions to his statement in the middle of February were favourable, and it appeared that some impact on inflation might have been made. But since about the first or second week in March the position appears to have deteriorated.
I should have thought that one of the automatic effects of a real impact on inflation would have been a fall in the general level of industrial stocks. There was that fall for something like a month, until about the middle of March, when the industrial index of theFinancial Times was below 170, which was the lowest for over a year. Since then it has recovered, and it is now over 190—about 193. One cannot help feeling that whether they are right or wrong, there are many people in this country who take the view that inflation is still present.
If the Chancellor is really determined to stop it and accepts that he has the weapons, then they are not in this Budget. All that is in this Budget is what may assist him once he has clearly demonstrated to the country that he has stopped inflation, and I hope that there will be no question of any return to, or the applying of sweeping physical controls of one kind or another until every step which can be taken has been taken to control the economy in the classic and orthodox manner.
In that respect one notices the indications which have appeared recently in the Press that the right hon. Gentleman is possibly contemplating a funding loan which will be of special interest to the bankers. I do not think that any of us can pretend that we know definitely that under present circumstances there is an answer which is bound to be satisfactory, but I hope that not until everything has been tried in this manner will there be any question of trying to do anything in quite the opposite direction, namely, that of physical controls.
I wish to make a special reference to matters relating to the Profits Tax. I accept the view that the right hon. Gentleman is required to make provision for a big below-the-line surplus. I should, however, have liked to hear the Financial Secretary make the rather more definite statement that the Chancellor has in fact been converted to the view of the Royal Commission about the undesirability of continuing the Profits Tax in its present form. I should have liked to hear that the Chancellor agrees that many kinds of anomalies result from the fact that a small Profits Tax is charged on profits which are retained and a high tax on those which are distributed. If he had accepted that that is undesirable as a long-term policy, and if he accepted the argument that at the earliest opportunity he should amalgamate this into one single tax at a much lower level, I think that some of us would have been better satisfied.
I wish to point out one effect of that tax which is apparent at the moment, and which is well recognised and intended. It is that profits are retained for investment, which is also one of the troubles with which the Chancellor is dealing. But the present taxation law regarding another aspect of this matter, that is profits bonuses to workpeople or the giving of shares to workpeople, is acting in exactly the opposite direction. I assume that this is a matter in which the Chancellor is greatly interested.
I need hardly quote to him a passage from the speech of the Prime Minister during the debate on the Address in June last year. But for the record, I should like to draw the attention of the House to the right hon. Gentleman's remarks on that occasion. He said:
Call it profit-sharing, co-partnership, whatever you like. In various forms and phases something of that kind has, I believe and I pray"—
this is not some minor matter, it is apparently something about which he is concerned—
come to stay in British industry…—[OFFICIAL REPORT, 9th June, 1955; Vol.542, c.58.]
That was in fact the main theme of the Prime Minister of this new Government in his speech during the debate on the Address. It was his answer to nationalisation, and the answer of the Conservative Party, as he presented it. I can well understand that there may have been some difficulty in doing anything about that in the autumn Budget. That was supposed to be a crisis Budget. But I should have thought that in this Budget we might have expected some indication that the Government had been thinking about it and considering tangible ways in which they could encourage us.
I am not myself in favour of tax alterations which are deliberately in favour of the giving of shares to workpeople, a favour which is not given in respect of other things like profit bonuses. What I want to point out is that the taxation system at the moment is working against encouraging the giving of shareholdings to workers.
If one thinks about it for a moment one sees that the position is simply that if a company wishes to give a profits bonus to its workpeople that is a charge on the company and the net profit is struck after the bonus has been given. Therefore, the company pays less tax. The workpeople receive money and pay tax on it according to their P.A.Y.E. This is where it is in line with Profits Tax.
The company may say, "We should like to bring our employees more into the company and make them feel more part of it, but we really cannot afford to give them cash. What we will do is to help make them shareholders. We shall not even ask them to buy shares, but will give them a piece of paper which says, 'You have 100 £1 shares in this company'. That will be done out of reserves which have been built up and we shall increase the capital accordingly".
The point is that the fact that a company wishes to do that is discouraged by the present incidence of taxation. The employees pay tax in spite of the fact that they have received no cash. They receive a piece of paper which says that they have a certain number of shares in the company and the Income Tax authorities assess them as if they had received £100. If the company gives £10,000 capital to its shareholders that does not affect the profits of that year, whereas if the company had given it away in profits bonuses the profits of that year would have been reduced by that amount and the company would pay less Income Tax.
That is working against the giving of shares to employees. I should have thought it was a matter which the Government could have interested themselves in. It seems to me that quite a small, but—from a drafting point of view—a rather difficult Amendment could be made to the Finance Bill, and it is one to which the Government should give attention. I hope that before the debate is finished we shall hear something of the view of the Government on this matter.
I do not want my right hon. Friend the Chancellor to think that because I propose to dwell on the more controversial features of the Budget and the Finance Bill I am not wholly in favour of many of the provisions. Indeed, if anything could have persuaded one to accept them as entirely satisfactory and agreeable, it would have been the speech delivered this afternoon by my right hon. Friend the Financial Secretary, a speech of great grace and style which I think commended itself to the House if possible more than his speeches usually do. There are, however, some aspects of these fiscal and budgetary changes which are taking place which I think are very important for the House to consider.
First, I should like to say a word about the reduction of Government expenditure. The Chancellor has taken the wind out of Sir Bernard Docker's sails and produced a projected saving of £100 million, or two and a half times what that hardworking gentleman proposed. That leaves the opportunity for Sir Bernard to do the knight's move and go ahead of the Chancellor again. I hope he will do so, and I hope he will have the Conservative Party behind him in so doing. Let us look at the figure. However important it is to make a saving of £100 million, which involves policy changes as it must, from the inflationary point of view it does not even overcome the increased expenditure of last year, which was £170 million.
Metaphorically speaking, that £100 million saving takes us back to September and no further. I should have thought that we would have had savings in some Departments which were far more spectacular. I should personally like to see a saving of about £400 million on defence alone. In 1951 we were spending £1,100 million on defence. That was the year when we thought that the Korean war was going to set off a world explosion. Fortunately it did not, but unfortunately expenditure on defence has gone forward from that date and we do not seem to be getting back to the stage we were in when we really thought the world was about to be set on fire. I cannot believe that even the disturbances in the Middle East have got the world by the ears as the Korean war did in those distant days.
I believe that economies, drastic economies, in so-called conventional weapons and establishments would not only be very popular but safe strategically, and also thoroughly deflationary. I wish to ask the Government why there is no sign so far of a special drive in this connection. The Minister of Defence and the three Service Ministers are as genial as can be. Their faces glow with good fellowship and exuberance, but what is wanted is not good fellowship but good generalship, not geniality but genius, and of those things I am afraid there is no sign at present.
I should like now to go on to say something about savings and investment, both of which subjects have been mentioned already today. The real trouble about saving is not that there is not enough of it but that it is wrongly distributed, or insofar as it is rightly distributed we have not got the correct machinery to grapple with it. If we look at the savings achieved last year, 1955, as given in the preliminary estimates of the White Paper on National Income and Expenditure, we find that they totalled £3,017 million, or about £1,000 million more than is required for investment in fixed plant and capital, to which I shall come in a moment or two.
The savings therefore are there in toto and there have been remarkable achievements. Individual savings at £962 million are nine times more than they were in 1950, showing a steady advance since this Government were originally returned to power. Likewise, the savings of companies and corporations at £1,735 million are 70 per cent. more than they were in 1952. There are three faults in savings, firstly that the Government save for the people by taxation to too great an extent, and secondly that the savings of the workers are not canalised directly into industry, as they ought to be, by the provision of some expanded unit trust scheme organised by the City of London, but are brought into the reserves of the central Government and spent on central Government purposes. That is not Conservatism as I understand it. Hon. Members opposite may like it very much, but I do not.
Thirdly, the professional classes are not saving to the degree to which they think they ought to save, both in canalising their resources directly into industry and in providing them with a satisfactory basis of living in their old age.
There ought, in the Budget, to have been a substantial reduction in Surtax or some increase in the figure at which Surtax begins, and with the help of one or two of my hon. Friends I propose in Committee to substitute for the figure of £2,000 the figure of £4,000 as the figure at which Surtax begins. It is quite ludicrous, when we look at the high level of taxation on the professional classes, the entrepreneur, the business manager and the young forceful technician, that these Surtax scales are so much beyond those in other countries with which we have to compete.
Let us consider the position in Germany. As an illustration I will take the point of extreme disincentive—that is to say, the maximum level. The maximum rate on personal incomes in Germany is 70 per cent., but that is reached only on an income of 423,000 marks, or £40,000. In this country, on an equivalent basis, a tax of 70 per cent. is reached on an income of £13,000, and at £40,000 it is 86 per cent. That is for a married couple with children.
In so far as hon. Members recognise that incentives in management are, in a way, just as important as satisfactory scales of wages for the workers, from the point of view of productivity of industrial plant, it is essential that at some stage we should make reductions in the taxation levels. I do not understand the argument that they cannot be made this year but can be made in future years, because even from the lowest aspect—that of electioneering—there is no great massive increase of votes to come to the Conservative Party from postponing Surtax reductions to future years.
I want to say a word about investment and inflation. As I said a moment ago, the investment figure last year was £1,000 million below the total savings, and it has gone up substantially in recent years. Nobody can charge the Government or the Conservative Party with having neglected investment. In almost every field except housing—and even there until last year—investments have made substantial advances.
Indeed, that is one of the troubles. If hon. Members look at the most spectacular figure of all in the Economic Survey, they will see the striking increase in fixed investment in plant, machinery and vehicles. There is a little graph accompanying the words which shows that advances in investment almost went through the roof.
Too lavish a scale of investment is itself inflationary, and I put as one of the fundamental reasons that the economy in the last two years has started to inflate again this very rapid advance in investments. After defence, which is the most inflationary expenditure of all, there can be no item so inflationary in the short run as the diversion of materials and labour to plant which is not yet in production. That is one of my main objections—and I make it now, because I am not hoping to catch your eye in the debate on coal tomorrow, Mr. DeputySpeaker—to the investment of £100 million a year as new capital for coal. If we do nothing effective to limit consumer expenditure—as the Autumn Budget did nothing effective to limit it—it is quite absurd to allow capital expenditure to go forward as rampantly as it is.
Not that I want the State to plan all these activities. I have never wanted that. I want to see a market economy, where automatic self-correcting fiscal and financial controls do the trick. The more I see of this State planning of these activities, the more I dislike it.
This tremendous new investment in coal is the essence of bad planning, not alone because of the foolishness, as I see it, of investing in a dying industry, which is shortly to be swamped by an ever-increasing flow of heavy oil from the Middle East and elsewhere and shortly to be swamped by a flow of heavy water, if I may so describe it, for atomic energy plants; not only because of that, but because even without this investment in coal there is already inflation, and with it there will be worse inflation. I feel very strongly about this matter and say what I am about to say, I hope, with a sense of responsibility. The so-called "Plan for Coal" which the Government have announced is itself part of a series of unco-ordinated Cabinet plans which together are placing such demands upon the economy of this country that, unless they are checked, they will bring about a further devaluation of the £ and will bring the professional classes to their knees.
There are no two ways about it; we must have either ruthless regulation by the Cabinet or ruthless regulation by an impersonal monetary machine, and I infinitely prefer the latter. At present we have neither of those things in this country. The application of the Bank Rate is too easy and too liberal. The Bank squeeze—the administrative technique which has been devised in the last year—is too harsh and too personal. When I say "personal" I mean in the sense of a patronising attempt by a representative of the Bank of England to prevent another man, who seeks the means to achieve his ends, from doing what he wants. I will come back to that before I conclude.
The Government's capital programme, which includes all the nationalised industries, is not subject to the Bank Rate. If this "Plan for Coal" has been squeezed, I should like to know what the original plans were and what outrageous figures they must have contained. It is not my idea at all of a Conservative policy that the socialised sector of the economy should get all the ha'pence and the private enterprise sector all the kicks. At present too many blows are being delivered below the belt—or perhaps I should say below the line.
