Finance Bill

– in the House of Commons at 12:00 am on 7th May 1964.

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Order for Second Reading read.

3.43 p.m.

Photo of Mr Alan Green Mr Alan Green , Preston South

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

I hope that it will be convenient if I follow the usual procedure, and go through the Bill in order, bringing to the attention of the House points where some words of explanation may be helpful not only for today's debate, but in preparation for the Committee stage. I appreciate that this is not a glamorous exercise, but I hope that it will not be unhelpful.

The first four Clauses and the first five Schedules are related. They give effect to the main revenue provisions of my right hon. Friend's Budget—the increase in the rates of duty on alcoholic drink and on tobacco. The new rates of duty are set out in detail in the Schedules.

The Clauses and Schedules also provide for a number of other changes in fulfilment of our obligations to our trading partners in the European Free Trade Association. Under the E.F.T.A. Convention, we are committed to the removal, by the end of 1964, of the protective element from the revenue duties on industrial products, and the Bill gives effect to that commitment. It completes a process that has been carried out in three steps, starting in 1962. The general principle we have followed, and to which the Schedules give effect, is that the duty charged on products imported from E.F.T.A. countries should be the same as the duty burden which would fall on a manufacturer of similar goods produced in this country.

The protective element which remained before the Budget in the duties on spirits, beer, and tobacco products was in each case very small; it has now been removed by increasing the rate of Customs duty on goods of E.F.T.A. origin by slightly less than the amount of the increase in the Excise duty. Other international commitments have made necessary some other small and consequential adjustments in the rates of Customs duty on goods of Commonwealth origin and on foreign products.

Clauses 5 and 6 are concerned with hydrocarbon oil. With effect from 1st January next, Clause 5 brings the Excise duty on indigenous light oil into line with the Customs duty on similar imported oil. This change is also one which flows from the obligations we have accepted under the E.F.T.A. Convention. But while, in the other cases I have just mentioned, it has been possible to meet our E.F.T.A. commitments by altering the Customs rate of duty to make it agree with the duty burden on the home producer, in the case of hydrocarbon oil it has been necessary to do the reverse.

This is because the overwhelmingly greater part of our supplies of oil come from abroad and pay duty at the Customs rate. It would not have been possible to have a lower rate of Customs duty on oil imported from E.F.T.A. countries for, if that had been done, it would have been possible for crude oil produced in the Middle East to be refined in an E.F.T.A. country and then sent here at a lower rate of duty than it would have paid if it had passed through a refinery in this country.

Clause 6 and Schedule 6 provide for two schemes for relief from duty. A number of hon. Members on both sides of the House have taken an active interest in the representations that have been made year by year for relief from duty on oils, such as white spirit and benzene, which are used as materials or as solvents in industrial processes. In his Budget speech last year, my right hon. Friend accepted in principle the case for this relief, and the Clause will Give effect to his decision.

The scheme of relief contemplated in the Clause has been worked out with the industries concerned. It is that oil will be allowed to be delivered duty-free for this kind of industrial use if it is "marked" with a chemical additive that would enable its misuse to be detected. But, to provide for circumstances in which the use of a suitable additive may not be practicable, the Clause provides, as an alternative, that oil can be delivered unmarked on payment of the usual duty; and that this will be repaid to the user when he shows that he has used the oil for a purpose that entitles him to relief.

The second scheme involves rather more technical matters. I understand that there may be technical advantages—at least, in certain industries—in the use of some of the lighter petroleum distillates as an alternative or an additional source of furnace fuel. At present, these possibilities cannot economically be developed; the distillates in question fall within the Revenue classification of light oil and so are liable to duty at the full rate of 2s. 9d. per gallon, as against the 2d. a gallon paid on ordinary fuel oil.

The Clause will enable the potentialities of these fuels to be explored, under suitable safeguards, by reducing the duty on them to the fuel oil rate when they are used as furnace fuel. In this way, the Clause may help towards a better balance of production at British refineries by encouraging the demand for the lighter petroleum fractions, as compared with the heavy oils. The Clause, which comes into operation on 1st September, empowers the Commissioners of Customs and Excise to make regulations governing all these arrangements for relief from duty.

Clause 7 reduces the rates of the pool betting duty and the bookmakers' licence duty and, at the same time, it extends the scope of the pool betting duty so as to cover fixed-odds coupon betting as well as pool betting. In this way, it removes the complaint of unfair competition which arose from the fact that money staked on football pools was subject to the duty while money staked at fixed odds—perhaps on the results of the same football matches—was not. The rise in the volume of fixed-odds coupon betting in recent years has been accompanied by a fall in the yield of the pool betting duty; so that this change should help to safeguard the revenue.

This is a rather lengthy Clause, because it has to apply to fixed-odds coupon betting the machinery for collecting duty which has hitherto applied to pool betting. It does so with some modifications which are necessary because of differences in the method of promoting fixed-odds coupon betting compared with the promotion of pool betting. Subsection (2) is an anti-avoidance provision relating to pool betting. It provides that any payment which a punter makes in connection with a dutiable bet will be chargeable with duty—even if it purports not to be part of the stake money—unless it is a voluntary donation for a charity or for the furtherance of sport.

Clause 8 continues until the end of August, 1965, the existing power to use the Customs and Excise regulator, but it makes one important change. As the law stands at present, the regulator, if it is applied at all, must be applied in the same way, whether by surcharge or rebate, to all the main Customs and Excise duties and to the Purchase Tax, but circumstances could arise in which this blanket approach would be unsuitable and when it would be undesirable to apply the regulator over the whole field.

To meet this sort of situation, the Clause divides the duties into four groups—tobacco, alcoholic drink, oil, and the others including the Purchase Tax—and it enables the regulator to be applied to one or more of these groups without having to be applied to all of teem. To use the example which my right hon. Friend gave in his Budget speech, if it should be necessary in future to raise more revenue by means of the regulator, this would not necessarily involve the further imposition of tax on tobacco or on alcoholic drinks. I trust that this proposal to permit the more flexible use of the regulator, should the need arise, will commend itself to the House.

Clause 9 provides that the television advertisement duty will no longer be charged after 29th July, 1964, when it will be replaced by the levy which will become payable by the programme companies under the Television Act, 1963. The Clause preserves until the end of this year the powers needed by the Commissioners of Customs and Excise to clear up any questions outstanding in respect of duty on advertisements broadcast on or before 29th July.

Clause 10 is a short Clause which removes a disadvantage from which British ships and aircraft have occasionally suffered in the past. It enables them to take on board sufficient quantities of duty-free stores to meet the reasonable reeds of passengers who wish to take advantage of the duty concession which British and foreign Customs administrations allow.

Clause 11 gives exemption from Excise duty on certain vehicles modified so that they may be driven by invalids. In the Finance Bill debate last year the hon. Member for Cardiff, South-East (Mr. Callaghan) and other hon. Members put down a new Clause to raise the weight limit of the present concession for invalid vehicles. As my hon. Friend the Minister of State, Board of Trade, then the Economic Secretary, explained at the time, this proposal as it stood would not have provided sufficient guidance to the local taxation authorities in recognising the invalids and the vehicles eligible for exemption.

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

The hon. Gentleman's reference to Clause 11 gives me the opportunity of pointing out to him that I have already received a complaint about the hurtful title to the Clause in the use of the word "invalids". The word "invalids" is not mentioned in the Clause, but it is in the description. I understand that the description is not open to amendment in Committee. Will the hon. Gentleman therefore kindly consider changing this in a later publication of the Bill?

Photo of Mr Alan Green Mr Alan Green , Preston South

I will certainly take that into consideration. As the hon. Member knows, I have not had notice of the point, but, of course, I do not complain of that.

Clause 11 provides that the registered owner of a modified vehicle will be eligible if his disabilities qualify him for the provision of transport by the Health Departments. In most cases this will mean that his vehicle will have been adapted with the help of one of the two Health Departments. The appropriate Department will be able to provide an invalid with a certificate stating the facts establishing his eligibility for an exempt licence under the Clause. He will then be able to send the certificate to the local taxation authority with his application for an exempt licence. I am sure that the extension of the present concession to disabled drivers brought about by Clause 11 will be welcomed on both sides of the House.

I should make it clear so that there is no doubt about it that in cases where by private beneficence a carriage has been adapted for an invalid the same test will be applied. If one of the two Health Departments would have done the job, but it has been done privately, the invalid is still entitled to receive a certificate.

Photo of Mr Gilbert Mitchison Mr Gilbert Mitchison , Kettering

Is any difficulty anticipated in finding out whether or not a disability is of the kind where grants are paid?

Photo of Mr Alan Green Mr Alan Green , Preston South

I know of none anticipated, but again, having had in a sense a warning in that probing question, I will look further into the matter in answer to the hon. and learned Member.

I come now to the Income Tax and Profits Tax provisions in Part II of the Bill. Clause 12 reimposes Income Tax for 1964–65. Clause 13 prescribes the Surtax rates for 1963–64.

Clause 14 removes a difficulty which arises when a trading company transfers part of its business to another company. At present, when this happens there is a double assessment. The transferee company is charged to Income Tax for a period on the current profits arising after the transfer under the "commencement" rules for new businesses. The transferor is also liable for the same period on the "preceding year" basis on the profits up to the transfer date. This fact may well hinder company reconstructions which are desirable in the interests of efficient organisation.

Under Clause 14 the transfer of part of a trade will no longer be treated as the setting up of a new trade by the transferee where there is a 75 per cent. common control. This will produce a result similar to that already produced by Section 17 of the Finance Act, 1954, when the whole of a trade is transferred to an associated company. The preceding year basis will apply throughout and the two companies will share the Income Tax liability for the year of change on the profits of the transferred part of the trade.

Clause 15 carries out my right hon. Friend's proposal to widen the scope of the provisions enabling a United Kingdom company to claim double-taxation relief when it receives a dividend from an overseas company in which it holds shares. It is concerned with what I can conveniently call the "underlying tax" paid overseas. The House will appreciate that I am not talking now about the overseas tax charged on the dividend itself, far example, by withholding at source, but about the tax paid by the company declaring the dividend on the profits out of which the dividend comes.

Even apart from the terms of any double-taxation agreements between us and the other country concerned, a United Kingdom company with a large enough holding in the company paying the dividend has been able for many years to claim double-taxation relief in respect of the underlying tax. Up till now, the shareholding required was one carrying at least one-half of the voting rights, though hon. Members will remember that two years ago special provision was made for certain cases where so large a holding was precluded by the law or the administrative practice of the overseas country concerned.

After further study of the matter, my right hon. Friend concluded that he would be justified in lowering the qualifying holding to one that controls one-quarter of the voting power. This will apply generally and will enable us to dispense with the special provisions covering cases where a local limitation was in force.

The next three Clauses, 16 to 18, together with Schedule 7, deal with the use of leasing devices for tax avoidance which was briefly mentioned by my right hon. Friend in his Budget speech. The devices take different forms, and the three Clauses propose remedies to suit each case. In framing the proposals, our endeavour has been to put a stop to the tax avoidance without getting in the way of legitimate business transactions.

Clause 16 deals with assets other than land used for the purpose of a business or of some other taxable activity so that the payments for use of the asset qualify for tax relief as deductions either in computing profits or in one of the other ways described in subsection (4). The basic device with which Clause 16 is concerned is one in which a trader has new plant leased to him with the rent squeezed into the early years of the lease so that over a short period the capital cost of the plant plus interest and profit to the lessor has been covered.

The rent for the later years of the lease is nominal, so that after the early high rents have been paid the trader is in possession of the right to use the plant for the rest of the lease at much less than its true value. He can assign this lease for a premium which is not subject to tax and can lease back the asset for continuing use in his business. Alternatively, he may be able to acquire the asset from the original lessor and then sell it for a capital sum and lease it back.

The remedy proposed in Clause 16 is to charge to tax any capital sums received by a trader in those circumstances up to the amount of any tax relief that he has had for payments for use of the asset in his business. The limit of the charge is either the amount of the payments qualifying for tax relief or the capital sum received, whichever is the less. In effect, this is comparable to a balancing charge which withdraws any capital allowances which prove to have been excessive when plant and machinery are sold.

Clause 17 applies to plant and machinery and other assets, excluding land owned by a trader or person carrying on a profession, sold or leased by him to another person and leased back for use in the trade. In those circumstances the trader obtains a tax-free receipt for the sale of the asset or the granting of a lease and in the first few years of the lease-back he can pay an excessive rent under the sublease sufficient to repay the premium with interest. The payments under the lease would ordinarily be deductible by the trader in computing his profits for tax purposes. The recipient, however, will not effectively bear tax on the payments if he is a dealer because he can set against them the diminution in value of the lease which forms part of his stock in trade. The result is that the Revenue loses tax. Once the initial period of excessive rents is over the process can begin again, with the trader receiving a further non-taxable premium or capital sum.

The remedy proposed under Clause 17 is to limit the deduction which a trader can have for payments for leased assets used in his business up to an amount which might reasonably be charged on a commercial basis as a uniform rent for the asset. The effect of this provision will be that there will no longer be a tax profit in paying excessive and noncommercial rents over a short period leading up to the receipt of a tax-free capital sum. Schedule 7 includes various definitions and points of detail relating to Clauses 16 and 17.

Photo of Mr Gilbert Mitchison Mr Gilbert Mitchison , Kettering

Can the hon. Gentleman give us the estimates, which, no doubt, the Treasury has made, of the effect of the concessions of the tax avoidance provisions in Part II?

Photo of Mr Alan Green Mr Alan Green , Preston South

I must tell the hon. and learned Gentleman quite frankly that it is very difficult to make what I may call a quotable estimate of this, because although this is a clearly attractive device, and, in theory, can be used very widely indeed, it is very difficult to know to what real extent it would be in practice, even if it were not checked. I think I can tell him that the sum at risk, potentially at risk, in theory at risk, runs to several hundreds of millions of pounds.

That is a very theoretical figure, but for sure it is a serious loss of revenue which we think will be stopped. If I can give the hon. and learned Gentleman any better figure I will willingly try to do so. I know that he will appreciate that, not knowing how wide in practice it may run, it is very difficult now to give him a figure which would stand up later.

Clause 18 deals with land and applies not only to traders but to others deriving an income from land or using land in the production of taxable income. The cases covered are those in which land or an interest in land owned by a trader, and so on, is subsequently transferred to another person and leased back to the trader for use in his trade. The Clause applies to all cases in which payments of rent or corresponding payments under an agreement qualify for tax relief. The Clause should not affect normal commercial lease-back transactions. It should, however, deal with devices such as that in which a trader who owns his business premises leases them for a long lease to a dealing concern for a premium which is not taxable and then leases them back, paying in the first few years an excessive rent which, in effect, repays the premium plus interest and profit.

This rent is deductible in computing the trader's profits for tax purposes, but although it is a trading receipt of the property dealer little tax is payable because he can set against it the fall in value of the lease which is part of his stock-in-trade. After the end of the period during which the excessive rent is payable the lease is of little value to the lessor and, by one means or another, the trader is at this stage in a position to repeat the process.

Clause 18, therefore, limits the deduction for Income Tax purposes for payments of rent under a lease-back to a commercial rent for the property. This is defined as the rent which might be expected to be paid under a lease of the land negotiated in the open market at the time when the lease was, in fact, created and subject to its terms, except rent, being a lease under which rent is payable annually, and the rent payable for any year is not less than the rent payable for any previous year. This provision will leave exposed to challenge any lease under which the rent is squeezed into the first few years of the lease. It will not affect genuine cases in which uniform rents or increasing rents are paid.

Photo of Mr Gilbert Mitchison Mr Gilbert Mitchison , Kettering

I am sorry to interrupt the hon. Gentleman again, but these matters appear to be very important. He mentioned a quotable figure—perhaps an unprintable one—of hundreds of millions of pounds. Is this the same lot of hundreds of millions of pounds, or is there another lot of hundreds of millions of pounds about this?

Photo of Mr Alan Green Mr Alan Green , Preston South

No. The three Clauses, 16, 17 and 18, taken together.

