If he does not want to join in perhaps he will kindly keep quiet.
It has been interesting to note the great depth of feeling that has been aroused on the one issue of overseas investment. I certainly take this issue very seriously, and shall attempt to answer the points made as fully and fairly as I can, although—and I hope that hon. Members will not shout their heads off—I have heard more exaggeration and inaccuracies on this subject tonight than I can remember hearing in the course of a single debate for a long time. I must try to demonstrate that later on; I merely ask hon. Members to accept that that is my view now.
The right hon. Member for Bexley (Mr. Heath) made the speech today that he should have made on the Budget Resolutions but did not, because the Opposition did not divide on them. He said a lot of things that rather hurt me. He asked me, in particular, why the special deposits have been called for only three weeks after the Budget and whether I had miscalculated the situation in the period between 6th April and 29th April when they were called for. If the right hon. Gentleman will remember, I said in my Budget speech that although I had made the best judgment which was possible in the situation at that time, if the situation should show any signs of needing action either way I was quite ready to take that action. I think the right hon. Gentleman will agree that when the April bank advances showed an increase of £98 million this was of a size which we could not ignore. Without rubbing salt into old wounds, there were, of course, two months last year when the increase in bank advances exceeded that level and when the right hon. Gentleman opposite held power. In my view, they should have taken action then. One of the reasons that we have to use the monetary machine in the way which we are doing now is that the right hon. Gentleman did not take action at that time. I think it is important that we should be ready to move on special deposits now that it looks as though bank advances are going ahead faster than the estimates on which I based my calculation in the Budget of April.
I said that I would take further measures if they were shown to be necessary. I took them. That is perhaps a new and prompt method of behaviour. It may be a little unusual after previous experience, but I hope that it will commend itself to the House. I shall not hesitate to move either way in this or other respects promptly and quickly in order to try to keep the economy on as even a keel as we can. There is a great deal of room for argument—we heard some in today's debate—between those who believe, as the right hon. Member for Bexley and his hon. Friend the Member for Nottingham, South seemed to believe, that the economy is now turning down, and those like the hon. Member for Horsham (Mr. Hordern), who, in the course of a very well informed speech, expressed the view that my principal trouble over the next few months is that the economy is overheated and is likely so to remain.
It is not for me to judge between his wisdom and that of the right hon. Member for Bexley. At least, it is for me to judge: it is my job, and that is why it is such a difficult job. I think that, in circumstances like these, which were described by Mr. Harold Macmillan as trying to run the economy by looking up last year's Bradshaw—we are now trying to ensure that the trains run on time—one must use the best judgment of which one is capable at any moment.
The right hon. Member for Bexley made great play with what he alleged to be the absence of any detailed analysis in my Budget speech to justify reducing home demand by £250 million at an annual rate. His hon. Friend thought that I should have done more, while the right hon. Gentleman, I assumed, thought that I should have done less. At any rate, he asked why I did not justify it. I made it clear in my statement that this is a very difficult judgment to make. I said then, and I repeat now, that this is a field in which there are many uncertainties and where there are risks on either side. If I take that view now, at least I find myself in good company, because the right hon. Member for Barnet (Mr. Maudling) said in his Budget statement in 1963:
… we must regard all calculations to which I have referred as no more than pointers; the
final decision must be an act of judgment."—[OFFICIAL REPORT, 3rd April, 1963; Vol. 675, c. 472.]
He said much the same thing last year:
My decision as to the size of the change I must make is clearly a matter of judgment, not of exact calculation."—[OFFICIAL REPORT, 14th April, 1964; Vol. 693, c. 267.]
I think that the right hon. Member for Barnet sums it up perfectly fairly.
This is, I think the most difficult task which I have ever had to perform, and I can now understand the dilemma of some of my predecessors in these matters. Because it is a matter of judgment, one must be prepared to move quickly in this respect where one thinks that it is necessary. In a situation in which we expect bank advances to increase by 5 per cent. over the whole year—this was the sort of estimate on which we were working—and in fact they increased by £98 million in one month, it would have been irresponsible on my part not to have taken action as soon as the April figures showed that up.
The right hon. Member for Bexley asked me also whether I would not publish the detailed communications which had passed with the International Monetary Fund and the Group of Ten. I should like to repeat what I said when I intervened in his speech, for which I apologise. Those communications which have previously passed between Governments—like those between his Administration and the International Monetary Fund—are regarded as confidential between the members of the Fund. That would not prevent me from proposing an alteration; but I think, on balance, that it is best left that way. Unless the right hon. Gentleman has some arguments to advance, I should prefer to retain the normal practice which has existed certainly since 1959 in this way, that communications between Governments should be regarded as confidential. I therefore propose not to publish the details.
