I accept that figure from the computer. It is a high rate and inflation is still being taxed. Gilt-edged—apart from the neutral zone, including investment clubs, charities and superannuation funds—will be taxed. On this, we saw the most ridiculous point of all when the Chief Secretary said that if only the charities and the superannuation funds would take themselves out of the normal investments or unit trusts in which they are investing at the moment they could escape all this tax. He was quite prepared to see the necessary damage done so that they should get this exemption, without allowing them exemption in the place where the investments are best handled.
The compulsory purchase funds, even when reinvested, will still bear the tax. A retailer can change only in his own trade. He cannot change in another one. Above all, in Schedule 9 there are still the powers, to which so many in the House took exception, for the enforcement and policing of the Capital Gains Tax. I myself felt that perhaps insufficient consideration was given to the new Schedule 9 which was put before the House. Obviously I cannot discuss this, Mr. Deputy-Speaker, but I emphasise to the Chancellor and the Chief Secretary once again how important it is that the rights of the individual should be properly protected and properly handled when there is policing of that kind. I can assure him that this is a matter which we shall watch with the greatest care.
There are also aspects of the Corporation Tax to which we object. The Chief Secretary has repeated once again his argument about the separation between companies and their shareholders. He said that he had not changed his tune. If he studies his earlier speeches, he will find that the emphasis there was quite different from that today. He has emphasised that there is the legal difference between the two entities. He went on to say that we all now recognise that the interests of shareholders and of companies cannot be separated and that both are interested in the other. This was not the argument he adduced at the beginning of our debates on the Bill. In practice, the two cannot be separated.
Indeed, the difference was broken down by the Amendment which was forced upon the Government when they were thrice defeated on that memorable evening. The Government twice bitterly opposed that Amendment, and yet as soon as it was forced upon them they accepted it. Apparently it made no difference to the Bill if it was accepted. What sort of Bill is this on which the Government can be thrice defeated and then immediately accept the Clause? Not another word is heard about it. They do not try to take it out or alter it. They accept it.
What is more, they accept our wording without even a quiver from the draftsmen, who usually say that the wording is not quite what the draftsmen would like. What sort of Bill is it on which the Opposition can force the Government to accept Amendments which they have twice forcibly resisted and the Government do absolutely nothing about it? So we do not accept the division which the Chief Secretary has tried to make.
On the question of dividends, one of the points which is in the Bill to which again we take exception in the overseas respect of Corporation Tax is the dividend freeze for seven years which has resulted from the Chancellor's extension of the interim arrangements. I do not believe that anybody in the House who was following this at the time, not even those on the Chancellor's own side, believes that this is justifiable on any grounds.
The next thing about the Bill is the devaluation of investment allowances. This the Chancellor has done without being able to produce any shred of evidence as to whether it is a wise decision or not. It is agreed by everybody, even by his own hon. Friends who have expert knowledge of this, that much more information is required before a judgment can be formed on it. Yet the Chancellor rushed in with the tax without having any idea as to whether this by-product would help industry or damage industry. This, too, we must now watch with the utmost care.
Then there is the permanent impact on investment overseas. There is, perhaps, a belief in the Chancellor's mind that, because he has been more helpful to all of us by extending the transitional provisions of the Corporation Tax to companies trading overseas, this therefore has settled the problem. It has not. The permanent arrangement is there. What is more, the companies which are affected by it have to make their plans a long way in advance. So very soon, within a very short period, we shall find their overseas plans being affected by the Corporation Tax as it now is.
The Chancellor again nods, because he says that his only purpose is to reduce investment overseas. This is where we differ from him, in that we say that this is an indiscriminate approach which will damage that investment which in fact helps our balance of payments. I do not want to go over the figures, because they have been produced on so many occasions. This, too, is one of the matters to which we object.
