Orders of the Day — Finance Bill

– in the House of Commons at 12:00 am on 10th July 1959.

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Order for Third Reading read.

11.5 a.m.

The Chancellor of the Exchequer (Mr. Derick Heathcoat Amory):

I beg to move, That the Bill be now read the Third time.

The general relief felt by hon. and right hon. Members at this stage, as the Finance Bill discussions draw to a close, and the Bill is almost ready to join the formidable body of tax law which governs our fiscal affairs, is fully shared by the Chancellor of the Exchequer. To adopt slightly more romantic language as one who has recently escaped the perils and hazards of the deep and been rather roughly treated by Father Neptune, it is very agreeable to find oneself standing on the bridge of one's stout barque and seeing the harbour entrance opening up.

I would say at once how grateful I am to my right hon. and hon. Friends on this side of the House and to right hon. and hon. Gentlemen opposite for the way in which they have co-operated in carrying this business through. I should like to refer, in particular, to my right hon. Friend the Member for Blackpool, North (Sir T. Low), my hon. Friend the Member for Dover (Mr. Arbuthnot) and my hon. Friend the Member for Portsmouth, Langstone (Mr. Stevens), who, as is invariably the case on these occasions, has helped us very much with advice from his wide practical experience.

The right hon. Gentleman the Member for Huyton (Mr. H. Wilson) has been in boisterous mood, discharging his guided missiles at frequent intervals in the direction of this side of the House, actively assisted by the right hon. Gentleman the Member for Smethwick (Mr. Gordon Walker). I should like, once again, to pay a tribute to the courtesy and, if I may respectfully say so, the competence with which the hon. Lady the Member for Flint, East (Mrs. White) invariably handles her case, and I should also like to say that the very formidable expertise of the hon. Member for Sowerby (Mr. Houghton) in the field of Inland Revenue is made slightly less alarming for us by the very agreeable manner in which he habitually develops his case.

Then there is the hon. and learned Member for Kettering (Mr. Mitchison), with his dry wit and forensic erudition, who always helps to keep us in order, too.

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

We are so touched by this prizegiving atmosphere that we wonder when the prizes are to be on view.

Mr. Amory:

The prizegiving has had to be deferred.

The Bill will have taken us eight and a half days this year compared with eleven and a half days last year and thirteen days the year before, and that improving trend of output per man-hour will, I am sure, be regarded by the British Productivity Council as an excellent example to the country at large. It could conceivably be possible that the weather has helped us a little in this respect.

We had some very useful debates during the Committee stage of the Bill, and the fact that the Bill as now reported to the House is richer by eight Clauses, four subsections and a number of other minor improvements is surely evidence that our time has not been wasted. However, I cannot help recalling, as the hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) has reminded us recently, that the Finance Bill of 1909 ran for seventeen nights—and good nights, too, apparently, well into the early hours of the mornings, and five of them running right the way through the night. They were, indeed, giants of old, but I hope that we shall be content not to emulate their performance in these more exacting days.

I do not want to keep the House long on the details of the Bill as it now stands. The changes made will, on the Customs and Excise side, cost something under£3 million. On the Inland Revenue side there have been a number of changes but their total cost will be small. Part I of the Bill deals with the Customs and Excise changes, the principal one being the reduction in the beer duty coupled with the radical reform of the licence duty system, a reform which represents a major simplification both to the trade and to the Administration. Beer consumption since the change in the duty has been running substantially higher. How much that is due to the thirst-provoking features of the weather and how much to the duty I am not sure.

During our discussions I was convinced by the arguments of some of my hon. Friends and some hon. Gentlemen opposite that some degree of hardship is being caused to small clubs. Accordingly, my hon. Friend the Economic Secretary moved an Amendment on Report the effect of which is to provide a refund of£2 10s. out of the£5 club licence duty if the purchases of intoxicating liquor by a club during the calendar year do not exceed£200, and for repayment of the whole£5 if no liquor is purchased at all. It is estimated that the Amendment will benefit over 3,000 clubs and will substantially meet the case of the small ones while maintaining the basic principle of the flat-rate licence, to which I attach importance.

Part I of the Bill now also has a Clause on Entertainments Duty to the effect that Entertainments Duty payable by a cinema in any week should be reduced by£20. This, again, was an upshot of our discussions. While I remain convinced that the main cause of the reduced fortunes of the cinema industry is the lack of attendance, I do realise the financial plight of many cinemas is serious. Like many hon. Members, I am particularly concerned, as I said, about the position of the small rural cinemas and cinemas serving small market towns where there is only one cinema and where the social implications of closure would be serious.

I did not feel justified this year, after the very substantial reductions in the duty given in the two previous Budgets, in relieving cinemas entirely from the duty, but on consideration I thought the arguments advanced by hon. Gentlemen for giving some measure of relief were weighty. The method of giving the relief was chosen because, although it will benefit all cinemas, it diverts proportionately more relief to the smaller type of cinema and should mean a further 1,500 cinemas ceasing to pay any duty at all.

Part II of the Bill deals with Purchase Tax. Last year, as hon. Gentlemen will remember, the structure of the tax was altered and greatly simplified, removing a number of anomalies, and also a substantial reduction in the rates was made last year. This year I proposed a general reduction in the three higher rates, and, although the tax on commercial vehicles and on television replacement tubes was abolished, the tax structure established last year has otherwise been maintained. The cost of these changes amounts to£81½million in a full year, which, with the reductions made last year, means that the full year incidence of this tax has been reduced by about£120 million a year.

The main proposal in the Bill in the field of direct taxation is, of course, the reduction of 9d. in the standard rate of Income Tax and 6d. in the reduced rates. The reason for my choice of a reduction in the standard rate was, as I have explained to the House, that it would benefit every single taxpayer and every industry, too. It was tempting, of course, to spread at any rate part of the relief on further increases in personal allowances. And I felt much sympathy with some of the proposals for increases in personal allowances advanced by hon. Members during our discussions. But, in the light of the substantial increases in the main personal allowances made as a result of recent Budgets, it was, in the context of the national economic needs, clearly the turn of the standard rate this year.

I should now like to mention some of the additions made to the Bill in respect of other Inland Revenue provisions. All these are minor ones and I shall refer to them only briefly. Taking them in their order in the Bill there is, first. Clause 20, which makes dependent relative allowance available to a taxpayer who maintains his mother or mother-in-law if she is divorced or separated from her husband even though she is not incapacitated. This brings these cases into line with the treatment of widowed mothers, and adopts a recommendation which was made by the Royal Commission and which was in a new Clause moved by the hon. Member for Sowerby. That proposal, which was confined to mothers who had been deserted by their husbands, received general assent, but we felt that, in fairness, it should be extended to other cases where the mother's marriage had been broken up. I believe that the hon. Member for Sowerby agrees. This is what Clause 20 does.

Next come four changes relating to rather complicated technical points which were fully explained in Committee and on Report. They are, briefly, as follows. Clause 22 deals with a minor anomaly under which the investment allowance could not be given for capital expenditure on the purchase of certain ships under construction. My hon. Friend the Member for Southampton, Test (Mr. J. Howard) drew our attention to that point in Committee, and the change in the law will, of course, be welcome to our shipping industry in general.

Clause 24 (5) was added on Report to exclude from its operation arbitrage in overseas securities where the purchase took place on a stock exchange abroad, subject to certain conditions which are required to safeguard the Revenue. Arbitrage, of course, is a legitimate business which brings in foreign currency, and the new subsection is designed to ensure that the bond-washing provisions do not hamper arbitrage business more than is necessary to keep the door closed against avoidance.

Clause 27, which was added to the Bill in Committee at the instance of my right hon. Friend the Member for Blackpool, North, relates to overseas trade corporations, a very complicated and technical field. Under the existing provisions, a holding company cannot rank as an overseas trade corporation if it has a subsidiary which is resident in the United Kingdom but is not itself an overseas trade corporation. This Clause provides that where a United Kingdom subsidiary of an overseas trade corporation parent ceases to qualify as an overseas trade corporation, in consequence of some act of which the parent concern had no previous knowledge and from which it obtained no material benefit, the Commissioners of Inland Revenue may direct that the parent concern shall, nevertheless, continue to be regarded and treated as an overseas trade corporation.

Clause 28, which affects United Kingdom life assurance companies transacting pension annuity business in the Republic of Ireland, is the outcome of recent Irish legislation which exempted such business from tax in the Republic. This exemption gave no actual benefit to the United Kingdom life assurance companies since under the unique double taxation arrangements with the Republic they paid no tax anyway in the Republic. They did, in certain circumstances, pay tax in the United Kingdom on that business, since they are liable to tax, or were, on their United Kingdom income arising in connection with this business, and under the law as it stands they are, therefore, at a disadvantage in competing for this business, as compared with Irish companies and Irish agencies of overseas concerns. Their competitive position can, however, be preserved by a slight extention of the existing relief from the United Kingdom tax given to United Kingdom life assurance companies in respect of the income of the "foreign life assurance fund." That is what is effected by Clause 28.

The other two Inland Revenue additions relate to Stamp Duty and Estate Duty respectively. Clause 31 introduces further graduation in the Stamp Duty scale on conveyances and transfers on sales where the consideration does not exceed£5. When this Clause was added to the Bill, on Report, there was some criticism from hon. Members opposite on the ground that its main effect, in practice, would be to reduce the Stamp Duty on bearer shares of a nominal value of less than£5, among others those sold to employees under the Aims of Industry scheme.

For example, a bearer share for£1 at present bears a duty of 6s. which is rather harsh—the same duty as that on one of£5. This Clause will reduce the duty on the£1 share to 1s. 6d. When the existing position was brought to my notice, it seemed to me to be anomalous and harsh and I am surprised that hon. Members opposite should object to the removal of this relative injustice, whatever their views may be on some of the schemes which will benefit.

Finally, Clause 35 reinstates an Estate Duty practice in relation to certain out-and-out gifts inter vivos, duty on which. in general, is payable on the death of the donor only if the gift is made within five years of the death. It was the practice of the Estate Duty Office to regard a gift of property as an out-and-out gift even if the donor occupied the property subsequently under a lease from the donee, provided that the full economic rent was charged. That practice was upset by a recent decision of the Privy Council in an Australian case, Chick v. Commissioners of Stamp Duties, and its restoration by the Clause was generally welcomed by the House.

The main objective of the Budget was to stimulate the expansion of the economy so increasing production and reducing unemployment, but to do so in a way which would make the economy more efficient and more competitive and help to keep down the cost of living. The Budget measures were, therefore, designed, first, to improve incentives to earn and incentives to enterprise; secondly, to bring about a further increase in purchasing power; and, thirdly, to encourage the bringing forward of plans for industrial investment.

Since the Budget, the development of the economy has gone much as was hoped and expected. The retail trade figures for April and May show an increase of 5 per cent. in value and 6 per cent. in volume over April and May of last year and the increased spending is on a wide range of goods. Total investment expenditure is running at an all-time record level. Savings are running at a satisfactory level and employment, we have all been glad to notice, has recently been rising very satisfactorily. Perhaps the most important of the developments has been the increase in general confidence which is bringing about a steady expansion of activity. This is steadily working back to the heavy and capital goods industries.

As always, a very great burden of work has fallen on the broad shoulders of my hon. and learned Friend the Financial Secretary, who has performed it with his habitual skill, and also on the shoulders of my hon. Friend the Economic Secretary, who has a happy way of taking things as they come along and getting through his work with great ability, and on my right hon. and learned Friend the Solicitor-General, whose late night lightness of touch helped us all to survive the very intricate passages of the later sections of the Bill.

It only remains for me to thank all hon. Members for their indulgence to me in understanding that there may be times when it is quite impossible for the Chancellor of the Exchequer, however much he may wish to do so, to spend as much time as perhaps he ought in the Chamber during the passage of the Bill. I have tried to do the best I can in that respect.

My colleagues and I are looking forward with impatience to introducing another Finance Bill next April and after that a further series of Finance Bills stretching into the future as far as one can see.

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

Before the Chancellor sits down, will he confirm that if they have any hopes of being on that Bench, the usual procedure which the hon. Gentlemen opposite follow is to have an autumn Budget?

11.25 a.m.

Photo of Sir Eric Fletcher Sir Eric Fletcher , Islington East

On the Third Reading of the Finance Bill, it is customary for the two Front Benches to exchange courtesies, and the Chancellor has followed that tradition.

I am sure that all my right hon. and hon. Friends would wish me to say that we, too, appreciate the unfailing courtesy with which the Chancellor and his colleagues have handled the debates during the Committee and Report stages. Although we do not share the complacency which the Chancellor has expressed, I think that we all wish to pay tribute, as the Chancellor has done, to the manner in which his colleagues, the Financial Secretary, the Economic Secretary and the Solicitor-General, have considered the Amendments which have been put forward, and the clarity with which they have dealt with some very complicated points of taxation law.

I do not propose to follow the Chancellor into dealing with the series of minor Amendments which were introduced during Committee. I observe that a great many improvements, notably in the form of new Clauses suggested by my hon. Friends, were all resisted by the Chancellor. On Third Reading, it would be out of order to refer to those new Clauses which, we regret, do not find a place in the Finance Bill as now presented.

The major change which has occurred since the Bill was introduced is the relief to the cinemas by a change in Entertainments Duty. We are glad that, as a result of pressure from both sides of the House, the Chancellor has made, at any rate, some concession in this respect. I will not enlarge upon it, because, as hon. Members know, I am not without some interest in the matter, but I think that I can appropriately say that we are not satisfied with the concessions the Chancellor has made this year.

We all feel that the time is now overdue when Entertainments Duty on the cinema should be abolished altogether. It is the sole remaining relic of the Entertainments Duty which was introduced as a purely temporary measure in the 1914–18 war. It has now become anomalous. It results in very considerable hardship on a great many cinemas, and it is high time that it was abolished.

I want now to make a few comments on what I regard as the five major features of the Bill as it now appears. They are: first, the reduction in the beer duty; secondly, the changes in Purchase Tax; thirdly, the Income Tax changes; fourthly, the restoration of investment allowances; fifthly, the Clause dealing with bond washing.

I think that we can all agree that when the Chancellor opened his Budget his most unexpected announcement was the reduction in the cost of beer by 2d. a pint. He coupled with that the abolition of the monopoly value, which abolition represented a net gift to the brewers of about£750,000 a year. That concession to the brewers produced no benefit to the public. It involved a large loss to the Treasury. It was a complete windfall to the brewers. It was a direct invitation to speculation. It was no wonder that immediately afterwards the far-sighted Mr. Clore sparked off what has since become an unusual spate of takeover bids, which has shocked so many serious-minded people, including a great many not normally disposed to support Opposition policies.