I come now to Clause 19, which imposes liability to Income Tax and Profits Tax on companies doing mutual business. There may possibly be some doubt about what mutual business is, and I cannot do better than quote the Royal Commission on the Taxation of Profits and Income, which says: There must be a common fund. All the contributors to that fund…must be entitled to participate in any resulting surplus, and no one may be entitled to participate in the surplus who is not a contributor to the common fund. Given those conditions, the surpluses are not taxable. The reference is paragraph 588.

The propriety of continuing to exempt the profits of mutual trading for tax has been reviewed from time to time. In 1932, the Raeburn Committee took the view that the general principle that no taxable profit emerges from mutual trading should not apply where the trading body was a legal entity separate from its members. The Finance Act, 1933, imposed liability on cooperative societies, and also attempted, unsuccessfully, as the courts later held, to establish the general proposition that, if persons engaged in mutual trade through the medium of a corporation formed for the purpose, any trading surplus retained by the corporation should be treated as a taxable profit.

The Royal Commission, which reported in 1955, approved the proposal that surpluses of bodies corporate should be taxed, as the defective legislation intended them to be. My right hon. Friend decided to propose this legislation this year because a recent decision of the House of Lords gave publicity to the possibilities of avoidance inherent in the present position.

The Clause does not apply to all mutual trading, but only to mutual trading wilt or through a body corporate. It will not affect ordinary co-operative societies, which have been liable to tax since 1933, nor will it affect the provision by a social club to members of amenities such as food and drink, since these activities do not normally constitute trading. The bodies chiefly affected will be societies transacting mutual assurance.

In practice, the tax liability on mutual life insurance is unlikely to be significantly altered by the legislation. Their present basis of assessment, namely, on investment income less expenses, is likely to continue to apply. But mutual insurance other than life assurance will become liable to Income Tax and Profits Tax. It is estimated that the yield will be of the order of £5 million a year.

Clause 20 alters the present arrangements for making distribution payments on imports of goods containing sugar, and for reclaiming them on exports of sugar composite goods. The existing arrangements are operating to discourage exports and to provide an unnecessary subsidy to imports. The effect of the Sugar Act, 1956, is that exporters pay the world price for the sugar used in the manufacture of their products. While the world price was below the internal price this enabled exporters to offer competitive prices, but recently the position has been reversed and our exporters have found themselves in a poor competitive position on foreign markets.

Clause 20 will enable the Minister of Agriculture to determine that distribution payments should not be reclaimed on sugar used in the production of exported composite goods. Thus, the export manufacturer will obtain his sugar at the United Kingdom internal price when this is below the world price, and, in general, this is comparable with the situation in countries with which our manufacturers are in competition.

At the same time, Clause 20 will empower the Minister of Agriculture to suspend distribution payments on such imported sugar composite goods as he may determine. At present, foreign manufacturers often obtain their sugar at prices comparable with the United Kingdom internal price, and distribution payments have the effect of further reducing their costs. The Clause will enable arrangements to be made to stop this unnecessary form of import subsidy.

Clause 21 exempts employment contracts from Stamp Duty. As my right hon. Friend the Chancellor of the Exchequer explained in his Budget Speech, this Clause springs from the Contracts of Employment Act of last year, under which an employer is required to give to each of his employees a written statement of the main terms of his employment. These statements, if they set out all, or substantially all, the terms of the employment, as they ordinarily would, and if they are signed by the employer, would be liable to Stamp Duty.

The duty would normally be only 6d., but it is clearly very much better that they should not be liable at all, otherwise there might be a good deal of confusion because some of these statements would be liable to Stamp Duty and others would not. In any event, clearly it is not proper to tax this form of contract. Statements under the Contracts of Employment Act could not be easily distinguishes from ordinary service agreements, and the Clause accordingly exempts all these documents. The Clause will come into effect on 6th July, which is the date on which the Contracts of Employment Act comes into effect.

Clause 22 applies certain provisions of existing national debt legislation to United Kingdom Government securities held on the Bank of Ireland's register in Dublin. The purpose of the Clause is to bring the arrangements for dealing with United Kingdom stocks in Dublin into line with those for the rest of the National Debt. The necessary modifications to present legislation are listed in Schedule 8.

Clause 23 gives the Treasury authority to pay sums from the Consolidated Fund to trustee savings banks for the management of their Government stock departments. The proposed payments, which will be based on the amount of Government stocks and bonds held by the banks, will be comparable in character with the payments already made to the Bank of England, the Bank of Ireland and the Post Office for national debt management services.

Photo of Mr Donald Wade Mr Donald Wade , Huddersfield West

These are Exchequer payments to the trustee savings banks for managing Government stocks. As the hon. Member is aware, the range of permissible trustee investments has been greatly extended in recent years and may include equities. Are the trustee savings banks still limited to Government stocks and, if this is so, are the Exchequer payments made to trustee savings banks for managing Government stock only?

Photo of Mr Alan Green Mr Alan Green , Preston South

Yes. The Exchequer payment will be for Government stock only.

Before I conclude, I should like to mention one addition which we shall be asking the House to make to the Bill. In Committee, we propose to introduce a new Clause correcting a flaw in last year's Case VIII legislation, which dealt with the taxation of rents and other income from property in the United Kingdom. We have been advised that as they stand the Case VIII provisions do not take account of apportionments of rents payable for a period overlapping the date of sale of a property.

These apportionments between vendor and purchaser have been taken into account for tax purposes in the past, and contracts for the sale of land are norm- ally drawn up on that assumption. We intend, therefore, to amend the Case VIII provisions so that these apportionments, and apportionments of outgoings such as head rents made in the same circumstances, will be duly taken into account in computing liability to tax under Case VIII.

I hope that this explanation of what the Bill contains has not been unduly long and that it will be of assistance to the House both in today's debate and in preparing for the Committee stage.

4.17 p.m.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

The Financial Secretary to the Treasury said at the start of his speech that the task which he had was perhaps not glamorous, and at the end of it he said that he hoped that it had been valuable. We can assure him that what he said has been very valuable. A good deal of what he said was quite unexceptionable; nobody could possibly disagree with him. If I may say so, I thought that his description of Clauses 12 and 13—he said that Clause 12 provided for rates of charge of Income Tax for 1964–65 and that Clause 13 provided for rates of Surtax for 1963–64—was a statement to which the whole House would agree without difficulty.

The Government will not be surprised if I look upon this matter and the Second Reading of the Bill from a slightly different angle and perhaps with a different set of values. I should like to pay attention not only to the Clauses themselves—the detail of the Clauses can be discussed in Committee—but also to what is behind the Finance Bill, to try to relate it to the Budget and to extract the essential quality of Part I and the essential quality of Part II. I hope to go on, as this is the only occasion on which one can properly debate it, to draw attention to some of the things which have been omitted from the Bill and which might have well been included in it.

The Bill stems from a Budget which did virtually one thing and one thing only—introduce additional taxation of £100 million on drink and tobacco. I have therefore given careful thought to what possibly were the justifications for and the relevance of doing this. The more I have thought about it the more mystified I have become. In his speech the Chancellor properly dealt with all the major problems and in his proposals he solved none of them.

There is a problem of regional unemployment. I find it difficult to see how the Budget solves the problem of where the next job is to come for the unemployed worker leaning against a lamp-post on the North-East Coast and smoking his pipe—although he may draw considerable satisfaction both from his pipe and from the knowledge that he is contributing extra amounts to the Exchequer. I find it difficult to see how this £100 million affects our exports, which are so vital, or how it helps with our expansion programme—because, as we all know, the expansion programme is well behind the N.E.D.C. target in relation to the stage which we should have reached at this point in the five-year plan.

I should be wrong to say that this £100 million has no relevance to an incomes policy, because it puts up the cost of living by 1 per cent. and will stimulate a whole series of wage claims. But it has no other effect.

The final problem, and perhaps the most urgent of all, and the darkest of all, is that of the balance of payments. The hon. Gentleman did not touch on that. It cannot be alleged by the Government that they are putting the tax on tobacco to stop tobacco coming in and saving imports that way, because they are calculating on the whole amount of the additional duty being paid. They are making the assumption that one increases it by, say, 10 per cent. and one automatically gets 10 per cent. more coming in.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

That is as I understood the figures. Perhaps the right hon. Gentleman will explain it later.

This can have only the very slightest and minutest marginal effect on the difficulties that we are all anticipating round about the autumn in relation to the balance of payments. At the moment, we seem to have a strong position in sterling, mainly because we are relying on the strength of the outer sterling countries—on the additional reserves in Australia and so on. Is the Chancellor intending to rely on those exclusively when the squeeze comes?

We tried hard, during the Budget debates, to get out of the Chancellor and the Financial Secretary what proposals they had. When I challenged the Financial Secretary, he said that his right hon. Friend had the regulator to use. When the Chancellor of the Exchequer referred to it himself outside this House—I think that I am reporting him correctly—he said, quite properly, that it would be wrong at this point of time, when one was dealing with a Budget and a Finance Bill and when one could make whatever alterations one wanted to make in the House with the consent of the House, not to do whatever one wanted to do now, and it would be wrong to rely on putting right later by the regulator something which one now knew wanted doing. Therefore, it was not in his mind to use the regulator.

Moreover, we know that if the right hon. Gentleman had to use the regulator he has mortgaged half of it already. The use of it can provide a maximum of £200 million—10 per cent. across the board. In this Finance Bill half of that is used up immediately. So if the right hon. Gentleman has to take action, he is faced with the situation that he must either put a second increase on beer and tobacco, which is unthinkable, or he must limit himself to a modest £100 million and a modest use of the regulator. None of these things has been adequately explained to us. Many of us regard this as the most difficult view in prospect and the most difficult matter to deal with.

As the Chancellor of the Exchequer has provided for £100 million exclusively from drink and tobacco, and as this provision had no relevance whatsoever to all the major issues, it is not surprising that his Budget is being called an irrelevant one, and it is not surprising, therefore, that the Finance Bill does very little to help the situation.

Photo of Sir Alexander Spearman Sir Alexander Spearman , Scarborough and Whitby

On the subject of the relevance of the Chancellor's measures, if they get rid of some excess demand, surely the hon. Gentleman must agree that that means more competition. Is he saying that conditions of more competition will do nothing to keep down prices?

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

First, I do not accept the hon. Gentleman's logic. Secondly, if the hon. Gentleman will allow me to continue he will find that I shall be much more critical of the Chancellor's proposals in relation to the £100 million. If I can destroy the argument behind the £100 million, then I have no need to answer the hon. Gentleman's question, even if I do agree with it.

The Chancellor went on to say that the £100 million was not something that one could calculate exactly and that it must be a matter of judgment. He actually said: It cannot be a matter of exact calculation."—[OFFICIAL REPORT, 14th April, 1964; Vol. 693, c. 268.] However, I think that the Chancellor went on to do some very exact calculation, so precise that he got himself into the difficulty of trying to use figures which were well within the margin of error of Budgets and estimates generally. If one attempts to do that, one must surely be claiming superhuman powers.

It appears to me that the Chancellor does not follow my argument about the elementary statistical error into which he has got himself. Last year's Budget showed that the estimates were £163 million out above the line and £209 million out below the line. The Chancelor is now saying that he can control the situation to the extent of £100 million, two-thirds or one-half of the mistake that the estimates demonstrated. If the right hon. Gentleman is not satisfied about that in respect of one year, I have looked up the figures for 10 years, and the 10-year average shows that above the line the estimates were proved wrong on average by £170 million and below the line on average by £160 million.

It is not open to the Chancellor to claim that with that margin of error in the figures he can be so precise as to say that exactly £100 million is needed. If, therefore, one is dealing with a figure which is so minute that one cannot possibly claim from past experience that it has any effect on our situation, I do not think that one can allege that this is a sensible way of dealing with the matter, and I do not suppose that it can be objected to if people say not only that the Chancellor is irrelevant but that he is utterly unreal.

Irrelevant and unreal though the Chancellor may be, the Bill is revealing. It falls neatly into two parts and reveals the character of Conservative philosophy in what I might call its fin de siècle phase. Part I reveals the aspect of Tory philosophy to which one is accustomed, the desire always to put a disproportionately heavy burden on the shoulders of the poorer section of the community. Part II reveals the other basic element in it, the reverence for capital and the fruits of capital, even though the result is to favour those who receive the product of the nation's resources and penalise those who earn it.

Let me try to justify both those allegations. Part I—the Financial Secretary dealt with this extremely quickly and slightly and did not go into the philosophy of it—has the object of raising £100 million exclusively from tobacco and drink. I do not want to enter into the argument of direct versus indirect taxation, because I do not believe that this point has relevance to the argument. It has relevance to the argument of appropriate or inappropriate burden—disproportionate burden.

One wants to know why the Chancellor chose exclusively these two items to raise the whole of the £100 million. Even supposing that he was satisfied that he had to raise another £100 million, it could not have been because of immediacy, which is what he alleged, because Purchase Tax would be equally immediate. Moreover, Purchase Tax, is, or was, socially adjusted, as I might describe it. Although it is an indirect tax, it is not a straight poll tax in the sense that the basic necessities bore the lowest rates and luxuries the highest rates of tax. Two years ago the lower rates were increased and the higher rates reduced. What was to prevent the Chancellor, if he so desired, from raising the additional revenue by putting back the highest rates to where they were? That would have been equally immediate and would have produced a good deal of the revenue which he was looking for.

Why has the right hon. Gentleman looked exclusively to tobacco and drink, which is indirect taxation, and turned his gaze away from direct taxation completely? Why could he not have looked at taxation on companies' profits? As has been pointed out by my right hon. Friend the Member for Battersea, North (Mr. Jay), tax on companies' profits has fallen by £270 million since 1952–53. If the Chancellor was looking for a modest £100 million, he could have taken one-third only of the fall which has occurred in the tax from those profits and reinstated it.

Has the Chancellor considered the effect on the individual of the increase in the tobacco and drink? I dare say that the Chancellor has looked at the document entitled "Economic Trends", of February, 1964, which sets out very helpfully the proportion of indirect and direct tax paid on incomes of various groups of families. If one looks at that document one gets a good idea of the effect on different families of increasing a tax of this kind. The average family, that is to say, two adults and two children, with an income of between £1,750 and £2,000 a year—those who are reasonably comfortably off—pays 1·8 per cent. of its spendable income in tobacco tax. The same sized family with an income of between £550 and £650, that is, between £11 and £13 a week, pays 5½ per cent. of its spendable income on tobacco tax—three times as much as a proportion of its spendable income as is paid by the well-to-do family.

If I were to talk about old-age pensioners, there would be an objection to that, so I use an unloaded phrase, two adults, with an income of between £4 and £11 a week. They spend between 6 per cent. and 7 per cent. of their spendable income on tobacco tax. That is a fantastically high proportion. More than 1s. 3d. in the £ of every £ that they spend goes in the form of tobacco tax. A couple with an income of between £2,500 and £3,000 a year spend only 1½ per cent. of their spendable income on this tax. The question I address to the Chancellor, therefore, is why does he pick on the one thing that bears hardest on the poorest? Why did he not look at Purchase Tax where the figures, as "Economic Trends" shows, are spread much more evenly and equitably, and where the percentage on different scales is much more the same?

Part I of the Bill achieves nothing in terms of an incomes policy; nothing in terms of regional employment policy; and nothing in terms of national progress. It merely reveals the Chancellor's desire to have a final "dig" at the worker. 'That is Part I.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

The hon. Gentleman will no doubt have an opportunity later to explain why that is nonsense. I have addressed to the House a series of points and arguments. No doubt at a later stage the hon. Gentleman will destroy them one by one seriatim.

I come to Part II. This is the part which reveals the basic Tory philosophy of the sanctity of capital, so sacred that what comes from the sweat of the brow is taxed, while what falls in the lap from capital sources is untouched. Perhaps the House more easily recognises Part II as a part which deals with anti-avoidance measures. Let me, therefore, try to reconcile those two statements about Part II.