There is one point which I would like the Chancellor to clear up when he, as I expect, winds up the debate tonight. He said in Committee that he had discussed this question of overseas investments with firms and with industries and added:
My view is … that overseas investment will continue on a very substantial scale. I have no doubt of that. I am reinforced in that by the views of the chairmen of companies who have been in touch with me. Their fears have been of the effect of Stock Market quotations if they had to reduce dividends. The interesting thing is that nearly all of them have told me that they intend to continue with overseas investment, and that is the basis of the Bill. The shareholders will suffer, they say, but they intend to go ahead."—[OFFICIAL REPORT, 22nd June, 1965; Vol. 714, c. 1572.]
This was immediately denied by the representatives of the largest group who had been in contact with the Chancellor of the Exchequer on the whole of this question of the overseas tax. It was denied in a letter to The Times on 25th June in which Sir Christopher Chancellor, Mr. Val Duncan and Sir Duncan Oppenheim said this:
Neither in the memorandum presented to the Chancellor nor in the verbal representations made to him was reference made to any decision on the part of these companies to proceed with their investment plans at the expense of their shareholders",
which is precisely what the Chancellor had alleged. Later on we are entitled to an explanation from the Chancellor, because as far as I know he has not
given one publicly yet as to how it is that his own statement has been denied by those who, as they say, represent 16 of the greatest companies with overseas assets, of, I think, some £2,500 million. They have taken exactly the contrary view and say that they are not prepared to see their shareholders suffer.
The third argument of the Chief Secretary's, to which he has again referred today, is that of plough-back. He concentrated on this. He has been unfair and inaccurate in the remarks he has made about the interests of shareholders. I think that my right hon. Friend will probably wish to take up with the Chief Secretary his quotation from the Bank of England Quarterly Review, because now that we have looked at it we see that there are other factors to be taken into account in the movements which he has mentioned. What he is arguing is that those who pay out less are those who will be better off under his tax, if he likes to call it "better off".
I should not have thought that this was a particularly satisfactory situation, but it emphasises the difference of approach between the two sides of the House. The Chief Secretary believes that he can achieve growth by allowing people to keep much more and he hopes that they will damage the interests of their shareholders in doing so. We believe that the right approach to a dynamic economy is to see that firms pay out to their shareholders and that this money is re-invested in the firms which can attract the money because of their rate of growth. These are two quite separate approaches, and we cannot baulk this particular question.
My concluding remark on this aspect is that the countries which have the greatest growth are those which encourage profits to be paid out. This cannot be denied on all the European evidence. One of the factors which distresses us most is that the way the Chancellor has organised this Corporation Tax means that we are moving in precisely the opposite direction from that in which the rest of Europe is today moving. As a result of recent decisions, it is quite apparent that by means of the Corporation Tax they have moved to a tax the consequences of which will be approximately that of our present arrangement of taxation before the Bill comes into effect.
Has the Bill gained the purposes for which the Chancellor introduced it? First, the Capital Gains Tax and the Corporation Tax. The Chief Secretary said that, in their impact on justice and social equity and because of the Corporation Tax's adverse effect on investors, this was supposed to help the achievement of the incomes policy. This was the real reason why it was announced so prematurely last November. Has it had any effect on achieving an incomes policy'? Let the Chancellor be frank and admit that it has had none. Have we heard it cited in any of the arguments over wages in the unions? Did the members of the Transport and General Workers' Union say at their conference how much they welcomed this because it would enable them to follow the incomes policy?
Of the 42 wage settlements which we have had, so far only one has been within or below the norm and that, somewhat ironically, was for the 204,000 hospital workers, whom the Government have allowed 2½ per cent. Dare I remind right hon. and hon. Members opposite of all the things they said about hospital workers in 1962? Have the Government said in dealing with the other wage claims, "We will not have 10 per cent., 15 per cent., 19 per cent., or 20 per cent., because of the Capital Gains and Corporation Tax"? Not at all. These taxes must be judged on their merits as part of a fiscal system.