Thus, Mr. Norman Crump, the City Editor of the Sunday Times, who, writing on 21st June, said of the brewery bid, which was largely the result of the uncovenanted gift to the brewers made in the Budget: It brings the whole system of investment into disrepute. If I were an advocate of a capital gains tax I would rejoice at certain recent happenings. I hope, therefore, that the Chancellor will reflect that one effect of his Finance Bill has been to make the case for a capital gains tax unanswerable, and I am hopeful that in the next Administration, when a Labour Chancellor of the Exchequer has the opportunity of introducing a Budget, that will find a prominent place in it. It has now become clear, as a result of the activities that have taken place following this year's Budget, that this is the only way in which the immense gains made by a select number of individuals, not hitherto subject to tax, can be brought into the coffers of the Revenue.

While we all welcome the Purchase Tax reductions, such as they were, made by reducing the level of the rates, I must again remind the Chancellor how very grieved we were at his failure to give the House an opportunity of proposing Amendments for still further reductions in the rates of Purchase Tax. I revert to that matter, first, because it was not satisfactorily cleared up when we dealt with it on the Committee stage, and, secondly, because it is a matter of considerable importance in our future debates on Finance Bills.

The House will recall that this year, contrary to all precedent, the Opposition have had no opportunity of moving, as they wished to do, Amendments for reductions in the rates of Purchase Tax. No complaint is made that we did not have an opportunity this year of debating what should be the rates for a large number of items, but Purchase Tax now constitutes a great burden, perhaps the greatest burden in the realm of indirect taxation, in our economy. The tax affects every householder in the country, and it is a matter of serious concern that the rates of tax were inadequately debated this year.

Although I will offer an explanation in a moment, I am still at a loss to understand what really happened. When this matter was raised by my right hon. Friend the Member for Huyton (Mr. H. Wilson) first, late at night on 11th May, and then again the following afternoon, we had two contradictory statements from the Chancellor. On 11th May he said, in justifying the extremely narrow text of the final Budget Resolution: I thought that would be the degree of restriction that the Committee would wish for this year. I did not consider that the Committee as a whole would have attached very great importance to their ability to move Amendments and divide on the rates for the various groups."—[OFFICIAL REPORT, 11th May, 1959; Vol. 457, c. 989.] The Chancellor now knows that the Committee did attach great importance to the matter. Whereas, on 11th May, it appeared that the Chancellor was deliberately framing his Money Resolution in that way, later, in a second speech on 12th May, he suggested that he had not considered whether the Resolution would have precluded what, in fact, it precluded. We were then left in doubt as to whether the Resolution was framed deliberately or inadvertently, and the Chancellor finally said that it was inadvertence and that had time permitted, as I think it did, he would have put down a supplementary Resolution.

Mr. Amory:

If the hon. Gentleman will allow me to interrupt, the account he has given is an accurate one and I explained that it was by inadvertence that the Resolution was drafted so strictly. The two statements do not conflict because, when I discovered that, I still thought that the effect it had would not be unacceptable to the House. I afterwards found, from the reaction of hon. Members, that, on the contrary, they deplored that it was drafted so strictly and I apologised for the inadvertence.

Photo of Sir Eric Fletcher Sir Eric Fletcher , Islington East

I would like to suggest another reason why the Money Resolution, and, in fact, a great deal of the Finance Bill, was framed in this way. I think that it was due to electoral considerations. We have to recall that, when the Chancellor introduced the Budget on 7th April, it was still undecided whether there was to be a May election or not. In fact, there was a great deal of speculation during the early part of April as to whether the Prime Minister intended to advise Her Majesty to dissolve Parliament in May, or wait until a later date.

As we have since heard from the Prime Minister himself, for various reasons which I will not go into, a decision not to have a May election had not been taken at the time the Budget was introduced, but was taken at a later time, when the Finance Bill was published.

Therefore, it is clear, looking back on the history of events in April, that the Budget was governed largely by a desire to preserve the greatest freedom of manoeuvre, so that the Finance Bill could, if necessary, be a short one, which could be passed quickly, and permit a May election. It is quite likely that one of the reasons why the Financial Resolutions were drafted in that way, which were passed on the day the Budget was opened and before the Finance Bill was introduced, and, indeed, before the framework of the Bill was decided, was to preserve the Prime Minister's freedom of movement for a General Election.

If that is the reason I do not think it is a worthy one, but it is proper for us to point out that the whole scope of the Budget, as introduced, was so designed as to produce changes in taxation which would permit the simplest possible form of discussion in this House. Looking back on the Budget as a whole, it is fair to say that probably no Chancellor in history has found himself in a more favourable financial position in opening the Budget.

I do not think that ever before has any Chancellor of the Exchequer found himself able to make so many remissions of taxation. One of our major complaints about the Budget and about the Finance Bill is that the Chancellor, again perhaps for electoral reasons, decided that the changes should all be in the direction of simplicity. The Budget was dull and unimaginative. Instead of taking the opportunity which he ought to have taken of making far-reaching changes in the structure of our taxation law, the Chancellor decided to allocate the very large sums at his disposal, first, in a reduction of the flat rate and, secondly, in certain reductions of the Purchase Tax without making the many changes in detail which in our opinion are required.

We feel it is quite wrong that the Purchase Tax at the lowest rate of 5 per cent. should be maintained. That is a tax which affects boots, shoes, clothing and household utensils which form part of the budget of every household. We think that on this occasion, when the right hon. Gentleman had an opportunity of making concessions, he should have used part of the sums at his disposal for the complete abolition of the 5 per cent. Purchase Tax rate.

I also think that the Chancellor should have responded to the appeal made by both sides of the House for a very considerable reduction in the Purchase Tax rate on musical instruments, particularly gramophone records, and on a great many articles of sports equipment. All those were very worthy measures of relief which the right hon. Gentleman ignored.

Our other complaint is that in deciding to allocate the whole of the Income Tax relief to a reduction in the standard rate, the Chancellor ignored the numerous claims, many of which were argued in Committee by my hon. Friend the Member for Sowerby (Mr. Houghton) and others, for improvements in the personal allowances and reliefs. We are glad that one very small concession was made in response to a proposal put forward by my hon. Friend the Member for Sowerby dealing with the relief for deserted mothers and which is now incorporated in Clause 20 of the Finance Bill.

As the Royal Commission on the Taxation of Profits and Income pointed out, the personal allowances and reliefs have not yet caught up with the change in the value of money. They are still far too low relatively. I believe that there is a very strong case for a complete revision of the rates of personal allowances and reliefs.

I now want to say a word about the Chancellor's proposals with regard to the investment allowances. While we all welcome the restoration of the investment allowances, industry, as the Chancellor knows, is disturbed—and rightly disturbed—at the thought that these allowances can be switched on and off like a tap. If, as the right hon. Gentleman has said, it is his desire to stimulate the expansion of the economy and of investment, industry must be assured that the investment allowances will remain operative for a sufficiently long period to enable measures of expansion and development to take place.

During the Committee stage, the Chancellor went so far as to say that if, at some future time, conditions made it necessary for a change to be made in investment allowances he would have regard to contractual commitments that had been entered into. That really does not go far enough because, as the Chancellor is aware, a great many schemes of expansion require long-term commitments which do not always involve contractual obligations. I hope that the Chancellor or someone else on the Treasury Bench will be able to say something that will give confidence to industry so that if as a result of this year's restoration of investment allowances firms embark upon large-scale and long-term commitments of expansion, they will not be penalised in the future if there is any change in policy as regards the allowances.

That brings me to the last point in the Bill on which I wish to say a word or two—the Clauses in Part III of the Bill dealing with bond washing and other forms of tax evasion. As the Financial Secretary, in particular, is aware, these Clauses, which now constitute Clauses 23 to 26 of the Bill, are very detailed and very elaborate. They are designed to block up certain loopholes in our taxation law. But, as the Financial Secretary admitted on Second Reading and as, I think, he repeated when we discussed the matter in Committee, no assurance can be given that they go far enough. In fact, the hon. and learned Gentleman said in the Second Reading debate on 28th April, when dealing with the subject: I certainly would not say that ways may not be found round this or any conceivable legislation."—[OFFICIAL REPORT, 28th April, 1959; Vol. 604, c. 1119.] We have had to revert to this subject more than once, and I do so again because I had hoped that by now the Chancellor would have recognised that there is a very deep feeling in the country on the whole subject of tax avoidance. The time is long overdue when something far more radical is required than a series of tinkering Clauses in each annual Finance Bill designed to deal with particular loopholes which arise during each succeeding year.

Whether the amount involved in any particular form of tax avoidance of this kind is large or small, the Chancellor should know that these methods of large-scale tax avoidance produce, apart from the loss to the Revenue, a very great sense of irritation and resentment among the public and among taxpayers generally. It is a cause of very considerable grievance that year after year methods of tax avoidance have to be dealt with after many people have been able to benefit from schemes which, by common consent, ought not to have been permitted and are contrary to the best standards of commercial morality. This state of affairs will continue until something far more drastic is done about it.

There are two possible methods either of which I am quite sure will be introduced by my right hon. Friends as soon as they have the opportunity to do so, and I am confident that such opportunity will not be long delayed. They are these. It ought to be possible, by a short enactment, to enable the Treasury to deal with these methods of tax avoidance by Statutory Instrument as and when they come to light, without waiting to incorporate legislation in the Finance Bill. Such Statutory Instrument would be operative until the next Budget, when it would require confirmation. There would be nothing unconstitutional or improper about that, or different from the rather similar procedure adopted under Resolutions passed in accordance with the Provisional Collection of Taxes Act, 1913.

The alternative method is one which I should prefer. I am not sure that it would receive the support of all my right hon. and hon. Friends, but it has great advantages which the country should understand. It is the principle of enabling the Chancellor to give a clear and definite warning that if certain practices are adopted they would be dealt with retrospectively. There are distinguished precedents for the adoption of such a method to deal with the matter, precedents established as long ago as when Mr. Neville Chamberlain and Sir John Simon and others were successively Chancellors of the Exchequer.

The great merit of that recognised method of dealing with tax avoidance is that it acts as a deterrent. In effect, it prevents people from resorting to methods which are contrary to commercial morality, methods which, under the régime of the present Chancellor, they are almost encouraged to adopt; because last year the Chancellor abrogated that practice in a way which suggested that never again would he resort to that method of stopping tax avoidance.

That is a serious matter. We must have a system under which we can effectively operate a deterrent to stop this kind of vicious practice. We cannot tolerate the attitude of the Chancellor, who, by implication, says to people, "So long as the law is as it stands, respect for the law will enable you to do things however reprehensible they may be." That is a most unsatisfactory state of affairs which is contrary to all our sense of social justice. It creates great resentment among all those people who loyally pay their taxes year after year. They are becoming increasingly incensed at the methods open to a few people to enrich themselves to an incredibly great extent by doing things which are certainly not tolerated in the United States, or in a great many other countries, and which ought not to be tolerated in this country.

That is all I wish to say on the occasion of this Third Reading debate. Obviously, we shall not divide against the Bill. We do not share the complacency of the Chancellor and, unlike the right hon. Gentleman, I look forward to the day in the near future when a Labour Chancellor of the Exchequer will be able to introduce a far more realistic Budget, designed on lines in accordance with what we believe to be proper, to ensure that the Finance Bill is an instrument to correct the inequalities in our social system.

11.55 a.m.

Photo of Mr Nigel Birch Mr Nigel Birch , Flintshire West

I hope that the hon. Member for Islington, East (Mr. E. Fletcher) will forgive me if I do not follow him down the various highways and by-ways which he has been exploring. At the beginning of his speech the hon. Gentleman said that the Entertainments Duty was imposed during the First World War as a temporary tax and he hoped, therefore, that it would be abolished. Perhaps it may be, but I think that if the hon. Gentleman looks back over the history of our taxation, he will find that a great many of our taxes, including Income Tax, were imposed as temporary methods of taxation, but they have had a nasty way of outstaying their welcome. So that the fact that a tax was said originally to be a temporary tax is not I think a complete reassurance that it will be abolished.

In the few remarks I wish to make I intend to keep to a narrow point relating to Clause 36 of the Bill. That Clause deals with Exchequer loans to nationalised industries. The period covered by this Clause is not the same as that covered by the Finance Bill and it also excludes capital expenditure on coal and capital expenditure by the Atomic Energy Authority. But I think it is calculable that the amount spent on capital expenditure to be raised by borrowing from the Exchequer on capital account by the nationalised industries this year is about£688 million. That is indeed a very large part of the overall Budget deficit of£721 million.

I presume that my right hon. Friend the Chancellor arrived at this figure of£721 million after going through the appropriate Keynsian ritual. Since the Budget there has been substantial further expenditure. On the other hand, I suspect, from the way things are going, that there will be a considerable increase in the Revenue also, and that therefore the figure of£721 million—this can only be a guess—is possibly still a valid one. In his calculation of this figure as being an appropriate one, my right hon. Friend is certainly relying on funding some part of it. That is to say, he does not intend, or does not at any rate wish, to finance the whole of this by Treasury Bills. He does intend to finance part of it by the sale of Government securities. At any rate that is what I guess. My right hon. Friend also has to provide for Government maturities this year. We do not know how heavy is that burden because, quite rightly, he has not said and will not say how much of these maturing securities he already holds. Again, I should guess that a quite substantial sum is held outside the Treasury. He also, of course, has competing borrowers in the local government borrowers and the Commonwealth countries.

I have always believed that a sound bond market was essential for the health of our economy both internally and externally. This year I did not enter the "family party" of hon. Members who spoke in the debates on the Budget statement and the Finance Bill, but last year when I spoke on this subject I was able to congratulate my right hon. Friend on the fact that the revival of confidence in the gilt-edged market, which started in September, 1957, when drastic measures were taken, was persisting, and it did in fact persist in a most healthy way until about four or five months ago.

Since then, on balance, conditions have been rather less encouraging, but there is one healthy development, which is that small savings have gone on rising. It is probable that the bulk of that rise represents new investments in the gilt-edged market. But as the Chancellor said, the rate of interest on some of the stocks included in the small savings is relatively high. I should suspect that some part of the rise in small savings represents a switch from less attractive Government securities to the more attractive ones included in small savings and does not represent genuine new money going into the gilt-edged market. So much for the credit side.

On the debit side the market has been drifting, with sales by the banks, sales by small investors and a general absence of will to buy. There has also been difficulty in floating new issues for local government purposes. The L.C.C. loan was a failure. Since then, except for a conversion issue for the Union of South Africa, no new issues have been attempted, while the queue of borrowers goes on lengthening all the time.