Those mho have been in the House for some time have had the misfortune, which I recognise fully, of hearing the hon. Member for Gloucester making speech after speech with regard to the need for a capital gains tax, and pointing out the moral which arose on Clause after Clause, that if there was a proper capital gains tax it would not be necessary to devote Clause after Clause, year after year, to the problem of anti-avoidance, for the simple reason that essentially the major way of making tax fortunes out of the revenue is to convert income into capital. It arises because we have a structure under which what is income is taxed, and what is capital is not taxed. If, therefore, a person is in receipt of income and he can convert that into capital, he turns from paying tax into avoiding tax.

Photo of Mr Reginald Maudling Mr Reginald Maudling , Barnet

But surely that would be true only if the hon. Gentleman was proposing that capital should be taxed at the same rate as income? If it were taxed at a lower rate, there would still be the incentive to move from one to the other.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

When the right hon. Gentleman brought in a speculative gains tax he brought it in at the same rate. The right hon. Gentleman has dealt with a very tiny part of the field, indeed that part which the Government and the Revenue properly regard as income in any event, as gains which were arrived at because one sought to make a profit. As it is extended, so one brings in other sources of capital gains, and it may be that there is a case in the extreme detail for certain capital gains being dealt with at a different rate. This does not affect the general issue at all, because the reason for bringing in these anti-avoidance Clauses is that there is a system under which part escapes tax, while part bears tax.

What are all these Clauses about? The Financial Secretary has explained them. He explained that there may be a series of transactions under which in one case money is paid and allowed against profits, allowed against tax, while in the other it is received as a capital item, and does not bear tax. If there were a sensible and proper capital gains tax, none of these problems would arise. Year after year we have these anti-avoidance measures. A few years ago, under Lord Amory's Chancellorship, we had 12 or 13 in one Bill alone. All those were anti-avoidance measures, the need for which would not have arisen if we had had a sensible capital gains tax.

I do not think that we can leave Clauses 16, 17, and 18 as simply as that. The Chancellor has said that these are serious forms of tax avoidance. The Financial Secretary was unable to give us an idea of the effect of these on future Budgets. Could not we be told how long this device has been made use of, and how much revenue has been lost up to now? That must surely be capable of some calculation. It must have come to the attention of the Revenue.

Photo of Mr Alan Green Mr Alan Green , Preston South

I know that the hon. Gentleman would not want to be unfair, or to make a non-existent point. My difficulty in giving an estimate is that I do not want to produce a figure which is, in fact, a guess, because I do not think that that would be of service either to the hon. Gentleman or to the House. I said that potentially, and in theory, the loss could run into hundreds of millions of pounds, but it would depend entirely on what happened in practice.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

I am grateful to the hon. Gentleman. He said that before, and I heard him the first time. That is not what I asked.

I asked the hon. Gentleman to tell the House the basis for the Chancellor's statement that this is a serious form of tax avoidance. This provision has been brought in because, presumably, this form of tax avoidance has been practised. The simple question is: as far as the Revenue is aware, for how long has it been practised, and how much revenue has been lost? I am not asking the hon. Gentleman to look into the future. I am asking him to read the book, as we say, not to crystal gaze. How much has been lost?

Photo of Mr Alan Green Mr Alan Green , Preston South

I understand the point, and I do not want to dodge a question of that kind. The hon. Gentleman's professional experience will tell him that this is very difficult to determine here and now. Many of these cases are not properly determinable except by the passage of a certain amount of time. To attempt a figure now would be bound to mislead, and I must ask the hon. Gentleman not to ask me to mislead him.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

That is the longest circumlocution for "I do not know" that I have ever heard. If the hon. Gentleman does not know, let him say that he does not know. We are not talking about estimates. We are talking about the past.

The Inland Revenue has proposed these changes to the Chancellor because tax has been avoided under the very methods in these three Clauses. It has been avoided to the extent that the Chancellor, with the responsibility that rests on him, has said that this is a serious form of tax avoidance. The Chancellor does not make statements like that based on nothing. We are asking what it was based on. Was it based on a hunch, on a belief, or on knowledge that there were cases? If so, how much and for how long? If the hon. Gentleman cannot answer, we can draw our own conclusions.

I cannot leave it even there, because we know from what the Financial Secretary has been good enough to say that this is a very serious form of tax avoidance and one which could be practised in the future to the extent of hundreds of millions of pounds. This is not the only kind of tax avoidance that one conies across. Year after year one hears of new methods having been discovered. I particularly draw attention to the deliberate policy of Her Majesty's Government of giving safe custody to every person who thinks up a new tax dodge. Let me explain why.

Both the right hon. Gentleman and his hon. Friend the Financial Secretary are looking extremely confused. I am sorry that they have not been into this matter earlier. However, it is never too late to mend. The essence of the economics of tax avoidance is that it is worth one's while entering into the scheme provided one has a reasonably full run on one's particular scheme. If, therefore, one starts a scheme with the full knowledge that the Revenue will allow one to carry it to fruition, no matter how many such schemes come to their attention, no matter how many times they alter the law as to the future, safe custody is given to everybody who has got a scheme or has a scheme in mind. All that people need to know is that it is the practice of the Government never to stop a scheme in midstream or at the start of it. In all these Clauses we have the same formula, that any scheme which was entered into prior to Budget day is sacrosanct.

Having regard to the allegations that are frequently made, and having regard also to the Conservative Party's bible, the publications of Aims of Industry, and the allegations which are made therein, let me make clear what I am not—I repeat "not"—advocating. I am not advocating retrospective legislation. What I am saying to the Chancellor is that there is no reason to go the whole hog and say that schemes which have been entered into are perfectly all right for all time. The Chancellor should go much further. He has taken powers under the regulator. He should take similar powers so that he could come before the House with an affirmative Resolution which would alter the detailed provisions of any particular anti-avoidance Clause so as to bring it up to date then and there, and to take effect for the future from the time from which it is altered.

There is no earthly reason why he should not do that and let it be known to everybody who practises in this field that if one wants to bring in a tax avoidance device, one is running the risk that the moment it comes to the notice of the authorities, the Chancellor will, by affirmative Resolution of the House of Commons, stop it from that point on. That will do more in discouraging initiative with regard to tax dodging than any of the provisions which the right hon. Gentleman has got in his Finance Bill.

Although some little time has gone, I wanted to delay the House a little longer on the question of capital gains tax. The heed for it has not been fully appreciated. The Chancellor and the Financial Secretary, who have been good enough to sit here and listen to me, do not appear to have recognised it themselves. I have frequently drawn attention to the fact that so far as personal tax is concerned, only people who pay on P.A.Y.E. pay their full whack. There are so many other methods of avoiding tax which are open to people who have substantial incomes. It is because this is not fully appreciated that I want to draw attention to another example which came to the notice of the House recently.

I refer to the Ferranti case, where one is reinforced by a fully detailed report of the Public Accounts Committee and one, therefore, knows the facts. It transpires that this company turned its income into capital, turned its profits into capital bonuses, to the extent of £3·2 million over a short period of years—10 years or so. It paid a dividend on its shares of 6 per cent., but the amount that was earned on ordinary shares and not paid in the three relevant years—I mean the relevant years of the P.A.C. inquiry—was respectively: 1959, 84 per cent.; 1960, 166 per cent.; 1961, 129 per cent.

These were all the dividends earned on the ordinaries after making full provision for preference shares and everything. These were not declared as dividends and, therefore, made subject to Surtax. These were converted into capital and later on turned into cash. In this case, therefore, a neat little sum of £3·2 million went to virtually a family of three people, escaping Surtax completely.

I should have thought that the £5 million profit which was made on the Bloodhound contract was sufficient in itself. It was good enough, or, as those of us on this side of the House would prefer to say, it was bad enough. At all events, it was enough. The company did not need to have the assistance of the Government to enable it to go further and convert profits into capital gains in terms of capital bonuses and so escape Surtax. I hope that the Government are now aware, from this case at close quarters, of the effect of omitting to have a proper capital gains tax, enabling people in receipt of substantial income and controlling substantial income to avoid paying Surtax which, presumably, the Chancellor of the Exchequer expects people to pay.

What came out in this case is the interesting question of contributions to political funds, to which I refer because one is dealing with the Finance Bill and, therefore, one is dealing with the question of allowances, for tax purposes, for subscriptions given to political parties. I make no point as to whether Ferranti's contribute to the Labour Party, the Liberal Party or the Conservative Party. I really do not know. All I know, from a Question put to the Minister of Aviation, is that apparently Ferranti's contribute to Aims of Industry.

If we are to believe a pamphlet which was recently circulated, the hon. and learned Member for Northwich (Sir J. Foster), who is a very learned and knowledgeable Member in these matters, has given it as his view that under appropriate and limited conditions, such a payment can be a proper charge against Income Tax. In short, the taxpayer is paying for half the contribution by the company to Aims of Industry. Some of My hon. Friends may think that that is going a bit far. The Government think that it does not go far enough.

On the Ferranti contract, when they came to deal with the question of overheads and found there was a payment to Aims of Industry I put down a Question and asked the Minister of Aviation whether the item was struck out as an expense, and the answer was "No", that it was too small to strike out as an expense. Therefore, the whole of the item goes into the contract price for these Bloodhound missiles. Therefore, not only are we as taxpayers paying the £5 mil- lion profit, but we are paying the whole of the contribution by this company to Aims of Industry so that Aims of Industry can play the independent part that it plays in our political life. I am asking the Chancellor to look into that case, too.

I have no objection—I am sure that nobody has any objection—to anybody making a payment to a political party. It is a question of disclosure and of proper treatment. It is a question of paying it out of one's own pocket and not out of somebody else's pocket. I am sure that Mr. de Ferranti is a sincere believer in his political party, as, no doubt, is his brother, who sits on the benches opposite. I imagine that we are indebted to him for the advertisement: Conservatives give you better standard of living. Don't chuck it away. We shall never get out of our difficulties until we have a thorough-going capital gains tax. What we have at the moment is a speculative gains tax, so called because what it produces is entirely a matter of speculation. We have tried again and again to find out what this speculative gains tax has produced. Not only have we been put off, but we have been put off in the most arrant and misleading manner that I have ever heard in the House.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

I hear what the hon. Gentleman says. Perhaps he will be good enough to listen to the statements made by his right hon. Friends. I refer, first, to the statement of the Leader of the House, when he was Chancellor of the Exchequer, on 9th April, 1962. Referring to this matter and the question of yield, he said: In 1962–63, there will be no yield of tax under Case VII "— which is what we are talking about— As far as the yield thereafter is concerned, it is quite impractical to estimate it. The Inland Revenue has no statistical information on which to base an estimate."—[OFFICIAL REPORT, 9th April, 1962; Vol. 657, c. 983.] What comes after 1962–63, even the Chancellor will agree, is 1963–64. We have come to the end of 1963–64, and the Chancellor has produced this document, the Financial Statement. In the Financial Statement, there are two columns, one for 1963–64 showing what has happened to the outturn, and one for 1964–65 showing the estimate. On page 20, it is divided into Income Tax, Surtax, Death Duties, Stamp Duties, Profits Tax, and so on. I do not know under which heading the speculative gains tax comes, but it comes under one or other of those headings.

The question we ask it: how much came in under that heading in 1963–64, and how much is budgeted for in 1964–65? Those are simple matters of fact. The answers must be there. The Inland Revenue must know. The tax has either brought in nothing or something. If it has brought in something, the figure is there.

I turn now to an equally serious, if not more serious, aspect of the way we were utterly misled on all this. The Chief Secretary to the Treasury and Paymaster-General—with a title like that, he should be regarded as a responsible individual who knows what he is a talking about—said, during the Budget debate on 20th April this year, in response to questions pressed on him by my right hon. Friend the Member for Battersea, North, by my hon. Friend the Member for Sowerby (Mr. Houghton) and others: In the nature of things, no yield would accrue to it as far as Stock Exchange transactions were concerned for six months, and, as far as land transactions were concerned, for three years" OFFICIAL REPORT, 20th April, 1964; Vol. 693, c. 899.] First, the right hon. Gentleman said that no yield would accrue, as far as Stock Exchange transactions were concerned, for six months. This is not the period during which yield accrues. It is the period after which yield does not accrue, precisely the opposite. Next, he said that, for land transactions, the period was three years. But this is not the period during which yield accrues. It can accrue during three minutes, three seconds, three days, or three weeks, but after three years it does not accrue—precisely the opposite. The Chief Secretary was trying to delude us into believing that the reason why the Government were not giving us the figures was that there were no assessments and that no transactions had taken place which were a proper subject for this tax.

Clearly, that was misleading us in the grossest possible way. It is absolutely a contradiction of the facts put forward to support the refusal of the Chancellor of the Exchequer and the Financial Secretary to give us the information which we want. We want it because we believe that this speculative gains tax produces nothing, or next to nothing. We believe that it is a lot of "my eye and Tommy Martin", to put it in simple terms.

Photo of Sir Douglas Glover Sir Douglas Glover , Ormskirk

Betty—get the facts right.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

I am grateful for the knowledge that the hon. Gentleman is not only listening to me, but is alert.

Therefore, unless we know what the figures are, we shall be compelled to conclude as our speculation leads us to conclude, that this tax was put in merely to mislead us and it does not touch the problem at all. It does not touch the problem of capital gains and it produces nothing of any value.

Summarising my comment on the Bill, I put it in this way. Part I is an exercise in social injustice, and Part II is an act of worship at the shrine of capitalism.

Photo of Mr William Clark Mr William Clark , Nottingham South

The hon. Gentleman refers to Part I as an act of social injustice. Will not he agree that indirect taxation today, even after the last Budget, is taking less of the gross national product than it was taking when his own party was in power?

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

The hon. Gentleman is asking me a very complicated question of economics.

Photo of Mr William Clark Mr William Clark , Nottingham South

What is the answer? Does not the hon. Gentleman know the percentages?

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

Yes. It has gone down by 0·2 per cent. or something like that—0·7 per cent., in fact. I am aware of the percentages. This kind of information the Financial Secretary is able to produce, somehow or other. He is able to give most complicated and detailed information. Even so, I think that the Chief Secretary got it wrong again on this matter and said that the National Health and National Insurance contributions were no part of direct taxation, whereas, of course, we know from this publication that they are so described and included.

The answer to the hon. Gentleman is quite simple. I have tried to give him the figures to show the effect of these proposals on ordinary men and women, how are they affected in their income, and how their budget is affected. I have tried to demonstrate that the simple answer, which we always allege, but which right hon. and hon. Members opposite are too obtuse to accept, is that the effect is to put a heavy burden on narrow shoulders instead of spreading the burden according to the width of the shoulder. We look upon it in these simple human terms. I have tried to make the point as clear as I can. I have given the figures, which have been prepared by the Central Statistical Office, in support of what I say. I repeat, therefore, that Part I of the Bill is merely an exercise in social injustice.

I could go on making suggestions as to the extent to which the Bill fails to meet the needs of the situation, but there would not be enough time left. I ask the Chancellor to give more thought to the need to help the nation forward, to give more thought to the need for exports, to give much more thought to the question of an incomes policy and to realise that we shall never get a satisfactory attitude of mind so long as wage earners know that any restraint on their part is not matched in any sense by restraint on the part of the profit maker or profit distributor. It is not matched in any way at all, and there has been no attempt by the Chancellor to bring in or even to consider any kind of legislation which would help in that problem.

To refer to the Ferranti case again for a moment, the wages there were such that they could have been increased 800 per cent. and the firm would still have made a profit on the contract. Are we to tell the A.E.U. boys there, as they are, that they should not ask for more than 3½ per cent. or 4 per cent. in full knowledge of the figures for wages over those five years which show that they could have had 800 per cent. of their wages and still not prevented the firm making a profit, and that the only effect would have been to take the money out of the pockets of three individuals and spread it among a large number of wage earners? This is not what I am suggesting. I am just pointing out that this is the situation which is left open because the Chancellor takes no steps whatever to think of anything in the way of an equalising tax or something of that kind.

The Financial Secretary tells us that he would be glad of ideas. He tells us that the Chancellor is all ears. So were President Johnson's beagles, and we know what happened to them. I do not know what we are supposed to do with the Chancellor—hold him up and shake him to see whether we can get any new, useful and relevant ideas out of him.

