Amendment of the Law

Part of the debate – in the House of Commons at 12:00 am on 3rd May 1966.

Alert me about debates like this

Photo of Mr Edward Heath Mr Edward Heath , Bexley 12:00 am, 3rd May 1966

On the second one. That still stands. We accept the Chancellor's assurance. The first one will be repaid, and obviously if he manages to reduce the reserves and if he has built up the balance of payments sufficiently that can be done. But let us realise what that would mean to the reserves even with the liquified investments in the United States being moved any further.

Now I should like to comment on the rate of Corporation Tax. This brings back many memories. How many times did we say last year during those long debates on the Finance Bill, "Of course, it is going to be 40 per cent." How indignant the Chief Secretary and the Financial Secretary became. The thought was never in their minds—banish it. Every argument was based upon a figure of 35 per cent. "Take £100", said the Chief Secretary, "we deduct £35 for Corporation Tax". Now that the rate is fixed we find that 40 per cent. is slapped down and some of the omissions or, as the Chancellor told us, some of the holes are blocked, and the burden becomes greater.

What is the effect of this going to be? It will react on the investment of companies. The Chief Secretary will say that it will cut down dividends, and companies should deliberately reduce their dividends. But is that going to happen? No. It will affect the investment of companies because they will have to pay much more than they have done under the present rates of taxation to the Government. This is the first blow of the Chancellor's on investment by companies in this country. Let him try later to explain how this will not happen. If he is working on the basis that dividends will not be reduced and investment maintained, I do not believe that is a justifiable argument.

The second action which will affect so many companies is the Selective Employment Tax. Obviously, we shall have to study the White Paper in great detail. I believe that on the Finance Bill this will require a considerable amount of discussion. May I say to the Chancellor that one of the best ways of furthering Parliamentary reform would be to give the Committee time to discuss the Finance Bill properly and thoroughly during normal hours. This means that the Leader of the House and the Chief Whip will have to be prepared to provide the time. Then the Committee can really get down to this business in detail and feel that it is tackling the problem properly and not hastily with its views being cut short because of the action of the Government. I hope the Chancellor will bear that matter in mind.

I can only give preliminary reactions to the Selective Employment Tax. My first reaction is to consider how interesting the effect would have been on the electorate if the Chancellor had announced this in his "mini Budget" speech, as he did in connection with gambling, instead of keeping it till after the election. He will put a considerable burden on the distributive industries and services. What is the purpose?—to make them economise in manpower. What is the method of making them economise in manpower?—to give them investment allowances so that they can use equipment which will economise in manpower. This was specifically excluded by the Chancellor of the Exchequer and by the Board of Trade. When the Chancellor calls for wholehearted support from other Government Departments, the Treasury might look at their own policies as a whole before producing contradictory policies like this. To say to the service industries, "You must not have incentives to improve the use of manpower. We are going to tax you if you improve it." will have a bad effect on the service industries. This is an additional burden which will be placed upon them.

The Chancellor has apparently learned the lesson with the construction industries. He is now bringing them into the scheme. I cannot see a satisfactory dividing line between a service industry being given investment allowances to encourage it to economise in the use of manpower and giving them to the construction and manufacturing industries. This seems to me to be a contradictory approach to the problem. This will not be contained by the service industries themselves, especially without inducements to use better equipment. So it will go on the cost of living in the same way as the increase in the Purchase Tax. The Chancellor said that he wanted to avoid this. What is the difference? The difference is that this will fall on food, clothing and all those items which are at present exempt from Purchase Tax. All those forms of manufacture have distribution services, and the cost will therefore fall on the food and clothing because of this poll tax on the distribution services.

What the Chancellor is really doing is extending the whole range of Purchase Tax, albeit at 3 per cent. to 4 per cent., over the whole field of consumer purchases, including food and clothing, to which right hon. and hon. Gentlemen opposite have always been bitterly opposed. I have no doubt that the co-operative societies will speedily bring this to his attention, and quite rightly, too.

What will be the effect on manufacturing industry? This I fail to comprehend. If the Chancellor of the Exchequer had said that manufacturing industry is going to be exempt I would have understood. The more people the industry employs the more money it will get. How is this an inducement to economise in manpower? I feel there must have been a sophisticated form of thinking by the Chancellor which needs further explanation, to say the least. At first hearing, it is difficult to see how the Chancellor's main purpose of getting industry to economise in manpower is achieved by paying it something for every man it employs. I put it as simply as that. I would have thought that the hon. Member opposite, with his technical background, would have been able to keep the Chancellor straight. It is quite obvious that the capital investment industries of his own North-East will now benefit if they employ more men, because they are to be paid by the Treasury to do so.

At first sight, this seems to be a somewhat difficult proposition to deal with, and, of course, there are further effects. There is the effect on the tourist trade. Will it be beneficial to our balance of payments if those engaged in the tourist trade have to carry this additional burden? Moreover, it will affect some of the most outlying parts of the United Kingdom. Eighty per cent. of activities in the Highlands of Scotland are concerned with services, so that the regional policy which the First Secretary of State and the Secretary of State for Scotland are trying to carry forward will be affected directly by this new tax. It will affect those areas which rely on tourism and on services in particular. Once again, therefore, there is a contradiction within the Government's policies. Are these not sufficient reasons for saying that we shall have to think very carefully about this proposal and examine it in great detail, not only at this stage but when the Chancellor comes forward with his Finance Bill?

I welcome the Chancellor's statement that the surcharge is to disappear in November. This is immensely important. It is immensely important from the point of view of the protective attitude in industry and in our relations with the G.A.T.T. I was rather surprised that the Chancellor did not develop any further today his hint during the election campaign that he wished to reform the G.A.T.T. The removal of the surcharge is very important for any discussions which are carried on with the European countries, including, of course, the E.F.T.A., and we welcome the announcement that it is to go, but this does not alter the fact that, as it had to be announced today, presumably, in view of the E.F.T.A. meeting, there may very well be a very large build-up of goods held back until after the date on which the surcharge is to be removed. However, the right hon. Gentleman has, presumably, taken that into account and is prepared to accept it.

I come now to the Chancellor's reliance on the prices and incomes policy, which he is still banking on a very great deal. He said so at the beginning and repeated it in his peroration. One is entitled to ask whether the past history of the prices and incomes policy justifies his relying to this degree upon it as a weapon of economic policy. It is the Government's job to carry it through. The Prime Minister has now intervened and taken direct responsibility for it in the meetings he is addressing up and down the country. He has done this now. Hitherto, it has been the First Secretary of State.