As a backwash of this, there has been one development which is potentially dangerous. Local authority borrowers are tending to borrow for shorter periods. I asked a Question of the Chancellor about this and he was not able to supply the full figures which I had asked for but he has promised to get them. One Answer shows the way in which things are going on. Between 1955 and 1958 there was a fairly substantial reduction in the period for which local authorities were borrowing. The proportion of money borrowed for five years or less increased from 11·6 per cent. in 1955 to 23·1 per cent. in 1958, a substantial increase in money borrowed on short term. I should think that this development will go on, indeed a lot of money is being borrowed at seven days' notice.

The News Chronicle said the other day—I hope it was incorrectly informed— that a lot of this money was coming from abroad, which if true is a very unhealthy development. Not everybody—

Photo of Mr Gilbert Mitchison Mr Gilbert Mitchison , Kettering

We are really finding the right hon. Gentleman's remarks most interesting but will he tell us to which part of the Finance Bill they relate? Are they connected with bond washing?

Photo of Mr Nigel Birch Mr Nigel Birch , Flintshire West

I was coming to that subject in a moment. I have already said that the main weight of the overall deficit is occasioned by the provisions of Clause 36. I should have thought that the hon. and learned Gentleman with his acute mind would have got that point clear.

I was about to say that not everybody is alarmed by this situation. The egregious Sir Roy Harrod feels confident that people will buy at 3½per cent. what they will not buy at 5 per cent. He argues that we ought not to sell longdated securities except during a boom. He develops the Keynesian argument with a logical lucidity which gives exquisite aesthetic pleasure. It is a difficult argument to answer. The only answer is that you cannot do it. As Mr. Harold Wincott has pointed out, Keynes is all right provided only Keynes knows the rules.

Photo of Mr Jon Rankin Mr Jon Rankin , Glasgow Govan

The engineers in my division will not touch these long-dated securities.

Photo of Mr Nigel Birch Mr Nigel Birch , Flintshire West

That is exactly the difficulty. I hope that the hon. Gentleman will be able to persuade the engineers in his constituency to do so. The hon. Gentleman has put his boot straight into the middle of the whole problem. In spite of a period of stable prices people are fearing that prices may rise again. There has been much correspondence in the Press about a 2 per cent. rise in prices. It means that if a man lent£100 to the Government now it would have to be redeemed in 45 years' time at£248 13s. 1d. if he were to get back the true value of the money he lent.

The millstone around our necks are the nationalised industries, which need every year to raise a very large sum of money for their capital needs. This difficulty was not foreseen during the 1945 Parliament. Every conceivable objection was raised to nationalisation but during the Daltonian euphoria people did not see the difficulty of raising money for the nationalised industries. The best thing we can do now is to make a firm resolve that we shall not nationalise any more industries. I was astonished that the right hon. Member for Huyton (Mr. H. Wilson) did not send a wire to Mr. Cousins pointing out that nationalisation was dangerous to our economy and dominating the whole of our monetary policy in a most damaging and difficult way. The first thing therefore is not to do any more—

Photo of Mr Julius Silverman Mr Julius Silverman , Birmingham Aston

Was not the Government's in-increased loan to the nationalised industries part of their deliberate policy to prevent deflation? In those circumstances, was not the existence of the nationalised industries of value to the Government in increasing purchasing power and investment which private in-private industry was not able to absorb? Are not the nationalised industries, therefore, an asset to the Government rather than a millstone round our necks?

Photo of Mr Nigel Birch Mr Nigel Birch , Flintshire West

There are a great many ways of increasing purchasing power besides increasing the capital expenditure of the nationalised industries. For example, we could have a much larger reduction in taxation. Tax changes have the advantage that they are flexible in character. The difficulty about a large increase in capital expenditure for the nationalised industries is that once that is started we cannot stop it. I should like a much more critical study of the capital expenditure of these industries.

Perhaps the hon. Member will tell me the answer to these questions. How many tens of millions of pounds of capital expenditure by the National Coal Board has already proved abortive? How many tens of millions of pounds spent on the nationalised railways will prove abortive? Is it wise—apparently the miners for different reasons do not think it is—to go on building atomic power stations costing three or four times as much in initial capital expenditure as conventional stations.

Photo of Mr Gilbert Mitchison Mr Gilbert Mitchison , Kettering

I am really much more stupid about this than the right hon. Member thinks, but I have been listening very carefully to all he has said and think all this relates to Clause 36, and what I have not yet discovered is whether he is in favour of Clause 36 or against it.

Photo of Mr Nigel Birch Mr Nigel Birch , Flintshire West

Clause 36 charges the capital expenditure on nationalised industries below the line in the Budget. I am entirely in favour of that, so I put the hon. and learned Member out of his agony. I am also just drawing to the close of my speech. What I was saying is that I am in favour of much more control, both by Ministers and by the Select Committee on Nationalised Industries, which I should like to see reconstituted with wider terms of reference and a staff. I should like to reduce the burden on us of the nationalised industries but so far as the health of the bond market goes I can once again only recommend to my right hon. Friend the continued practise of fiscal virtue.

12.12 p.m.

Photo of Mr William Hall Mr William Hall , Colne Valley

I wish to say, first, how much I share the expressions of my hon. Friend the Member for Islington, East (Mr. E. Fletcher), who opened the debate, in appreciation of the way in which the Chancellor has met those of us on this side of the House during the proceedings in Committee and on Report. My only regret is that the Chancellor was not willing to go further than he did. I find the Chancellor a rather interesting study. It seems to me astonishing that a man of his integrity and undoubted ability should fail to see the overwhelming force of many of the arguments that have been put forward from this side during the debates which have led up to this Third Reading.

I have nothing to say, of course, against the bouquets he threw at the feet of hon. Members on both sides of the House, except that I thought his reference to the Economic Secretary might have been a little better phrased. He said that the Economic Secretary took things as they came along, which might be taken in more than one way. I do not intend to detain the House for very long, because everything that could be said has already been said over and over again during the days and nights we have been discussing the contents of the Bill, but I should like to make reference to one or two things in it. I can refer only to those, some of which I wish were not there.

Like my hon. Friend the Member for Islington, East, I am very glad that the eleventh-hour concession dealing with Entertainments Duty has been embodied in the Bill. When he announced the change, the Chancellor stated that he was making it because he was worried about the small cinemas and was doing it to prevent them closing. I am sorry to say that in my constituency this concession comes at least a year too late. Already in that area, which has a very scattered population, it is doubtful whether a single cinema has survived. They would have survived, I am sure, if a concession of this kind, or the total abolition of the Duty, had been granted at an earlier date.

The Chancellor says that this time he is acting because he has been impressed by the figures produced by the industry. If this had been the first time that the industry had produced figures to show the plight it was in there would have been something in that argument, but to my knowledge, since he came to the Treasury, in the time of his predecessors, year after year the industry has pointed out to the Chancellor of the Exchequer that it was in great difficulties owing to the incidence of Entertainments Duty.

Like my hon. Friend the Member for Islington, East, I contrast the attitude of the Chancellor to this matter with his attitude to the brewing industry. Revenue from cinema takings has been steadily dropping for years and little or nothing has been done until now to reduce Entertainments Duty. I realise that the industry has had some concessions in years past, but it has been saying and has produced figures to prove that nothing short of total abolition of the duty will help it to survive in anything like the state it was in a few years ago.

Mr. Amory:

I should remind the right hon. Member that last year, for the one year, the duty was reduced by more than half. In the year before, my predecessor made a substantial reduction and this is the third reduction that has been made.

Photo of Mr William Hall Mr William Hall , Colne Valley

I accept that. A moment ago I was carried away and said more than I intended. It is true that something has been done, but our claim, and the claim of the industry, is that nothing short of total abolition of Entertainments Duty can fill the bill in this respect.

I contrast this with the attitude of the Chancellor towards representations made to him by members of the brewing industry. I understand that in the 2d. taken off beer he has made a present of at least£40 million to that industry. I know what the right hon. Gentleman is about to say. He has given the brewing industry£40 million on condition that it reduces the price of beer by 2d. a pint. There is no doubt that for a little while that will be done, but there is no guarantee that as the months and years go by the price of beer will not go up again. In any case, the brewing industry could quite easily have reduced the price of beer to its customers and still have made substantial profits without this concession.

This is the difference between the brewing industry and the cinema industry. The cinema industry was in difficulties owing to the weight of the Entertainments Duty which prevented more people attending the cinemas, while the brewing industry, quite obviously, could have afforded to reduce the price of beer, if it were so minded, without the intervention of the Chancellor with this enormous sum as an inducement.

My hon. Friend the Member for Islington, East referred to the monopoly value payment. As we have said before, my hon. Friends and I were astonished when the Chancellor made this proposal and we wished that it had not been included in the Bill. It is a present of at least£750,000 a year in perpetuity to the brewing industry. The duty was first imposed, I can only suppose justly, by a Conservative Administration, it has been on the Statute Book for over fifty years and I can see no reason whatever why the brewers should have been presented with that sum.

Mr. Amory:

I can see no reason, either, why they should, and, in fact, they have not been. As my hon. and learned Friend will explain later, the brewers have not been presented with one single penny, far less with£750,000.

Photo of Mr William Hall Mr William Hall , Colne Valley

I am fully aware that that is the argument. Time alone will show.

Although I am positive that the Chancellor himself believes what he has said, many people doubt whether this sum will be passed on to the consumer. We can only wait and see. At any rate, this£750,000 could have been used, in our view, in a much better way. For example, it could have been used to reduce or abolish the tax on musical instruments, for which many of us have pressed for some years, or part of it could have been used to assist blind persons who have the upkeep of guide dogs as part of their burdens in addition to their blindness.

May I refer to the efforts which have been made on both sides of the House to abolish the Profits Tax on building societies and co-operative societies? In particular, I very much regret that the Chancellor still retains the provision to exact Profits Tax at 10 per cent. on building societies. I can briefly put the case for its abolition. It has been put over and over again, and I will do more than reiterate the main reasons why the tax is, in our view, unjust.

The building societies make no profits and, therefore, should not be subject to Profits Tax. The fact that such a tax is imposed upon them reduces the reserves, which are already dangerously low in a number of societies. We are the only country in the world which treats building societies in this way. One of the arguments used by the Chancellor was that the righting of an injustice last year led to a decrease in the tax on building societies. This, in the past, has cost the societies very many millions, but that is no answer to the claim by building societies that this tax should not be levied upon them.

The Bill contains a number of blemishes which many of us would like to see removed. It will be sent to another place, and it will be impossible for another place to alter any of the provisions, even if they wish to do so. Nevertheless, I have noted with interest that they are to be given only about a fortnight in which to consider it. I believe that they are entitled to at least a month under the legislation on the Statute Book. It is an indication of the power which the Conservative Party hold over another place that they should leave the sending up of this Bill until now. If there had been a Labour Government, the other place would have been fully within its rights to say, "We cannot properly discuss this Bill by the end of July". The taxes which it imposes to come into operation on 1st August would thus fall.

Undoubtedly, the Bill will reach the Statute Book in its present form in time. I should like to feel that in implementing it the Chancellor will instruct those who have to put its provisions into operation at all times to be courteous and friendly to the Income Tax payers. Many of us notice from time to time that the Revenue forms, as well as some of those who work in the Inland Revenue, are not as friendly and as courteous as they should be.

I remember when I had a more intimate connection with the Treasury than I have now that I asked whether it was possible to make many of the forms which were being set out less peremptory than they were. I was informed that millions of these forms had been printed and that it was impossible to do as I suggested. It would be pleasant to think that those forms which are sent to taxpayers could be made less peremptory in tone than many of them are. Many of the inspectors and others who work in the Inland Revenue are extremely helpful to taxpayers who go to them to seek advice, but some are just the reverse, and it would be pleasant to feel that when the Bill reaches the Statute Book the Chancellor will issue an instruction to those who work in the Inland Revenue reminding them that it is their job, as civil servants, to help the taxpayer, even if they have to take from him more than many taxpayers think ought to be taken.

12.26 p.m.

Photo of Major Sir Henry D'Avigdor-Goldsmid Major Sir Henry D'Avigdor-Goldsmid , Walsall South

The right hon. Member for Colne Valley (Mr. Glenvil Hall) is invariably so fair-minded and commands so much support from both sides of the House that I am surprised that he made such heavy weather of the abolition of monopoly value in respect of public houses. This sum of£750,000—we shall get the full figures from my hon. and learned Friend the Financial Secretary later—is, I am sure, more than absorbed in the reduction in the price of beer by 2d. a pint to the consumer.

Like to many other figures about this size, it seems, perhaps, an anomally, and there are a number of ways of spending up to£1 million which have frequently been pointed out in Committee, but the alternative way of spending them do not in any way affect the main point, which is that this is an out-of-date and pointless duty and that it has been removed for the benefit not of the brewing industry but of the general public.

I congratulate the hon. Member for Islington, East (Mr. E. Fletcher) on having spoken from the Front Bench in the debate, but I was baffled by his putting forward to the Financial Secretary the suggestion that the removal of this sum of£750,000, of which the brewery industry as a whole has been relieved, was an inducement to Mr. Clore to make a bid for a particular brewery share. If the duty had been partially removed, one might have been able to read into the Chancellor's action some hope of further favours to come, but since it has been abolished it seems to me that the hon. Member's argument is not valid and that it was simply a not very successful attempt to resuscitate the debate which we had recently on take-over bids in which, as far as I can remember, the gentleman in question was not criticised by hon. Members from either side of the House.

We should congratulate my right hon. Friend the Chancellor of the Exchequer and his colleagues, and also those who have led for the Opposition on the Front Bench, on the fact that the immense complications of the Finance Bill have been completed in a reasonable period and with no tax on the energies and rest of hon. Members. On Monday in the debate on Procedure I hope that the model of this year's debates on the Finance Bill will be taken as showing that there is a usefulness in taking the entire Bill on the Floor of the House, where hon. Members with a constituency interest have had the chance of making their points without being repetitious or wasting the time of the House. We have spent only eleven days out of the whole Parliamentary year on the Finance Bill. That is not unreasonable, considering the importance of the issues involved.

I do not want to go into any particular detail, but in discussing this Measure I have been struck by the enormous detail of the paragraphs dealing with bond washing. I do not wish to revive the debate we had on that, but I share the view expressed by my hon. and learned Friend the Financial Secretary that there is probably no form of words which can prevent intelligent, astute and skilled practitioners from devising a form of transaction which will result in a gain, due to the fact that, by and large, certain classes of residents and all non-residents are free from the payment of British tax. Certain classes of residents applies only to those whose profession it is to deal in stocks. Those questions have been thoroughly thrashed out.