What is needed is an entirely new look, one based on principles of social justice, a fair sharing of the burden and an encouragement to those who earn. I hope that it will not be long before my hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) stands at that Box and converts the general principles which I have enunciated into firm proposals. The nation awaits next year's words, and, if I may quote T. S. Eliot with acknowledgment to The Times, "Next year's words await another voice."

5.0 p.m.

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

The hon. Member for Gloucester (Mr. Diamond) covered a very great deal of ground. I do not propose to take up everything that he said. In particular, I do not intend to take up the question of capital gains because there is not time. He complained of the number of anti-evasion Clauses which have been put in past Finance Bills, but he did not admit, which is true, that if there were a capital gains tax there would need to be many more anti-evasion Clauses. I do not believe that the matter is as simple as the hon. Member made out, or that a capital gains tax would make much existing anti-evasion legislation unnecessary.

I will take up a number of the points which the hon. Member mentioned, but first I should like to say that I am disappointed that my right hon. Friend has not introduced in this Finance Bill an extension of betting taxation. It is unfair that there should be a tax on some aspects of betting, such as greyhound racing and football pools, whereas on many other aspects there is no tax at all. I know that this is a very complicated subject, but I hope that my right hon. Friend will have another look at it and consider it much more on the basis of taxing turnover than on taxing profits. A very large amount of money must be turned over in betting, and a tax of 1 or 2 per cent. might well make a very big contribution to the Revenue without discouraging or penalising the punters.

In every other respect, I welcome the Budget and the Finance Bill. Right hon. and hon. Members opposite have called the Budget very dull. The hon. Member for Gloucester talked about it being "irrelevant and unreal". I suppose that the Budget is dull from the Opposition's point of view. It is always dull when, on the whole, things are going pretty well and we do not have to do very much to change them. There is nothing revolutionary about the Budget, but revolutions are necessary only when things are going very badly and it is necessary to turn them upside down.

This is true of a company which is making good progress and earning money. If it is doing well, its accounts would probably appear to be rather dull. One just has a quick look through the accounts and says, "This company is all right. We need not bother with it." Good, satisfactory, solid progress often is dull, but I think that we would rather have it so. The attendance on both sides of the Hose today makes it clear that neither the country nor its representatives in the House are alarmed or worried by the economic situation.

I have an eloquent tribute to that which I should like to quote: In fact, the economy of Britain has since January, 1963, been enjoying something of a boom, and these predictions of economic collapse have not been fulfilled. That eloquent tribute comes from the hon. Member for Wednesbury (Mr. Stonehouse), who is usually not a supporter of the Government. He perhaps thought that it would not be overheard if he said it in Paris, as he did, last Christmas.

The main criticisms of the Opposition seem to fall into two categories. The first is that the increase in taxation should be made in direct and not indirect taxation. This raises the whole question of an incomes policy. The second broad group of criticisms is that the Budget will not help to make industry more competitive and will not help the export position and the balance of payments. It is to those criticisms, and particularly the second, that I wish to address myself.

I recognise that there is a fundamental difference between the two sides of the House about whether more taxation should be taken from indirect or direct taxes. My hon. Friend the Member for Nottingham, South (Mr. W. Clark) made a very pertinent intervention in the speech of the hon. Member for Gloucester. All I need say about his theoretical assumption of what the average family spends on tobacco and alcohol is that these are not necessities. One can opt out of paying the tax on tobacco, spirits and drink if one wishes.

There is only one other point that I wish to make on the question of indirect and direct taxation. I think that we should reduce tax on work, effort, earning and enterprise to the greatest extent we can. Hon. Members opposite wish to see the removal of the earnings rule in the pensions schemes. I must confess that I do, too. To penalise a man for extra effort by making him pay tax on his earnings is wrong. It seems to me inconsistent that we should have both this pressure for the abolition of the earnings rile and criticism that we should increase the level of direct taxation in the Budget. It seems to me that that does not tie up.

When one comes to an incomes policy, hon. Members opposite seem to assume that there is a sort of running war in which dividends and profits are constantly overtaking the level of wages. They start by fomenting the assumption that wages are rapidly losing ground as a share of the national cake. I must remind the House of the figures. Since the war, in real terms, dividends have increased by 2 per cent. and wages by 78 per cent. Those were the figures last year, and I do not expect that they are greatly different now. They do not bear out the general assumption that there has been a galloping increase in profits and dividends to the detriment of wages. Indeed, it seems to me that the figures of 2 per cent. and 78 per cent. show the reverse.

Hon. Members opposite argue from that invalid assumption that all that is necessary to achieve an incomes policy is to curb dividends and profits and then, in an enlightened mood, all wage earners will say, "Yes, we see that the system is fair. We will not press our wage claim." Whatever the merits of curbing higher profits, earnings, salaries and capital gains, I do not believe, and I suggest to hon. Members opposite that they should stop believing, that if punitive legislation were introduced against capital gains, profits and Surtax payers we would get co-operation and there would be an absence of inflationary pressure on the wages front. It was demonstrated that this was not true when Sir Stafford Cripps and the late Mr. Gaitskell were Chancellors of the Exchequer.

Whatever the social merits of the case—and I am not arguing about the merits—to lead the country to believe that an attack on higher incomes from envy and almost from malice will lead to restraint in wage demands is a futile way of pursuing an incomes policy. Whether it be Surtax payers, company directors, dividend drawers or wage earners, whoever finds that his position in the economy is such that he can force up his level of earnings, there will be pressure for it, and to think that a sort of quid pro quo can be achieved is, I am sure, wrong.

This was illustrated by the hon. Member for Southwark (Mr. Gunter) in his speech during the Budget debate. He admitted in response to an intervention from my right hon. and learned Friend the leader of the House that during the time of the pay pause profits were falling. If I remember correctly, they fell by 4 per cent. during the last six months of the pay pause year. Despite the fact that profits were falling by 4 per cent., the hon. Member for Southwark said that that had no effect and was not what people wanted. What was wrong was the "attitude" of the Government, who were not taking sufficiently punitive action against profits. Although the hard fact was that profits were falling, according to the hon. Member for Southwark, that would not satisfy the wage earner and punitive measures needed to be taken before he would co-operate. This proves my point probably more than anything else.

What we are searching for in an incomes policy is a device whereby, without punitive attacks upon any section of the population, we can achieve a cooperative attitude amongst all and a degree of forbearance. This will be bred not from envy and malice, but only from a desire to share out equally a larger cake.

I should like to talk not so much about the distribution of rewards, but how we can get more from industry, from which ultimately we all derive our living, either directly or indirectly. The competitiveness and advanceness of our industrial processes are all that we have from which to make our living. Most people would agree that we have not been doing too badly. Our exports have been increasing and we are holding our own—in fact, edging forward very well in the present world situation. There are, however, certain weaknesses in management and I think that all faults in industry are ultimately traceable to management.

The first of those faults, and one which is not sufficiently stressed, is weakness in design. Industrial design must not only be efficient and work. Wherever possible, it must be attractive and it must have features which are aesthetically pleasant, which look nice and which attract the customer. Most important of all, it must be economic. I am certain that a serious weakness in British design is that we have not been prepared to reduce the quantity of material to the correct amount for incorporation in design.

The second most important factor is research and development. British industry has been rather slow to respond, and much more needs to be done to improve our research and to increase its quantity. If, however, it is suggested that companies should be taxed much more heavily and that the Bill does not contain sufficiently heavy company taxation, those are proposals that would make it more difficult for industry to employ better designers and to pay them more, and to employ better research workers and spend more on research and development, at the very time when these are our weak links. Not all firms have enormous profits from which to pay. The vast number of average firms have a difficult job to balance their budget and pay their fair share of tax. To increase that burden of tax would be bound to reduce their desire to invest in design and research.

It is worth mentioning that the decline and fall of the Byzantine empire was attributed by nearly every historian who has studied it to the fact that its design, research and inventiveness was not up to the standard of that of its competitors. It might interest hon. Members opposite to know that in the Byzantine empire, the whole of industrial direction came from the State and private enterprise was not allowed.

The third important item is the weakness of control in industry. There is a sort of general feeling of tolerance. Industrial discipline has not always been as strong as it should be. We should not have to continue to tolerate the abuses which exist on both sides—for example, the abuses of the expense account or of a company's sporting property. At the same time, however, there are the abuses of labour. The limitation of apprenticeships is unforgivable at a time when we need more skilled labour. There are restrictions on the manning of machines, demarcation disputes and a general feeling that industry is one happy family and not disciplined. We have lost something of the industrial discipline which is necessary to make our industry really compete with other countries.

How can we improve this situation? How, through our taxation or other policies, can we do something to make it even better than it is? I repeat that my criticisms are marginal rather than fundamental. The party opposite must not always take the side of the employee. I have tried, as have many in my party, to recognise weaknesses on both sides. Nothing could be worse for our two main parties than to divide themselves into the employers' party and the employees' party. Constant carping at management and constant criticism of industry as a whole, trying to make out that every business is a sort of Ferranti and up to tricks of that sort, has undermined the confidence of many of our very good industrial leaders in themselves.

If hon. Members opposite are always to support wage claims whether they are right or wrong, always to support restrictive practices whether they are right or wrong and never to stiffen the hands of the employers, we will find it difficult to get rid of the faults on both sides. There is no encouragement in the policy of the Labour Party to get a greater and more fruitful use of labour. I should like to see much more freedom given to industry, much less nagging and much more help to try to solve its problems.

One of the biggest problems is certainly that of shift work. If we are not to waste our resources, our expensive machines and plant must be used for more hours during the week. The figures, I believe, are roughly that in Germany 55 per cent. of workers are on shift work, whereas in this country the figure is only 14 pet. cent. I may be slightly out of date with these figures, but they are of the right order. This illustrates what an enormous problem there is in converting people to being prepared, I hope for extra reward, to accept an interruption of their life to help to run our plant full time. In a lot of businesses, the cost of having the plant is much greater than the cost of manning it. Clearly, one way to bring down our prices and to increase efficiency is shift work.

I have been talking mainly about how we can improve the existing factors within industry. Obviously, there are the bigger things which the Government have tackled with great courage in helping new industries to expand and moving resources 10 them from declining industry. During this five-year Parliament, the Opposition have fought tooth and nail against the redistribution of our resources and the modernisation of industry. Every plan that Dr. Beeching has put forward to release men and resources from the railways has been attacked from the benches opposite. The coal modernisation plan, perhaps one of the most successful and courageous plans to be carried forward, was opposed by the party opposite in no uncertain terms. Whether it is a question of the aircraft industry, shipyard modernisation or any other industry which is trying to bring itself down to size, we always seem to have opposition. Planning is easy when the plan is to expand, but when it is one of contraction it raises social and political difficulties. Nevertheless, any responsible political party must tackle those difficulties or it will not succeed.

I should like to see much more progress—and this is where I criticise my right hon. Friend the Chancellor of the Exchequer—towards making the change from a declining industry to an up-and-coming industry easier for the people who work in it.

I would like to see further progress made with redundancy pay, and I blame the Government for not having brought in this Measure this Session. I should like to see much more being done towards developing retraining facilities and here, I am afraid, I must blame the trade unions for not co-operating in the matter. I would like to see much more done in the whole field of industrial training. The passing of the industrial Training Act meant a great step forward, but there is much more to be done. It is perhaps interesting to make the comparison that in the Common Market all expenditure made by a national Government on retraining, on moving workers from one part of the country to another, on redundancy payments and on all moving expenses is recoverable from the European Economic Commission itself. So important do they regard it that they have distributed the national funds centrally in order to make sure that a stimulus is given to this.

Finally, I would like to come to the question of planning. We are being told that, in a sense, the Conservative Party has been converted to planning because it has embraced the recommendations of the National Economic Development Council. If that is so, and it probably is, then there are two forms of planning. There is the N.E.D.C. form, which to my mind means entirely forecasting the future, trying to see what will happen if we make certain assumptions, trying to publicise economic facts and figures and trying to get a model on which we can try out economic experiments for the future.

The other sort of planning has as one of its essentials the backing up of the decisions of the planners by some form of control or enforcement machinery, and this is what I would call interfering in the economy when it does not fit the national plan. Of course, this is the difference between the two sorts of planning advocated in the House. We on this side of the House see virtue in trying to look ahead and in trying to see what would happen if certain assumptions are made, but we are not prepared to force the economy like a parcel that will not go into the letter box—force it through and not worry what shape it comes out the other side.

To quote a hypothetical example. Supposing the national planning body decides that a certain quantity of cement will be needed at some stage in the future, what is going to happen if the cement makers take a different view? Are they going to be forced to produce that greater quantity, including investing in more plant, more factories and a very large capital outlay? They may take a different view and decide that less cement is needed. This would be defined by hon. Gentlemen opposite as a case where an industry has fallen down on the job and has to be taken over by the State.

It would seem to me that the best parallel that one can cite is the steel industry, which has had central planning and which has been forced to accept the shape which the planners thought it would need. They forced it, through the Steel Board, to produce 30 million tons of steel capacity, and for many years the steel demand ran at about 20 million to 20½ million tons. The most glaring example of State centralised control in the country has got the production of steel 50 per cent. wrong. This has had all sorts of side effects and economic distortions which have been absolutely fatal.

The point that I make is that it would be perfectly all right to say to the steel industry or the cement industry, "We think you will need so many million tons in 10 years' time". But it is a very different matter if we are going to force them into that shape. Presumably the threat behind Socialist policy is that if they will not do as they are told they are classified as falling down on the job and ripe for nationalisation.

I am not complaining particularly about shareholders. Companies and shareholders have lost badly through this process. I am talking about waste of national resources. We cannot afford to squander the resources of this nation in accordance with the terms of Whitehall planners. Therefore, I think that the sort of remedies which the hon. Member for Gloucester had vaguely in mind as he hovered over the field, were not really practical. The hon. Gentleman concentrated on attacking hon. Members on this side of the House. When one tried to discover what he would do, every avenue which one followed led one nowhere, and the party opposite would obviously leave the country far worse off.

5.26 p.m.

Photo of Mr George Wigg Mr George Wigg , Dudley

I rarely intervene in these debates, and it is my intention to make a non-controversial speech, but having listened to the hon. Member for Cirencester and Tewkesbury (Mr. Ridley), I must contribute a little to the debate which may, perhaps, be a little contentious.

The hon. Gentleman talked about the party on this side of the House being opposed to the Beeching plan. Perhaps I might tell the hon. Gentleman what happened in Dudley, about the Beeching plan. We are at the heart of the area where the Industrial Revolution started and are left with all sorts of problems which are really national probems. They are in essence, hangovers from the events and chaos of the last century. Some years ago it was decided to close one of our railways, and we looked at the matter on a non-party basis. The suggestion was put forward that before any railways or stations were closed, or facilities withdrawn, we ought to look at the transport needs not only of Dudley, but of the West Midlands as a whole. This seemed to be an essentially rational point of view. It was, as I have said, adopted by the Dudley Council on a non-party basis.

The suggestion was put to the Minister of Transport in writing. We met him and put the case to him. I raised the matter in the House and we got absolutely nowhere. We also had a meeting at the instance of the much more important City of Birmingham in order to examine the possibility of having such a transport survey. But to no avail. We were turned down at every stage. Then, after a lapse of two years, the Minister of Transport agreed to the survey. Now we are to have such a survey at a cost of £¼ million.

The Labour Party believes in planning and the ascertainment of facts as a prelude to planning. It believes in trying, by a plan, to meet these facts and then in a democratic way to put the plan into effect. To talk as the hon. Gentleman does, as if we on this side of the House want to use the instrument of nationalisation, is a failure on his part to recognise one simple fact. In the kind of society in which we live there will be a plan anyway. I often think that we are caught up in an exercise in semantics, and that our differences are more about words than we think. When I read what happens in the United States, I feel that the Americans are more socialistically-minded than we are and yet, because they use different words from those we do, they do not mind.