Then the tax on consumer goods, in Part I of the Bill which we now tend to overlook, has greatly increased the cost of living. This has increased the pressure on wages. We now have the situation in the first seven months of this Government when there was a rise in the index of retail prices of 4·5 points, an annual rate of 7·2 per cent., which is higher even than that of the last Labour Government of 1945–51. A large amount of this has come from the deliberate policy of the Chancellor of the Exchequer.
What is the effect of the Bill on savings? We are seeing a diminution in savings in almost every respect. The figure of National Savings in the first quarter of 1964 was £80·6 million. In the first quarter of 1965 it was £44·5 million. From 14th June to 10th July, 1964, there was an increase of £28 million. For the same period in 1965 the increase was £14 million. This is the effect of the Chancellor's policy on National Savings.
Building societies in the first six months of 1964 had an increase in savings of £271 million. For the same period this year the increase was £154 million. In the unit trust movement there has been a similar diminution. In April, 1964, the figure was £6·80 million. In April, 1965, it was £3·46 million. In May, 1964, the figure was £7·76 million and in May, 1965, it was down to £5·46 million. All the indicators are that at this period, when there ought to be increased savings and investment in plant and industry, as a result of the Chancellor's policy the savings are falling in every direction for which there are indicators.
With regard to industrial production, we sustained a great deal of criticism last year from the Chancellor and his hon. Friends about a stagnant level of production. The provisional index figure of 131 for April is back to what it was between November and December. It is lower than it was in January and February. The figure for March was back to what it was last November. Over this period the Chancellor cannot show any increase in production. Indeed, the immediate rise was followed by a fall.
In balance of payments, we see a situation in which imports have returned to a more normal figure and exports have levelled out. That is using the most neutral phraseology of which one can think. But, as far as I can see from the figures, imports of goods which are subject to the surcharges have increased in value by £40 million and the goods which are not subject to the surcharges have fallen by £59 million. So we see that raw materials and foodstuffs are the categories in which imports have fallen, and those are the categories which have not been subject to the surcharges. What is more, in the first six months the Chancellor is £190 million out in his original calculation of the impact of surcharges on this country's trade.
Putting all those things together, can one say that this Finance Bill and the policies embodied in it are achieving the purposes of a new system of taxation to produce a dynamic economy? There is no sign whatsoever that this Bill is producing the results for which the Chancellor designed it.
What about the future? I have tried to indicate the mistakes which the Chancellor has made in handling this Bill. We on these benches will certainly not make the same mistakes. Obviously many of the Chancellor's difficulties have sprung from two factors. The first was the prior commitment of the Chief Secretary last July to the Corporation Tax. The second was the prior commitment of the Prime Minister in the election to 100 days of dynamic action. From both of those sprung the Chancellor's hasty decision to introduce the Corporation Tax and the Capital Gains Tax.
As a result, before he could see how the economic situation was going to develop, following the crisis of confidence in his own Government, he was committed to this enormous burden of the Finance Bill and the effects of these two taxes. The Chief Secretary, if he wanted to alter the amount of retentions, could easily have done it under our present system. If the Chief Secretary was upset by the various forms of tax avoidance, he could easily have dealt with it under our present system without this Bill, and it would have left him and the country free to deal with the economic factors.
In the past it has been customary for those speaking on this side of the House not to make specific commitments on tax matters. I believe that this has been a wise approach to these complicated matters of taxation. How often in the last few months the Chancellor must have regretted his premature commitments with which he so foolishly undertook to burden himself. We on this side of the House will adhere to the normal sensible custom in this matter.
I described this Finance Bill originally as nasty, brutish and long. The House will, I think, agree that we have succeeded in making it rather less nasty. The Government have succeeded in making it rather longer. Our aim in the future must be to simplify the tax structure, and not in a way which is damaging to the economic interests of this country.
I have outlined our objections to this Bill as it stands, and that is the reason why we shall divide against it tonight. We cannot foresee in what economic circumstances we shall be returned to power—[HON. MEMBERS: "When."?] As soon as the Prime Minister is prepared to face the country.