The question which the House has to consider is whether it wants to continue to give exemption to non-residents. I am sure that it must be right to give exemption to non-residents, because this country needs to borrow. We have run an international bank for many years. That international bank has been the source of much profit to this country, has added to its prestige and has done service not only to this country, but to the world. If we are running an institution of that sort and wish to attract funds from all over the world which we can usefully employ and which cannot be usefully employed elsewhere, we must free those funds from tax. That is axiomatic.

The remedies proposed by the hon. Member for Islington, East are quite unsatisfactory. His first alternative was that matters of tax avoidance should be dealt with by Statutory Instrument instead of waiting for the Budget. My right hon. Friend the Chancellor goes into purdah before the Budget from January onwards. Questions addressed to him usually receive the rather chilling reply that he cannot anticipate his Budget statement. The Budget is opened in April and our debates on the Budget continue until July. There is still the moment when the Bill goes to another place and returns here. The Budget is before the House in one way or another for six months, from January to July.

In that period of six months there is time to bring in such necessary Clauses or regulations as may be required to deal with abuses which may have shown themselves. There are not many months left. It is clear that Statutory Instruments could not conveniently be brought in during the Recess. If we adopted the suggestion made by the hon. Member, we might be gaining some possible action in November and December. It is not worth changing the whole basis of our taxation custom to make that very modest gain.

The hon. Member's second alternative was retrospection. I agree with him that nothing can have a more deterrent effect than retrospection. It would have an even more deterrent effect if the penalties were very greatly increased. The principle of retrospection is the one which is most likely to discourage anybody from abroad sending their funds to this country for investment and use. It is axiomatic that those funds are useful to us. People who do not live in this country will not willingly risk the danger of retrospection if they are seeking to invest their funds.

I am especially impressed by that be cause, in company with a number of hon. Members from both sides of the House, I have been a member of the Committee which has been trying to devise a world investment code, with the idea of encouraging investment in the underdeveloped countries. One of the principles which has emerged most abundantly from our discussions has been that, when an investor invests his money, he must have reasonable protection against action by the Government of the country in which he is to invest his money, such action taking place subsequent to his investment. That is the principle of retrospection all over again.

If we as the country which of all countries in the world probably has the greatest interest in maintaining a free movement of capital between one country and another tried to bring the principle of retrospection into our financial legislation, we should be doing great damage to our own interests and shaking confidence in investment not only in this country, but throughout the world. What we set as an example would be used and abused by other nations with much less justification. We all remember that not very long ago, when the Suez Canal Company was nationalised, we were told by the Egyptian propagandists that that was simply the same sort of action as we had taken in respect of our nationalised industries. I shall not go into the merits of the argument, but it was universally rejected as being in no way a true analogy. If we introduced the principle of retrospection into our financial practice, we should be taking an action liable to that sort of damaging misconstruction.

During the course of these months, we have had very close discussion on many difficult and intricate points. We have had the benefit of papers and representations from all kinds of learned societies. They have devoted themselves to the matters in which they are especially interested. We have heard a great deal about the bond washing Clauses. We have heard much in connection with other intricate matters. There is one class of person benefiting from the Budget who has made no representation of any sort and whose cause I am very glad that my right hon. Friend championed.

Nothing in my right hon. Friend's Budget speech gave me greater personal pleasure than his decision to do something about post-war credits. I was particularly grateful that he was willing to undertake, as the first inquiry, some alleviation of those hardship cases that we all know exist among our constituents and which, as long as post-war credits remain unpaid, will remain with us.

Those who have benefited by his action have not had the advantage of being represented by any important body of legal or professional opinion of any sort, and the appeal they made was the appeal to fellow feeling and to kindness, and an appreciation that these administrative difficulties are really worth tackling when, as a result, social evils can to some extent be ameliorated. For that reason especially, for many other reasons and for the Budget as a whole, I wish to express my great appreciation to my right hon. Friend and his colleagues for the Finance Bill they have given us, for the way they have presented it to the House, and for the good it will do the country.

Photo of Mr Gilbert Mitchison Mr Gilbert Mitchison , Kettering

In view of the hon. Baronet's experience and knowledge, I listened with great interest to what he said about bond washing. I understood him to say that he regarded it as something that could be avoided, but then rejected both of the solutions put forward by my hon. Friend the Member for Islington, East (Mr. E. Fletcher); that is to say, he rejected both the idea of retrospective legislation and the possibility of action by the Treasury in the course of a financial year. Did I understand him aright, or has he any other suggestions as to how the practice could be dealt with?

Sir H. d'Avigdor Goldsmid:

If, in a moment of aberration, I were entrusted with these matters, I would have suggestions to make.

12.42 p.m.

Photo of Mr Jo Grimond Mr Jo Grimond , Orkney and Shetland

I share the dislike of the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) of retrospective legislation, and I hope that the Chancellor will not be tempted into it should he continue in his present office. But I am a little amused at some of their arguments about deterring foreign capital from coming into this country.

In previous Finance Bills we have been told by Tories from this side of the House that the various things the Labour Government were doing would have disastrous effects. One that I remember very well was when the Labour Government introduced a Measure to prevent companies moving their headquarters from this country without the permission of the Government. That shocked the Conservative Party, and their leading experts on business and finance argued on similar grounds to those of the hon. Member; that is to say, that neither companies nor capital would come to this country if they were to be prevented later from leaving again. They were extremely sharp in their criticisms. But we have now had a Tory Government for nine years and nothing has been done to amend or repeal that provision which Tories said was so wicked.

I am also very glad that the hon. Member for Walsall, South complimented the Chancellor on his action over post-war credits. I am sure that every hon. Member is sincerely grateful to the right hon. Gentleman for what he has done there. I could have wished that he had been in the same mood about the remission of tax on blind men's dogs. In this, too, he was asked to make the same sort of difficult decision which he faced over post-war credits. He was asked to give some help to certain cases though there might be other equally deserving cases. He was asked to break precedents.

Human society has progressed entirely because adult and sensible men have been willing to make exceptions and to refuse to be bound by precedent. If we had remained bound entirely by precedent, and by the necessity of getting everything just right before we moved at all, we should still be armed with stone axes and clothed in skins. The Chancellor took a very sensible attitude over postwar credits, and if he is spared for the job in future I hope that he will extend his good work.

Everyone has his own views about what tax remissions might be made. I certainly differ from the Government in some of their choices, but I was wrongly accused of demanding a further cut in Income Tax. All I said was that I had a song in my heart when I heard the right hon. Gentleman the Member for Bishop Auckland (Mr. Dalton) so vigorously asking for further cuts in Income Tax, as I found it very encouraging to know that a Socialist ex-Chancellor of the Exchequer wanted this further remission—

Photo of Mr Jocelyn Simon Mr Jocelyn Simon , Middlesbrough West

I must apologise to the hon. Gentleman. On reflection, I realise that what I took for unison was no more than harmony.

Photo of Mr Jo Grimond Mr Jo Grimond , Orkney and Shetland

I accept that very handsome apology. I might add that though I came in late for the annual prize-giving this morning, I was glad that a particularly agreeable bouquet was given to the hon. and learned Gentleman. Like the right hon. Gentleman the Member for Colne Valley (Mr. Glenvil Hall), I thought that the tributes to the Economic Secretary were a little double-edged. For a moment, I thought that it was the Lord Privy Seal and not the Chancellor who was addressing the House about him. We are, in fact, greatly indebted to all the Treasury Ministers for their courtesy and good will.

The right hon. Member for Colne Valley spoke of the brewing industry. I might just say that very little pressure has been put on the Chancellor to do anything for the distilling trade. I do not intend to bring pressure to bear on him now, but whisky distilling bears an immense rate of duty and is a very important export commodity—as well as having a small foothold in Orkney and Shetland.

Nor do I find anything in the Finance Bill to encourage the wider spread of property, co-ownership, co-partnership—whatever we may choose to call it. That surprises me, because in some moods the Chancellor claims to be an ex-Liberal. That mood recedes at times, but I hope that in time he will come back to the more intelligent view.

It is high time that we made a serious effort to simplify our taxation system in general. It has been mentioned this morning that the Entertainments Duty was temporary, as was Income Tax. There is no doubt that our taxation system does tend to grow by an accretion of temporary taxes. We have had a Royal Commission considering the whole subject, and it has made valuable suggestions, but I cannot believe the situation to be satisfactory.

First, we should look at the taxable capacity of the various forms of earnings in the country. We should try to take some of the weight off earnings altogether, and we should make the system more intelligible to those who have to pay. For instance, I should like the Chancellor to look at Clause 13 of the Bill. This is not a Clause about bond washing, nor is it one that applies to a very few sharp people in the City of London.

Clause 13 refers to agricultural tractors. However apparent its terms may be to the Chancellor, its intention is not apparent from a reading of the Clause. I think of the Orkney farmer coming in from a heavy day on his land and looking at what is his tax liability on his tractor. Think of that man reading subsection (1, b) which says: …the area of the horizontal plane enclosed by vertical lines passing through the outside edges of the appliance must not, when the appliance is in the position in which it is carried when the vehicle is travelling and the appliance is loaded, exceed seven square feet if it is carried at the front or fifteen square feet if it is carried at the back.

Then we find that subsection (4, a) says: …the limitation in subsection (1) of this section to one appliance shall have effect as a limitation to two appliances of which at least one must be an appliance specified for the purposes of this paragraph, but if two appliances are used they must be fitted at opposite ends of the vehicle;".

On turning the page, we come to subsection (5), which reads: (5) Subsection (1) of this section shall not apply to three-wheeled vehicles, or to any vehicle such that the distance between the centre of the area of contact with the road surface of

  1. (a) a back wheel, in a case where only one appliance is being used for the carriage of goods or burden, and is fitted to the back of the vehicle,
  2. (b) any wheel on one side of the vehicle, in any other case
and that of the nearest wheel on the other side is less than four feet.

I think that the House will agree that it is a puzzling Clause. The Chancellor seems to be as clear as daylight about it, so he must come to Orkney and make a speech—and also see Sir Alan Herbert.

I want to make a few remarks following on what was touched on by the right hon. Gentleman the Member for Flint, West (Mr. Birch). One of the most striking features of this whole Budget and Finance Bill is that Government expenditure is still increasing and that the Chancellor is to borrow£720 million, a high proportion of which is for the financing of the nationalised industries. It seems that this new method of financing nationalised industries from below the line is becoming permanent. We have not had in these debates from the Chancellor any clear explanation why what was originally a temporary measure is now creeping in as a permanent feature.

Secondly, there do not seem to be any principles to guide us how we should allocate this expenditure or who is to get it. Public capital is not going only to the nationalised industries. It is going to aircraft, agriculture, cotton, steel strip mills, and so forth. It is very important not only to establish control over Government expenditure, but to think out calmly to which undertakings it is reasonable the Government should provide with capital, how we are to decide the amount and control it. We ought to have a capital budget and an advisory committee.

It is notorious that under the present budgeting system there is confusion between revenue and capital. It used to be suggested that death duties were spent as revenue, but it is true to say that a great deal of revenue is now spent as capital. The right hon. Gentleman the Member for Flint, West suggested that some of it was wasted. This may well be true. Some of the capital that we have sunk in the coal mines may well be wasted. But in any case we have no overall capital budget. We have no opportunity of looking at all these matters together and deciding how much we feel justified in providing out of public funds for this industry or that, how it should be done or whether it would be profitable. Many of us share doubts as to whether we are not giving too much to atomic power and railways, and whether we might not spend more on the roads.

The borrowing of£720 million will add 2½per cent. to the National Debt. It has been rightly said that it would probably be easier to borrow now and that the Chancellor has only got to look for£150 million or so from the public. But there are signs that unless interest rates are keep very high, savings will fall. Small savings are still rising, but, as the Chancellor himself has said, they are rising partly because he is still giving out an issue of Savings Certificates at an extremely generous rate of interest.

It has been suggested that one of the reasons why the Chancellor's borrowing is justified is that there will be some falling off in the demand for capital for private industry. I do not suppose that the Chancellor would feel it a good thing if this were to happen. I share some of the doubts which the right hon. Gentleman expressed as to whether we shall be able to finance the capital undertakings of the Government, whether the Government will be able to borrow what they must borrow under the Finance Bill and, at the same time, not run into financial trouble if there is a big increase in trading activities.

During the last year or so we have had no particular difficulty on foreign account—nothing like the difficulties we used to have—but it should not be forgotten that if trading starts up again, as it were, in this country in a big way there will be a large demand for imports and that it will cause a strain on our reserves. The right hon. Member for Flint, West is right in saying that in spite of our improved financial position, the Government cannot borrow long except at an inordinately high rate of interest.

Whatever Government come into power in the future, they should not be entirely content with the present form of the Committee stage of the Finance Bill, although I agree that this year it was a particularly useful Committee stage and I should be sorry to see this stage entirely dealt with in a Committee room upstairs. Nevertheless, there are these questions of this entirely new partnership between the Government and industry and of the relationship between Government borrowing and the credit position of the country which, I think, could usefully be further debated possibly in a different form of discussion from that which the Finance Bill normally takes.

12.55 p.m.

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

The hon. Baronet the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) made, as he always does, a most interesting contribution to the debate. He spent a little of his time dealing with some general considerations concerning tax avoidance. It would hardly be appropriate to follow that matter in detail today, and I think that on both sides of the House we realise how complicated the subject is.

Nevertheless, there is a good deal of public disquiet about the way in which, and the extent to which, many people appear to get away with it. I think that the hon. Baronet will agree that we lock stable doors after quite a lot of horses have gone, and just when we think we have made the lock secure we find that mischievous people come along and break it open again. Then we are confronted with the kind of Clauses that we have in this Bill, which have as their purpose the reinforcement of measures previously taken and which we were assured at the time would be effective in their purpose.

That is making the Finance Bill unduly complicated. It means that we return here year after year on much the same topic and frequently in much the same field of tax avoidance. It suggests to us on both sides of the House that there is here an evil to which we have mot yet found a satisfactory and complete answer. I agree with the hon. Baronet in his desire that we should do nothing either in our tax legislation or otherwise to discourage funds from overseas coming to this country and being used profitably for those who own the funds and for the benefit of our economy, or industry, or our financial operations.

What the hon. Baronet had to say about the committee on which he has been serving, which has tried to find a world code for international investment, was interesting, because it showed that people who do invest their money in different countries want a reasonable degree of security for it and do not want retrospective legislation to interfere with the purposes for which the money was invested. At the same time, I think that if people are to invest their money in this or in other countries, either for the express purpose of engaging in tax avoidance, or, incidentally, of taking advantage of methods of tax avoidance which are revealed to them, I do not think they can complain if the finance Ministers of the countries concerned protect themselves from that kind of activity and, if necessary, do so retrospectively.