The principle of acting in the public good operates to a much greater extent there than here. There is certainly a curtailment of the activities of what is called "naked capitalism". The argument is not whether there is to be a plan or not. There will be a plan all right. The question is: who is to make the plan and in whose interest is the plan to he drawn up? That is what the argument is about.

I am using the occasion this afternoon to plead for an approach which is very dear to my heart, because I believe that it is along those lines that the solution of the difficulty lies. We cannot look at society and then suppress from our picture the black spots we do not like and enlarge the white spots that we do like. We cannot ignore the overall picture. We must face the facts. Surely we need to reform the procedures of the House so that before we start to argue on the basis of clashes of opinion we take the elementary first step of ascertaining the facts. I have today put down a Motion on the subject in which I am especially interested—defence—to try to get a Defence Committee set up.

Mr. Deputy-Speaker:

I am sorry to interrupt the hon. Member, but this is the Second Reading of the Finance Bill.

Photo of Mr George Wigg Mr George Wigg , Dudley

My inexperience of these debates has led me astray. Having made the point, perhaps the hon. Member for Cirencester and Tewkesbury will agree with me that at least we could spend part of our time upstairs on the discipline of ascertaining the facts. But I will leave that subject, Mr. Deputy-Speaker, before I incur your further wrath.

Photo of Captain Walter Elliot Captain Walter Elliot , Carshalton

I would agree with the hon. Member for Dudley (Mr. Wigg) that one should consider the transport problems of the West Midlands, or the Midlands, as a whole; but would he agree with me that one should not hold up action in the area of Cornwall or Devon, for instance, while deciding what is needed for the West Midlands?

Photo of Mr George Wigg Mr George Wigg , Dudley

It would be hypocritical of me to make observations about Cornwall, because I do not know the facts. What I was saying was that we should look at the transport needs of the West Midlands as a whole, not only in the light of today's conditions, but as conditions are likely to develop over the next 10 to 15 years. I regret, because of the Minister, that we have lost so much time in doing so. There is, of course, a case for a Beeching plan after the fullest possible inquiry on a regional basis has been undertaken and the facts and needs of the area ascertained.

It is my purpose, however, to talk about Clause 7, which deals with the subject of betting. The hon. Member for Cirencester and Tewkesbury deplored the absence of a turnover tax on betting, but I thought that that was dealt with quite adequately by the Chancellor of the Exchequer, who said, in his Budget speech, that turnover was not the whole story and that what mattered was not the volume but the actual amount being betted. In other words, while the estimates of betting went into thousands of millions of pounds a year, the Chancellor tended to believe—I think with more accuracy—that the sum was about £100 million or £150 million.

Perhaps I should declare an interest, or lack of interest. I am a member of the Horserace Totalisator Board, for which I receive no salary. I do a great deal of interesting and enjoyable work, and that repays me. I am concerned, therefore, with the possible effect of the Chancellor's proposals on betting legislation as a whole. Let me again try to find a common basis of agreement with the hon. Member for Cirencester and Tewkesbury. He believes that betting should be taxed. So do I, and I do so for three reasons.

First, gambling as a whole has now assumed such proportions that it ought to be brought under a measure of control, not as a result of direction or invoking the law, but by the use of the fiscal system. Secondly, the growth of betting has reached the point where it is making large incursions into capital investment in the proportion which it takes of buildings, promotion, general communication, Post Office facilities, and so on. The third and most compelling reason is that this would be an act of social justice. If a man or woman has to pay tax on his or her cigarettes, drink, sweets and petrol used for pleasure purposes it is only right and just that betting, which is another form of using one's leisure in what seems to be an appropriate way, should bear its share of the burden.

I took an active and, I hope, useful part in the discussions, on the Floor of the House and in Standing Committee, on the Betting and Gaming Bill and the Betting Levy Bill. I supported and still support the brave purpose of the present Foreign Secretary, when he was Home Secretary. It is a brave Minister who attempts to handle this thorny subject, and he did it with some success. The time may have come when the legislation needs to be reconsidered, but, basically, the right hon. Gentleman scored one major success. He set out to try to remove the stain of illegality from those who wanted to take part in this activity, and he did it because he was rightly concerned about the cumulative effect, on the police and our legal system as a whole, of a wholesale series of evasions of the law.

This had a thoroughly bad effect and there is no doubt that it led to some corruption. The fact that we have reached a state of affairs when that now happens only on a negligible scale is a major achievement which must be placed to the credit of the Government and of the right hon. Gentleman the Foreign Secretary.

The Chancellor of the Exchequer has now come forward with proposals in connection with football betting. I shall not be dogmatic and say that they are bound to fail, but I ask hon. Members to consider what their effect may be. The right hon. Gentleman has decided to impose a tax of 25 per cent. on fixed-odds betting on football. The people who indulge in this activity do so to the extent of about £50 million a year and the Chancellor hopes to raise about £12 million from which will have to be deducted the concessions made to those engaging in pool betting and on greyhound totalisators and so on.

The bulk of the money, certainly not less than half, is devoted to bets on draws where the odds are about 60 to 1—they vary a little. Pool betting, with which the Chancellor finds himself forced to make comparisons, is also mainly concerned with draws, not exclusively, but about 90 per cent. of the betting on the pools is on draws.

This is not a very profitable part of the business of bookmakers and they give the odds they do because the public wants this sort of bet. I do not speak on this subject with very great experience, because my interest in betting is confined to animals with four legs rather than those with two, but I am reasonably certain that pool betting is concerned much more with numbers chosen at random or possibly related to something superstitious, like birthday dates, days of the month, and so on. The purpose of such betting is to gain a vast sum from a small outlay.

On the other hand, those who bet on fixed odds use their judgment and supposed skill to a much greater extent. After a while, people tend to get fed up with pool betting and the more discerning—as they like to regard themselves—go in for the fixed-odds betting on the coupons. In other words, those who venture into the area which the Chancellor hopes to tax are, by definition, the more discerning and more acute in their judgments and selections than those who indulge in ordinary pool betting. That does not mean that for that reason alone there is any case for taxing the one more than the other.

Under the Chancellor's proposals, the man who would invest 15s. will have to invest about £1, paying about 5s. in tax, or will have to pay 25s. for £1 bet. Merely to suggest that punters who bet on fixed odds will send the extra 5s. in the £ for every bet they make so as to have the privilege of making the bet is also to suggest the answer—they will not do it. The Chancellor may think that there is a more subtle way of dealing with this and may say that, instead of the odds being 60 to 1, there will be odds of 45 to 1, and that he will get his money in that way.

Pool promoters operate on fairly narrow profit margins. Of every £100 invested, about £28 goes into operating costs and about £70 is sent to the odd one or two who, on average, win, so that the overall profit is about 1 or 2 per cent. The turnover is very great indeed, so that the sums involved on a profit of 1 or 2 per cent. can be very considerable. But, of course, bookmakers lose as well as win.

If the Chancellor is right, and he collects his £12 million, then everything in the garden is lovely. He will have been proved right and he will have redressed the balance which he thinks has unfairly moved against the pools proprietors and I shall have nothing to say. But if I am right, and the discerning punter is not prepared to pay 25s. for every £ better, and not prepared to accept odds of 45 to 1 when he had been getting odds of 60 to 1, what will then happen?

Of the total investment of about £50 million, I estimate that about £25 million goes to three big firms. About £15 million or £16 million goes to William Hill and about £9 million to Ladbroke and Coral, while the other £25 million is scattered over some thousands of bookmakers throughout the country, many operating on a very small basis and some pinching the ideas contained in the coupons of Hill and Ladbroke and some even producing roneoed coupons.

There is a characteristic of bookmaking which should be noted. The Betting Levy Act set up the Betting Levy Board, which is doing its best to struggle with the problems which Parliament has imposed upon it. It was estimated that the Board would collect a levy of £1 million, but it has not done so Of about 9,000 bookmakers, 4,477 produced returns accompanied by an accountant's certificate to show that they had to pay a levy of only £50, which meant that they were making a profit of less than £1,000 a year.

To suggest that of the 9,000 bookmakers nearly 5,000 are earning less than £1,000 a year is absolutely laughable. Nobody in his senses would stay in bookmaking unless, if he did not have a Bentley, his wife had a mink coat. As a slight caricature, that is a reasonable standard for a moderately successful bookmaker. I am certain, however, that the profit figures that I have quoted should be repudiated as totally false, for profits are much greater and I doubt whether 20 per cent. of the 5,000 who made such a return were telling the truth.

If bookmakers submit returns to a statutory body in the fashion I have quoted, what will their attitude be to this 25 per cent. when they are faced with the opportunities which are created by this legislation? William Hill, Coral and Ladbroke operate on such a large scale that there is no possibility whatever of their evading the law. But what if the punter will not pay the 25s. and will not accept odds of 45 to 1 when he is used to 60 to 1? Around the corner will be another bookmaker, perhaps even one of these gentlemen who, by fading back into the darkened area of illegality, could not only continue to pay the odds of 60 to 1, but avoid paying Income Tax.

But there is something else of even greater importance in this matter. The rate of commission paid for football betting is very high indeed. The average is about 3s. in the £, and 3s. 6d. in the £ is not unusual. As a tribute to the perspicacity of the Scots, the rate of commission in Scotland, I understand, is only 2s. 6d. in the £, because the Scotsman wins much more often than the Englishman and the bookmakers therefore pay only 2s. 6d. in the £ on Scottish business. I do not vouch for that, but that is what I am told.

If the Chancellor, by this Clause, creates a condition where fixed-odds betting on a legal basis disappears, and the runner who collects the money can continue to get his 3s. or 3s. 6d. in the £ because he is operating illegally, and the punter can get 60 to 1 instead of 45 to 1, then, given that situation against the background which operates throughout this industry, I have no shadow of doubt about what will happen. The Chancellor, although I support the object which he is endeavouring to pursue, will have recreated the atmosphere of illegality which the beneficent Acts introduced by the Foreign Secretary, when he was Home Secretary, were designed to prevent.

I hope that the Chancellor is right and that I am wrong, that the provision that he has introduced this year is suc- cessful and that his successor in his high office can continue the process in what I regard as a rather amusing form of spending one's leisure and, at the same time, making a contribution to the revenue, but I earnestly ask him to consider the possibility that he may not be right. If I am right, we shall not find out until the next football season has been in progress for a few weeks, but it will then become immediately obvious that fixed-odds betting legally will have ended and that a great deal of activity will be going on under the counter, with the results that I have described.

Then we shall have to wait for the next Finance Bill. I ask the Chancellor to be kind enough to contemplate the possbility that I am right and that he is wrong and that the atmosphere of illegality might be recreated. Would it not, therefore, be an excellent thing—I am quite willing to leave the form of the Amendment to him—to redraft Clause 7 in such a way as to make it possible for him to act not as the results of the Clause itself, but under a statutory Order, so that in the first week of September, or, if that is too early, in October, when it has become crystal clear what is happening, he can vary the rates, so that if things have gone wrong they can be put right. That is the burden of what I have to say.

I take my full share of responsibility for the work of the Totalisator Board, of which I am very glad to be a member. It is, as I have said, work which I enjoy, but I should be misleading the House if I did not make it absolutely clear that I speak entirely on my own responsibility. I have not consulted my colleagues and it would be very wrong if it was thought that I had, or that I was speaking on their behalf. But I share with them some of the anxieties about the responsibilities which we have to meet. They are very much tied up with the problems which the Betting and Gaming Act and the Betting Levy Act have partially solved.

I am sure, however, that I speak for them when I say that we hope that very early in the life of the next Government, of whatever political complexion, that Government will look at the working of the Betting and Gaming Act and consider whether it is not necessary to introduce an amending Bill, to consider how well it has worked, and in what way it can be improved, and to improve it in such way that those people who want to bet and find enjoyment in betting can do so without creating a major social problem and running the risk of breaking the law.

I am absolutely convinced that, quite apart from the long-term effects upon racing—in which I have expressed a very great interest—or the effects on football, or whatever sport betting is concerned with, it would be a wholly retrograde step if the Chancellor in introducing this Clause, not because he is unmindful of this matter, but because he is not fully appraised of the possibilities that might flow from his action, took the country back to the position from which the actions of the present Foreign Secretary released us about five years ago.

5.50 p.m.

Photo of Mr Denys Bullard Mr Denys Bullard , King's Lynn

I cannot follow the hon. Member for Dudley (Mr. Wigg) into the question of betting and the effects of Clause 7. I want to deal with what at any rate those who are engaged in it believe to be another form of gambling, namely, growing fruit—which is a long way from the subject raised by the hon. Member. I am sure that my right hon. Friend will not be surprised that I should want to take advantage of the debate to raise again the question of the duty on blackcurrant syrup.

I hope that the House will not think that this is too narrow a point, and that it should be raised only in Committee. If there were to be a full opportunity to raise the matter in Committee I would willingly do so, but some of us have found from past experience that if we do not take advantage of the Second Reading debate we are rather stymied at later stages of the Bill. That is why I want to raise the matter now.

In last year's Finance Bill some of us tried to introduce an Amendment to exempt from duty blackcurrant syrup prepared from home-grown blackcurrants. We were not successful in moving our Amendment, and I do not know whether we should be if we tried again this time, but our argument was that this is a special case. This product is derived from home-grown fruit. There is ample evidence that the price has been depressed because less syrup has been sold since the duty was applied. This has had a serious effect upon the growers. Their return has been reduced by half. This seems to be an unexpected side effect of the Budget of two years ago, which is recognised everywhere as being undesirable. The product is good for people—especially children—to drink, and we thought that there was a very good case for exempting this syrup from tax.

I know that my right hon. Friend has considered this matter very carefully. I had hoped that it would have been mentioned in the Budget, or perhaps in the Finance Bill. I looked anxiously at Clause 8 to see whether the grouping of the various types of duty would permit of some move being made, outside the Budget, to remove this tax. However, it looks very much as though there is only a remote possibility of doing anything before another Budget, and in the meantime this tax may have a very serious effect upon the industry. I am sure that my right hon. Friend would not wish that to happen.

I therefore make an earnest request that this matter should receive further consideration before we finish with the Finance Bill. My hon. Friends and I will certainly try to raise the matter in Committee, but in case we should be thwarted in our endeavour by considerations similar to those which applied last year, I take this opportunity of asking my right hon. Friend to consider the matter again and to do something to help the industry, if he possibly can. I know that he is fully informed on the facts.

5.54 p.m.

Photo of Mr Jon Rankin Mr Jon Rankin , Glasgow Govan

I know that my hon. Friend the Member for Gloucester (Mr. Diamond) has appeared on the Opposition Front Bench on various occasions, but I believe that this is the first occasion on which he has made the opening Opposition speech on a major Bill. I congratulate him on his appearance at the Box today. He has adorned the job that was given to him with the distinction that he carries on all occasions when he speaks, and I hope that in due course we will hear him again from the Box—and not only the Box on this side of the House but, very soon, the Box on the Government side.

I am sorry that the Chancellor has left his place. I would have liked to speak to him, as it were, personally. However, I am certain that the Financial Secretary will convey to him all that I propose to say. In parts of the country there was a considerable amount of support for the Chancellor when he applied taxes in respect of what might be called the sins of the community. We are told that the way of the transgressor is hard, and temperance people, non-smokers, and anti-betters did not deplore the fact that he was making the way harder for that part of the community which indulges in what appeared to other sections of the community to be sins. Some felt that he had become a sort of extreme Presbyterian, and had decided to make this part of his policy, in an endeavour to help the league that is trying to prevent the spread of cancer, by making smoking more expensive.

I want to ask the Financial Secretary if he realises exactly what the Chancellor is doing. A snowballing effect has been created by his decision to put 3s. on the price of a bottle of spirits. From that tax he hoped to receive £17 million in additional revenue.

I want to explore what has happened as a result of the imposition of that tax. In applying it the Chancellor talked about gallons, but when a person purchases spirits he does so in small quantities—in quarts, pints or gills. These are recognised statutory measures. But when an individual goes into a licensed establishment to buy a small quantity of spirits to drink on the spot he receives what is called a measure. As far as I know, that measure has no statutory significance whatsoever. Its quantity is a matter of arbitrary decision on the part of the person who holds the licence, and it relates to his desire to get a certain number of measures from a bottle of spirits.