On the subject of "below the line," I should like to record what my right hon. Friend the Chancellor said in his Budget statement, as reported in column 863 of the OFFICIAL REPORT. He initiated the change whereby the borrowings of the nationalised industries will be brought in total below the line, thus emulating the practice in regard to coal ever since nationalisation. He gives the reasons for that, which I do not think I need quote, including the graphic reason that there was not "a cat in hell's chance" of the nationalised industries borrowing on the market. He said that they could not pledge their undertakings as security and that the very size of their requirements was too great. But he added that this of course was a short-term thing; that our long-term aim was that the nationalised industries should borrow on the market—as he is making local authorities do and as private industry does. He hopes to achieve that result in a couple of years.
That is what theFrench call reculer pour mieux sauter—"recoil so that you can leap further". That is an act which I have seen performed with great brilliance on the stage of Covent Garden, but I have never come across it working successfully in politics. Once one sets the course of an advance in a particular way and establishes all the techniques for doing it, it is almost impossible to turn back. And what are we to see from now on? Already coal borrowing below the line is covered by current taxation, so that, without the addition of these other nationalised industries, there is an overall balance.
Already the taxpayer is finding, week by week in his P. A. Y. E. the money for long-term investment in coal. Now he is to be asked to do the same thing for the rest of the nationalised industries. We have the technique; we have the "below the line"; we have the budgetary deficit, the swelling Treasury bills which are inflationary. There is, therefore, a tremendous compulsion on Chancellors of the Exchequer—I should have thought that hon. Members opposite would take to this policy very readily, if ever they get the chance—of seeing that the taxpayer provides an overall balance for the requirements of these nationalised industries. In so far as we are financing them out of budgetary resources we are not preparing the means to finance them from the City of London.
If my right hon. Friend had said, "Our aim is to push the nationalised industries as fast as we can into the City of London for their financing", he could have changed the law to enable them to pledge their assets reduced taxation of the professional classes and mobilised the savings of the City of London to take up the requirements of those industries. But he has not done that—he has done the reverse, and I think that thereby his task will be more difficult than ever. It is a day-dream that is put before us to convert to full-scale capitalism the nationalised industries two or three years from now. We are establishing the technique. We are paying the Civil Service. The Bank of England is arranging its affairs in this way according to the new policy, and I doubt whether we will ever be able to depart from it. What a great pity it all is.
I shall therefore propose in Committee—in company with some of my hon. Friends—to take out the Clause which gives effect to this provision. Bringing the nationalised industries below the line is the first step towards turning them into Government Departments. Coal is already very largely a welfare service, chaperoned and cosseted by the State as regards price in fear of the consumer, and as regards capital investment with all its social appurtenances in the interests of the mining community. No wonder coal is in no position today to range itself alongside the great Coal and Steel Community developing on the Continent, which operates on the most refined techniques of capitalism and is becoming more and more powerful every day. No wonder we cannot play our part when day by day we are turning our coal industry into a welfare service.
What is the future of transport when it is made a Government Department and when its finances are provided below the line? How are we to get the regions really competitive with each other and to provide ultimately for that independent finance, as we might do, on the principle of the Herbert Report on Electricity? I am afraid that the Chancellor of the Exchequer is changing the financial practice when he ought to be changing the law, as he himself says ideally it ought to be changed, and when he ought, by drastic reductions in taxation to provide the savings for investment and to take these industries' requirements into the City of London.
In conclusion, I have to offer the House some reflections on Government by exhortation. This island has not a self-sufficient economy as perhaps Russia or the United States of America might be regarded as having it. We cannot, as they might under some imaginative order, precisely arrange our affairs according to a planned pattern initiated by the central Government; arrange prices to suit different sections of the community and produce the exact quantity according to a five- or a ten-year plan.
We are a small island trading with the rest of the world, and if the rest of the world operates the law of supply and demand and has a capitalist society we must do the same or go down. One of the reasons why we have not rejoiced in an expanding and healthy economy over the last ten years since the war is that we have allowed ideology and concepts of planning to determine our course of action and the rest of the world refuses to fit in with our course. We do not control the minds of our overseas suppliers and our overseas consumers. They can only be controlled by contract, by the correct price, the correct delivery date, the correct quantities. Therefore, any Government of this country must perforce in the long run, be at the mercy of, or at any rate play alongside, the minds and thoughts of the rest of the commercial world.
Until we can create, by legal or military power—and who has ever heard of the idea?—a large self-sufficient economy upon which this nation could plan, we must observe the rules of the international game. I say therefore that the capitalist society is the one which must be proclaimed by this country and exemplified in every technique and every aspect. Government by exhortation does not fulfil that requirement. The whole idea of the capitalist society is that a man makes a very small beginning and by hard work and honest endeavour rises to the point where he becomes a rich and prosperous citizen with much property. I do not believe that even right hon. and hon. Members opposite would really complain about that idea.
But the man must be allowed to do that. Whether he be a worker, an artisan, a white-collar worker or a manager he must not be told at every stage that what he is doing is wrongfully conceived and that he should not attempt it. That is what we are getting from chaperoning Governments of every political persuasion; Governments which say, "It is morally or socially wrong. You must not plan your resources in the way you propose." We are told that at every stage. When a man wants to buy a house or a motor car and has the salesman or a prospective seller trying to make him purchase the thing which he wants to buy, he instinctively looks over his shoulder to see whether the Chancellor really approves and that what he is doing is not really inflationary. How can that dichotomy, that schizophrenia, really make a great society. We must create an iron-bound control of a fiscal and monetary nature and then the Government must take sides with the people and say, "Go where you like and make all the fortunes you can, because in that way you will secure a country that is prosperous, great and free."
The noble Lord the Member for Dorset, South (Viscount Hinchingbrooke) has 'made one of his controversial speeches, with very little of which we can agree on this side of the House. He seems to be trying to keep his theory and his practice in regard to his financial thoughts at variance with modern conditions. If I may say so in all fairness, the latter part of his speech would have been more fitted to the pre-1914 era than it is to the modern economics of society.
The hon. Member mentioned Government expenditure. It is true that £400 million can be achieved immediately in the reduction of Service expenditure. No one will deny that in Service expenditure there is a great deal of waste and a great deal of scientific and technical overproduction. It is possible that by thorough Government inquiry determining the strategic needs of the country in regard to its overall defence in the light of new techniques and commitments this financial saving could be achieved. Such an inquiry has not yet been undertaken. So far we go along with the hon. Gentleman in agreeing that saving could be achieved in that sphere. When he comes to criticise the nationalised industry, and in particular the coal industry, this is where we cross swords with him very severely.
The noble Lord remarked that he would like to make the speech that he has made today tomorrow. But he has made it today, and I will deal with some of the arguments which he put forward and some of the consequences that would arise from them. Whether he likes it or not, coal is nationalised and will remain nationalised. It is the major source of British power for the next 25 years. As such, it demands from the nation an investment programme in accordance with its importance. The noble Lord recognises that before there is any change over to nuclear power or oil power a great deal of financial investment will have to be undertaken in this country. Let me say this to him: The price that Great Britain will have to pay for petrol and petroleum for many years to come will be tied to the price the Americans are able to demand for them. That is one of the factors with which we are concerned since we lost our great influence in the Middle East and Abadan. Therefore, if coal is our only alternative source of supply an investment programme is needed.
If the Coal Board is forced to go on to the open market, what will happen? The capitalists have already decided that the coal industry can be left to itself, and had the industry not been nationalised this country would have been faced with a sorry state of things. It is because it has been nationalised that we have been able to achieve what we have achieved. Its financial requirements would have to be met from public funds for some time to come. The City of London will not advance the money required by the Coal Board for its development, and if it did the interest charges levied on that loan would be so great that in order to meet them the ordinary householder would be forced to pay a prohibitive price for his coal. Four-fifths of the people of this country burn coal for space heating purposes. So the weight of the burden comes back to the people who can least afford to bear it. If that happens we shall have another spate of demands for wage increases.
Does not the hon. Gentleman see the folly of allowing half-a-dozen planners in Whitehall to project this enormous capital expenditure when thousands of investors—and this is not just the City of London—and perhaps millions of investors outside London will not put up the money? Are they not probably wiser than the few planners at the centre?
It is because they will not put up the money that the Government have to find the money for wise investment, unless we want the industry to become dormant and not produce a single ton of coal.
This country will be dependent on coal for the next 25 years. That is where we shall cross swords with the noble Lord as long as he advances the argument he has used tonight. He has no concept of what is required in regard to the basic economy of the country. We are no longer living in pre-1914 or in 1928–38 strength of British economy in world markets, with access to cheap raw materials which we formerly enjoyed. That period has gone for ever. We are now living in a competitive world, competing with nations better designed to produce goods cheaper and as good as we produce them. That is the position with which this country is faced.
The financial policy of the Chancellor is no solution to the difficulties of this country. The investment policy of the last five years has been mostly uncontrolled investment. There has to be a greater deployment of investment in those industries which are to produce capital goods for export by which this country can live. Until we can have that kind of wise investment and wise production, we shall be floating about as we have been during the last few years and losing ground steadily in the world markets to foreign competitors.
Capital investment in industry in the United States is fourteen times as great as in this country. We are faced with the need for large capital re-equipment if we are still to hold our own in the world, and we are not receiving in industry the kind of encouragement that we should have from the Government. The situation demands re-investment in machine tools on a wide scale to enable us to compete. Our motor car industry, to quote a case in point, which has been manufacturing for a number of years to meet home demand, is now beginning to feel the winds of world competition, especially in the United States. The sales of the German Volkswagen have gone up from 500 a year in the space of five years to 27,000 a year in the United States. Until there is some central direction from the Chancellor or the Ministry, or some kind of consolidation of types and models by the British motor industry, we shall not be able to hold our own in producing the kind of foreign currency which we need if this country is to live. Those are the kind of problems which should figure in the Chancellor's financial statement; they have been lacking during the last three or four years.
There has been investment in goods which we do not want, goods we could not sell in world markets. We must concentrate our efforts where our skill and productivity is greatest. I have just visited the United States. There is a country meeting the challenge of its future, where automation is not a problem. Their conditions are not like ours, of course; they have within their own borders almost all the raw materials they need, and that gives them tremendous strength. But even so, they never stop recapitalising and reinvesting in industry.
This is where we quarrel with the Government. Dividend restraint is not popular with hon. Members opposite; they believe that the sky is the limit. As long as the sky is the limit and the workers who produce the goods can see that it is, there will be more demands for wage increases, because the workers and the trade unions have a big stake in the economy of this country. They are now very important people, more important than they have ever been before; they want to know what kind of policy is going to guarantee our future and their stake in it. They also want to live.
If the credit squeeze is designed by the Government to produce a surplus on the labour market, then that Government is heading for disaster. Those days have gone for ever. The credit squeeze has up to now been hitting only the small man in business, and we find even in that sector small firms closing down, creating a residue on the labour market. If that is Government policy, then the Government is running into serious trouble. The workers and trade unions of this country will not stand for that kind of policy in the future. I hope that wiser counsels will prevail. The bigger corporations and monopolies can take the shock of any credit squeeze or financial restrictions and ride them off, but this is not possible among the smaller men who create a lot of the employment in the economy of the nation. I ask the noble Lord to bear these things in mind. This Budget in its entirety raises questions not only of finance but of jobs and employment.
There is an aspect of the Bill in Part VI, that is to say the reduction in Stamp Duty on house purchase, which is in itself welcome. To people who purchase small houses, the burden of Stamp Duty has always been heavy, and to all such this cut in the Stamp Duty will be welcome. It is no use the Chancellor making a cut in Stamp Duty, thereby enabling people more readily to consider buying their own houses, if at the same time he puts up interest rates and causes mortgages to become so prohibitive that they cannot make the payments. We have many people of that kind in Great Britain, people who try to fight their own way out of difficulties and do the best for themselves, and it is altogether wrong that they should be treated in this way.
I was astounded at the figures given today by my right hon. Friend the Member for Huyton (Mr. Wilson) with regard to the jump in interest charges and mortgage rates. I represent a London constituency, and this problem arises particularly in the London area, and I want the Chancellor to listen to this very carefully. The London County Council has the responsibility still of rehousing people whom they really can no longer rehouse. During these last ten years the London County Council has adopted various schemes and methods in an attempt to achieve that end. It has started out-county estates and new towns, it has made contacts with other small towns, asking them to take population and build houses for people from London. Now these interest rates are putting an end to all those schemes.