It is very difficult, I agree. Various remedies have been suggested from this side of the House. There are objections to them, I know, and there are difficulties about them, but we shall either achieve some greater success in our battle against tax avoidance or surrender to a continuance of this kind of thing which affects the minds of a large number of people who are ordinary taxpayers paying fully what is levied upon them, and who feel that there are too many scallywags who manage things to their advantage and drive a carriage and pair through the taxation legislation.

Photo of Major Sir Henry D'Avigdor-Goldsmid Major Sir Henry D'Avigdor-Goldsmid , Walsall South

Surely the hon. Gentleman will admit that the whole business of tax avoidance is one which attracts not necessarily those whom he describes as scallywags, but people who have an ingenious brain and a desire to put it to profitable account. Our law gives scope for this. As we narrow the scope down and make it harder and harder, these people will look for other ways of employing their ingenuity. We are not faced with the alternatives of either surrender or retrospection. We have a third course open to us, the one which my right hon. Friend has adopted, of closing the loopholes as and when they appear and as and when it seems that any considerable quantity of business is going through them.

Frankly, if there is a great deal of disquiet on this matter, I am not aware of it outside these general debates we have every year, and I do not think that people in this country as a whole are concerned with it.

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

It has been said that when an unscrupulous taxpayer joins forces with an astute solicitor and an imaginative accountant one finds tax avoidance. That combination is something which ought to be stopped.

I should be perfectly happy with the present method of closing the loopholes if we could take speedier action. The difficulty we face—I have referred to this on several occasions—is that it is not until the loophole is visibly a dangerous loophole that the Chancellor feels justified in troubling the House with complicated legislation and all the difficulties of avoiding harm to genuine transactions in the course of stopping the undesirable transactions. We have seen this in connection with the Bill in regard to bond washing itself.

So far, we have not been able to stop the loopholes soon enough after they have occurred, and, when we have done so, we have not been able to stop them completely. I will not pursue the matter further now. It is something which confronts the House as a whole, and I believe that it is a matter of great public interest. Parliament must find a remedy. Whatever these activities, and whatever moral view one may have about them, they go against the intentions of the Legislature. They are something which it was not intended should be done when the particular tax was levied, or the particular concession or differential was introduced, or whatever feature of the taxation system it was which gave rise to them. I do not think that anyone can really feel satisfied that we have found the answer.

I listened to the debate in a comparatively relaxed state of mind until I heard the concluding comments of my right hon. Friend the Member for Colne Valley (Mr. Glenvil Hall) which, to a sensitive person like myself on this subject, sounded very much like a sweeping attack upon the staff of the Inland Revenue. Whenever I hear noises which sound remotely like that, I am bound to rise in defence.

We must remember that the officers of the Inland Revenue are probably under more provocation than most other public servants. There are many people who do not like Income Tax and who want to have as little to do with it as they can. They regard all the agents of the Chancellor of the Exchequer who deal with taxation as robbers whose purpose in life is to take away hard-earned money from the taxpayer which would be much more fruitfully employed in his own pocket.

The Inland Revenue officials have a difficult job. On the whole, they discharge their duties and responsibilities with courtesy and understanding. It must be remembered that there are literally tens of thousands of Inland Revenue officials who come into direct contact with the public. There are bound to be occasional causes of complaint in any large organisation, and it would be surprising if it were not so in the Inland Revenue. But I feel that the general opinion is that the Inland Revenue officials are considerate to taxpayers. They fully understand the mental approach of many taxpayers to the Revenue. They do their best to smooth ruffled feelings and remove a sense of grievance.

I was not sure what was the ground upon which my right hon. Friend was moved to make those comments this morning. I wondered for a moment what had bitten him all at once and caused him to drag in those remarks at the conclusion of his speech in other matters. Of course, he is fully entitled to do so, but he adduced no evidence, not even an example, which had been brought to his attention recently. I make no complaint about that, but I feel that, when public servants are doing their job in great difficulties, as Inland Revenue officers are, we should be fair to them.

Incidentally, this is a very bad time of the year for thousands of Inland Revenue people who are working overtime every evening to complete the work on post-war credits. We must have regard to the human reactions to the imposition of a heavy additional burden of work at a time of year when a long working day is not so agreeable as at other times.

Photo of Mr William Hall Mr William Hall , Colne Valley

I am sorry if my hon. Friend thinks that I made a sweeping attack on those who work in the Inland Revenue. Such was not my intention, and, so far as I recollect, what I said cannot bear that gloss. I said, in fact, no more than my hon. Friend has himself said, though I said it not nearly so well, namely, that there are some in the Inland Revenue who are not as good as the others. It would be astonishing if it were not so. I said no more than that, and I have the backing of my hon. Friend, who knows so much about the matter, so what I said must obviously have some truth in it.

I did not intend any attack on the Inland Revenue generally. Far from it. On the contrary, the vast majority of the officers are doing a very good job very well. But they are in such a position that they ought to be particularly careful to be courteous, friendly and helpful—I meant no more than that—to the taxpayers who come to them, or who have to write to them.

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

I will let it go at that. My right hon. Friend has made his point. Obviously, I do not dissent from his desire and the desire of the House that public servants should behave properly in their relations with the public and should be considerate, fair and courteous in all their dealings.

That is the aim we have for the whole public service, and those who fall below that standard do harm to the public service. However, when criticisms are made, I think that we should have evidence or there should be some tangible cause for complaint. No doubt the words which have fallen from my right hon. Friend and from me on this subject will be read with full understanding by those concerned.

There are three features of the Bill which still leave me unhappy. One is the fiscal novelty relating to the Entertainments Duty which has been introduced. This, surely, must be something which has never been done before. In this tax we are levying a duty and then allowing the tax gatherer to retain part of it for his private purposes—not, be it said, to reimburse him for the cost of collection, but to subsidise his business activities.

That is what the small relief to the cinemas means. We are empowering the cinema proprietor to retain the first£20 a week that he collects from his patrons in Entertainments Duty. If he collects less than£20 a week he keeps the lot. This is a tax. The cinema proprietor is given no discretion about imposing it. He cannot say that he will exempt his patrons from this tax. He must collect it, because the law requires him to do so. When it has been collected, then, to give the cinemas the special relief to which they are undoubtedly entitled, we allow them to keep tax for their own purposes. Surely that is indistinguishable from a subsidy.

I do not quarrel for a moment with the remission which is being given to small cinemas. Many of them are in a parlous position. Part of their difficulties is due to Entertainments Duty, although I think that in part their difficulties are also attributable to other causes. I am merely uneasy about the ingenious device which has been adopted as a means of giving this relief. It does not seem to conform with any principles of taxation which we have followed in the past, but I may be told that that is no reason against it, that I am old-fashioned and a prisoner of the traditions of our fiscal system and that there is not the slightest reason why the relief should not be given in this way, and that it does not matter whether it is a direct or indirect subsidy. All I can say is that I do not like it being done in this way and I think that any other way would have been more preferable.

The other thing about which I am still very uneasy is the reduction in the beer duty. Here, it seems to me that we are treading a dangerous path. The Chancellor's reason for the relief in beer duty was avowedly to safeguard the revenue. He never at any time said that he thought beer was good and that people should drink more of it. He never said that it was too dear and that people were not drinking enough of it because of the price and, therefore, it was time that it was reduced so that everybody could drink more beer. If he had said so, he would have been sharply challenged. He said, "I must reduce the beer duty to safeguard the revenue." That means that the revenue was falling because people were drinking less beer.

The right hon. Gentleman also said: "I am now confronted with a law of diminishing returns. I must reduce the duty on condition that the price of beer is reduced in the hope that people will drink more beer, whether I think they ought to or not on any social ground, and that my revenue will thereby be safeguarded."

I think that this is always the trouble with indirect taxes in dealing with the rise and fall of demand and the influence of taxation upon the level of consumption. But in this sphere we are dealing with taxation on what we may describe as the vices of the nation. I am not a temperance fanatic or anything of that kind. My concern about what has been done with the beer duty is largely in connection with what might be done with the duty on tobacco. It is appalling when one considers that one-third of the total revenue yield from Customs and Excise,£750 million a year, is taxation on tobacco.

Smoking is under very strong suspicion now on health grounds. Some of us think that those suspicions would be strengthened and sharpened were it not for the vast interests at stake in the tobacco industry, but, whether that is so or not, smoking is under suspicion. I think that the time will come when it will be necessary on health grounds to discourage smoking, especially among young people. Will the Chancellor of the Exchequer say, "I must reduce the tax on tobacco, not because I want people to smoke more on any ground but because I must safeguard the revenue"?

That is a danger to which we should be alive. In any case, the£750 million from duty on tobacco is a dangerous ingredient in the national revenue under present conditions. It does not leave the Chancellor or many other people free to look objectively and dispassionately at the possible threat to the nation's health in the continuance of smoking tobacco.

I saw a figure the other day which suggested that the percentage of males in this country who smoke has been reduced only from 74 per cent. to 72 per cent. There is a warning there for future Chancellors as to how they will deal with the very strong position which Tobacco Duty has in the national revenue.

Photo of Mr Jo Grimond Mr Jo Grimond , Orkney and Shetland

This is an interesting point. The hon. Member is a great authority on finance, but there seems to be a great dilemma here, because if he wants to make it less important in the general scheme of Customs and Excise, then the duty must be reduced, thereby encouraging smoking. Or is the hon. Gentleman suggesting that the duty might be increased, thereby making smoking more important? We are already in the dilemma, it seems to me and unless the hon. Gentleman has an ingenious way of getting out of it, I do not see what he can do.

Photo of Mr Gordon Touche Mr Gordon Touche , Dorking

I hope that the hon. Gentleman will not go too deeply into the duty on tobacco, because it is not in the Bill.

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

Yes. I was hoping that you would save me from this dilemma, Mr. Deputy-Speaker, because it is a serious one.

I cannot carry the matter any further than suggest that if a reduction in duty is the remedy for a fall in revenue, then I think that the Chancellor should take social as well as revenue considerations into account. It may be that the consumption of a particular commodity which is regarded as undesirable on social or health grounds may have to be checked by other means, but in relation to the reduction in beer duty there seems to be a parallel with the possible difficulties lying ahead in connection with the duty on tobacco.

Finally, I was a little surprised that the Chancellor, in dealing with the reduction in the standard rate of tax, said that, having regard to improvements in personal reliefs in past years, it was now the turn of the standard rate. I do not believe in dealing with tax reductions on the basis that it is "Buggins's turn" next. It seems to me that there must be much more weight behind a reduction in the standard rate than the mere thought that it is the turn of the standard rate.

The Chancellor also said, and repeated what he had previously said, that the tax reduction in the standard rate would benefit every single taxpayer. That is true, but I remind the Financial Secretary that the last time the standard rate was reduced the Chancellor introduced improvements in personal reliefs to give a proportionately higher relief to those in the lower income groups than to those in the higher income groups.

I suppose that in the last few days—I do not know—I have received the benefit of the reduction in the standard rate which came into operation on 6th April. If I have, I confess that I have not noticed it. I do not think it will make me any happier. I feel no stronger sense of incentive this morning than I did a month ago.

Photo of Mr Jocelyn Simon Mr Jocelyn Simon , Middlesbrough West

The hon. Gentleman's psychological processes must be different from ordinary ones, because he is stimulated by his right hon. Friend the Member for Colne Valley (Mr. Glenvil Hall).

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

No, I do not think that that would be the explanation. The amount of relief being given to many people is so small that I scarcely think we could justify giving that relief as an alternative to improvements in our social services or any other tax reliefs which would have brought greater benefit to those on the smaller incomes.

Those are the three points about the Bill in its final stages which still occupy my mind. I would conclude by saying that I am grateful to the right hon. Gentleman for the references he made to me personally and to my right hon. Friends. I suppose that the present Government Front Bench is a little less aggressive than the previous one, which makes for a certain congeniality in our discussions on the Finance Bill.

The boisterous and turbulent personality of the right hon. Member for Monmouth (Mr. P. Thorneycroft), accompanied by the professorial, cold logic of the then Financial Secretary and the terse sarcasm, some of it gentle and some of it not, of the right hon. Member for Flint, West (Mr. Birch), represented a truly formidable team, but I cannot say that it pleased us any better than the present one, or that the results from our point of view were any better than they are now. Nothing has been accepted to change the shape of the Budget: we cannot materially alter the contents of the Finance Bill.

I suppose I ought to be grateful for the fact that I could reasonably claim that Clause 20 is my own. In ten years in this House I have been searching diligently and unsuccessfully for something which would mark my presence here during those years, but I have had to wait till now for a small Clause in the Finance Bill to justify having spent so much time in the House.

Photo of Mr Gilbert Mitchison Mr Gilbert Mitchison , Kettering

My hon. Friend is not doing himself justice. Does he not recall his responsibility for removing the general qualifications of the Commissioners?

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

I gave way to my hon. and learned Friend the Member for Kettering (Mr. Mitchison) on that occasion, so that he may claim the credit for that, although I may have given him the idea.

1.23 p.m.

Photo of Mr Jon Rankin Mr Jon Rankin , Glasgow Govan

In his speech this morning the Chancellor indicated that 1,500 cinemas would benefit as the result of the concession made to the small cinemas.

Photo of Mr Frederick Erroll Mr Frederick Erroll , Altrincham and Sale

Perhaps I might correct that point, for it is important. All cinemas that pay duty will benefit. We estimate that some 1,500 will no longer pay any duty at all.

Photo of Mr Jon Rankin Mr Jon Rankin , Glasgow Govan

Yes, that is the point I was seeking to make. I was interested in the point because, according to my information, the number of cinemas above the£20 tax level is 2,300 and those below that level number 1,000. Therefore, I wondered how the Chancellor achieved the figure of 1,500. Perhaps the Economic Secretary will later clear up the difficulty.

Three figures have now been mentioned. On Tuesday I said that 886 small cinemas would be free of tax, and that figure was not disputed. Earlier in the proceedings on the Finance Bill the hon. Gentleman himself used the figure of 1,000. Now we have the figure of 1,500. Perhaps we may hear a little more about this latter.

I join my hon. Friends in their expression of regret that the cinema tax has not been abolished. It is not just like the Income Tax, something which was imposed arbitrarily for a temporary purpose. It was imposed for a temporary purpose, but by agreement. It should be made clear that the industry agreed with the Board of Trade and the Treasury that the tax would be accepted as a temporary one and that in due course it would disappear. I think that that can rightly be interpreted as a bargain, one which not only the present Government but other Governments have broken and one which the present Government had an opportunity to honour. I regret that they did not honour it because the cinema tax has now become an immoral tax.