Photo of Mr Alan Green Mr Alan Green , Preston South

I am not an expert on the Weights and Measures Act, but I believe that there is some form of control. I believe that a, person selling retail must at least disclose what he is selling in this way.

Photo of Mr Jon Rankin Mr Jon Rankin , Glasgow Govan

That interruption is so vague that I honestly do not know what it means. I hope that when the hon.

Member deals with this matter again he will show a greater perspicacity than he showed in that intervention.

The individual will know what he is getting because he knows what he has asked for. I used the term "spirits". But a customer does not ask for spirits. He asks for whisky, or gin, or whatever type of spirits he wants, and he gets a measure. So far as I know, the measure has no statutory significance. That view is reinforced by the fact that the measure varies in amount throughout the whole of the United Kingdom. I will give three examples of what is signified by a measure, because it is on the shoulders of the licence holder that the burden of collecting the Chancellor's tax has been placed. It is important, in my view, that the Chancellor should know what is happening about the 3s. which he says has been imposed on the purchase price of a bottle of spirits.

My first example is taken from Central London, the second from the golf club of which I am a member and the third from the Smoke Room of the House of Commons. If one goes to a hotel—I am referring particularly to hotels under the Gordon Trust—and asks when in London for a "small one" or a "large one" or, when in Scotland, for a "big yin" or a "wee yin", or a "hauf" or a "gless"—which are all non-statutory terms—one gets a measure, and the volume is decided by the licence holder. If the Financial Secretary intervenes to tell me that there is some control over the size of the measure, or some definition in any Statute of its volume, I hope that he will tell me where that may be found, and what is a measure.

In the Gordon Trust hotels in Central London a licence holder must get 36 measures from the bottle. My golf club expects 26 measures from a bottle of whisky or gin. The House of Commons Kitchen Committee expects to get 32 measures from a bottle of whisky or gin of the same size. The measures must vary in quantity, and therefore it is obvious that a measure of whisky or of spirits is a variable and not a constant factor. The Chancellor says to the hotels, to my golf club and to the Kitchen Committee that every bottle must produce 3s. extra. The financial Secretary is nodding his head in the wrong way—I thought that he was nodding it in the wrong way, it may be that he was merely shaking it in fear. I do not know.

Photo of Mr Jon Rankin Mr Jon Rankin , Glasgow Govan

No, the hon. Gentle-man was steady. I will leave his head steady.

What happens? I will take the hotels first. If 1d. increase is put on a measure, the hotels will get 3s. on the bottle, that is an easy calculation. But the hotels have put 3d. on each measure and so they are extracting another 9s. from the consumers. The Chancellor said he expected only 3s. "Ask and ye shall receive". Very few people—I hope very few Chancellors—when they ask for 3s., expect 9s., or that 9s. will be put on the price of a bottle, and the consumer robbed as he is being robbed at present by these Trust hotels. I hope that the Chancellor will think on that point—I am glad to see that the right hon. Gentleman has now returned to the Chamber.

In Scotland, where we are more generous-minded, we expect to get only 26 measures from a bottle. But notice the difficulty created by the Chancellor. If he is to be provided with the 3s. he wants, each measure will have to cost 1d. more, plus an unworkable fraction of 1d. That may be the way in which the Chancellor thinks, but it is impossible to carry it out in practice. If 1d. is imposed, we collect only 2s. 2d. more from the bottle and the Chancellor says that he wants 3s. So my golf club suffers. If we put 2d. on each measure, as we have done, we get 4s. 4d., but the Chancellor wants only 3s. So the club members are being exploited to the extent of 1s. 4d. This has created discord in the club, and it is all due to the Chancellor. Does the right hon. Gentle-man realise that he is provoking trouble even in golf clubs, which are respect-able places? Most of the members vote Tory, but they do not like this kind of thing.

In my third example, 32 measures are expected from a bottle. I do not know what the House of Commons Kitchen Committee has done, but if we put on 1d. we get only 2s. 8d. The Kitchen Committee, or the Chancellor, has to make up the deficiency. I wonder whether the right hon. Gentleman does that. I do not know how the finances are worked, or whether the Chancellor gives anything to help the Kitchen Committee balance its Budget. If 1d. is put on, the Committee is not getting 3s. If 2d. is put on, the Committee gets 5s. 4d. so that hon. Members who patronise the Smoke Room are being exploited and robbed. These are some of the difficulties created by the right hon. Gentleman because of the tax which he has imposed on a bottle of whisky in order to provide himself with £17 million.

He cannot say to the people in London, "If you want cheaper whisky, go to Scotland." That would only add to the cost that they will pay. He cannot say to them, "If you want cheaper whisky than you can get outside. Come to the House of Commons". They would not get in. This discontent is rife, the consumer is being atrociously exploited. I do not know how many other hon. Members have had the same experience, but I am experiencing this discontent in the shape of letters of protest. The right hon. Gentleman has created a spree for licence holders and they are quite happy about this part of the Budget. He has created tremendous resentment among the consumers of small quantities of spirits who frequent licensed premises.

I wonder whether the Chancellor thought how far his imposition would reach. I wonder whether he thought how it would work out; that in those places where they give bigger measures than in others it is impossible to apply the tax which he has imposed because it would involve the use of a fractional coin which does not exist. So the licence holder loses, or has to exploit his customers. I am sure that when he decided to raise more revenue from spirits the right hon. Gentleman did not mean to create a situation where people who used licensed premises would be exploited as viciously as they are now in certain parts of London or that they would be exploited not quite so severely all over the United Kingdom.

I do not know how the tax on beer and wine works out for the consumers. It may be that it operates more fairly than it does for people who drink spirits and who represent a considerable section of the community. I hope that the right hon. Gentleman will think about what I have said. We still have the Committee stage of this Bill to face and I shall be able to enter into more detail on these matters later on assuming, of course, that I am a member of the Committee which deals with the Budget.

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

The Committee stage of the Finance Bill will be taken on the Floor of the House.

Photo of Mr Jon Rankin Mr Jon Rankin , Glasgow Govan

Well, in that case I shall probably be here. At least I have given the Chancellor warning of my intention and he cannot say that I am springing it on him suddenly. I can assure the right hon. Gentleman that he has to do something about this matter, otherwise there will be repercussions in other spheres where he would not wish that to happen.

I hope that he will approach the problem with a realisation that something which he considered was well-intentioned and would provide him with the revenue which he believed he needed has worked out unjustly for many members of the community. My hon. Friend the Member for Gloucester said that Part I of the Bill was a sample of what he called social injustice, and I agree with him.

I have supported my agreement by giving to the Chancellor examples of what I call the social injustice in the blind operation of this 3s. on the bottle. Whether it will mean a revision of the tax or not, I do not know. I suggest that the important thing that the right hon. Gentleman can do is to inquire into the conduct of those hotels in exploiting something which he himself, I believe, never thought would be exploited in the vicious way that is being done now.

6.15 p.m.

Photo of Captain Walter Elliot Captain Walter Elliot , Carshalton

I am sure that the hon. Member for Glasgow, Govan (Mr. Rankin) will excuse me if I do not follow him on the particular point which he has covered extremely adequately. There is nothing much that I could add to it. The thinness of the attendance at this debate is a great tribute to the skilfulness of the 1963 Budget of my right hon. Friend the Chancellor of the Exchequer. The fact that last year he could so order things that there is little controversy in the 1964 Budget is a great tribute to his skill.

I want to relate the Budget and the Bill to the incomes policy. The Government have announced massive expansion programmes in almost every field of national endeavour. I am certain that no hon. Member opposite will correct me if I say that the Opposition have agreed with what the Government have announced. We all know that the fulfilment of these tremendous modernisation programmes—and this has been emphasised by my right hon. Friend—depends on the successful implementation of an incomes policy. I will read what my right hon. Friend said during his Budget speech: I intend to persevere,"— with an incomes policy— because in my judgment a solution to this problem would bring economic benefits to our people that would dwarf anything else that we could achieve".—[OFFICIAL REPORT, 14th April, 1964; Vol. 693, c. 264.] I agree with him. I suppose that the success of an incomes policy can be measured simply in the way it preserves the value of the £. I say quite frankly that, in this, both parties have failed. I believe that it has been an honourable failure.

Both sides have said that we must maintain full employment, and this is the right thing to do. But in doing this we have both failed to maintain the value of the £. We may argue across the Floor of the House which failure has been the worse but that does not alter the failure. Prices have risen too fast.

If one studies economic history, one recognises that a slow rise in prices is not a bad thing. It invariably means that the country is going through a period of prosperity. It is the fast rise that is the trouble, and, in my view, the main evil of inflation is the disproportionate effect on different sections of the community.

Powerful pressure groups—I shall not mention any particular one for I do not want to be controversial about this—are able not only to counteract inflation but to get ahead of it, whereas many other groups cannot, and suffer disproportionately. I ask my right hon. Friend whether he thinks that he is really achieving his ends quickly enough by exhortation only. In my opinion, he is not.

Industry—both unions and employers—seems to me to pay very little, if any, regard to exhortation or appeals on this subject. As soon as business is good enough, agreements are negotiated with very little regard to appeals from the Chancellor or to the national needs. I have talked to a number of heads of industry about this and I am coming to the conclusion that it is unfair to suggest to individual firms or industries that they should consider in their negotiations the national needs. I do not think that it is possible in many ways for them to do it. In any case they do not do it. Always there is an adequate reason in their view for reaching the decision that they do reach.

Then, of course, we have the special cases who, for special reasons, get special treatment. The reason for this seems to me to be that their case is argued by skilful negotiators with long experience who persuade those with whom they are negotiating that theirs is a special case and thus achieve what they want. So if an industry is unable or unwilling to reach an agreement in the national interest as well as its own, it seems to me that it is an inescapable duty of the Government to do what is needed to right the position in the national interest.

I repeat that I think that exhortation is almost useless and may be unfair in a certain sense. One firm or industry might conform, but most will not. In that case, the one that conforms may be at a disadvantage. Therefore, measures must be taken at a national level to right the position. There is nothing new in this. Over the years the Government have been accused of implementing what has come to be known as the "stop-go" policy. This has been done by using certain financial measures, credit restriction and so on.

I think we all agree that it is wrong and unfair to individual industries to bring the whole economy to a standstill just because some individuals will not or cannot act in the national interest. We knew that it is bad for the nation. So, if it is the duty of the Government to take action, if it is unfair and wrong to hit the whole economy, then the only alternative is to be selective. We must pick out individuals or areas of industry which are responsible for upsetting the national applecart, even if inadvertently.

I do not see why budgetary measures should not be used for a Start for these purposes. If we accept that, it is possible to lock at this Bill in a new light. Does it assist the implementation of an incomes policy. I read out what my right hon. Friend said about an incomes policy in the Budget debate.

The need has arisen to cut back for, it seems to me, the same reasons as before—that the nation, or part of the nation, has been paying itself too much. But are the distillers, the wine merchants and the tobacco companies responsible for rising prices? Of course they are not. These particular industries have a very good record of stable prices. Yet they are singled out to take the knock while the real culprits go scot-free and repeat, in the fullness of time, the same old roundabout, the same old depressing rise in prices leading to devaluation of the pound.

It is my criticism of the Budget and this Bill that they fail to hit the right target. I shall not pick out areas of industry or individual firms that I think responsible. We have the N.E.D.C. and the N.I.C. to do that and they are well equipped for the purpose. Nor will I suggest selective measures to rectify the position. I can think of some and other people name others. I believe that the experts at the Treasury can do this job.

There has been one determined effort to get an incomes policy in recent years. That was by my right hon. and learned Friend the present Leader of the House when he was Chancellor. He was severely criticised for this during the Budget debate—unfairly—by the hon. Member for Southwark (Mr. Gunter). My right hon. and learned Friend was only partially successful because he controlled only a certain area of the economy—the area of which he was the direct paymaster. I believe that both sides of industry, both employers and unions, quite irresponsibly failed to follow his lead. I believe that the British organs of publicity—newspapers, television and so forth—were at their worst. They pretended not to understand what he was doing when, in fact, it was crystal clear.

Even so, his policy has given us three priceless years of cost advantage. It has given us a glimpse of the rewards awaiting us if we can get the policy really working. There was a sequel to his efforts. He lost his job. I do not know all the reasons for that. To a certain extent he seemed to be blamed for the way he put over his incomes policy. But he is back now and doing better than ever.

I believe that there is a lesson here for the Government, and, indeed, for any party. It is, "Do the right thing and let the others reap the inevitable mess if they do the wrong thing". We may get the sack—I do not think we will—but, like my right hon. and learned Friend, we will be back soon and doing better than ever.

6.29 p.m.

Photo of Mr Cyril Bence Mr Cyril Bence , Dunbartonshire East

The hon. and gallant Member for Carshalton (Captain Elliot) both praised and criticised the Chancellor. But whereas on certain aspects he criticised the Chancellor, I would praise him. The hon. and gallant Gentleman complimented the Chancellor on last year's Budget and pointed out that the Government were developing a massive programme of what almost seems to be national regeneration. But to bring in now a massive programme for regeneration of the nation leads one to presume that the progress of the last 12 years of Conservative Government has been wholly inadequate to the nation's needs. If I have to effect massive repairs to my house in one year, that is evidence to me as a house manager that I have neglected its maintenance in previous years. The massive national programme for the next four years is a reflection of the weakness of our programmes in the last 15 years.

Photo of Captain Walter Elliot Captain Walter Elliot , Carshalton

May I put it slightly differently? It might be said that the programmes and the progress in previous years have laid massive foundations on which these massive future programmes can be built.

Photo of Mr Cyril Bence Mr Cyril Bence , Dunbartonshire East

We are now arguing which came first, the chicken or the egg. Had some of the proposals for 1965–69 been carried out in 1954–58, we might not have experienced some of our balance of payments difficulties and might have been in a far better position to meet the scientific and technological era into which we have been plunged. One can argue this in a circle, but, in general, we are by this massive programme making up for some of the shortcomings of the Government's policies in the last 12 years.

The hon. and gallant Gentleman said that in this context he thought that both parties had failed. It is arguable that the party which has been in power for 12½ years failed as the party in power and as the Establishment and that the Opposition as an Opposition have failed to carry their ideas through Parliament and force their acceptance upon the Government in power. The hon. and gallant Gentleman knows that with three line Whips on important occasions it is impossible for us to impose our ideas as long as we are in Opposition.

Photo of Captain Walter Elliot Captain Walter Elliot , Carshalton

I put this failure in a very narrow context, namely, in the context of the preservation of the value of the £.

Photo of Mr Cyril Bence Mr Cyril Bence , Dunbartonshire East

We have been in Opposition. In Opposition our responsibility is to examine the Exceutive's proposals, criticise them when we feel we should criticise, and suggest ideas when we think we should. If there is anything for which we can be criticised, it can be only that our opposition was not as vigorous as it might have been. I believe that our opposition and criticism were very vigorous indeed. We have stimulated the Government in 1964 to undertake the massive programme that we have advocated for 14 years.

I am sorry that the hon. and gallant Gentleman expressed his views in the way he did about the national interest. Most of us from our experience may think that most trade unionists or workers in industry and boards of directors are not concerned with the national interest. Many boards of directors are concerned only with the immediate industry in which they are engaged. They are concerned with their own advantage, irrespective of all the other firms around them and of the national interest.

Such an outlook can exist, but I do not think that it is inevitable. In Britain, as well as in any other country, a national outlook can be created in which working people and executives will, co-operating together, consider the national interest. I agree with the Chancellor of the Exchequer in exhorting industrialists and trade unionists that, in all their actions and demands, they should have regard to the national interest, as well as their own individual or collective interests. If we reasonably pursue our private interests to our own advantage but at the same time keep in mind the national interest, we shall be acting in the best interests of the nation as a whole, as far as human weaknesses permit. Any Chancellor of the Exchequer is obliged to exhort every section of the community to think, especially in the twentieth century, not only of their own interests but of the national interest. He does not ask them to abdicate the pursuit of their own interests. He has said to them, justifiably, "If you do not consider the wider national interest, in the long term you may defeat the best interests of your individual enterprise".