Municipal authorities, which are not trading authorities in the sense of making profits, are the people who are feeling the burden of the interest rates more than any other section of British industry commerce or public service. No longer are towns in Cambridgeshire, Oxfordshire, Somerset and Devonshire prepared to go along with the London County Council and put in the capital works in roads, sewers, lamps, police services, hospital and education services and so on, that a new town requires. They too have to borrow money on the London market, and they are finding the strain of meeting those requirements too heavy. There is no relief in revaluation even in such places as Hertfordshire, which has three new towns within its borders, because they still have to carry the high burden of the new rates.
The Government's plan for the small saver and investor to house himself will fail. He is no longer able to meet the payments which are required on mortgages. The majority of these people have taken on houses which have not been new, houses which have been vacated by people moving out. Those houses in themselves require a lot of maintenance. I ask the Chancellor tonight to reflect upon his policy with regard to housing loans, and to institute some kind of short-term, low percentage loan agreement for local authorities in order to extricate mortgagors from these tremendous difficulties. There is no other way out.
Several speakers have dealt with the subject of pension schemes and superannuation, and many hon. Members have expressed the view that it would have been better if the Chancellor had concentrated on a real incentive by offering a national superannuation or pension scheme, forgetting altogether about his Premium Bond issue. To those views I readily subscribe. The Chancellor will suffer a great disappointment if he believes that the British public at large are going to go in for his Premium Bonds. The British man likes a gamble but the odds offered by the Chancellor are far too short to attract his money, and he will not be attracted in the units of £1 for which the Chancellor is hoping.
The hon. Gentleman the Member for Billericay (Mr. Body), who delivered his maiden speech tonight suggested that the Premium scheme must be widened if the Chancellor wants people to make any investment. I concur with those remarks. I do not think that the scheme will go at all. I belive that the Chancellor will have to look again if he wants to find a form of incentive saving whereby he can benefit the ordinary taxpayer and the wage-earner. I believe that the best method is to have a superannuation and pensions scheme, although that will also create difficulties because such schemes are based on the assumption that a man's employment will survive—in other words that full employment will survive. Even in London, established firms like the General Electric Company have lately had to lay off people who have been in their pension schemes for as long as 25 years. That is not a very nice thing for the employer to have to do or for the employee to have to accept.
The credit squeeze is becoming effective even at that stage. Efficiency savings are being looked for at every level, with the consequence that people with 25 years' service and more are being penalised. It is not as easy for a man who has turned 50 years of age to get a job as it was when he was 25. Therefore, we ask the Chancellor to drop this premium bond scheme and introduce something which has some substance. I commend to him some plan whereby a superannuation or pension scheme can be developed which will give a real incentive and a greater return.
I found myself agreeing with isolated remarks by the hon. Member for Hammersmith, North (Mr. Tomney) on more than one occasion. I agreed with him when he said that he was anxious to see exports increased and when he expressed approval, if only for a moment, of the Chancellor's scheme for cheapening the stamp duty on house purchase agreements. I agreed with him on a third occasion when he said he thought that Premium Bonds at—1 were too expensive to be effective, but I am afraid that I could not go any further than any of those themes without falling into difference with him.
I rise to support the Second Reading of the Bill, but in doing so I am bound to admit that I find parts of it unpalatable, because I still think that taxation is far too high. However, as one who believed that stern measures were necessary and pressed the Chancellor not to be afraid to take them, I am in no position to complain. I am rather like the little boy who went to the chemist and asked him for six-pennyworth of "Gregory's Mixture" but added, "Please give me small measure because I have to take the dose myself". That is the position in which we find ourselves. We have a stern Budget which we believe to be necessary but which is not agreeable.
The question that worries me is whether the measures in the Bill will be sufficient to do the trick. I am worried not so much by that—for there can be another Budget and another sterner Finance Bill—but by the fact that I find myself sometimes doubting whether any Budget could deal with the inflation which we face today, when it comes, as I see it. So largely because of rises in wages which have not been coupled with rises in production. So long as wage increases are accompanied by rising production, good luck to them. We are all in favour of them, but the disturbing thing, which I think hon. Members in all parts of the House appreciate, is that during the last few years we have seen a great many increases in wages that have not carried with them increased production.
In this matter, the United Kingdom compares unfavourably with many of her competitors. When I examined the Bill, I wondered which of the Clauses would be really decisive in solving the problem. Everyone appreciates how close is the connection between the cost of the article and the cost of the labour producing it. The cost of labour in production, transport and selling is often 90 per cent. of the price of the article. I read in the March issue of the Bulletin for Industry some very striking figures which brought out the comparison between the present position in our country and that in West Germany.
Taking the period of the last five years, we find that whereas earnings in Britain have gone up by 45 per cent., production per employee has risen by only 9 per cent., and that prices have therefore bumped up by 30 per cent. Taking the West German figures, we find that earnings have gone up 42 per cent., which is about the same as our own figure, but, because the weekly output per employee has gone up by 40 per cent., as opposed to the 9 per cent. in the case of the United Kingdom, German prices have risen by only 8 per cent. One can therefore see so clearly how the higher earnings can be carried quite easily by Germany when prices rose so little, and how they can be carried with much more difficulty by this country, when our own prices rose threefold as compared with those of Germany.
I do not want to go further on this theme of wage restraint, because it is an unpopular subject for any politician, and an unpopular one for any trade union leader. I would rather leave it to the Finance Bill to solve the problem for us, and I therefore hope that my hon. Friend the Economic Secretary, if he is to wind up the debate will be able to produce convincing arguments that will show how the Finance Bill will accomplish that task.
I now turn to Clause 34, which brings us to another vital element in the cost of production and the prices of British goods. That is the shattering effect which is produced on people engaged in business when they are invited to cut their own prices, when at the same time the prices demanded of them for nationalised goods
or services rise simultaneously. Just before the Budget, I had a letter from one of my constituents who has considerable industrial interests, and I should like to quote part of it to the House. It is as follows:
On Wednesday of this week, we received a circular letter from the Chancellor of the Exchequer forwarding a copy of a booklet entitled Must Full Employment Mean Ever-Rising Prices?' We considered the booklet to be excellent and immediately ordered 100 copies for distribution among our works. I do not know whether you have had time to read this booklet.
I do not know how many of the hon. Members in the House just now have read it. The letter goes on to say:
It is certainly very well prepared and brings home very strongly to managements the need to maintain existing prices, if not reduce them. It underlines the fact that any increase in output should not be allowed to result in higher profits but should be used to reduce prices.
On Thursday, we read in the newspapers that the Postmaster-General is proposing to increase telephone calls and certain postal rates which particularly affect businesses. Even the enlightened business man stops to say to himself Are the Government quite crazy, because on the one hand they are beseeching us to reduce prices, and a day later they go and increase all their own prices?'. I quote that letter to my hon. Friend on the Front Bench only because I feel it my duty to bring home to him how some people are affected by the ever-recurring increases in the cost of goods and services under nationalisation. In Clause 34, it may be that by means of capital manipulation a contribution might be made towards keeping prices within control.
I return—and I shall finish on this point—to the general savings theme of this Bill, which has found acceptance everywhere, the only doubt being as to how effective it will be in achieving greater savings. Of course, everybody must agree that, in a time when too much money is chasing after too few goods, it is highly desirable to tap off that money from chasing goods into savings instead.
I congratulate the Chancellor on making Post Office savings more attractive and also for making more attractive the savings bank 2½ per cent. investment. I ask my hon. Friend the Economic Secretary to make one point clear. I appreciate that the first £15 of interest is free of Income Tax, although not of Surtax, but am I right in thinking that a man and his wife may each have a separate £600 invested to get the £15 tax free, and also, if need be, their children?
Turning from that orthodox method of saving to the other controversial but comparatively lesser point of the Premium Bonds, I would repeat that I agree with the hon. Member for Hammersmith, North in feeling that £1 is too much. One of my hon. Friends, I think it was the hon. Member for Billericay (Mr. Body), made the point that to net the biggest amount of money we should fix the Bond at a figure appropriate to the weekly wage; that £1 was too much for many people and that 5s. would probably be better.
I recommend my hon. Friend the Economic Secretary—had it been the Chancellor himself who had been present I should have hesitated to do so—to pay a visit to Mr. Littlewood, to have a cup of tea with him and to ask him how he runs his show. If we are to make the maximum out of this scheme we want to make it not a method by which we turn savers into gamblers but one by which we turn gamblers into savers. We want to get the £1 which might otherwise go on the horse's back or into the bookmaker's pocket. We want to get the shillings that might go on the greyhounds and those which might go on the pools.
Finally, if I could give my hon. Friend an argument which might have appealed to him before, it is that when people, be they churchmen or otherwise, criticise him for the immorality of the Premium Bond, he should remind them that when a man buys a Bond he is not only investing his money but he is at the same time buying hope, and hope is one of the most precious things in this wicked world.
The hon. and gallant Member for Berwick and East Lothian (Major Anstruther-Gray) devoted a very large part of his speech not to questions of finance but to questions of commerce and industry, and in that he was following the example of most of those who have spoken before me from both sides of the House. It is not surprising that that should be so, because we have all now come to realise that when one is discussing the Finance Bill and the Budget one is dealing with wide economic problems and that, in the end, financial mechanisms are merely a measure, a yardstick, of how far we solve these problems and in fact the real solution gets down to questions of commerce and industry rather than of finance.
I should like in a moment to comment on one or two of the things which the hon. and gallant Gentleman said about commerce and industry. Before I do that, I am tempted to venture into a different field in order to say a few words about the suggestion, in which he followed his hon. Friend the Member for Billericay (Mr. Body), that the Chancellor should issue the Premium Bonds in 5s. units in order to try to get people to send 5s. to the Government instead of to Littlewoods.
I wonder if the hon. and gallant Gentleman has realised what a great loss it would be to the Exchequer if that happened? Now, when one of his constituents sends 5s. to Littlewoods, the Government get 2s. out of it. The Government get ls.6d.-in pool duty, on the envelope which Mr. Littlewood sends to his constituent and 2½. on the envelope which his constituent sends back to Mr. Littlewood. Incidentally, because both of these envelopes are bulked and handled in a special way, the Post Office handles them very profitably, in fact much more so than the letters which the hon. and gallant Gentleman and I write and with which the Post Office deals separately.
Then the Government get the poundage on the 5s. postal order and also, on the rare occasions when his constituent wins money from Mr. Littlewood, he nearly always gets his winnings in the form of postal orders, which again bear poundage. So, as an absolute minimum, every time one of his constituents has 5s. on the pools, the Government get 2s.
If we take that money from Little-woods and put it into Premium Bonds, the Government will not get that 2s. Instead they will have to bear the considerable administrative cost of selling the tickets, of printing the tickets and of sending them to the post offices. As we have heard already, there will have to be special staff and special calculating machines to cope with the scheme, and no doubt there will be Rank starlets to draw the winning numbers every now and again.
I estimate that the cost of a 5s. Premium Bond to the Government will be of the order of a 6d. or 7d. debit against a credit of 2s. when the 5s. goes to Mr. Littlewood. So I beg the hon. and gallant Gentleman to take this factor into account when he urges that we should try to take business away from the football pools and put it into the Macmillan pools.
However, it is about commerce and industry that I wish to speak, as most of my predecessors in this debate have done. I hope that the hon. and gallant Gentleman will realise that I mean no offence when I say that his remarks on that aspect of the subject appeared to me to indicate that he cannot have had much first-hand experience of either commerce or industry, because he had cause so much mixed up with effect.
The hon. and gallant Gentleman posed the question of wage claims and wage rises, and seemed to indicate that prices went up because wages went up. Of course this is an example of the old story of the chicken and the egg—which came first? Prices go up when wages go up, but wages go up when prices go up. I do not think that any impartial observer would deny that the real inflationary impetus of the last few years was first given by the initial cut made in food subsidies shortly after the Conservative Government came into power in 1951. After that we can blame either the chicken or the egg, according to taste. That was what sparked off a real rise in wage demands.
One has only to look back to the period of wage restraint during the term of office of the Labour Government. One could reasonably ask for wage restraint then and get away with it. Indeed, the extent to which the late Stafford Cripps got away with it was staggering. That could be done then only for two reasons: first, because the Government managed to convince the country that burdens were being fairly shared, and, secondly, because promises to divert a substantial part of the tax revenue to creating wages in kind were honoured and not broken.