The amount of money that the cinema tax produces is negligible, and the amount of money that it has been producing has been misrepresented. We have heard regularly about the Chancellor's generosity in the amount that he has given. The figure of£14½million has been quoted repeatedly as the remission made last year. That amount is an airy-fairy creation on the part of the Government Front Bench, because the£29 million of tax was never achieved and, therefore, there could not be a relief to the extent of£14½million. In reply to Questions put by me during the past year it was agreed that the amount of tax collected would not exceed£18 million, so that the relief has been at most£9 million.

However, we do not scorn the little that has come the way of the industry—the£2¼million as the result of very extreme pressure from the back benches, and then the£400,000, again the result of extreme pressure. The little steps which the Chancellor has taken remind me of a book that I read as a small boy, Eric, or little by Little. It would seem that the modern version in the House is "Derick, or Little by Little ". However, the end towards which the Chancellor has worked will, I hope, be achieved by another individual before very long.

I should like to say a brief word about the unfriendly attitude of the Government Front Bench towards the co-operative societies. We have pleaded with the Government for a long while not to discriminate in their taxation methods against the co-operative societies. I have been a purchasing member of this great movement for a long while, and the Financial Secretary told us a year ago that he is also a purchasing member of a co-operative society. As the cooperative societies cannot be compared in any way with ordinary trading organisations, I feel that the discriminatory tax of 10 per cent. imposed upon them is completely wrong.

I should like just briefly to refer to something else the Chancellor said. He said that the purpose of the Bill was to stimulate the economy and to reduce unemployment; that his was an expansionary Budget. I think it will be agreed, even by those who talk in more learned terms than I do about Budgets, that one of the chief functions of a Budget is to prime the economy. From that point of view one would wish, as we all do, to see it succeeding. So far, however, it does not seem to be making any particular imprint on the Scottish economy.

I do not want to take the Economic Secretary back to last Thursday, but he had ample proof of that. He will remember his experience when he spoke for the Government in the debate on employment and industry in Scotland a week yesterday. He will remember the many examples he had from Scottish Members on this side of the Chamber, and he will remember what, from the point of view of supporters of the Government, were the rather doubting speeches made on this matter by his colleagues behind him. The pay-off at Prestwick, the pay-offs here and there in various parts of Scotland, do not seem to indicate that the Budget is so far succeeding in the purpose which the Chancellor has outlined this morning. There has been a fall in the numbers on the unemployed register, but it is difficult to think that that fall is not the natural one which always takes place in the summer.

To me, the gravest aspect is the fact that we are faced with almost a period of crisis in the heavy industries in Scotland, particularly in shipbuilding and engineering in my division. I have spoken to those who are at the top level in the shipbuilding industry, and their view is much the same as that of those who are at the working level. A week ago tonight I met some shop stewards in one of the great engineering companies in my division. Their view was just as alarming as the view of the employers in those industries. Beyond 1961 they can see nothing which appears hopeful on the shipping horizon. Investment allowances have been revived, but I should have been happier if there had been a greater measure of assurance, given to this great industry whose existance is fundamental to the men and women who live in my division and in the industrial areas of the West of Scotland.

I know that people who sell stocks and shares have an importance in the economy as constituted today, but it is a somewhat distorted economy in which we pay so much service, lip service, perhaps, and other types of service, to stocks and shares, and appear, at any rate, in parts of the Budget, to pay insufficient attention to the ordinary needs of the men and women of our country. After all, they are the important people. It is on their ability to work and their ability to produce what we can sell and trade with that the fortunes of this country rest. I hope that when the Economic Secretary replies to the debate he will be able to tell me that some of my fears are groundless and that the Budget means more than I think it means. If he cannot tell us that, then I certainly warn him that what is being pumped into the economy just now is quite insufficient, and more drastic measures will be required to sustain it than are presented by the Budget.

1.36 p.m.

Photo of Mr Harold Davies Mr Harold Davies , Leek

This year again, as is usual year by year, we have had a long journey to the last stage of the Finance Bill, the stage that we have now reached. There are still a few points in which I am interested and in which, I think, all of us must be interested.

I agree with my hon. Friend the Member for Glasgow, Govan (Mr. Rankin) that the Third Reading of this Bill has no contact with the reality of existence in the twentieth century. A surplus of£366 million would have been impossible had there not been a difference in the terms of trade. Many of the Clauses in the Bill, many of the gifts made by the Clauses, ranging from that on beer to that obtained through the struggle of my hon. Friend the Member for Sowerby (Mr. Houghton) for dependent relatives, would not have been possible had there not been differences in the terms of trade.

It is time that both sides of the House realised that a completely different method of budgeting ought to be used in the middle of the twentieth century. The method that we today have could be applied to the Gladstonian and Disraeli era. Many men in the street think that a Budget surplus is a symbol of health in the economy, but it has nothing to do with the healthiness or otherwise of the economy.

Clause 1 deals with the beer duty. Perhaps Clause 1 deals with it because of the order of the alphabet; perhaps it is only a matter of drafting. I regret that while we had 2d. off beer the Government forgot anything for the old-age pensioners. I do not want to make a speech on that because I should be out of order if I did, because old-age pensioners are not mentioned in the Bill.

I, too, am interested in the Entertainments Duty. I supported a proposal for its reduction and I am grateful to the Chancellor for the help that he has given to the cinema industry, especially in the rural districts such as that which I have the honour to represent here.

I have a little knowledge of solid geometry, and a little knowledge, too, of plane geometry, and one certainly needs knowledge of geometry to be able to interpret Clause 13. I spoke on this Clause during the Budget debate. It was not a Clause then, but its subject matter was debated. This is the concession relating to agricultural tractors and carriages for farmers for carrying their produce in the country districts. It seems so simple. I think that three hon. Members spoke about it. We are grateful for the concession which, in plain English, can be put this way, that a farmer can stick on the back of his tractor a box, or on the front a kind of box, to carry, say, a pig to market, without having to draw a big trailer along. Unless we are careful, there will be no pigs to carry to market, because of the relief of the 10 per cent. tariff on the import of Danish pigs.

Clause 13 says: The appliance must be removable".

That is all right, but it goes on to this magnificent piece of higher mathematics: 'the area of the horizontal plane enclosed by vertical lines passing through the outside edges of the appliance must not, when the appliance is in the position in which it is carried when the vehicle is travelling and the appliance is loaded, exceed seven square feet if it is carried at the front or fifteen square feet if it is carried at the back.

The farmer will understand the last bit, but he will have to get the National Farmers' Union or some other body to interpret the rest. Surely that could have been put into better English.

When I was in the sixth form at school, I struggled with solid geometry. I can visualise a farmer who discovers what this means running through the country lanes and crying "Eureka". I remember that when Pythagoras discovered that the sum of three angles of a triangle totalled 180°he slaughtered 100 oxen in honour of the gods. It is said that ever since, whenever oxen see anything strange, they low.

This language could have been made much easier. I suppose that another explanatory memorandum will have to be sent out at a cost of 2s. 6d.—as with the case of the Defence Memorandum the other day—so that farmers can understand this provision. They are already worried to death with forms, and I wish that some other form of words could have been found. I know that it will be said, "The hon. Member for Leek must understand that this provision must be expressed in such a way so that it cannot be circumvented ". I can express it in English much more easily than that and I am sure that sometimes semantics is as good as legal phraseology.

Photo of Mr Gilbert Mitchison Mr Gilbert Mitchison , Kettering

My hon. Friend will no doubt appreciate that to define a horizontal plane as included by vertical lines is not a definition, for that which they include is an infinity of planes, including an infinity of horizontal planes.

Photo of Mr Harold Davies Mr Harold Davies , Leek

Exactly. I am very grateful to my hon. and learned Friend, who has brought his legal mind as well as his mathematics to my assistance. He will completely confound the Chancellor of the Exchequer and all the farmers in Leek if he starts saying any more about it. We had better leave it as it is and have an explanatory memorandum sent out to the National Farmers' Union so that it will know how to deal with this issue.

We are all very grateful for what the Chancellor has done with post-war credits, but I should like to know more about the situation. An old lady complained to me last week that Income Tax had been deducted from her postwar credits. I have not had time to investigate this case, but if she is right, then something should be done about it. Men earning£10,000 a year will get£6 a week free from the Budget and when we are dealing with people who have had small sums of£30,£40, or£100 locked away in post-war credits for many years, we should find a formula by which Income Tax is not deducted. I stand to be corrected on this issue if what I have said is not accurate.

I am sure that we all appreciate the work which the Chancellor, the Financial Secretary and the Economic Secretary and their officials do every year in their presentation of the Budget, but I hope that one day one Government will find a completely new way of budgeting. A capital Budget has been suggested, but a revenue Budget is what is needed in the twentieth century.

1.44 p.m.

Photo of Mr Gilbert Mitchison Mr Gilbert Mitchison , Kettering

I am sure that my right hon. and hon. Friends and I are most grateful to the Chancellor of the Exchequer for the kind words he has said about us. I reciprocate by saying that we have never had a more plausible and attractive Treasury Bench. For instance, I should like to congratulate the Economic Secretary on his graceful and eupeptic imposition of the intolerable, the Financial Secretary on his charming and convincing defence of the indefensible, and, in his absence, the right hon. and learned Gentleman the Solicitor-General on his convincing explanations, particularly after midnight, of the inexplicable. That is quite something.

Turning to the Third Reading of the Finance Bill, I begin by picking up one small waif of a Clause, Clause 30. It has slipped through unmentioned and unnoticed. I have noticed that whenever any member of the Government has gone anywhere near Clause 30, he has given a hop, skip and a jump and passed to the next Clause. It is a very odd Clause. It looks all right. What it says is that there is now to be a new form of stamping policies of marine insurance. They are to be charged 6d. each.

But the Clause conceals a certain remissness of the Treasury under many Governments, and the occasion ought not to be allowed to pass unnoticed. It is now thirty years since, in a case in the House of Lords, Lord Atkins, in a case which will not be new to the hon. and learned Gentleman the Financial Secretary—this is the English Insurance Company versus National Benefit—said: .. re-insurance of marine risks is a perfectly legitimate business, and the result, as appears from the discussion before your Lordships, is that it is impossible to conduct this form of business, by which a company that engages in marine insurance tries to secure in advance that its risks shall be fairly distributed by re-insurance policies, by any contract which can be enforced in courts of law. As I say, I think that is a matter which might reasonably be considered. If it is the deliberate policy of the Exchequer that such business as this should go untaxed, then it seems to me that it would be right that the fiscal legislation should make that clear, so that parties might embark on business of this kind. On the other hand, if it is desirable, as it well may be desirable, that the Exchequer should take its share by taxing this business "— provision should be made for taxing it. He described the carrying on of this very extensive business as: …outlaws moving outside the pale, and it is difficult to see why that should be the position. That was thirty years ago and the Treasury has never done anything about it from that day to this.

The marine reinsurance business, which, after all, is a rather important part of the insurance business in the City of London, has been conducted illegally from that day to this by treaties of reinsurance which cannot be stamped because they do not mention and cannot mention the total amount of the insurance. It has been put off until now, but no arrears are being planned and people in this business are to get away with a sixpenny tax.

I want now to turn from that to an entirely different matter. We all welcome the relief which has been given in postwar credits, but the Treasury does not take quite the attitude I have mentioned towards post-war credits. I have had cases, as have other hon. Members, where the Board of Inland Revenue, no doubt following the letter of the law, has set against post-war credits arrears going back to the 1941–44 period.

Photo of Mr Jocelyn Simon Mr Jocelyn Simon , Middlesbrough West

Mr. Simon indicated dissent.

Photo of Mr Gilbert Mitchison Mr Gilbert Mitchison , Kettering

I see the hon. and learned Gentleman shaking his head. He cannot have read the letter I sent him the day before yesterday including a form claiming the arrears, and I know from others of my hon. Friends that the same thing has happened in other cases.

Photo of Mr Jocelyn Simon Mr Jocelyn Simon , Middlesbrough West

I do not think we are strictly in order in discussing post-war credits on this Motion, but perhaps I can say that, of course, I will consider carefully the hon. and learned Gentleman's letter. All that can happen is that if the tax was not paid in the year in question, there can be no credit for it, but that is the limit of set-off.

Photo of Mr Gilbert Mitchison Mr Gilbert Mitchison , Kettering

As we are out of order, and we could conceivably have been so at any time this morning, perhaps I should not take the matter any further.

I return from those two diversions to the main matter we have to consider today. In his peroration the right hon. Gentleman defined the three main objects of his Budget. The first was to improve incentives. I must tell him that I have a rather slow handwriting and I got down "important incentives" and then I missed what they were. Incentives to what? They could not have been incentives to vote Tory at the next General Election—I dismiss that as an unworthy thought. They must have been incentives to something, but I have been trying ever since, by a process of deduction to which I will refer in a moment, to see exactly what it was the incentives were to lead people to.

The next one was to increase spending power, and my immediate question to myself was, I wonder whose? The third one was to stimulate investment. It is for these purposes that the Chancellor is remitting what is now nearly£300 million of tax in this Budget. The amount remitted depends on what one has got; and, if one is paying out any other things first, one has less to remit. So it would not be possible to remit£300 million if there had not been a pretty tight credit squeeze earlier in the year and the Government had not prevented, for instance, local authorities getting any housing subsidies, had not continued charges on National Health prescriptions, and had not refused to increase pensions under National Insurance. But, I agree, all that would be out of order and we must start with the£300 million.

The largest item, about two-thirds of it, I think£192 million, is a straight Income Tax concession. Another minor one has been made by way of relief in a particular case. Since, after all, one must sometimes think of heaven, even a fiscal heaven, here I put myself in the position of the Chancellor of the Exchequer. I said, Well now, supposing I were to give away as large a sum as that, what would be the alternative open to me? Apart from the question of how one arrives at it, which I have indicated, there is one other possibility. Let is suppose that instead of reducing the standard rate, which gives the most benefit to those who pay most taxes, we cut away tax down at the bottom and relieve a larger number of people of it?

How does that fit in by comparison with the three objects which the Chancellor has in mind? I should have thought that it definitely improves incentives; that is to say, that if we were considering what extra work a man would do—perhaps overtime in the printing trade—we should be more likely to get him to approach it with enthusiasm if he were still outside the range of Income Tax when he had done it than if we merely made what, from his point of view, was a very small change indeed. So on the improved incentive basis, sitting as my imaginary Chancellor, I prefer that form of dealing with the Income Tax.

