Orders of the Day — FINANCE (No. 2) BILL

Part of the debate – in the House of Commons at 12:00 am on 10th May 1965.

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Photo of Mr Edward Heath Mr Edward Heath , Bexley 12:00 am, 10th May 1965

There are three main groups of sections in this Bill, and there are three main themes running though them. The House will agree that they are all linked together as part of the attempt of the Chancellor of the Exchequer to deal with the balance of payments problem. The first group is those levying heavier taxation on consumer goods—on tobacco, spirits, and so on—and on motor licences. With those go the Capital Gains Tax, which the Financial Secretary has again emphasised exists in order, he says, to ensure fairness, and the measures about business entertainment. Both are put forward in an attempt to secure the acceptance of an incomes policy. The general purpose of this group is to reduce the demand on the economy.

The second main section is the Corporation Tax in relation to home affairs in the economy. The purposes really are to secure a greater investment by companies at home and to penalise the investors in those companies.

The third main section is the Corporation Tax in relation to companies overseas. Its purpose is to reduce over- seas investment to help the balance of payments and is, I think, an attempt to force people to invest more at home. Thus, there is in the minds of hon. and right hon. Members opposite this connecting link between the Corporation Tax at home and the Corporation Tax overseas in creating greater investment. The argument is that if we can stop people investing overseas surely they will be forced to invest at home.

I want to deal with each of these broad issues in turn. I hope that the Financial Secretary will forgive me for not going into the detailed matters with which he dealt. Our first task, as the hon. and learned Gentleman indicated, is to comprehend the Finance Bill in its present form. It might be easier to comprehend were we not so apprehensive about what we might apprehend if we had comprehended it. It is the longest and most complicated Finance Bill for over 50 years.

I must offer a protest against so much legislation by reference in a Bill which makes fundamental changes of this kind. It places an intolerable burden on hon. Members. I see that even the chartered accountants, according to The Times, have declared that this is the last straw. We have had many gallant attempts to put the Bill in a form which a layman, or a Member of the House of Commons, can understand. We had the first Budget Statement of the Chancellor of the Exchequer, his amplification to the House, the second Budget Statement, the Finance Bill, two White Papers, and now a long and detailed account by the Financial Secretary, which could well have been published as a third White Paper or explanatory memorandum of the other two White Papers.

Everybody will agree by this time that any idea that this has led to a simplification of the tax system is way out through the window. We can all take our pick of the examples, but the one which I take is Clause 55(3): A claim for relief under this section may require that capital allowances in respect of the trade, being allowances which fall to be made to the company by way of discharge or repayment of tax and to be so made for an accounting period falling wholly or partly within the 12 months ending when the company ceases to carry on the trade, shall (so far as they cannot be otherwise taken into account so as to reduce or relieve any charge to corporation tax) be added to the loss incurred by the company in that accounting period or, if the company has not incurred a loss in the period, shall be treated as a loss so incurred:Provided that the allowances for any period shall not be treated as including amounts carried forward from an earlier period. This is an example of the Chancellor of the Exchequer's open declaration about simplifying the whole of our tax law and tax system.

The Financial Secretary went to considerable lengths to emphasise what a great attraction all this was. But surely he must realise that most of those who were originally attracted by the idea of a modernisation and simplification of our tax system—which I agree was supported in the election manifestoes—now see the ramifications and implications of doing it in the way in which the Chancellor and his colleagues suggest. I do not think that most of them are any longer in love with the suggestions which he has put forward. It is clear that this is a bad Bill as a tax reform Bill, and nothing that the Financial Secretary said has done anything to change our view on that.

I turn to the three main sections. The first is that dealing with what the Chancellor of the Exchequer described in his Budget Speech as the short-term management of the economy and the Budget judgment. He is asking us in the Bill to levy additional taxes and to take consuming power out of the economy. For this debate we should have an up-to-date report on the situation. The Financial Secretary has not given it to us. The Chancellor of the Exchequer did not open, so he has not taken advantage of the opportunity to do it. I hope that when he winds up tonight, although it will be too late to help the House in considering these matters, he will nevertheless give us the information for which I shall press him.

In the Budget debate we got him to the point of discussing the £ sterling and coming forward with strong arguments in favour of it. We even got the Prime Minister to stand up in New York in his address to the Economists Club and boast of the resources which are now, and always have been, behind the £. What the economists were asking themselves—they did not have the chance to put it to the Prime Minister—was why did he not say all this the moment that he came to power. Then, they say that he might have saved himself the crisis of confidence into which the Government plunged themselves in November. We know why he did not do it. He was much too busy playing his own party tricks to worry about the national interest or the strength of the £. He wanted an alibi for not being able to carry out the promises which he made at the election and which we now debate from Supply day to Supply day. All this has cost us the three billion dollar stand-by and the indebtedness which we now face.

What is the Chancellor of the Exchequor's present judgment about the economic situation for which he is asking support in this Bill? How does he explain his past judgments on this matter? The judgment started with the White Paper in November, which we have so often quoted to him, in which he said that no further action was required for the economy. That was the first statement. It was followed by the first Budget a month later, by the 7 per cent. Bank Rate and by the credit squeeze. This was followed by the second Budget, in which he said that he was aiming through these taxes and two other means—the TSR2 cancellation and the Post Office charges—at taking £250 million out of the economy. In fact, he took £231 million.

The conclusion to which he came was very interesting and specific. I should like to quote it to the House. He said: Taking into account the nature and incidence of these increases"— this is his conclusion— my estimate is that, working with the other measures I have mentioned, they will bring about the desired reduction in home demand and so make room for a progressive improvement in the balance of payments. He went on: The Committee is only to well aware that we have a Bank Rate of 7 per cent., and that, following the letter from the Governor of the Bank of England to the London Clearing and Scottish Banks last December a tight and effective control over bank lending is at present in operation—[OFFICIAL REPORT. 6th April, 1965; Vol. 710, c. 287.] These were his conclusions at this stage of his Budget speech.

What is the situation today? Only three weeks after he made that speech and reached those conclusions we have the imposition of the special deposits.

After exactly three weeks another £95 million is taken out of the economy. We have another letter from the Governor to the banks. The Chancellor has already said that we have a "tight and effective control" over bank lending, yet we have another letter to the clearing banks about it, and, within three weeks of his Budget speech, he demands these extra measures. What is the explanation? The Chancellor of the Exchequer owes the House of Commons an explanation of this. Is it a fundamental misjudgment of the situation? He has never given us an explanation of how he came to the conclusion that he ought to take £250 million. He gave us no analysis of this in his Budget speech, so we cannot judge whether he was right or not.

In winding up the mortgages debate, the Chief Secretary to the Treasury said that it was due to an increase in the clearing bank advances. I cannot believe that the Chancellor of the Exchequer did not know the trend of the clearing bank advances when he produced his Budget. This is a very simple—perhaps an oversimple—explanation by the Chief Secretary—