My hon. Friend is not going to lead me off into questions of morality. I do not claim any authority for dealing with that subject.
It is always difficult, and sometimes virtually impossible, to discern where cause and effect begin and end. No one would dispute that the greatest impetus to wage claims and to inflation in recent years occurred when—
The hon. Member for Leeds, North-East (Sir K. Joseph) must get his eye in and get used to the bowling before he starts bouncing about like this. He has only recently been at the wicket for the first time.
I will, but he should first let me finish my sentence. Nobody can reasonably doubt that the great impetus came with the cutting of food subsidies, against electoral promises, shortly after the General Election of 1951. I will now let the hon. Member for Leeds, North-East intervene.
I am grateful to the hon. Member for Reading (Mr. Mikardo) for letting me in. In making his claim, would he not admit that a recent publication by the Government shows that there were two periods during which wages and prices kept parallel, one being during the time of Sir Stafford Cripps and the other being immediately after the Conservative Government came into power, which seems to make nonsense of the hon. Gentleman's claim?
It does not make nonsense of it. The hon. Member must not mistake dogmatism for authority. There is a time lag in these matters. I probably get around to the trade unions a little more than the hon. Member does, and I know that it takes time for pressure for wage claims to build up in the branches and reach the national executives.
Shortly after the present Lord Privy Seal became Chancellor he made the first cut in subsidies, and that was the time when pressure for wage claims started building up in the trade union branches, and the pressure was transmitted through the machinery of the district councils up to the national level. It took some months to develop, but the action by the present Lord Privy Seal was what started it off. Anybody who is at all acquainted with the trade union movement knows that is so.
That is why I say to the hon. and gallant Member for Berwick and East Lothian that he has cause and effect mixed up. The same applies to his comparison between British industry and West German industry. It is true that the productivity of Western German industry has gone up much faster than productivity' in this country in the last few years. There are two reasons for that. One is that the Germans started at a lower datum level a few years ago, which makes a lot of difference, and the other is—this is the main burden of my criticism of the Government's economic policy—West German Governments have given their industrialists every encouragement to plough back as much of their profits as they can into reinvestment and modernisation.
The rate of increase in horsepower per worker in German industry is much faster than the rate of increase in productivity when a comparison is made with the British figures. If the hon. and gallant Gentleman will ask his right hon. Friend the Minister of Supply to let him have a look at a report which was presented to the Minister by his engineerng advisory council a few months ago, which made a very close and very scientific comparison between the engineering industries of Britain and Western Germany, he will find that it bears out what I have been saying.
Could there be a further reason, that the German people remember what inflation can really be, and for that reason wage claims have been less freely put forward there than in this country?
No, I do not think so. If the hon. and gallant Member for Berwick and East Lothian looks into the situation, he will find that German workers have behaved in exactly the same way as British workers have behaved. They have made or withheld wage claims according to their estimate of the strength or weakness of their bargaining position at the moment. A few years ago they were in a weak bargaining position, and so held back. In the last few years they have been in a stronger bargaining position and are now taking a tougher attitude than that adopted in Britain. They are now putting in claims for improvements in wages and conditions and a shortening of hours which are much tougher than the claims in this country.
I have been diverted by interventions from hon. Members opposite. I wanted to say two things. The first is that we all appear to be agreed that our ability to maintain our financial position depends on the efficiency and competitive power of our industry. The second—and here perhaps not everybody will agree—is that my impression from getting around British industry—and I have done a bit of that in the last year or two—is that the sharp edge of our industrial effort has been blunted. I say that with regret.
I am perfectly willing to admit that the number of factories which I see does not represent what a statistician would call a statistically significant sample. It is not a very big sample, although it is probably a bigger sample than the great majority of other hon. Members have the good fortune to see, or try to see. However, one has only one's impressions on which to go, and it is my very strong impression that the cutting edge of our competitive effort is not what it was even a year or two ago.
If we are seriously to consider what we are to do about it, we must consider why it comes about. It is not easy to disentangle why it comes about, because cause and effect are sometimes inextricably mixed. However, by and large there are three reasons. The first is that we have not enough industrial investment at the points at which that investment is most needed.
That is due to two reasons. The first is that the total investment is insufficient and the second is that there is maldistribution. I do not at all agree with the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke), who argued that we are investing too much in our industry. Quite the opposite is the case. The picture up to 1954 shows the measure by which we were falling back as compared with our competitors.
This will interest the hon. and gallant Member for Berwick and East Lothian, who was referring to Germany. My right hon. Friend the Member for Huyton (Mr. H. Wilson), speaking in the House on 18th April, quoted a Report of the Economic Commission for Europe which compared the net fixed investment of all fourteen countries concerned in E.C.E. as a percentage of national income. On those figures, the United Kingdom was the lowest. Norway was the highest with 22 per cent. Western Germany, in which we are all interested, because it is potentially such a great competitor, was investing 15 per cent. The United Kingdom was investing 6 per cent. We were right at the bottom of the league table. Even Greece, which we do not normally regard as being a very progressive industrial country, was investing nearly double our percentage. Even Turkey, which is virtually bankrupt, was investing one and a half times as much.
A good deal of that was undoubtedly due to the fact that investment was competing with our defence expenditure as a cause of inflation, and the two were therefore competing with each other as victims of any anti-inflationary measures. I was delighted to hear the noble Lord say that he thought we ought to make a slashing cut in our defence expenditure, and I was delighted to hear agreement with that view expressed by my hon. Friend the Member for Hammersmith, North (Mr. Tomney).
I can remember that when a few of my hon. Friends and I were on the benches opposite in 1951 we were made to feel very lonely indeed. I remember making a speech on 26th July, 1951, in which I attempted an assessment of the way in which we were strangling ourselves by defence expenditure compared with other countries. I managed to escape being expelled from the party to which I belong for making the speech.
I have no misgivings about that because I take joy in the converts I have since made, including the noble Lord the Member for Dorset, South. I take joy in seeing how the stone which the builder rejected has now become the "headstone of the corner", and what was once described as an arrant heresy has now become a highly respectable opinion held in the best quarters. And the best quarters not only include the noble Lord, but also the Editor of the Financial Times.
I want to draw the attention of hon. Members to a very important leading article in the Financial Times on 18th February, which ended with the following paragraph:
The attempt to carry too great a defence burden setting a military standard of parity equivalent with the United States combined with an extraordinarily high level of social expenditure has made it impossible to absorb a comparatively small and long overdue increase in industrial investment. In such a situation to cut investment rather than the other excessive burdens may be immediately necessary, yet it is an expedient rather than a remedy. It is also a defeat.
I put it to the House that the Government make a grave admission of defeat when they try to tone down on investment because that is the only mechanism over which they can exercise any real control in their attempt to curb inflation.
So much for the total volume and the total insufficiency of investment. It would not be so bad if we cut investment a little so long as investment went to the right places. Those places are the ones which make a contribution, either direct or indirect, to our export trade and to the general overall efficiency of our industry.
So long as we have alaissez-faire economy we have to be reconciled to the fact that the decisions about what investment there is to be, where the investment is to be made, in what industries it is to be made and which industries are to be encouraged and which held back arise out of the capricious individual uncorrelated decisions of entrepreneurs each of whom makes his decision in the light of his own business. His decision may be in the best interest of his business, but not necessarily in the best interest of the nation, for which he has no special responsibility.
The Government have now added a further capriciousness, because on top of the capricious decision of the entrepreneur they have placed the capricious decision of the individual bank manager who, poor fellow, has to decide, without any guidance in this matter or training or qualification for it, as between one capital investment project and another, for which one he will lend money and for which he will refuse to lend money. He has now, in fact, to carry the right hon. Gentleman's can for him.
The Government have found themselves in what the noble Lord calls a dichotomy. They do not like planning, but they find that they have got to have a little planning so they make it acceptable by getting some other sinner to sin on their behalf. Therefore, they make the bank manager do the job which they ought to be doing. The difference between the two methods is, of course, that the Government can make a decision in the light of an overall picture. The poor individual bank manager cannot. I wish that the right hon. Gentleman would talk with a few ordinary bank managers—I do not mean the general managers in the City, but a few ordinary bank managers round the corner—and see what they say about the responsibility, which they and I consider to be unfair but which the right hon. Gentleman is laying on them.
If we look at the wider picture, we see how investment is mal-distributed. How can it make sense when on the one hand we are cutting investment in coal, which is basic to all the industries; cutting investment in transport, the costs of which enter into the costs of all goods; holding back credit for plant and machinery in small and medium-sized businesses where it is more needed than in the big businesses, because they have more efficiency leeway to make up; and on the other hand we allow an almost unlimited investment in passenger vehicles, private motor cars, luxury shop fittings, elaborate petrol stations and huge office blocks? How can we do that and maintain the competitive power of this country?
In what I would term a most cogent maiden speech, the hon. Member for Leeds, North-East argued that the sector of our economy which most needs the application of new techniques in productivity was the public sector. I am glad that now we have one more hon. Member in this House who is interested in these techniques because this has been a battle which I have fought almost alone for a long time. But, with respect, I disagree with the hon. Gentleman.
I consider that the sector most in need of these techniques is the small and medium-sized businesses. The trouble is that whereas, as the hon. Gentleman said, the best of our industry is as good, if not better than, any in the world, the gap between the best and the worst is wider in British industry than anywhere else. Our "first division" is as good as any in the world. Our "division three" is much lower than the "division three" of our competitors and therefore our average is much lower.
The hon. Gentleman mentioned various bodies who are doing good work in this field, and I am grateful to them. If one goes to meetings of the British Institute of Management, the British Productivity Council, the Institute of Industrial Administration and all these specialist institutions, one finds the same stage army of a couple of hundred people, nearly all from big firms and from the big industries and organisations which least need this teaching. They are going round getting it all the time while the ones who need it most do not know enough about their inefficiency to know that they have something to learn. That is the real trouble.
The problem is not to develop more techniques; it is to get more application of the techniques that we already have. It is in these small and medium-sized businesses that we need a great deal of re-equipment as well as new methods. But it is exactly these businesses which are "getting it in the neck" because of the credit squeeze.
The coal industry is not being badly squeezed. I am sure that Imperial Chemical Industries or Lever Brothers are not feeing the credit squeeze. It is "Joe Snooks", with his little factory in Acton who needs some plant. He is feeling the credit squeeze, and that is why the whole thing is distorted. Yet we have this enormous new investment in passenger transport plant and luxury shop fittings which is going on. That is very nice and makes the streets very attractive and a pleasure to those who go shopping. But no one will contend that it is really contributing to our power to compete with Germany, Japan, Switzerland, America and other overseas competitors.
And what about all the elaborate petrol stations and the immense amount of capital investment going into them? What are they contributing to our selling needs in America, Australia, New Zealand or France or anywhere else? From the national point of view that is gross and outrageous luxury. From an aesthetic point of view some of them are appaling, but they are a luxury. At the time when the right hon. Gentleman is trying to hold down investment, and is succeeding in holding down investment in some cases, we have this fantastic proliferation of petrol-selling cathedrals all over the country.
I went into the City the other day—I had not been there for some time—and in the area around Finsbury Square and Walbrook I was staggered to see the enormous number of office blocks being built. One needs efficiency in offices as well as in industrial processes. Thousands of office workers are working in environmental conditions of lighting, heating and sanitation which no factory worker would tolerate. Therefore I do not say that we should stop office building, but we ought to hold a balance.
We have these huge office buildings going up, and the rents and administrative costs are creating higher and higher overheads and higher and higher selling costs for our exporters. Hence they are making it yet more difficult to compete abroad. We must have some of these modern offices, but at least we should hold a sensible balance between them and the means of production.
In 1955 there was an increase in investment of 18 per cent. over 1954. That looks good and sounds welcome, but when we break it down into forms of investment it does not look good. The increase in plant and machinery was very much smaller than in other forms of investment. In some very important trades there was no increase in investment in plant and machinery at all. In chemicals and allied trades there was actually a fall in 1955 compared with 1954, but what went up? I will tell the House. Investment in motor cars went up 77 per cent. All the commercial travellers got much bigger and nicer cars. Business executives got bigger and nicer cars. Motor car pools in factories were increased so that no one should have to wait five minutes. That is where big investment went. One has to consider investment not only quantitatively, but qualitatively, not only in terms of global expenditure, but in terms of whether the stuff is going to the right places.