This is the position of Britain in the second half of the twentieth century. Everybody must recognise that we must now earn our living in the world. We hear talk about the slack in our economy. There is no slack in the world today. There is no fat that we can gather from the world without effort. The fat has gone. We lost it in honourable causes. Any Chancellor of the Exchequer is right to exhort the people to think of the future of the nation and their children, to co-operate, and to ensure that their individual group or company interests do not conflict with the nation's general interests.

There are many reasons why industry should do this. Since 1951 Chancellors have paid out £4,000 million of public funds in support of private industry. I am not complaining that the private sector of industry has received this money from Chancellors. The State has taken the taxpayer's money to sustain industry, to foster it and to increase our capacity to produce and export. Therefore, the Chancellor is entitled to ask individual private enterprise companies which receive such support from all sorts of institutions created by the State to think in terms of the economy as a whole.

Photo of Captain Walter Elliot Captain Walter Elliot , Carshalton

I was relating my argument to the Budget and the Finance Bill. We are taking out of the economy over £100 million because we think that the pressure is becoming a little too hot. We are taking it from industries which it cannot be argued are responsible for the price rises.

Photo of Mr Cyril Bence Mr Cyril Bence , Dunbartonshire East

I was coming to that. The Chancellor has been compelled by the needs of the political situation to project a massive programme for the next four years. This is a political decision, a promise of economic action which may restore the Government's fortunes. I am not complaining about that. I expect the Government to do it. They did it in 1954 and in 1958. There is no reason why they should not do it in 1964. Time will tell whether it is accepted by the electorate.

The hon. and gallant Gentleman said that the Chancellor, in easing the pressure in the interests of stability and to relieve the pressure on the £, is taking £100 million of purchasing power out of the economy. The hon. and gallant Gentleman objected that the Chancellor is taking the £100 million out of the economy at the expense of the distillers, the brewers, and the tobacco manufacturers. The hon. and gallant Gentleman said that it should not he at their expense because they had made the best contribution to price stability.

That is the most extraordinary argument I have ever heard. The fact is that the Chancellor is taking £100 million of purchasing power out of the people's pockets. He says, "I ask you to spend £100 million less on consumer goods". I agree with the Chancellor's decision to increase the price of whisky and tobacco and, in some respects, to restrict gambling. Far better that people should spend £100 million a year less on these things. It is well known that British distillers export their wares to every corner of the world. If they get an additional £100 million in foreign currency as a result of that much less whisky being bought in Britain, in the long run it will be more profitable for us because the money saved can be used to buy the latest machine tools, equip our industry and so increase our capacity to manufacture consumer goods for export.

This is not a question of my wishing to punish the distillers. I merely agree that if we are to modernise our industry and continue with large-scale research and technical development, it will be necessary for future Chancellors to take a certain amount of unpleasant action. I would have objected strongly had the Chancellor done anything to frustrate the expansion and development of the machine tool industry. I have no objection, however, to his attempting to reduce the consumption of alcohol.

Having to a large extent agreed with the right hon. Gentleman's proposals, I must put forward a few complaints, some of which I mentioned last year. I have been disappointed, in the readjustment of taxation, that the Chancellor has not taken this opportunity to remove the tax from gymnasium equipment. The nation is already overcrowded and the facilities which exist for our children to have recreation and take part in sporting activities, particularly in the huge conurbations, are being whittled away. Despite this, there is still a stupid Purchase Tax of 15 per cent. on gymnasium equipment. This totally unjustified levy inhibits the efforts of voluntary associations and increases their expenditure, and I should have thought that the Chancellor could easily have afforded to have abolished the Purchase Tax on gymnasium equipment.

My next complaint is about personal allowances which can be claimed against Income Tax for people who are employed in industry; and this applies to employees generally. If the Chancellor contacts the insurance companies he will find that they agree with the suggestion I am about to make—indeed, some of them say that the provision of the equipment I have in mind should be compulsory. There is a form of shoe on the market called a "Totector". It has a steel toecap and gadgets of this sort help to prevent workers from injuring their feet. Such injuries occur in many ways—from falling pieces of steel and so on—and the wearing of protective footwear helps to reduce the severity of accidents.

Would it not be desirable for work-people to be allowed to buy these things—and this goes for protective clothing of all sorts, including protective headgear, especially for women with long hair—and claim Income Tax allowances for their purchase? I understand that tax reliefs are granted for the purchase of protective clothing to people in the chemical industry. It would not be difficult for a schedule to be drawn up to include protective clothing for industry generally. This clothing is easily distinguishable and has only an industrial application.

My next complaint has more of a bearing on Scotland than England because the Scots are not as used to commuting long distances to and from work as are the English. In Scotland, industry developed in a different way from England. Factories were established around communities or vice versa, but because of the redistribution of industry and overspill agreements many workers are having to move away from the older townships and, as a result, are having to commute long distances. Imagine a family in which the husband must travel to work and his two sons must also commute 20 or 30 miles to the place where they are taking an apprenticeship. Such a family, living on a relatively small income, must spend a great deal in fares.

I hope that the Chancellor will consider enabling workers to claim Income Tax relief for travelling expenses of this sort. He should remember that we are no longer siting factories with thousands of houses packed tightly around them. With our modern ideas, of siting factories away from townships, it is essential that workers should receive some help in meeting their travelling expenses. I am not dogmatic on this issue. I raise this matter as a result of observing the new towns in my constituency and in other parts of Scotland. I can assure the Chancellor that many thousands of commuters, particularly in Scotland, are having a heavy financial burden placed on them as a result of our modern industrial techniques.

The last appeal I wish to make to the Chancellor is for a relaxation in the present charges for television licences. I often watch television programmes designed especially for the deaf. Having made inquiries, I know that in some cases the annual licence fee creates difficulty for deaf people or families with a deaf child. I wonder whether any deaf people are prevented from enjoying the television programmes designed especially for them because they cannot pay the licence fee? I have not made a close survey of this matter, but it might be practical to consider a scheme for either giving television sets to the deaf or, if that cannot be done, allowing them to receive programmes free of charge; in other words, not to have to buy licences. To people living on a small fixed income, £4 a year is a large sum. Although only 1s. 6d. a week, it could make the difference between a deaf person enjoying the programmes to the full or otherwise enjoying them with a certain reservation.

The Chancellor is entitled in his Budget to make concessions in investment allowances, taxation and any other sector. Each year we spend more in support of private industry. We are helping to modernise and increase the output of private enterprise. It is only fair, therefore, that the Chancellor should—through the N.E.D.C. and all other such organisations—see that the interests of the nation as a whole—including the stability of our economy and the maintenance of our standard of living—are protected. He should make it clear to private industry that since it is getting more and more assistance from the nation it should make ever-increasing efforts to do better on the nation's behalf.

Notice taken that 40 Members were not present;

House counted, and, 40 Members being present—

6.51 p.m.

Photo of Mr Gilbert Mitchison Mr Gilbert Mitchison , Kettering

There is not much that is out of order on the Second Reading of a Finance Bill. Today, we have wandered over various subjects—blackcurrant syrup, the insufficiency of a measure of whisky, described with the eloquence peculiar to my hon. Friend the Member for Glasgow, Govan (Mr. Rankin), and sundry other matters. Perhaps the lack of generality in what was said has been the best comment on the Bill. One always cherishes a hope that, even at the last moment, one may induce the Chancellor of the Exchequer to answer one or two questions that have been put to him all through the Budget debate and, to some extent, today. In that slender hope, I propose to put one or two of them again.

Before I do that, however, I must tell the right hon. Gentleman that though it may be very good Parliamentary practice not oneself to answer questions, but to ask them in turn of the Opposition, it is not very satisfactory as a discharge of the serious responsibilities of the Chancellor of the Exchequer. After all, we are entitled to know rather more about how the right hon. Gentleman has arrived at £100 million as the proper amount to be taken from the public—I am not for the moment speaking about how he takes it

I have been looking again at the right hon. Gentleman's Budget speech, which I heard, and it seems that the essential point in his background in arriving at that figure was a deficit this year of about £36 million above the line and £894 million overall. For this purpose one has, I think, to take account of the overall figure. On the face of it, £100 million is a somewhat inadequate contribution towards meeting that position, but I am not saying that it is too much or too little. What I want to find out is what led the Chancellor to arrive at it. The Chancellor told us that his decision as to the size of the change must clearly be a matter of judgment and not of exact calculation. It was not only not exact calculation—it was not on any calculation at all. We are forced to the conclusion, unless the right hon. Gentleman can correct it, that this was a simple hit-and-miss judgment; that he knew the amount of the deficiency and had no particular reason for arriving at this figure.

When one listened, as I did with very great interest, to my hon. Friend the Member for Gloucester (Mr. Diamond) pointing out that this was roughly half the usual difference between the Treasury estimate and the actual outturn, one felt even more that the selection of a figure of this order required some justification, but we have never had it throughout the course of these debates. When the right hon. Gentleman has been asked, his only answer has been to ask, "Well, what would you do?". It is not our business to tell him what we would do; it is his business, as Chancellor, to tell us and the country how he has arrived at this particular figure.

That is the more so when one considers the very remarkable way in which he proposes to raise the money. The right hon. Gentleman told us that what he was tring to do was to …avoid the danger of what the economists call 'overheating' the economy…".—[OFFICIAL REPORT, 14th April, 1964; Vol. 693, c. 267.] I should have thought that there were very many ways in which the Chancellor could have done that. For instance, a profits tax was suggested by my hon. Friend the Member for Gloucester today. I could suggest a great many more ways, and I am perfectly certain that the Chancellor and the Treasury between them could suggest a good many more.

But in putting on a general tax, even if he needed an immediate one, the right hon. Gentleman chose three particular means, and to me he seems to have selected, for the purpose of raising the revenue, the very things that would create the maximum of social injustice. I cannot see the point of selecting these things rather than having, if he needed it, a general increase. Let him tell us upon what grounds he selected these particular things.

Did he really look round for the best way of soaking the poor? That is exactly what this looks like to me. If we are accused of soaking the rich, surely we may at least reply, "If you want to soak the poor, this is the very best way of doing it." There is every possible disadvantage in doing this as against a general rise of some sort. And the curious and remarkable thing is that, in the very same Bill in which he puts on these increases in selective indirect taxation, he takes power to use the regulator—in a more discriminating way, I agree, but still to use it—and to use it as a last resort if there really is any overheating. It is surely incumbent on the right hon. Gentleman to make up his own mind, with the information he has and that we cannot have, and to tell us quite frankly why this amount has been decided, and why this particular method of imposing taxation has been chosen.

I shall not go into the matter in detail—and there is no need for that. It is perfectly obvious to anyone that whatever we may say about the relative advantages and disadvantages of indirect and direct taxation, these particular taxes will tell to a quite disproportionate extent on the old, on the poor, and on those who are in a very humble way of life. I want to know from the Chancellor the grounds on which he selected these particular items. There is, of course, a health case about tobacco; I recognise that but, at the same time, one has to recognise that every increase in tobacco duty has had no more than a temporary effect, that the consumption has reverted, and that the yield over the years has not been affected by and large by changes in the amount. The same sort of proportion has been taken.

Those are obvious questions to ask the right hon. Gentleman, but there are other questions which were asked by my hon. Friend today and I put them again in the hope that we may have some answers. In his Budget speech the right hon. Gentleman occupied a great deal Of time in dwelling upon the importance of an incomes policy. Accepting that, I wonder whether he will tell us today why he has done nothing whatever in the Budget and in the Bill to meet what he must know perfectly well is the fundamental difficulty in putting an incomes policy to people who are getting wages taxable under Schedule E. The fundamental difficulty is that they know perfectly well that the people on the other side of the table are getting a large amount of money which is regarded as capital for taxation purposes and which is, in fact, actually income.

Capital gains, until they are dealt with, will remain the principal obstacle as I see it to the co-operation of all people who would otherwise co-operate in an incomes policy. There is no answer to this. If we look at what is happening in the tax avoidance Clauses of the Bill we cannot have a better illustration of what is going on. These arrangements about leasing land and plant and the rest derive from and depend upon an artificial distinction between capital and income. If that distinction were not there, those arrangements would not be there. If there were an efficient tax which caught these capital gains, we would not have to come back year after year and seek these tax avoidance measures.

Would the right hon. Gentleman, for one moment, have had to put tax on beer, wines and tobacco now if he had levied the money before on this kind of thing? We do not suppose that this is new, or that it is new to the right hon. Gentleman, but let him tell us how long this has been going on and what is the Treasury estimate of the amount which has escaped taxation and which would not have escaped it if these Clauses had been in force earlier. We are concerned about that, and I am perfectly certain, from what the Financial Secretary said in opening the debate, that we would have a figure very considerably in excess of the £100 million which it is proposed to raise by new taxation in the Budget.

We are entitled to complain that the old and the poor are being made to pay for the Government's inability, or lack of courage, to deal with the gains of those who are seeking to avoid taxation which the Schedule E taxpayer has to pay and which the indirect taxpayer also has to pay. When one looks at the Budget in this way one is driven to another conclusion, which is that no Tory Government ever will deal with the people who are making untaxed profits out of capital gains, as they are called.

The Tories have had 12 years to do it. Now, when they put before the country a considerable programme which, of course, ought to have been put years ago and which they are in no position to carry out—a programme to which the Chancellor referred in his Budget Speech—they are still unable to ask for a proper contribution towards that programme from the people who are living far better than they should be as a result of having capital gains which are still untaxed.

The Tory Government have had 12 years to do this. I do not say that for the first year or two one has quite so much to complain about, but after that, year after year, we have had two things going on. First, there has been the sight to everybody in the country of people living uncommonly well on untaxed capital gains which the ordinary man cannot distinguish, and which I cannot distinguish, from income. On the other side of the picture we have had the spectacle of the Government, year after year and in one Budget after another, refusing to take powers to deal with these things properly, and coming before us at last as the gendarmes in the Offenbach chorus, always too late to deal with a device which has been in operation for a considerable time and which, as soon as they deal with it, will be replaced by another. This is incompetence and cowardice. This is the Budget of incompetence and cowardice.

7.6 p.m.

Photo of Mr Reginald Maudling Mr Reginald Maudling , Barnet

The hon. and learned Member for Kettering (Mr. Mitchison) was a little rough in his concluding remarks, but I will confine myself to answering the points which he and others have made in the debate. I will try to deal with them consecutively and not immediately if that is agreeable to the hon. and learned Member.

It is fair to say that the main basis on which the contents and effect of the Budget and the Finance Bill must be judged is the total amount to be raised in revenue, whether it is adequate or excessive, and the method by which it is to be raised. First, on the content—the total for which I am budgeting—it is fair to say that there has been fairly general agreement with my calculations, or rather with my judgment. Certainly the response abroad has been very good. We have concrete evidence of this in the very heartening strength of sterling and the accretion to reserves since the day of the Budget.

In this country the main doubts expressed by experienced commentators is whether I have increased taxation by enough and whether the Budget will succeed in slowing down the current expansion rate of 6 per cent. to the 4 per cent. which we have in mind. I believe that it is enough. I have reached that judgment by taking into account, first of all, as I explained in my Budget statement, various factors impinging on the growth of demand, private and public consumption, investment, exports, and stock-building which point to expansion at something like the present rapid rate.

If one were purely mathematical in the approach one could say that we should increase revenue enough to reduce expansion by 2 per cent. I thought that that would be too high, for two reasons. First, I said that there were certain natural factors which operated to slow down a boom. There are also straws which one sees in the wind which show what is likely to happen—unfilled vacancies and bank advances, for example. There are also certain natural tendencies to slow clown at certain stages of the business cycle which one would be foolish to ignore, a sort of built-in governor in the economy. To increase taxation too much would have been a bad check to expansion. I therefore thought it right to fix the figure as I did, as less perhaps when strictly calculated than was necessary but as one which to my mind should be enough.