The right hon. Gentleman asked me about investment. In our opinion, there is as yet no evidence of a down-turn in investment. The Board of Trade survey of investment intentions still shows a high level of investment in 1965 and a substantial increase over 1964. Despite all the prophecies of woe, it looks as though industrialists are looking more to the future of their markets and less to the incidence of taxation upon their profits. This is a very interesting phenomenon, which goes part of the way to explain why they do not take as much notice of investment allowances as some of us thought they did. They measure their new investment by the capacity of the market to absorb it and that is probably the best test of all.
If there is a down-turn in investment next year—the right hon. Gentleman asked me particularly about this—we must deal with it as far in advance as we can see it coming, especially in the light of the very difficult task which I have in strengthening the reserves. I have explained the dilemma in the past, and I need not explain it again, because it is well known to anybody who has studied the matter. We have a difficult and delicate balance to strike.
In this connection, as the right hon. Gentleman truly said—I am sorry that he poured some scorn on it—the gradual progress which is being made towards an incomes policy is of the highest importance and significance. I repeat again that the judgment which I make must be partially based, if we are to avoid a serious down-turn in the economy, upon a relative measure of success in incomes policy. I do not expect it to be perfect. I imagine that nobody here does. But we must try to make this incomes policy successful, and the energies and devotion which my right hon. Friend the First Secretary has put into this cause are worthy of support from everybody in the House. I would only say to right hon. and hon. Gentlemen opposite who scoff at it that at least he has gone a good deal further along the way than previous Administrations have done.
Having attempted to answer some, but not all, of the questions put to me by the right hon. Gentleman, I will turn more particularly to the Finance Bill. I do not quibble because great tax reforms such as these are queried in the first place, closely analysed, closely questioned and perhaps not immediately obvious to everybody who studies them. That is the purpose of the debates in the House. I think that as the unfolding of the argument becomes clear there will be more of a general acceptance on the other side of the House than there has been so far.
Indeed, their present attitude is rather a reversion, because they used to be in favour, and now they have ceased to be in favour, of these reforms. They are in favour of a Corporation Tax but not this one. They are in favour of a Capital Gains Tax but not this one. That is the traditional rôle of an Opposition. But certainly the new taxes which I have introduced are intended to promote healthy growth, and I think that I can show that they will do that. They are certainly based on fairness and equity. They will, I hope, cause taxation to cease to operate in a way which rewards the speculator more than productive industry.
Although hon. Members opposite do not believe this, they are simplifying the company taxation processes. There is no doubt about this. I do not want to go into lyrics of praise of Parliamentary Counsel but they have compressed into a mere 40 Clauses the whole of the taxation on companies, which is a remarkable achievement. There is no doubt about that. Perhaps hon. Members have not yet noticed that in Parts IV and V of Schedule 19, ten Schedules have been entirely repealed and 80 Sections. The whole of the new tax is compressed into a 40-Clause passage in the Bill. I ask hon. Members opposite to consider this seriously. It is quite an achievement, and whatever the pains of the transition—and there are bound to be difficulties in the transition period—there is little doubt that this is why the tax has attracted—at any rate the theory, if not the actual proposal—so much support; it is because it will result in simplification of effort in the long run.
I will return to the Corporation Tax later. On the Capital Gains Tax, I must point out that although some hon. Members think that the rate is high it is still lower than the tax rate on earnings. Earnings are taxed, at the standard rate, at 41¼ per cent. Capital gains will be taxed at 30 per cent., and because there is no retrospection in the legislation, for many years assets acquired before 6th April last are not likely to pay 30 per cent. I do not think that it can be claimed, at any rate in the initial years of this new tax, that the rate of 30 per cent. is high.
The right hon. Gentleman and others asked me whether there should not be an allowance for inflation in the taxation provisions. If we were to start doing that in our taxation system, it would lead to some very odd results in other fields apart from capital gains. In this case—unusually so—I can rely on the combined wisdom of both the majority and the minority Reports of the Royal Commission on Taxation. All signatories to the Royal Commission Report were of the opinion that no allowance should be made for the inflationary consequences of a country's policy. I therefore do not think that I can make that allowance. [Interruption.] I cannot hear the hon. Member for Shipley (Mr. Hirst), but if he cares to rise I will gladly give way to him.