As to increased spending power, as between the two again there is something to be said for it, but if we wanted to carry out an obligation to citizens at large, I should have thought that it was their spending power which ought to be increased, and that more would be done in that direction by a cut at the bottom of the scale than by a cut in the general rate.

As to stimulating investment, to be quite fair, here I think that the cut in the rate may be said to have the largest effect. However, I am not quite certain because, after all, investment depends on demand, and I should have thought that the rule for increasing demand was to increase the number of people no longer liable to Income Tax. But I was never an economist and I approach these things as a plain man and pay attention to all the Chancellor says about his objects in the Finance Bill.

After that I come to beer. I can assure the right hon. Gentleman that it is my firm belief, so far as my own experience goes, supported by some practical evidence, that any increase there may have been recently in the consumption of beer has been due to the weather. I may not be a large taxpayer but I am both a bulky and a thirsty one, and I can assure him that this must be the reason. In fact, I do not believe that people will pay very much attention to the beer concession. I am really puzzled when I try to relate it to the three objects of the Budget: to improve incentives, to increase spending power, and to stimulate investment. What on earth has 2d. off beer got to do with any of them—and it is a pretty substantial amount?

On increasing spending power, I heard the hon. and learned Gentleman murmur something about increasing spending, but has he forgotten Boyle's Law, so popular with the Government a short time ago? It is that if we make it more difficult for somebody to spend money then, of course, this will work round, and in the result he will be driven to spend on useful things. From the point of view either of increasing spending power or stimulating investment, I should have thought that the beer concession was a complete non-starter.

Now I take the other major concession in the Budget, that on Purchase Tax. If we really wanted to increase spending power, I should have thought the obvious thing to do was to take the 5 per cent. at the bottom. All that the Chancellor has done is to cut some of the higher rates, and in my view this is the wrong end at which to approach it, having those objects in view.

I will refer to only one other matter. It seems to me that the bond-washing provisions have a considerable importance in themselves and raise interesting questions of principle which I will mention. The position is now as follows. We all know that there are various practices which no one would wish to defend. I am not for the moment on the retrospective point. Year after year Clauses are introduced into the Finance Bill to prevent these practices in one way or another. We may be said to stop the leak, to shut the stable door after the horse has escaped, or something of that kind, and we are now faced with an infinity of stable doors shut year after year, an infinity of horses having escaped in the interval. It really is an absurd position.

Of course, it would be possible to be far more strict with these classes. What the right hon. Gentleman and every other Chancellor has to do is to strike a balance between interfering with what is usually called legitimate business, on the one hand, and stopping indefensible practices on the other. One is beginning to wonder whether it is really possible to do the two things.

That brings us to the question of what is and what is not legitimate business. How far is it right that people should be allowed to carry on business which may have its advantages if the result of it is indefensible practices? Indefensible practices require a little examination.

I was very interested in the speech of the hon. Baronet the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid). I respect his experience in these matters. I am not accusing him of being an expert bond washer; it is simply that he knows what he is talking about. As I understood the hon. Baronet, he said that we cannot stop this. We stop it for one year, but it will begin again the next year and we have to do it again. Having said that, I expected him to accept one or other of the alternatives which my hon. Friends have put forward.

Photo of Major Sir Henry D'Avigdor-Goldsmid Major Sir Henry D'Avigdor-Goldsmid , Walsall South

With great respect to the hon. and learned Gentleman, the first alternative did not in any way close the loophole. All it did was to advance the date of closing. As I indicated in my speech a month or two ago, the alternative was simply a question of details. If one wishes to produce deterrent legislation, that can always be done, but it also has its disadvantages.

Photo of Mr Gilbert Mitchison Mr Gilbert Mitchison , Kettering

The first alternative is to shut the door before the horse escapes and the second alternative would induce the horse not to escape by a rather nasty whip when he was in the process of doing so.

Photo of Mr Gilbert Mitchison Mr Gilbert Mitchison , Kettering

I will certainly give way to the hon. Baronet if he wishes, but I doubt if we can really carry this very much further.

Photo of Major Sir Henry D'Avigdor-Goldsmid Major Sir Henry D'Avigdor-Goldsmid , Walsall South

It is not simply a question of shutting the door before the horse escapes, because until the practice takes place one does not know that it is taking place.

Photo of Mr Gilbert Mitchison Mr Gilbert Mitchison , Kettering

I accept the correction—stable doors ought to be shut after one horse escapes and before the whole herd of fifty horses has got out of the stable. But we know what we are talking about, and there is a very substantial difference between being able to stop a practice the moment that it arises and having to wait until the next year to do it. The amount that those who are not too well-disposed to the public weal may make in the interval will differ considerably according to which of these two courses we adopt. There it is.

This really will not do. If we are to be told year after year that these things cannot be stopped, that we have stopped this leak and that but cannot guarantee that we have really done the job, and if year after year the job proves not to have been done and similar but technically different provisions come in Budget after Budget, there is something very wrong indeed with the machinery.

It seems to me that the two sides of the House might differ a little on what weight to give to the two considerations. I am rather ill-disposed to accept any definition of legitimate business which enables this kind of thing to go on under its cloak. So-and-so might be doing something which in itself would be all right but which necessarily involves an opportunity for him or someone else to do something which is wrong. I would rather limit the legitimate business than continue the scandal.

I do not agree with those people who say that this is not really a very important matter and that people do not take great public interest in it. I entirely agree that the ordinary citizen does not know all the details of this matter. I do not know, and I doubt if anyone in the House knows. The extent to which any person may know about it may differ. But a person knows that something is going on and that it is something which, year after year, the Treasury, for good reason, tries to prevent. He couples this with what is really a separate business, the business of tax avoidance on expenses and the like, and, one way and another, comes to the conclusion that there are people in the country who are getting away with it, who are being allowed by the law as it is not to pay tax in cases where he would pay tax.

Feeling on the matter is heightened because the person who feels this way is usually a Schedule E taxpayer who has his tax collected by P.A.Y.E. I am bound to say it is maddening that people should get away with it when oneself, the complainant, has to pay one's tax week after week and have it extracted automatically by P.A.Y.E.

It seems to me that this business of bond washing and the like, using it as an instance, really goes beyond the question of mere machinery. We have got to make a choice between interfering with what might otherwise, up to a point, be legitimate business and allowing this scandal to go on and preventing ourselves from dealing with it properly.

It is the public duty of any Chancellor in those circumstances, and, indeed, of the House, to see that the grievance is removed. The precise amount of money that is made one way or another by legitimate business is, of course, important, but if I have to choose between the financial and the moral benefit then, in the smug sort of way that I suppose one is tempted to adopt on a Friday, I prefer the moral benefit to the financial one. I believe that there is a real point in the matter.

I have said all that I intended to say and I did not say anything about the Chancellor because he was not here at the time—I mean about the Chancellor personally. I would only like to say that I would take off my hat, if I had one on, to his competence in financial and political matters.

2.8 p.m.

Photo of Mr Jocelyn Simon Mr Jocelyn Simon , Middlesbrough West

The Third Reading of a Finance Bill is habitually conducted in a peaceful atmosphere, and that has been so today. It is, of course, the peace of the graveyard. We may, out of habit, rattle our bones and gibber at each other, but we know that in fact we are only the pale ghosts of our former selves. But even our strenuous and hard-fought battles that took place at the earlier stages of the Bill were conducted, I think it has been generally agreed, in a singularly pleasant atmosphere.

It is true that my right hon. Friend was disturbed at certain stages of the Bill at the profusion of seafaring metaphor and idiom that seemed to creep into the discussions. Indeed, he himself seemed to go out of his way today to prolong that habit. But, apart from this small reservation, we have got—and I say this in all sincerity—very good reason to be grateful for the way in which our discussions have been conducted. My hon. Friend the Economic Secretary, who has had to leave to take part in some other public business, asked to be associated with my own expression of gratitude to right hon. Gentlemen, hon. Gentlemen and hon. and learned Gentlemen opposite for the consideration that they have shown us personally, however strenuous and hard-fought our debates have been.

I should also like to associate myself with the congratulations extended to the hon. Member for Islington, East (Mr. E. Fletcher) on leading from the Opposition Dispatch Box today. His speech seemed to me very agreeable in manner, though, if he will forgive me for saying so, less cogent and convincing in argument.

The hon. Gentleman said that no Chancellor had ever been in so favourable a position to reduce taxation on a massive scale as my right hon. Friend—and that may be so. But that circumstance did not fall like manna from heaven. It is, very largely at any rate, the result of the policy of previous Tory Chancellors and of my right hon. Friend. [Interruption.] The right hon. Gentleman mentions the terms of trade, but a great trading nation like ours cannot isolate terms of trade from our own domestic policies. We trade on a sufficient scale to be able to influence the terms of trade, so that profligacy in our internal economy could raise import prices against us. The fact that the terms of trade have been favourable to us is, partly at any rate, due to the sound domestic financial and economic policies pursued by my right hon. Friend and his predecessors.

Photo of Mr Patrick Gordon Walker Mr Patrick Gordon Walker , Smethwick

Is the right hon. Gentleman now saying that we should deliberately force down the prices of products from other Commonwealth countries as part of the clear and far-sighted policy of the Government?

Photo of Mr Jocelyn Simon Mr Jocelyn Simon , Middlesbrough West

That certainly is not what I am saying. I am saying that when we conduct a sound internal policy we avoid raising prices aginst ourselves. The right bon. Gentleman must make up his mind. Does he really think that it is a good thing for the terms of trade to move precipitously against us? Of course he does not.

I am bound to say, when paying my tribute to the previous policies of my right hon. Friend and his predecessors, that one is entitled to compare them and compare this Budget with the 1951 Budget, and the policies that conduced to it. That Budget imposed taxation to the extent of£388 million in a full year. That imposition was brought about, partly at any rate, by the previous policies adopted by the right hon. Gentleman the Leader of the Opposition and his predecesors.

The hon. and learned Member for Kettering (Mr. Mitchison) drew attention to what is the main feature of this Budget and Finance Bill—the cut in the standard rate of Income Tax. My right hon. Friend took that step advisedly, because it fitted most consonantly with the main objectives he had set himself, namely, to make our economy more competitive and, at the same time, to stimulate investment and increase purchasing power.

A cut in the standard rate operates at every level of income which pays tax. I believe it to be the measure which most stimulates incentive. After all, in a competitive economy—and we are all agreed that there must remain a large private sector in the economy—we give a reward. We rely on the system working by giving rewards to a person who satisfies an existing demand, and an even greater reward to someone who satisfies a potential demand which he senses in advance.

If we allow the enterpriser to retain the larger part of that reward, quite clearly we are increasing the incentive. Again, when it comes to stimulating investment, a cut in the standard rate benefits company profits and it means that there is more available—

Photo of Mr Jocelyn Simon Mr Jocelyn Simon , Middlesbrough West

Certainly, for dividends, but there is also more available to place to reserve for investment. And if more is paid out in dividends, more is available in the hands of the investor to lend back to new enterprise.

So it is precisely in that way that a cut in the standard rate of Income Tax is by far the best measure to stimulate investment. That is why there is this fundamental fallacy in the approach of the right hon. Gentleman, if he will forgive me for saying so, when he says that he and his hon. Friends want to stimulate investment—yet they would concentrate on allowances, and, if they had a cut in the standard rate, they would exclude corporations from it.

The hon. Member for Islington, East went on to say that we resisted a great many proposed new Clauses, in particular, that we rejected the proposals for improving the Income Tax allowances. But that was inevitable and inherent in the circumstances, once two facts were conceded. The first fact was that it was generally agreed that my right hon. Friend ought not to borrow a greater sum than he budgeted to borrow. By and large, it was agreed that was the limit to which he ought to have gone.

The second fact was that the House as a whole welcomed a cut in the standard rate of Income Tax. Indeed, the Purchase Tax proposals had been accepted, the cut in the standard rate of Income Tax had been accepted. Those particular Clauses were accepted during the Committee stage without a Division. By that time the sum available to be dispensed by way of remissions of tax had been committed. Therefore, it was an act of fiscal irresponsibility to put forward subsequently claims that allowances should be improved.

Right hon. and hon. Gentlemen opposite should have the courage of their convictions. If they felt that allowances took priority, they should have voted against the proposal to cut the standard rate of Income Tax and the reduced rates. But they did not. It was precisely for that reason that the allowances were, quite rightly, not improved this year. But I was very pleased that the persistence of the hon. Member for Sowerby (Mr. Houghton) was at last rewarded, not so much by an improvement in the allowances as by the institution of a new allowance in the tax code. I congratulate the hon. Gentleman on what will undoubtedly be known as the "Houghton Clause".

The next matter discussed in this debate was the Entertainments Duty. The hon. Member for Islington, East said that it should be abolished, and that was echoed by the right hon. Member for Colne Valley (Mr. Glenvil Hall) and the hon. Member for Glasgow, Govan (Mr. Rankin). With great respect, that argument does not come well from the benches opposite. In 1950–51, Entertainments Duty amounted to£43·6 million, of which£36·3 million was contributed by the cinemas. In 1951–52, as a result of the Budget introduced by the right hon. Gentleman the Leader of the Opposition, the figure was increased. Then,£45·8 million was levied in Entertainments Duty, of which£38·3 million—an extra£2 million—came from the cinemas.

Photo of Mr William Hall Mr William Hall , Colne Valley

Surely the hon. and learned Gentleman realises that one cannot levy a duty unless the money is there upon which the levy may be imposed. Therefore, it would seem that attendances at the cinema were then much higher than they are now.

Photo of Mr Jocelyn Simon Mr Jocelyn Simon , Middlesbrough West

I do not think that the right hon. Gentleman would find that that argument appealed very much to the cinema proprietors or cinema-goers who found the Entertainments Duty raised against them. All I would say is that the right hon. Gentleman is in the position of Satan rebuking sin. As the result of the measures in the Budgets of the Leader of the Opposition, the cinemas were paying£38·3 million in 1951–52. The estimate for next year—this is the complete remnant of the Entertainments Duty—is that the figure will be under£8 million. For that very startling reduction in duty a series of Tory Chancellors can take the credit.

The hon. Member for Sowerby, in his very proper fiscal rectitude, did not like the method of levying the duty. He may well be right, on strict traditional fiscal principles; but he admitted that this is an ingenious scheme. It is a practical scheme, which concentrates the relief where we think it should be concentrated. We are a long way away from the picture, which I had in mind as the hon. Member developed his argument, of the great farmers of tax under the ancien régime.