May I interrupt the hon. Member's most interesting speech? Surely one of the reasons for the greatly lengthening order books, was the number of home orders for plant and machinery which, of all types of investment, must compete with the export trade.
I should like to think that that was so. If it were so it would be absolutely delightful, but the plain fact is that home orders in 1955 were sharply cut as well. If the hon. Gentleman will look into the machine-tool industry he will find that that is so. He will find that there was a drop in demand as well as the time-lag. As the hon. Gentleman knows, a good deal of this matter is a question of psychology and climate. People rush to buy capital goods because everyone else is buying capital goods.
Insufficient capacity is one reason why we are losing efficiency. Another reason is that we pay less attention to efficiency than we used to pay, because efficient production is no longer the easiest way to make profits. I do not blame the industrialist for playing his game, according to the rules, as best he can; he can play only according to the rules. The idea of the game is to make the most profits, and therefore the industrialist pays the most attention to those things which are most readily a source of profit.
In an ideal economy, and in the economy as it was a few years ago and as it was when I first went to work, the best way to make a profit was to be more efficient. Even now, many hon. Members opposite make the grave mistake of equating efficiency with profits; they say, "Increase your efficiency and make yourself more profitable." But in practical terms this is no longer true; there are many easier ways of making profits than by increasing efficiency.
On the productive side, if a man wants to increase efficiency by 5 per cent., he has a big job; he may have to spend a lot of money and certainly will have to use a lot of thought and hire a lot of skills in order to do so. There are other ways of putting profits up by much more than 5 per cent. very quickly indeed. If one embarks on a little speculation in stocks one can make much more by three telephone calls than in six months of hard effort on increasing production. I am sorry that that is so, but it certainly is so.
That is one of the most disturbing manifestations of our commerce and industry over the last two years. That is why over these last two years we have seen an enormous increase in the trade in commodity futures. No part of our commercial or industrial life has been so lively or increased so much over the last two years as this fantastic trade in commodity futures—and it is a fantastic trade, because it consists of buying things one does not want and selling things one has not got. It is pure speculation.
A business man may say, "I know a little about copper because I use it and I meet a lot of others who buy and sell it, so that I am bound to get to know something about it, and if I guess the market correctly I can make more money by two correct guesses and two telephone calls on each occasion than I can ever make by sending some of my managers to be trained in some of the techniques about which the hon. Member for Leeds, North-East spoke". If he can do that, then he will do it. That is why the urge towards efficiency is taking a back seat.
Another manifestation is that so many commercial and industrial concerns are now ceasing to make trade and industry their major enterprise. They are making property-owning their major enterprise. The landlord of my office is a very distinguished and very well-known manufacturing company. Why it owns the office block in which my office happens to be I do not know; it has no office there or, as far as I know, anything else there. It bought the property as a property owner, very fairly. It is buying and administering property through property managers and is becoming a handler of property. If I may say so, it does it extremely well, but it makes more money out of that per thousand pounds invested than it can ever make by improving its methods and efficiency of production. It is a pretty efficient concern—but why should it bother about increasing efficiency?
There is a great difference compared with a few years ago and with the time when I first went to work. Then the man who counted for most and who had the most influence in the organisation was the man who could contribute most to improving its manufacturing methods. Today that man has to take second, third or fourth place. The important man in every firm today is the man who can contribute most to improving the methods of setting out the accounts so as to reduce the amount of taxation paid. The technician is taking a back seat and is being replaced by the expert accountant. I am not looking particularly at the hon. Member for Langstone (Mr. Stevens), although I dare say he is an expert in his own field.
The hon. Gentleman uses the Floor of the House to advertise his services—he would not be allowed to do that on the B.B.C.
I do not mind having a little chaff with the hon. Gentleman; but the serious aspect of the matter is that industrial efficiency is greatly affected. It is no longer the technician, the planner, the efficiency producer who matters most in British industrial and commercial organisation but the financial wallah who knows his way around. My right hon. Friend the Member for Huyton quoted examples of that today—the man who knows where to go to buy companies with tax losses, who knows the precise markets for them, and can get a quotation of the precise market value of those tax losses. If the House wants to know, the current rate at the moment for tax losses is 3s. in the £, or so I understand. It is the man who knows all that who counts, and the poor technician—the man who really knows and does the job—has to take a back seat.
A third reason for this position is a deterioration in industrial relations. I believe that the propaganda which has been designed to encourage personal ambition and acquisitiveness has to some extent broken up the esprit de corps in British industry. It has set one class against another, and one man against another, even in the same class. Industrial relations are being gravely endangered because of growing doubts among the workers about the Government's sincerity in saying that they intend to maintain full employment. There is great danger to industrial morale in the growing feeling that the Government are sitting back and taking no part in the business of maintaining full employment. It isgovernment—as the noble Lord the Member for Dorset, South has said—purely by exhortation.
I beg the Government not to underestimate the strength of feeling in the working classes about the dangers of automation—the feeling that people are going to be left to fight their own way out. There is some basis for this fear. Why should we be behind Italy in this regard? We stayed out of the European Coal and Steel Community because we thought we were a cut above it, but that Community is protecting the workers in its industries in their countries against the effects of automation.
I should like to read an extract from a Press release issued by the High Authority of the European Coal and Steel Community on the 4th of this month. It reads:
The High Authority of the European Coal and Steel Community today agreed to place 1,000 million lire (£570,000 …) at the immediate disposal of the Italian Government …this sum …is an advance on a total of 3.500 million lire (£2,000,000…) to be paid by the High Authority to 8,000 Italian steelworkers put out of work by modernisation and re-equipment projects "—
by automation, in fact—
They will be paid a ' waiting allowance ' starting at 35,000 lire (about £20 …) a month from the date of their dismissal …In order to encourage workers to train for new jobs, this waiting allowance will continue at the full rate for workers who undergo training courses. Workers who have to move house to a new job will be given a grant…Part of the total …which the High Authority has allotted can also be used to aid vocational training centres and to accommodate workers. The High Authority's aid is part of its readaptation programme by which it ensures that the brunt of re-equipment and modernisation …is not borne by the workers ".
The workers of this country are going to ask if that can be done on the Continent—and by a capitalist institution in capitalist countries—without violating the sacred doctrine oflaissez-faire, why must this Government say "This is a matter for both sides of industry—it is no responsibility of ours".
I deeply deplore this deterioration that is going on in industrial relations. There are too many employers saying, sometimes openly and sometimes behind their hands, that this is the time for a showdown with the trade unions. There are too many pinpricks being directed at the trade unions. There is far too much sniping, anti-trade union propaganda in some parts of our Press; and it is this combination of insufficiency and misdirection of investment, of speculation as a substitution for efficiency, and of deteriorating industrial relations which the Government ought to be really worried about.
If the Chancellor of the Exchequer had come before us in his Budget speech and in his Finance Bill, and dealt with issues like these, and had put forward measures to deal with this situation, he would have been making a real contribution, and that is what he should have done.
He should have left his Premium Bonds to the gambling legislation coming later in the year. Whatever the merits or demerits of the Premium Bonds proposal, it is more related to legislation dealing with gambling than to financial legislation. We have the promise of legislation to deal with gambling, and Premium Bonds ought to have been included in that legislation. The Chancellor should have dealt with all the bookmakers—William Hill and Charlie Hill—at the same time, instead of "mucking about" with these things which, whatever their merits, are irrelevant to an economic situation such as the one which we face. He ought to have come forward with measures designed to help and encourage industry, to sharpen up the edge of its competitive efficiency again. It is because he had not done so that I come to the conclusion that this Finance Bill is a pathetically weak, inadequate, insufficient and irrelevant Measure.
I realise that at this time of night I must not be long in keeping the House from the winding-up speeches. I should like to say a few words on two aspects of taxation in relation to Clause 9 of the Bill. Clause 9 will have the result of taxing employees who are charged in respect of an office or employment and who are not ordinarily resident in this country if their work is wholly or partly done in this country. The result will be that many employees of foreign companies are likely to leave this country, and if foreign companies have their European managements situated in the United Kingdom they are likely to be driven abroad. I know in my very limited experience, of three such companies. One was going to move its European management to this country and has now decided that, with the Clause in its present form, it will not do so. Another company is going to reduce its employees from some forty to six and move the rest abroad. A third company is holding up its plans for setting up an organisation in this country.
From the doctrinaire point of view, one might say, for instance, that the United States would tax people in the way the new Clause proposes, but it is very important that we should get the foreign exchange and dollars which these employees represent over here. As long as they are taxed on a remittance basis as at present, I believe that we should gain much more than the comparatively small amount of revenue which will be gained by taxing them on the basis proposed in this Clause. It must be remembered that when the European management of, let us say, a Canadian or American company is situated in this country it makes for increased trade. Obviously the management will tend to make many more purchases here and be in much closer touch with business and trade in this country than if it merely had an English branch here and its main direction abroad.
I therefore ask my right hon. Friend if he would look at this matter in this light. One way of curing the difficulty in regard to British employees who take advantage of these provisions in order to be taxed only on a remittance basis would be to confine the application of the new Clause to British subjects only and, of course, to retain the present provisions of Schedule E.
Secondly, I would suggest that it would be very advantageous if the beneficial occupation of tenants could be taxed. We all agree, I think, that the present miasma of rent control ought to be cleared up. The difficulty always is how to ensure that, when rent control applies to poor people, their rents should not rise, while at the same time ensuring that people who really have sufficient income should have their rent-controlled rents increased to a level more nearly approximating to the economic rent.
I would suggest that the right way of doing that would be to introduce some financial provision by which the difference between the controlled rent and the economic rent should be returned for the purposes of Income Tax. If people are not within the Income Tax bracket, being poor people who cannot afford more than the controlled rent, then Income Tax will not be levied. On the other hand, if they are in the tax bracket and, let us say, they pay tax at the standard rate, then by returning the difference between the rent controlled rent and the economic rent, Income Tax will be attracted and they will pay 8s.6d. in the £ on the beneficial occupation.
An owner, according to my suggestion, would make a claim for the equivalent amount against some other taxable income. This would have the advantage that the owner would then get an increase of 8s.6d. in the £ in respect of his house, which would go through the Government by the tenant paying 8s.6d. in the £ on the difference between the two rents. The owner would have his claim at 8s.6d. in the £ against other taxable income. If he were a poor person without taxable income, he would have a saleable asset which could be sold to another person with sufficient taxable income, for instance, a property company.
The advantages in this scheme would be these. Some approach would have been made to clearing up the rent control situation. The person who could afford it would pay an amount in tax on the beneficial economic rent which they do not pay to the landlord, and the poor person would not have his rent raised. At the same time, the owner of rent-controlled property, he often being a person in very poor circumstances, would be able to recoup himself by selling the property to somebody who could make a claim. In my submission, this scheme would be of very great advantage from all points of view in tackling this difficulty of rent control.
I listened to all the speeches in the debate. Although at the end of the day there is very often little more to be said about a Bill under discussion, there is perhaps always something more to be said about the Finance Bill.
I shall not follow the hon. and learned Gentleman the Member for Northwich (Mr. J. Foster) in his detailed points on taxation, though he did, as did the right hon. and learned Gentleman the Member for Kensington, South (Sir P. Spens) refer to Clause 9. That Clause deals with the difficult question of residence. It introduces a feature into the Bill which will certainly need close examination in Committee, because it has to do with the greater taxation of other nationals coming to this country to do jobs of work. When the right hon. and learned Member was approaching the Clause he said, "If I read it aright." That is a lead-in for me in my first suggestion to the Financial Secretary, which is that we should have an explanatory memorandum with the Finance Bill when it is published.
It is a bit hot to push a Bill like this at hon. Members on a Friday and spoil their weekend by compelling them to try to understand what it is all about. Those of us who are not complete fools at this nevertheless have great difficulty in understanding the purpose of some of these complex Clauses. I hope that this suggestion will be adopted. Members of the House of Commons are entitled to have proper tools to do the job, and an explanatory memorandum of a complex Bill certainly one of them.
My next suggestion concerns future legislative programmes on many matters that will require the consideration of the House in time to come arising from the valuable and voluminous Report that we have received from the Royal Commission on the taxation of profits and incomes. There are 17 recommendations dealing with administration alone. There are a dozen recommendations dealing with anti-evasion, or the protection of the Revenue. I have made the suggestion before, but I do not think that it is any the worse for being repeated, that the Financial Secretary should consider stripping Income Tax Acts and Finance Bills of administration and transferring that to a Taxes Management Act.