Last year I thought it wise to err if anything on the side of caution and I reduced taxation by less than many recommended. This year I thought it right to err on the side of boldness and to increase taxation by less than many people thought necessary, knowing that if I was proved wrong it would be possible to do more. Last year, if I had not done enough it would have been possible to do more to stimulate expansion, but that, as we know, was not necessary. Similarly this year if my judgment should be wrong, and I trust and believe it will not be, it will be possible later if necessary to do more. It is better to do it that way rather than to go too far and then to have to retrace one's steps. This seems to me to be the path of common sense in these matters.

As for the methods chosen for raising the revenue, I think that there has been general agreement outside this Chamber that I was right to concentrate on indirect taxation, first, because the purpose must be to check consumption and, as my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) pointed out, to apply the taxation at the point where the money is spent rather than where it is earned. Secondly, indirect taxation operates rapidly and immediately whereas changes in direct taxation take a considerable time to have any effect.

Given that it was right to increase indirect taxes, I think that again there has been very little argument that it would have been wiser to choose other indirect taxes than I did. I think the general reception of the Budget outside this Chamber has been satisfactory. In a number of quarters the view has been expressed that as I am not in a position this year to reduce taxes by a substantial amount, I should have concentrated more on tax reform.

I think there is a certain fallacy here. In fact, there are not two alternatives because, as the hon. Member for Sowerby (Mr. Houghton) pointed out last year, many tax reforms which are desirable involve large reductions in the revenue. For example, the assimilation of companies' accounts for Income Tax and Profits Tax purposes, about which we have published a White Paper, would cost £25 million of revenue in the first year. If one wanted, as all Chancellors would like to do, to assimilate Income Tax and Surtax into one single graduated scale, this would involve bringing together the rates of tax on earned and unearned income, and to reduce the tax on investment income to the present level of tax charged on earned income would be very expensive.

It is, therefore, a fallacy to suppose that there are two alternative courses in that if tax cannot be reduced it can be reformed. Last year, in the course of reducing the taxation by a substantial amount, I was able to make some big reforms in the structure of taxation by the abolition of Schedule A for owner-occupiers, by the rationalisation and extension of capital allowances and by introducing the wholly new principle of free depreciation.

In the course of today's debate a number of points have been made. Perhaps I should deal first with one or two particular points. The hon. Member for Dudley (Mr. Wigg) expressed an interesting argument about the tax proposed on fixed odds coupon betting. I did think very much about the danger of driving betting back into illegal channels in the context of betting generally. While I will certainly take account of what the hon. Gentleman has said, I am confident that the danger that he has in mind does not apply in this particular circumstance, for two reasons.

First, the betting shops are in existence, and if people want to put an ordinary bet on a horse race they will continue to go to the betting shops. I do not think they would want to set up an illegal business to promote fixed odds coupon betting. Secondly, coupon betting by its very nature involves the printing of documents and publicity. Having studied this matter carefully and having taken advice from the Customs and Excise, who are wise in these matters, I am confident that there are no dangers of evasion in this case comparable with the ones that we would have to face if we were to introduce a general betting duty.

My purpose in taxing fixed odds coupon betting was not only to raise the revenue there but to protect the very important revenue from the pools which has been falling considerably. I am confident once again that the total revenue that I shall get from these two forms of betting—pools and fixed odds coupon betting—will be up to the estimates that I put forward in my Budget speech.

One or two points were raised on Purchase Tax. My hon. Friend the Member for King's Lynn (Mr. Bullard) mentioned blackcurrant juice. I know there are strong feelings on this matter. I have looked at it on a number of occasions. But I have always found it impossible to distinguish between particular drinks of this kind in a way which would not undermine the tax on soft drinks generally, which are an important contributor to the Revenue. So I am afraid that I have not been able to meet my hon. Friend's point of view on this matter.

The hon. Member for Glasgow, Govan (Mr. Rankin) made a point about the price of whisky, which I found a little baffling——

Photo of Mr Reginald Maudling Mr Reginald Maudling , Barnet

No, I appreciate that the hon. Member was thinking in terms not only of whisky but of spirits generally, though he mentioned whisky, no doubt for patriotic reasons. The tax on spirits is not levied at so much a bottle but at so much a gallon as it is withdrawn from bond. I am certain of getting my revenue as it is withdrawn from bond. As to the difficulties to which the hon. Gentleman referred, no doubt they will be raised in Committee. So far we have received no complaints on this point at all.

Photo of Mr Jon Rankin Mr Jon Rankin , Glasgow Govan

Does the right hon. Gentleman appreciate that I quoted the Chancellor who said that the tax amounted to 3s. a bottle? It was the Chancellor on whom I relied for my figure.

Photo of Mr Reginald Maudling Mr Reginald Maudling , Barnet

The additional tax which is imposed per gallon is equivalent to 3s. a bottle, just as the additional tax of 6s. 6d. a lb. on leaf tobacco is equivalent to so much on a packet of cigarettes. It is convenient to the public to know what so much per lb. and so much a gallon mean in other terms. I can only say that we have not received any complaints on this point.

The hon. Member for Dunbartonshire, East (Mr. Bence) raised a number of points which again will be more appropriate in Committee. I must confess that some of them sounded familiar to me, and while I could not immediately remember the arguments against them no doubt I shall recall them because these are matters which we have considered in the past and have found it difficult to meet.

On incomes policy, my hon. Friend the Member for Cirencester and Tewkesbury and my hon. and gallant Friend the Member for Carshalton (Captain W. Elliot) made comments. I am not sure that I agree with my hon. and gallant Friend the Member for Carshalton in his attitude. I certainly agree with him about the remarkable effect upon our competitive position as a result of the policies of my right hon. Friend, my predecessor, which have been shown in the improvement of our exports and the strength of our economy. But I think it is wrong to say simply that exhortation is not enough and then to imply from that that the Government should go forward to some form of compulsion. I do not believe this is practicable.

I think the real reason why an incomes policy must be a matter—I would not say of exhortation, although it is called that—of leadership and precept, is that the alternatives are either statutory control of prices and wages, which I do not believe this country wants or will accept, or Government policies designed to restrain inflation by restraining demand at the cost of growth and expansion. I feel very strongly that, difficult as this problem is and will remain, we must persevere all the time to try to get the acceptance of an agreed incomes policy.

Photo of Captain Walter Elliot Captain Walter Elliot , Carshalton

I agree with what my right hon. Friend says, but would he not agree that the form of compulsion in the past which has induced the stop-go policy has operated over the whole field? I am suggesting that that is wrong and that it is agreed to be wrong, and therefore the alternative, if it is the Government's job to put forward certain measures, is to be selective.

Photo of Mr Reginald Maudling Mr Reginald Maudling , Barnet

I agree on the first point that a stop-go policy, as it is called, is unselective. I said that one of the unsatisfactory alternatives to an agreed incomes policy is a return to stop-go, namely, restraining demand at the expense of expansion. I do not agree, though, with the hon. and learned Member for Kettering who said that the main obstacle to agreement on an incomes policy is the absence of a tax on capital gains. I have been engaged in discussions on this matter in N.E.D.C. and other responsible bodies for a long time, and I have not heard this argument advanced. I cannot remember ever hearing it advanced with any seriousness or importance as a reason against the setting up of an incomes policy.

The arguments are normally much more in the field of distribution of national income, between wages and salaries, on the one hand, and profits and dividends on the other. This is a problem of immense complexity because of the difficulty of dealing, in the case of earned incomes, with the exceptional case and the relativity of different incomes; and the difficulty, in the case of profit incomes, of dealing with the point that they must fluctuate and that there must be the maximum disparity between the reward to the efficient firm and the reward to the inefficient firm.

Photo of Mr George Wigg Mr George Wigg , Dudley

I am sorry not to have asked the right hon. Gentleman to give way a little earlier. In relation to Clause 7 on the betting duty, does the right hon. Gentleman rule out completely the suggestion that I made of taking powers under that Clause and doing it by regulation?

Photo of Mr Reginald Maudling Mr Reginald Maudling , Barnet

That is an interesting suggestion, but I must rule it out. For one thing, I do not think we shall possibly know what is happening, or whether he and I are right in practice, until many months after the start of the football season. In practice, I do not think it would achieve the result that the hon. Gentleman has in mind.

I turn now to some of the comments made by right hon. and hon. Members opposite on the Bill. First, it is reasonable to point out that, for the second time running, there has been no serious opposition at all to the Finance Bill offered by the Opposition. So far as I know, there has been no vote against any of our proposals. Indeed they have offered no more than a token resistance to what we have put forward.

The hon. Member for Gloucester (Mr. Diamond) asked how the level of taxation on which I had decided could have any relevance to major issues such as exports and expansion. This is a rather strange question. I can think of nothing more relevant to expansion and exports than the level of taxation raised in the Budget. After all, the rate of expansion is bound to be determined by the total demand in the economy, and by no single factor is this influenced more than by the level of taxes settled in the Budget. As for exports, clearly, one of the most important things to do in order to ensure that our balance of payments remains sound is to ensure once again that demand does not rise so high as to deflect goods from the export market to the home market and to suck in more imports.

It is a strange argument that the level of taxation fixed in the Budget is irrelevant to the economy. I shudder to think of any party having power whose Chancellor of the Exchequer really thought that that was so. However, I do not think that it is likely.

The hon. Member for Gloucester asked why I chose alcohol and tobacco. The argument here is fairly simple. There are four main blocks of indirect taxation, alcohol, tobacco, the Purchase Tax and hydrocarbon oils. I thought that the two to select were alcohol and tobacco because they represent consumption expenditure, because they are not necessities. The alternative would have been to put it on the Purchase Tax rather than on tobacco, on the Purchase Tax rather than on alcohol, or on hydrocarbon oils, which, of course, would have the considerable disadvantage of putting up the costs of industry and commerce. If the Opposition would really prefer to put up the Purchase Tax and the oil duty rather than put up the tax on tobacco and alcohol, I hope that they will say so. Otherwise I do not quite see the point of the question.

The hon. Gentleman then asked, why not increase company Profits Tax more? This is the burden of much of the argument which we have heard from the party opposite, and I think that the answer should be given again. It has already been given, of course. First, an increase in the Profits Tax would have no effect this year because the additional revenue would not start to accrue until next year, and it would take some time to have its full effect. Second, an increase in the Profits Tax would be reflected in a reduction of company savings and would, therefore, not have the same economic effect as an increase of taxation on spending. Third, I could think of nothing which would be more calculated—I think that the argument of the hon. Member for Dunbartonshire, East rather led to this—to discourage investment in industry than to increase the taxation of industrial profits at this time. For all those reasons, T considered that increasing the taxation of company profits would, in the first place, be ineffective for my purpose and, in the second place, would possibly be damaging to the economy.

Both the hon. Member for Gloucester and the hon. and learned Member for Kettering referred to a capital gains tax. I was very interested to hear what both of them said about it. Clearly, they were contemplating a tax on capital gains generally at the same rate at which income is charged to tax, in other words, at the full rate of Income Tax and Surtax. This, of course, is a very large proposal.

Photo of Mr Gilbert Mitchison Mr Gilbert Mitchison , Kettering

I did not say a word about rate.

Photo of Mr Reginald Maudling Mr Reginald Maudling , Barnet

But the argument of both the hon. and learned Gentleman and his hon. Friend was that the reason for these avoidance devices to which they referred is that there is a difference between the rate of tax charged on capital and the rate charged on income. What the hon. and learned Gentleman said—I think that I noted his words correctly—was that he could not distinguish capital gains from income.

Photo of Mr Gilbert Mitchison Mr Gilbert Mitchison , Kettering

This is still not right. The point is that people make money which is not taxed because it is treated as capital. This is the real substance of the case, and it does not depend upon the rate in the least. One may think that a rate is quite inappropriate for that, although it is a proper rate for Income Tax, or vice versa. The point is that, at present, that money escapes taxation and is used and spent as though it were income.

Photo of Mr Reginald Maudling Mr Reginald Maudling , Barnet

The arguments of the hon. and learned Gentleman and his hon. Friend led inevitably to the conclusion that capital gains are income and should be taxed at the same rate. Otherwise, their arguments are as meaningless as their words. That is the position in which we are left on this matter.

I was asked to give an answer to two questions. I take, first, the amount involved in the avoidance devices referred to in Clauses 16 to 18. We cannot give an estimate of how much may have been involved. The practice has only just been started and, of course, we acted as soon as the Inland Revenue heard about it. I think that it will be generally accepted on both sides of the House that the Inland Revenue staff are very alert and astute people in these matters and they get on to these things very early in the day. The figures which my hon. Friend the Financial Secretary gave related to what might have happened if this had not been stopped, but I cannot give any figure for the amount involved. I think that it is likely to be very small.

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

It is not a question of how quickly the Inland Revenue gets on to these things. What matters is how quickly the Government get on to them.

Photo of Mr Reginald Maudling Mr Reginald Maudling , Barnet

I think that it was a matter of hours between my hearing about it from the Inland Revenue and my authorising the drafting of the Clauses for this purpose in the Finance Bill. I do not think that I could act more quickly than that.

Next, I take the question which the hon. Member for Gloucester asked about the yield of the short-term gains tax. We must have the position quite clear on this. The first year of assessment was 1962–63, and returns have to be made after that year for payment during 1963–64. Of course, in a significant number of cases the tax chargeable for 1962–63 has not yet been settled. There are many disputes, as there are bound to be, particularly in the case of a new tax. Secondly, a new tax in its first year does not ever yield its full rate or weight of revenue, and the point is—it is complicated to explain, as the hon. Gentleman said—that in 1962–63, while one will get the benefit of transactions in land completed within just under 12 months, one will not get the benefit of transactions in land completed between 12 months and 36 months which one would get in a normal year. The same is equally true, mutatis mutandis, for the six-month period affecting stocks and shares; one would only get in 1962–63 about half a full year's capital gains on transactions concerning stocks and shares. Therefore, in both cases, the actual yield collected under the tax for 1962–63 will not be typical, and it would be substantially less than in a normal year.

There are two other points. First, the tax under this Case is charged not only under Income Tax, but also under Surtax or Profits Tax. The hon. Gentleman said that it came only under one, but it could fall under all three heads. Therefore, particularly in the case of Surtax, it will take longer for one to be sure how much is being collected. Another important point is that, as a result of the introduction of the short-term gains tax, quite a number of gains, so to describe them, will in fact be returned by taxpayers not under the new Case but under one of the old Cases, Case II, I think it was, so one will never know exactly how much money collected as a result of the imposition of the tax was collected under the new Case established by legislation.

For all those reasons, it is plainly not possible to give a figure. I have tried very hard to get the figures and I have gone into great detail with the Inland Revenue, but it is really impossible to give a meaningful figure at this stage as to the amount of revenue collected or likely to be collected for 1962–63, and, even when it is available, it will not give a true picture of the average yield likely in a full year.

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

In view of the very close interest not only of the House but of the country in the first results of the new tax, is the right hon. Gentleman saying that, although he has some information which he could give, for the reasons he has stated he thinks it would be unsuitable to give the information at his disposal? When we were pressing the Chief Secretary on this matter, he rather suggested that he had no information.

I understand that inspectors of taxes were asked to make a report of assessments made under Case VII of Schedule D. I understand that the figures would not represent conclusive assessments, not subject to appeal and the rest, but we would like to know the gross amount of profit assessed under this new Case in Schedule D. Is it £10 million, £20 million or £100 million?

We would like to know something about a tax authorised by this House, in the outcome of which, initially, I think, we have a very close interest.

Photo of Mr Reginald Maudling Mr Reginald Maudling , Barnet

As soon as the information is available, we shall give it to the House. We want to do so. But there is no point in giving partial and misleading information. That would do more harm than good. As soon as the figure for the amount assessed for 1962–63 is known, which we think will be towards the end of this year or the beginning of next, it will be made available.

I think that I have dealt with all the questions which have been asked during the debate. I say again that this is not a Bill which has been opposed in its passage so far by the Opposition. I do not think that the arguments which they have advanced against it have been strong in any way. I think that what they have revealed, rather coyly, of what they would do themselves has given us food for much thought and much future material.

Question put and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

Committee Tomorrow.