Photo of Mr Patrick Gordon Walker Mr Patrick Gordon Walker , Smethwick

We are getting nearer that.

Photo of Mr Jocelyn Simon Mr Jocelyn Simon , Middlesbrough West

If the right hon. Gentleman thinks we are getting nearer to it I suggest that he had better examine more closely the intimate life of that period.

The beer duty has been considerably discussed today. The main object of my right hon. Friend in dealing with the beer duty as he did and in reducing it, was to safeguard the revenue from this source. This was—if I may answer the hon. Member for Sowerby's criticisms—precisely the motive that animated Sir Stafford Cripps in taking a similar step in 1949, so it has a perfectly respectable precedent.

I do not think that it would be in order for me to deal with considerations affecting other excise duties. Undoubtedly, the hon. Member for Sowerby was right to draw our attention to their social implications. It seems to me that they emphasise the importance of retaining in our fiscal system for indirect taxation a Purchase Tax widely spread on a great variety of articles and, if possible, at a fairly uniform level. The considerations that he urged reinforce the case made by my right hon. Friend the Chancellor on a number of occasions when discussing Purchase Tax.

The hon. Member for Islington, East and the right hon. Member for Colne Valley dealt with monopoly value. The former spoke of it as a complete windfall and an uncovenanted benefit for the brewers, while the right hon. Gentleman said that it was at present of at least £¾ million a year to the brewery industry. After the patient explanations which have been given by my hon. Friend the Economic Secretary to the Treasury, I can only say that right hon. and hon. Gentlemen opposite remain in the theological state that is known as "invincible ignorance". I will endeavour to point out once again what has in fact been done.

Monopoly value, as a concept, still exists; but instead of a once-for-all payment, the yield from the former system is maintained in another way-through the adjustment of the beer duty. That arises because the duty relief given in the Bill falls short of the full 2d. a pint reduction which has already been passed on to the public by an amount approximating to the sum saved by the trade as a whole through changes in the licence duty, the club duty and the abolition of monopoly-value payments. If one looks at it in that way—and that is the reality of it—it is apparent that there has been no gift, no windfall and no uncovenanted or any other benefit to the brewers. Monopoly values, like the former licence duties, are now being collected as part of the beer duty—a sort of pay-as-you-drink system, only it is the brewer who pays while his customer does the drinking.

Photo of Mr Gilbert Mitchison Mr Gilbert Mitchison , Kettering

This is more like the disappearing horse trick. It is all right so long as the beer duty remains where it is. Suppose the Chancellor alters it again, taking away something which is permanent and giving it to the Treasury and replacing it with something temporary, and says, "They balance roughly."

Photo of Mr Jocelyn Simon Mr Jocelyn Simon , Middlesbrough West

With great respect to the hon. and learned Gentleman, I think he is mistaken. The alterations in the beer duty will not affect what I have said, provided that the differential remains. There is no reason why any Chancellor would wish to sacrifice that particular revenue by abolishing the differential. If he does, he will do it advisedly. I could spell out in actual figures what I have said, but that would be placing an undue burden on the House at this stage of the proceedings.

I pass to a matter which I have glanced at already in connection with excise duties, and that is Purchase Tax. It is said that the 5 per cent. duty should have been abolished. The right hon. Member for Colne Valley suggested various other duties which might have been reduced also. In the first place, any such concept conflicts with the one I laid before the House a moment ago, of a wide range of duties levied on the widest possible range of goods as far as possible at a uniform level. That seems all the more important, in view of the social considerations which the hon. Gentleman mentioned as applying to some of our excise duties and that may be thought to make them vulnerable.

The second thing is that there have been very big reductions in the Purchase Tax. As the result of this Finance Bill, the highest rate will stand at 50 per cent. and the rates will range from 5 per cent. to 50 per cent. It is true that certain articles have been added to the Schedule, but that seems to be absolutely right, for the reasons I have given. Hon. Members can compare it with the position in 1951, when the rates were 100 per cent., 66⅔ per cent. and 33⅓per cent. Hon. Members will see the enormous improvement that has been made in the burden of Purchase Tax for the consumer.

I can pass now to the technical Clauses of the Bill and say a word about bond washing, with particular reference to the general subject of tax evasion and avoidance. The hon. and learned Member for Kettering posed some interesting questions about what was legitimate business and what was an abuse. It is extraordinarily difficult to make up one's mind where the line precisely falls. It may be said that anything is legitimate which does not contravene the law. But, on the other hand, people do draw a general distinction between tax avoidance and taking advantage of the fiscal system so to arrange their personal or business affairs as to avoid paying any more tax than is necessary. I think that practically everybody regards that as perfectly legitimate. But, on the other hand, there are a number of technical provisions in our fiscal code whereby we are very generous about allowing losses to be set against profits and also in allowing a certain number of exemptions from taxation—for example, in charities and other exempt institutions like pension funds. It seems to me to fall well on the wrong side of the line when those provisions are taken advantage of in order to get back from the Revenue, not tax one has oneself paid, but, in effect, tax which someone else has paid. It seems that Parliament is perfectly entitled to strike against that latter type of transaction.

But merely to be indignant about it does not provide a solution. What we have to make up our minds about is how we are to deal with that. The first problem we have to make up our minds about is: shall we deal with it ex post facto, or strike back at it by retrospective legislation? I am sure that the hon. Member for Islington, East, was perfectly right when he said that retrospective legislation would be the most effective way of dealing with this; indeed, it is likely to be the only wholly effective method. On the other hand, I think that he and the hon. Member for Gloucester (Mr. Diamond) are almost alone in the House in thinking that as a general principle that is the way we should deal with it. The overwhelming feeling throughout the rest of the House is that that has not to be adopted other than in the most exceptional cases.

Photo of Sir Eric Fletcher Sir Eric Fletcher , Islington East

The proposal is, and always has been, that it should be coupled with a clear and distinct warning and should operate only after that warning has been given.

Photo of Mr Jocelyn Simon Mr Jocelyn Simon , Middlesbrough West

I appreciate the way that the hon. Member and, I think, his hon. Friend put it. I was not trying to be unfair. I was trying to draw the distinction between that specific and that which commends itself to the rest of the House. [Interruption.] The hon. and learned Member for Kettering may be with those two hon. Members, in which case they have increased their strength by 50 per cent.

Photo of Mr Gilbert Mitchison Mr Gilbert Mitchison , Kettering

This is much too summary. Last night we were discussing a Bill in which the Government themselves had introduced retrospective legislation in order to penalise local authorities.

Photo of Mr Jocelyn Simon Mr Jocelyn Simon , Middlesbrough West

I do not accept that as at all an adequate explanation of what was in the Bill last night In any case, there is clearly a distinction between a private citizen and a public authority. I rather fancy that what was being discussed last night were the retrospective rights as between a private individual and a local authority. I do not want to be taken away from what we are discussing here, which is the fiscal penalties involved in our system of taxes

If one leaves out retrospective legislation, as I believe the overwhelming mass of the House does, we are faced with the fact that we have to deal with this matter ex post facto. Even though it may be disagreeable, we have to close the loopholes as they appear and not attempt to strike retrospectively against the action which took advantage of them in the past. It comes down to a very narrow point of difference. Are we to deal with it only in the Finance Bill or by Statutory Instrument?

It is quite true it can be claimed that by dealing with it in a Statutory Instrument we gain some time; but, as my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) pointed out, all we are gaining is a matter of a few months and we are making a fairly big sacrifice to do that. The hon. Member for Islington, East says we are not making a major constitutional change and he mentioned the Resolutions under the Provisional Collection of Taxes Act as a precedent; but, with great respect, that is not so. The Resolutions under the Provisional Collection of Taxes Act are taken immediately after the Budget, and are followed immediately again by the Finance Bill, and the powers run out early in August.

What we are doing is to say that the tax shall be imposed by Statutory Instrument and, generally speaking, an extremely complicated provision. One has only to look at the bond washing provisions of this year's Finance Bill, or the dividend stripping provisions of last year's Finance Act, to see the intense complication that would be involved in the Statutory Instrument in question. [Interruption.] If I may put the hon. Member out of his agony, I should say that that differentiates it entirely from the Purchase Tax Statutory Instruments. One cannot amend a Statutory Instrument, and both last year's proceedings and proceedings on this Bill have, I think, taught us the great importance of scrutinising these provisions to make sure that we are not going unnecessarily wide and harming perfectly legitimate business, in the sense in which I tried to define it earlier—ordinary business, which we do not need to harm to prevent an abuse.

If we proceed by Statutory Instrument we give no opportunity for amendment. It seems to me put in that way that there is very little difference between the two sides of the House on this, but, on the whole, the balance of advantage lies in proceeding as we have in the past, by our ordinary regular legislative processes to deal in the annual Finance Bill with each case of what we might feel to be illegitimate evasion or avoidance of paying tax.

Photo of Sir Eric Fletcher Sir Eric Fletcher , Islington East

Does not the hon. and learned Gentleman overlook the fact that we have machinery which enables the Treasury to deal with these matters of tax avoidance speedily by Statutory Instrument? That may have some effect. The mere existence of machinery may be some deterrent and avoid a great many practices taking place which take place now that people know they can have a clear year's run.

Photo of Mr Jocelyn Simon Mr Jocelyn Simon , Middlesbrough West

With great respect, I do not think that that is so. If we made a practice of retrospective legislation that would have a deterrent effect, but once we rule that out, however we legislate, whether by Statutory Instrument or ordinary Statute prospectively, it will not prevent any action taking place up to the moment of legislation.

I do not think that I need dwell on Clause 30, to which the hon. and learned Member for Kettering drew attention; except that I ought to congratulate him, because I think that he has been campaigning, or, at any rate, drawing attention for a number of years to a breach—I do not want to put it too high—to a noncompliance with the law which may have been taking place in highly respectable commercial circles. At any rate, we have taken advantage of this Clause to put right the matter to which he drew attention.

My right hon. Friend the Member for Flint, West (Mr. Birch) drew attention to Clause 36 and that was taken up by the hon. Member for Orkney and Shetland (Mr. Grimond). I hope that I shall not be thought impertinent if I say that my right hon. Friend's contribution was extraordinarily thoughtful and interesting. I can assure him that the considerations which he urged are very much in my right hon. Friend's mind. I do not doubt that the provision of capital for the nationalised industries, when it is superimposed, as it is, on the other inescapable capital requirements, poses a very serious continuing problem for the Chancellor of the Exchequer. It is a problem which he is bound constantly to ponder. My right hon. Friend raised other matters relating to the control by Parliament of the capital requirements of the nationalised industries which clearly merit serious consideration but which, I think, go beyond the scope of Clause 36 and the Bill.

The hon. Member for Orkney and Shetland (Mr. Grimond), in reflecting a number of similar considerations, asked why we continue to finance the nationalised industries in the way that is set out in Clause 36. The reason is that it is generally accepted that they cannot raise the money independently, on their own credit. In the first place, it would be a startling doctrine that a nationalised industry might mortgage or pledge its assets to raise capital; but even if they could pledge their assets, I do not think that many of the nationalised industries could raise the necessary capital without an Exchequer guarantee.

Once we have an Exchequer guarantee, surely there are large advantages in financing them in the way that is laid down in the Clause and its predecessors, so that their requirements can be properly marshalled, brought forward and controlled.

The hon. Member also drew attention to the fact that we do not have an opportunity of debating the capital budget. I think that that is true. Of course, the capital Budget of the Government, if one may put it that way, is set out in the Blue Book on National Income and Expenditure, which appears later in the year than the revenue Budget which we have discussed on the Finance Bill.

The hon. Member drew attention, too, to the need to simplify the tax system, from which I do not dissent in any way. In the last few years we have done a great deal in implementing the recommendations of the Royal Commission on the Taxation of Profits and Income. Governments are sometimes criticised for setting up Royal Commissions and then doing nothing about their recommendations. That cannot be said of the Royal Commission on Taxation. Over the last few years we have carried through a number of major reforms, and indeed a number of minor reforms, which the Commission recommended, and as I ventured to point out earlier, we have again this year carried out one of its important recommendations.

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

The hon. and learned Member will recall that on the only occasion on which an attempt was made to simplify the whole tax system we had a very long and complicated Report on which very little, if anything, was done. The codification committee of thirty years ago was a complete failure.

Photo of Mr Jocelyn Simon Mr Jocelyn Simon , Middlesbrough West

There is a good deal in what the hon. Member says.

That brings me to the criticism made by the hon. Member for Orkney and Shetland and the hon. Member for Leek (Mr. Harold Davies) of Clause 13. This is a difficult Clause, but the Royal Commission drew attention to the difficulty of drafting that sort of Clause when it said, as reported on page 333: We accept that there are several valid reasons why Income Tax legislation should be difficult and obscure. Not infrequently its conceptions represent an attempt to dress what are really mathematical formulae in the vesture of English prose. After the intervention of the hon. and learned Member for Kettering it was plain that not only was this a mathematical formula which was being expressed in English prose but it was one of such complication that it was far beyond the understanding of most of us.

I will deal finally with a point made by the hon. Member for Colne Valley and the hon. Member for Sowerby. Income Tax forms are subject to continuous revision, and we welcome all suggestions for their simplification and improvement. Hon. Members sometimes write to me or send messages from constituents suggesting methods of improving them, and that is valuable, because, after all, it is the toad beneath the harrow who knows how sharply it is biting.

The right hon. Gentleman also mentioned the question of the courtesy of the staff of the Inland Revenue. I was glad that the hon. Member for Sowerby said what he did, because I agreed entirely with him. They are given a very difficult job. The hon. and learned Member for Kettering will correct me if I am wrong, but I think it was Burke who said, To tax and to please, no more than to love and to be wise, is not given to men. It is an occupational risk of Inland Revenue officials, just as it is of Treasury Ministers, to be unpopular, and they are bound to be continually subject to criticism by members of the public. We ought also to remember the very heavy load which we put on them, particularly this summer with the post-war credit legislation. They are well aware of the necessity of preserving their good public relations and of being courteous and helpful to members of the public, and I believe that in the overwhelming majority of cases they succeed in that.

In his peroration the hon. Member for Islington, East looked forward to the time when a Labour Chancellor of the Exchequer would introduce a Budget again. We all remember the last Socialist Budget, of 1951, imposing new taxation amounting to£388 million in a full year. This Finance Bill supervenes on a series of previous Finance Acts remitting large amounts in taxation. It accompanies a Post-War Credits Bill repaying extra amounts of post-war credits amounting to£71 million. The Bill itself remits over£360 million in taxation in a full year. It is in that spirit that I commend it to the House.

Question put and agreed to.

Bill accordingly read the Third time and passed.