This is not a new idea, but it would enable matters of administration, which have nothing to do with the original charge on the taxpayer, to be considered at a different and more convenient time in the Parliamentary Session. I leave that suggestion with the right hon. Gentleman because I believe that it is something well worth considering. I fear that the alternative is that many of these valuable recommendations will take their place in a long queue and await successive Finance Bills for a long time to come.
I should like to make two or three comments on one or two matters within the Bill itself, the first being in relation to the additional taxes. I think that Clause 1 is a mistake. That Clause increases the tobacco duty. Although the Financial Secretary once more today has been at pains to say how small it is and to illustrate it graphically by saying that one has only to smoke one cigarette fewer in 24 and one saves the money, the fact is that these additions to taxation are regarded by the great mass of the workers as a sign that the Government have no real intention of keeping the cost of living down.
I say without fear of contradiction that the autumn Budget was a mistake and has cost the country's economy very dearly. I believe there is no doubt about that at all. When increases in Purchase Tax were being made, the Chancellor of the time sought to show how small the effect would be on the average housewife, and yet it undoubtedly stimulated wage demands on a wide scale, having the effect of turning the inflationary spiral once more. The Chancellor should have avoided doing anything to cause that to happen.
Clause 8 deals with the exemption from Income Tax of the first £15 of Post Office and trustee savings bank interest. My hon. Friend the Member for Bristol, North-East (Mr. Coldrick) made a strong plea for the extension of this benefit to other forms of saving. My hon. Friend specially mentioned the co-operative societies, but there are others, such as the penny banks, the deposit friendly societies and other forms of saving which have the full approval of this House and the Chancellor. I think the Chancellor could safely extend this concession on one condition—that is that the rate of interest paid in these other forms of saving should be tied to the amount paid by the Post Office Savings Bank. I see no justification for extending this benefit to forms of saving, however deserving, which carry a rate of interest higher than that of the Post Office Savings Bank. To do that would obviously lead to some transfer of savings, which the Chancellor has no desire to see.
Finally, I want to say a word or two about what I think is the most tragic Clause of the Bill—that dealing with the withdrawal of the investment allowance. When we recall the buoyant mood in which the Chancellor of the day introduced the investment allowance in his Budget Statement in 1954, we can look at Clause 12 now and feel sad that we are having to go into reverse gear. This is a confession of the failure of the Government's economic policy during these last few years, and, as my hon. Friend the Member for Reading (Mr. Mikardo) pointed out, we are not keeping pace with the rise in industrial investment in other countries. At such a time we are cutting back the encouragement to further investment.
In this connection, I think we shall soon have to consider our approach to cost accounting and accountancy in relation to the cost of installation of re-tooling and automation machinery. I put to one of my accountant friends a suggestion, which is not original, but which was brought to me by a friend, who suggested that it is about time that the waiting money paid to workers who are stood off while automation plant is installed should be regarded as part of the capital cost and not as running expenses. Though perhaps the Chancellor might address his mind to the tax reliefs to be given to that form of investment, it is a matter which can perhaps be dealt with more fully later on. Certainly, I think that the conventional approach to cost acccounting, and especially the conventional approach to labour as part of the running costs and not as capital cost, might need review in the light of the revolutionary changes which now confront us.
I hope these suggestions are of some value to the House and the Financial Secretary. My conclusion is that the Finance Bill is not so much dull as indecisive. It is to be regretted that it makes its appearance after a Budget which was hedged in between romance and the Russians, and failed perhaps to make its proper impact on the public mind on that account. I fear that since then the nation has gone to sleep, and that the Finance Bill is provoking little interest, because people are waiting to see what is said about the Premium Bonds. That shows a mistaken emphasis in this Budget, and it also reveals the failure of the Chancellor to strike the right economic and political attitude in the Budget and in the Finance Bill. It would have been far better to have given the public an opportunity of reflecting on the significance of an increase in the standard rate of Income Tax than to have left them a little puzzled and bewildered by the Chancellor's policy.
Nobody would accuse the hon. Member for Sower-by (Mr. Houghton) of being dull or indecisive, but he was less than just to my right hon. Friend the Chancellor of the Exchequer when he suggested that either of those adjectives applied to the Finance Bill. I would be in full agreement with a good deal of what was said by the hon. Member, but it was the hon. Member for Reading (Mr. Mikardo) who really made me get a little hot under the collar. He was, I thought, particularly unfair to the managers in our works. He suggested that our managers did not know enough about their own inefficiency to know that they have something to learn. If I had to describe the speech of the hon. Member for Reading I could not describe it in any more apt words than those which he used himself.
He suggested that we were cutting investment in the coal and transport industries. If investment in the coal industry had remained at the level at which he and his friends left it when they left office, the coal industry would be in a sorry state today.
I found myself in agreement with the hon. Member for Reading when he said that there is not enough industrial investment at the points at which that investment is most needed. That is particularly apposite in relation to the investment allowances which are being discontinued under Clause 12 of the Bill.
We find ourselves comparing—and I think rightly comparing—industrial in vestment at home with industrial investment in those other countries with whose goods our own are competing in what is inevitably a competitive world. There is a danger with our industrial investment that we are trying to do too much too quickly: but, I wonder very seriously whether the withdrawal of the investment allowance is a wise step. One of the difficulties in which my right hon. Friend must find himself is that the withdrawal of the allowances will not operate with any speed. They are withdrawn today, but the effect upon our finances will not operate in the present year. It is only next year that it will begin to take effect, and the year after that it will really bite to any serious extent.
We all hope and believe that the credit squeeze will be such in two or three years' time that when the removal of the investment allowance becomes really effective, we shall no longer be saying that industry should be spending less upon investment. By then we hope we shall be wishing to step up our industrial investment to enable us to compete on equal terms with other countries.
The removal of the investment allowance is a blunt instrument with which to operate in this Budget. It may well become effective at a time when it will be embarrassing to us rather than at a time when it will be beneficial. I therefore hope that my right hon. Friend will keep the position under active review. The time will come when we must reequip our industry to he effective in a competitive world.
I welcome this Budget as a further stage in building the prosperity and solvency of this country. The predecessor of the Chancellor of the Exchequer, now my right hon. Friend the Lord Privy Seal, laid the foundations upon which we can build our increasing prosperity and solvency by reducing the burden of taxation upon the country to the extent of £800 million a year. That sum represents the additional burden of taxation that the country would be bearing today if it had not been for the various reductions of taxation in successive Budgets by my right hon. Friend now the Lord Privy Seal.
Building on those foundations, my right hon. Friend the present Chancellor of the Exchequer is now able to give us a signpost. He encourages us to save that £800 million a year which his predecessor was able to remit in taxation and he gives us opportunities for saving to suit all tastes, such as the new National Savings certificates, the improvement in the rate of interest on Defence Bonds, the arrangements regarding savings bank deposits.
The hon. Member for Bristol, North-East (Mr. Coldrick) did not give the credit to the savings banks—although he said he was a member of the Trustee Savings Banks Association—that I should have thought they merited. The hon. Gentleman seemed to look at the co-ops through rose-tinted spectacles in a way which none of the rest of us would be able to do.
I shall not take up the time of the House by saying any more on that subject, other than to remind hon. Members that the trustee savings banks have performed, and are performing, a service to the country of which everybody will be able to take advantage. On the question of saving bank deposits, may I suggest in passing that it is a little mean to exempt £15 interest from Income Tax but not to allow a corresponding exemption from Surtax.
One proposal which should attract grateful thanks to my right hon. Friend the Chancellor of the Exchequer is the way in which he has implemented the recommendations in the Second Report of the Millard Tucker Committee. We on this side of the House hope to be able to persuade my right hon. Friend during the Committee stage of this Bill that it is reasonable for people who take advantage of these proposals to be allowed to commute up to a quarter of the amount in the same way as employees can do. It is wrong that there should be one law for the employee and another law for the self-employed.
We also hope to be able to persuade my right hon. Friend to give more favourable terms to the late age entrant. It is not fair to say to him that because an injustice has been put right, whereby he now has special arrangements for life annuity payments and the repayment of capital is now not subject to tax, this should preclude reasonable terms of corn-mutation being given to him. The resources of the country will benefit as a result of his being allowed to put by larger sums for his old age and so it will be in the interest of the nation as a whole.
It requires more than savings to ensure our national solvency and national prosperity. This has been a savings Budget, but it requires restraint as well as savings. We find ourselves as a nation in an uncomfortable position when a Budget such as this can be nullified by ill-considered wage claims, as this Budget very possibly can be.
There should therefore be a two-pronged approach to our financial problems. We shall not recover from our economic malaise until we can show the people not only that they must save but also that if we put off buying now in order to save, the price of what we have postponed buying will not rise against us meanwhile as a result of wage demands in manufacturing industry and distribution.
How utterly futile some of these wage claims have been, particularly from the point of view of the people who have been making them, has been shown by the answer given by the Chancellor of the Exchequer in a parliamentary Question to my hon. and gallant Friend the Member for Lewes (Major Beamish) recently. My right hon. Friend said that the average weekly earnings of an adult male wage earner in 1938 were 69s. and that in 1955 the average weekly earnings were 222s.11d. If we convert the 222s.11 d. to 1938 money values, it becomes only 87s.4d. Therefore, in terms of 1938 money values these wages claims have resulted in an increase of only 18s.4d.per week. The people who have suffered under these wage claims have been those on fixed incomes, retired pensioners, clergy and people of that kind.
It is often argued that these wage demands have arisen from an effort to compete with high dividends. In fact, the right hon. Member for Battersea, North (Mr. Jay) used that argument only last Friday. However, the Government's White Paper on the Economic Implications of Full Employment deals fairly thoroughly with that argument. Since pre-war days the real value of wages and salaries has risen by 40 per cent., but in the same period the real value of dividends has fallen by 30 per cent. Therefore, to suggest that the increases in wages which have been demanded have been triggered off by high dividends is a figment of the hallucinations of right hon. Gentlemen opposite.
Unfortunately, it seems that my right hon. Friend has succumbed to a slight degree to some of the false propaganda put across and reiterated so often that it assumes a fictitious respectability by hon. Gentlemen opposite.
I am beginning to think that the hon. Member is himself falling a victim to certain propaganda. When he quotes figures so freely, he ought to remember that there has been a very considerable increase in the production of our national wealth since 1939, and the increase in real wages, as he will find if he looks at authoritative figures, is actually less in proportion to the increase in national wealth than his argument tends to show.
I cannot accept that argument for one moment. The argument put forward by hon. Gentlemen opposite is that the increases in dividends have triggered off the increases in wages. In point of fact that is not the case, because the increases in wages have been 40 per cent., while the real value of dividends, on the other hand, has fallen by 30 per cent., as compared with prewar days.
The increase in Distributed Profits Tax is difficult to justify. It flouts the recommendations of the Royal Commission, and if one continues to flout the recommendations of Royal Commissions it will be extremely difficult to find people of high calibre to serve on them in future. It implies that profits ploughed back into companies are better than profits distributed to the shareholders. I contend that there is no guarantee whatsoever that profits ploughed back into companies indiscriminately will be as well employed in the national interests as profits distributed to shareholders and which shareholders can put into industry as they think best.
I realise that the argument against me is that the shareholders might spend the money rather than re-investing it in productive industry, and that brings me to the last point which I want to make. We say that we want to discourage consumer spending, and we are right in saying that. We say also that we want to encourage production, but the question which we must ask ourselves is whether taxation as it is at present devised falls at the right point in the cycle between production and expenditure in order to achieve these two objectives.
I am disturbed at the view which my right hon. Friend the Chancellor of the Exchequer appeared to hold in finding it necessary, because he increased indirect taxation, at the same time to increase direct taxation by increasing the impost on distributed and undistributed profits. I believe that the balance wants to be tilted away from direct and towards indirect taxation. If we want to encourage production we must reduce taxation at the point at which a man or woman is reaping the reward for his productive effort. I also think that if we want to discourage spending, we can recoup ourselves by increasing taxation at the point of spending.
I hope that my right hon. Friend will think about that before the next Finance Bill. In the meanwhile, the keynote of this Budget is that of saving. It gives us an opportunity to play our part in trying to reduce our spending and in trying to increase the productive capacity of the country. If our saving means merely a reduction of investment in one industry in order to put it into another source of saving, it will be of comparatively little use.
What my right hon. Friend is trying to achieve, and we all hope he will succeed in achieving in this Budget, is to persuade us that it is worth while putting off for the time being potential expenditure in order to take part in the considerable investment opportunities which he has made available to us. We all wish this Budget and my right hon. Friend every success in that endeavour.
It struck me that the hon. Member for Dover (Mr. Arbuthnot) had very much nicer things to say about the Lord Privy Seal as Chancellor of the Exchequer than the present Chancellor of the Exchequer had to say about him in his own Economic Survey. It is very hard to square what the hon. Gentleman was saying with what is written in the Economic Survey about the Lord Privy Seal.
I should like to add my congratulations to the two hon. Gentlemen opposite who made such admirable maiden speeches during the debate. The hon. Member for Billericay (Mr. Body) made a very con- fident speech, though he did not, of course, quite convince me, in defence of Premium Bonds. The hon. Member for Leeds, North-East (Sir K. Joseph) made a number of valuable detailed proposals for increasing productivity.
I turn now to one or two matters on which I cannot be so congratulatory. First, I want to turn to two very petty acts of meanness for which the Chancellor and the Government are responsible, acts very much meaner than any exclusion of the £15 tax free interest from Surtax. Hon. Gentlemen who say that that is a meanness really ought to pay some attention to the real acts of meanness in this Budget.
Of course, the prime meanness is the refusal to extend the value of tobacco tokens to the old-age pensioners. This concession would only cost £2¼ million, which is equal to one half of 1 per cent. of the Budget surplus. It is a tiny marginal sum. Indeed, this is so mean an act that I cannot really believe that the Chancellor will continue to harden his heart. Chancellors of the Exchequer often have some small concession up their sleeves which they produce at the right moment, and I really must persuade myself that this is so mean an act that this is one of the small concessions which the Chancellor will make at a later stage. We on this side of the House will fight this matter with the utmost vigour both inside this House and in the country at large.
The other very mean act is the decision to cut milk in nursery schools. That saves £125.000 a year. I suppose the reason for that cut is that it is the first step towards the £100 million to be saved by the Chancellor, but, if so, it augurs very ill for the social services when the Chancellor really starts swinging his axe.
I hope that we can have a progress report before too long about how the £100 million is to be saved. We have seen some signs of the internal battles going on in the Government. The Minister of Agriculture tells us that his Department is not subject to this cut, but the Minister of Education makes an impassioned appeal to the public for support for technical education. This must mean that pressure is being put upon him by the Chancellor. It appears that matters are not going so well for him as for the Minister of Agriculture.
I think we can draw interesting deductions from these symptoms. We should like to have a rather more precise idea of how this saving is to be achieved because we should prefer to get back to the position where the Estimates with which we deal are valid and accurate. We should also like to have some idea of the social policy of the Government, because a very big swing indeed will be necessary to make this saving of £100 million.
There are a number of grave omissions from this Finance Bill to which my right hon. Friend the Member for Huyton (Mr. H. Wilson) and others have referred. I propose to deal with one of them and to ask the Economic Secretary, when he replies, to consider the points that I am making, and, maybe, to comment upon them. The Finance Bill does nothing to remedy some of the very grave defects that now appear in the general structure of our taxation system. In particular, as my right hon. Friend pointed out, the tax base is now much too narrow and is getting even narrower still. That is disturbing because spendable income is increasingly escaping tax.
It is not difficult for certain sorts of taxable incomes to be converted by one device or another, which are quite well known, into untaxed capital gains. For certain people that opens a sort of highway out of the tax system into a kind of lotus land where gross and net incomes are equal, because of what happens to people who can, by some contrivance and ingenuity, transfer taxable income into untaxed capital gains.
In his book, Mr. Kaldor has produced figures to suggest that more than two-thirds of the expenditure of the rich comes out of capital and capital gains. In consequence the base on which our whole structure of taxation has to rest is getting narrower and we are—the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke) protested about this—reduced to charging more and more on less and less. It is a very grave situation into which we have got ourselves.
I hope that I shall carry the noble Lord with me—though I doubt it—when I say that that builds up a powerful case in equity and sound tax principles for a capital gains tax. There is no other way of broadening the base of direct taxation. There is no other way of getting a lower pyramid, of getting a broader based pyramid, than by a capital gains tax. That would greatly broaden our tax system and bring about the taxation of what used to be regarded as income and so was taxed, but which now is converted by various devices into untaxed capital gains.
I wish to turn to one or two points in this rather meagre Finance Bill. I wish to start with some of the proposals, in Part III of the Bill, which are akin to the Millard Tucker recommendations regarding superannuation. We shall have to deal with this matter closely during the Committee stage, but broadly speaking, hon. Members on this side of the House greatly prefer and would favour the dissenting proposals in the Millard Tucker Report. We think that that is a fairer, simpler and more straightforward way of achieving the purpose. But taking the proposals in the Finance Bill, we have doubts on a number of points. One is that we wonder whether it is necessary to delegate such immense powers to the Board of Inland Revenue. We consider that to be legislation by delegation taken to an extreme point. I hope that that point may be considered before we get to the Committee stage, and that it can be spelled out a little more so that we may know what we are doing.
We do not like the inclusion of controlling directors in this scheme. They are people in a different category from all the others who benefit because they are in a position to determine their own rewards. That puts them in a completely different position from the ordinary professional people, the self-employed and employed people.
A serious defect was mentioned by the Financial Secretary, who said that there was no remedy for it, but I hope that one may be found. It is the omission of those who are in inadequate pension schemes. Through being in a scheme, however inadequate, they are prevented from coming within the Chancellor's present proposals, and they cannot get the benefits which they would get were they not in a scheme at all. That constitutes a grave injustice to those people, and I find it hard to believe that it is not possible to give them some sort of proportional rights so that they can save, by annuities, up to a certain total amount, or something like that. I hope the Government will examine this point again because it creates a grave injustice at present.
As has been said by my hon. Friend the Member for Flint, East (Mrs. White) and others, we deplore the complete failure of the Chancellor to stop the great abuse in the so-called "top hat" schemes, pensions schemes for very highly paid employees. We are told in the Millard Tucker Report that sums of up to £40,000 are involved. That is a form of tax evasion, and very rightly the Chancellor has stopped it in the concessions which he is making. He has stopped these tax-free lump sums, and it will make it extremely unfair if that is stopped in the new provisions which the right hon. Gentleman is making but is still allowed to go on in the "top hat" schemes. The very reasons which have led the Chancellor to stop it ought to lead him on, as is proposed in the Millard Tucker Report and the Royal Commission on the Taxation of Profits and Income, to stop this abuse. I am afraid that under the rules of order we shall not be able to make proposals about that in the Committee stage of the Bill, so we are relying on the Chancellor to come to our aid and to the aid of equity and justice in this matter.
With my hon. Friend the Member for Flint, East and my hon. Friend the Member for Newcastle-upon-Tyne, East (Mr. Blenkinsop), I think we should now give very serious consideration to some national supplementary pension scheme. That would have the immense benefit of increasing the mobility of labour. Only a State scheme enables people to carry their pensions about with them from one employment to another, and such a scheme would lead to much greater mobility of labour.
Turning to the savings proposals of the Chancellor, to which he obviously attaches very great importance, the more I look at the unorthodox proposals the more I come to the conclusion that he has been too clever by half. If one considers State lotteries, one sees, as has been pointed out by my hon. Friend the Member for Reading (Mr. Mikardo), that the Chancellor will lose a great deal of revenue, postal and otherwise, if a considerable amount of money is diverted from the pools into the Chancellor's form of gambling.
Apart from that, could we be told by the Economic Secretary, or on a later occasion, what the true cost to the State of these Premium Bonds is expected to be? I take it that the whole 4 per cent. is to go into the prizes. The entire 4 per cent. would be equivalent to the interest cost. Therefore, one has to add the cost of the rather elaborate offices and new staff and, may be, new methods of registration to the 4 per cent., to arrive at what would be the true effective cost of these Premium Bonds.
Would not the Chancellor gain quite as much as he will through his lottery if lie paid equivalent interest—I do not know what it will be, it may be a lot when it is all added together—on a special savings bond, limited to £500? Before we can judge this we must have an idea—which we have not yet been given—of what the effective cost to the State will be—4 per cent. and all the additional costs. We are entitled to know that.
I have far graver doubts about the point which was raised by my hon. Friend the Member for Bristol, North-East (Mr. Coldrick) about the first—15 tax-free savings in Post Office and trustee savings banks. There will be very serious repercussions from that decision which I do not believe to be intended by the Chancellor, because it will do very great harm to institutions akin to but, not exactly the same as, those savings banks. For example, there are the municipal banks like the Bank of Birmingham—which the Economic Secretary will know as much about as I do—some friendly societies and Co-op share capital. Those are small savings organisations. The Co-op share capital is made up in the same way as Post Office savings—from small savings and moneys left in it which could have been paid in dividends.
In so far as the Chancellor succeeds in removing money from those organisations to the Post Office Savings Bank it will not be new saving. It will look good, but it will not be new net saving and will do great damage to extremely important institutions. An alternative would be to extend the exemption on the first £15to similar savings institutions, perhaps, as my hon. Friend the Member for Sowerby (Mr. Houghton) suggested, only to those which pay the same rate of interest as the Post Officer Savings Bank. A simpler solution would be to raise the rate of interest given by the Post Office Savings Bank. I am not convinced by the argument that because it has never been done it cannot be done.
I am surprised that that argument appeals so strongly to the Chancellor who, on the whole, enjoys doing somewhat unorthodox things. I am surprised that he has been so orthodox about this. If he raised the Post Office Savings Bank interest rate it would bring the benefit to people who will now get no benefit because they are below the Income Tax level. One gets no benefit from having the first £15 interest free of tax if one pays no Income Tax. If the right hon. Gentleman raised the Post Office Savings Bank interest rate he would widen its attraction to small traders.
Judgment on the Finance Bill must depend on regarding it as part of the Government's general economic policy. The Bill is based on the assumption that the Government will go on using monetary policy and a high Bank Rate. It is therefore based on a policy of cutting investment and cutting consumption to check inflation by monetary means, which depresses the whole economy.
The Economic Secretary, who I understand will reply to the debate, made a great deal of play in the Budget debate of the fact that he thought there would be a great increase in production. He gave no indication how Government economic policy and its over-reliance on monetary methods would work out in that direction, and in any case he will have noticed that his views have been contradicted and challenged by many important economic experts, including the Economist, which generally has supported the Chancellor, but which said, about this matter, on 21st April:
The Chancellor of the Exchequer has done nothing to mitigate the one disturbing feature of the price stability campaign, which is that Britain is likely to get a much smaller increase in production in 1956 than in 1954 or 1955.
Of course, we were not doing too well in 1954 and 1955, if we compare Britain with Germany and our other major competitors.
Whether one judges the Finance Bill on its details or as part of the Government's broad economic policy, it is not easy to find good things to say for it. Like the Budget itself, it is a rather feeble effort, irrelevant to the great needs of the nation. It misses many opportunities and fails to rise to the occasion. It is notable that the Chancellor himself has shown his view of the Finance Bill by failing to take the trouble to come to its defence today. He has not troubled to expound or defend it. It is, I suggest to him, a misbegotten brat which has been abandoned by its own father at birth.
I have listened to pretty well the whole of the discussions on Second Reading of all Finance Bills since I became a Member of the House, and I must say that I never before listened to a Finance Bill praised with such faint damns by the Opposition on Second Reading. As will be seen, there are not many hon. Members opposite present to damn it at the end of the proceedings.
I should like, at the outset, to say how glad I think the whole House was to hear the admirable maiden speeches of my hon. Friends the Members for Leeds, North-East (Sir K. Joseph) and Billericay (Mr. Body). My hon. Friend the Member for Leeds, North-East spoke about that important subject of productivity and made, if I may say so, a most helpful and constructive contribution. My right hon. Friend will certainly consider very carefully the suggestions which he made.
The hon. Member for Billericay spoke about the Premium Bonds. Many of us thought that all worth saying on the subject had already been said in another place, but I am sure that we listened with great interest to the valuable fresh views on the subject from my hon. Friend this afternoon.
The right hon. Member for Smethwick (Mr. Gordon Walker) raised a number of points in his speech and, if I may, I will first answer one or two which he raised in connection with the Millard Tucker proposals, of which he was kind enough to give me notice. He complained that there was excessive delegation in these proposals. Well, as one who for some years was a member of the active Back Benchers Committee of the late Sir Herbert Williams, I can certainly claim no love for excessive delegation, but I can assure the right hon. Gentleman that this part of the Finance Bill does follow precedent. If he looks at Section 379 of the Income Tax Act, 1952, which consolidates legislation originally introduced in 1921, he will see there that superannuation funds for employees, in order to get relief, have to be approved by commissioners, and there is no change here in the precedent laid down in that big Act.
So far as controlling directors are concerned, I take his point on this subject, but of course they cannot benefit as employees so it is only right, we think, that they should be treated as if they were self-employed. As to inadequate pensions, that is, I think, a subject more suitable for the Committee stage. Certainly my right hon. Friend will look at it again between now and the next stage, but we have not so far been able to find a workable scheme.
The right hon. Gentleman also raised the familiar point about institutions other than the Post Office Savings Bank or the ordinary department of trustee savings banks that are in a position to offer facilities to the small saver. I am sure that we will have this question raised again during the Committee stage, but I will just make this point now. The concession in this Bill whereby the first £15of an individual's interest is exempt from Income Tax was designed to give special encouragement to those institutions which lend directly to the State and are limited by Statute to paying interest at 2#x00BDr cent. I would emphasise particularly the point that they lend directly to the State. It is for that reason that to go beyond those limits would involve a departure from the general line of my right hon. Friend's proposals.
The right hon. Gentleman asked—as also did his right hon. Friend the Member for Huyto0 (Mr. H. Wilson)—about my right hon. Friend's announcement in his Budget speech that he would make reductions in expenditure of £100 million. I cannot do more tonight than remind the House of what my right hon. Friend said in his winding-up speech, and as other events took place that evening perhaps it would not be out of place to read just a short passage now, because it does answer one question which the right hon.
Gentleman the Member for Huyton specifically asked. My right hon. Friend said:
There will undoubtedly have to be this year, as always, additional expenditure which will be unavoidable but which at present is unforeseen. On the other hand, there will be underspendings which equally we cannot foresee now. These will, so to speak, be accidental rather than deliberately planned. My announcement left both these—the new services and the underspendings—on one side. They will happen, as they always happen, in the normal way. I repeat that our intention is to make reductions amounting to £100 million in the services provided for in the Estimates as published.
When such changes are decided on, they will be announced to the House."—[OFFICIAL REPORT, 23rd April, 1956; Vol.551, c.1566.]
I did understand from the Chancellor's very clear reply to the Budget debate that he was going to add to the £100 million any additional expenditure and to knock off any unexpected underspending, but are we to understand from this that if the Government feel, perhaps now, that there will be under-spending on defence they will not present that as a deliberate saving on the Estimates?
I cannot go beyond the passage I read, which seems to me to be perfectly clear. My right hon. Friend said:
I repeat that our intention is to make reductions amounting to £100 million in the services provided for in the Estimates as published.
I think that is perfectly explicit.
My hon. and learned Friend the Member for Northwich (Mr. J. Foster) raised a point on Clause 9. We are looking carefully at the Clause, and I cannot say anything except that we shall consider it carefully between now and Report stage.
The right hon. Member for Huyton devoted some 25 minutes of his 50 minutes to the question of tax avoidance. I must say that I thought that was rather out of proportion, and I thought that his hon. Friend the Member for Sowerby (Mr. Houghton), who knows so much about the subject, was looking a little anxious about what suggestion was coming next. I should like to answer one or two points the right hon. Member made. He raised once again the question of dividend stripping and why we did not introduce legislation before. I have refreshed my memory on the Finance Bill of last autumn. I see that during those debates I answered that question three times, the Financial Secretary answered it twice and the Solicitor-General once, but I am quite happy to answer it once again and say that it was not until after the Act of the financial year 1954–55 that we knew the extent of these tax avoidance devices.
As to tax loss companies, it is genuinely difficult to separate what one might call the rigged cases—and I hope that is a Parliamentary expression—from the continual and bona fide changes in shareholdings which are going on all the time, or bona fide amalgamations which are happening continually. It is extremely difficult to make a hard and fast distinction between them. In the matter of business expenses, the Inland Revenue operates under a strict law of 1948 under which directors or employees earning over £2,000 who receive expenses have to treat them as remuneration subject to deductions for genuine expenses.
The right hon. Gentleman suggested that a definite proportion of the expenses of entertainment should be disallowed. I think that that would be extremely arbitrary and might very well work out extremely unfairly between one individual and another.
There is one more serious matter to which I should like to refer at greater length. A number of speakers in the Budget debate, and also the right hon. Member for Smethwick and the hon. Member for Stechford (Mr. Roy Jenkins) referred to some figures in Mr. Kaldor's book. To be precise, they are on page 227 in a footnote which says that assuming that 105,000 Surtax payers before the war had increased their incomes by the same rate as the rise in the national income, and that in addition those with pre-war incomes of £700 more had had a similar proportionate increase, on that basis there would have been in 1952–53 436,000 Surtax payers paying £536million in Surtax, against an actual figure of 270,000 Surtax payers paying £130 million. That figure of £536 million quoted in Mr. Kaldor's book may quite possibly attract some publicity, and therefore I should like to point, out to the House quite frankly how worthless is that estimate.
Model calculations of this kind are what economists would call extrapolations from previous years, and they are pretty tricky at best. Mr. Kaldor himself made a famous one in the appendix to Lord Beveridge's book, "Full Employment in a Free Society", and I recall from my Oxford days a lecture by the late Sir Hubert Henderson in which he took pleasure in pointing out how every one of the calculations had turned out to be pretty false in post-war years. But in this case Mr. Kaldor has not even done the calculations himself. A certain Mr. P. R. Fiske did them.
It is not true to say that the earned incomes of Surtax payers rose at the same rate as the national income in the period 1938–52, and still less true to say that the unearned incomes of Surtax payers rose at the same rate. In fact, earned incomes of Surtax payers between 1938 and 1952 did not increase by 200 per cent. but by something like 100 per cent. The investment incomes of Surtax payers during the same period probably rose by something more like 40 per cent. In the case of the 100 per cent. one possible piece of evidence is the evidence of the Royal Commission on the Civil Service. These are based on the most careful estimates that I have been able to get.
The other point I should like to make is that not only is this 200 per cent. increase in the earned income of Surtax payers grossly unrealistic, but there are a lot of other factors which render a model calculation of this kind completely worthless. One must remember things like convenants, gifts inter vivos and, above all, one must remember in recent years the very high rates of Estate Duty and, another thing which is often forgotten but which is very relevant, the fact that we did have in 1948 something like a capital levy, the special investment contribution of Sir Stafford Cripps. That is something which people have very largely forgotten about, but it obviously made a very big difference for the purpose of the calculation.
I hope that the figure of £536 million contained in the footnote in this book, which I have read with great interest, will not be taken as authoritative because this is a model calculation based on certain assumptions which are demonstrably untrue.
The hon. Gentleman has submitted a very interesting argument and some interesting figures, but before an authoritative estimate of that kind can be discarded we shall need something far more authoritative from the hon. Gentleman. [HON. MEMBERS: "Why?"] Because the hon. Gentleman said that he would not weary the House by giving us his own model calculation. I hope that he will not be so modest. I hope that we can have more information from him about it. The hon. Gentleman gave us some estimates with regard to earned Surtax income. To what extent would those estimates themselves be based upon Surtax and Income Tax returns, because, to the extent to which they are based on returns, obviously the argument is going in a circle? Secondly, while conceding the point about investment income and the effect of the 1948 levy, does not the hon. Gentleman put on the other side of the account the effect of capital gains?
I do not propose to give a precise version, because I am sceptical of the value of model calculations of this kind.
The right hon. Gentleman devoted the last part of his speech—and it is to this that I want to turn—to the economic background of the Budget. The right hon. Gentleman said in an earlier debate this year that we share between the two sides of the House certain objectives in common. That is true. Both sides of the House believe that we should maintain a strong sterling currency and that we should keep the value of the £ 2 dollars 80 cents. Both sides believe that we should aim at a good balance of payments surplus of at least £200 million a year on current account, but if we are to achieve these objectives we must shift some of the overload on our economy.
I thought it was exactly in this respect that the speech of the right hon. Gentle- man this afternoon was unhelpful. The right hon. Gentleman made it plain that he did not want to touch in any way investment in productive industry. He does not want to affect housing, social investment or investment overseas. Those are four pretty inclusive categories. Furthermore, it has been made absolutely clear in recent months that the right hon. Gentleman's party did not want to hit consumption either. We remember very well how they fought the autumn Budget Clause by Clause, line by line. We also remember how the Government introduced a Bill, very rightly it seemed to me, to cut the general need housing subsidy. The Opposition opposed that Bill very strongly.
It is perfectly clear that the right hon. Gentleman says that he is behind us in this aim of achieving a good surplus, but he is not prepared to say just how we should make the curb on total demand in our economy in order to fulfil those objectives.
Now let me come to the point about monetary policy. The right hon. Gentleman says that we are wrong. He thinks that our monetary policy consists almost entirely of the increase in the Bank Rate. As I tried to explain when speaking in the debate on the Budget, the monetary policy of the Government has a good many sides to it. There are, first, the measures designed to curb demand for credit; that is to say, the high Bank Rate, the hire-purchase restrictions, and the control over capital issues.
Then there is the whole group of measures designed to reduce the supply of money. I agree that the high Bank Rate has its part to play here in so far as it limits the supply of credit by putting pressure on bank liquidity by attracting bank deposits into Treasury bills; but there are many other ways in which we are trying to limit the supply of money, through our large above-the-line Budget surplus, through transferring the borrowing of local authorities from the Public Works Loan Board to the market, through the temporary transfer of nationalised industries' borrowing from the market to the Exchequer, and through my right hon. Friend's issue of new National Savings Certificates. Then there are those more technical operations that are known as funding operations. Finally, there is the curb which we are continuing resolutely on bank advances.
It is definitely not true to say that we have relied or are relying today entirely on monetary measures. On the contrary, we have brought into play a large number of fiscal measures as well. I have already referred to the autumn Budget and to the Measure to cut housing subsidies. Another way of using the fiscal measures was the decision to suspend the investment allowance.
We have had some interesting speeches this evening on the subject of investment. We had very interesting speeches indeed from the hon. Member for Reading (Mr. Mikardo), the hon. Member for Sowerby and my hon. Friend the Member for Dover (Mr. Arbuthnot). Certainly the Government realise the extreme importance to this country in the long run of a high rate of productive investment. That is necessary if we are to compete in the markets of the world and if we are to lay the foundations for a rising standard of living at home, but in the short run—this is the trouble—a too rapid acceleration in the rate of investment inevitably means too much competition between the resources which we need for home investment and the resources which we need for export.
Furthermore, we have to ensure that the totality of demand is not so great that we have inflation. We all fully realise the very heavy social effects of inflation, particularly on the standard of living of the middle classes and those living on fixed incomes.
The last of my right hon. Friend's fiscal measures about which I wish to speak is the decision to have a Budget surplus of some £460 million. The right hon. Gentleman the Member for Huyton said he did not think this Budget surplus would prove very disinflationary because the revenue was so buoyant. He compared the prospective yield of taxation on the existing basis of £445 million with my right hon. Friend's decision to budget for a surplus of £460 million. I think that when one is estimating the disinflationary effect of a Budget surplus, the fairest calculation is between the out-turn for the previous financial year—it produced a surplus of £397 million—and the surplus for which my right hon. Friend is budgeting next year. Therefore, my right hon. Friend, starting with an estimated surplus for 1955℃56 of only just under £400 million, is fortifying that surplus by an extra £60million, budgeting for a surplus of £460 million in the coming year.
By any standards of measurement, I think that this must be regarded as a firm Budget. It is a Budget which we believe will achieve our objectives of strengthening the £ sterling and ensuring that we earn a good surplus on our balance of payments. I believe the Budget has been well received in the country as evidence of realism and determination on the part of the Government, and I commend the Bill to the House.