New Clause. — (Fluctuation Clause.)

Part of Orders of the Day — Selective Employment Payments Bill – in the House of Commons at 12:00 am on 4 August 1966.

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Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester 12:00, 4 August 1966

I thank the hon. Member for Orpington (Mr. Lubbock), who has deliberately curtailed his speech so that I could address the House. He was the third person to declare an interest as a contractor. Let me be the fourth and say that I was for a great number of years but am no longer, the financial director of a large firm of contractors and that I have some little knowledge of the problems and understand pretty well the way in which matters have been put. I had first better remind the House very shortly of what my hon. Friend said when introducing his Budget.

Then he made it clear that it was not the intention of the Government that the whole of the cost of this tax should be passed on. Everyone recognises that there are two parties to a contract. One is called, for the sake of convenience in the civil engineering and building sphere, the contractor, and the other is the customer. What one has to do is to try to look sympathetically at both parties and see if a case has been made out. Except for the right hon. and learned Gentleman who dealt with this most fairly and put it forward as an admittedly difficult question, the case so far has been made out entirely from the point of view of the contractor in a technical sense.

First, it was said that the Government, as a matter of honour, should be reasonable about contracts into which they have entered having regard to the fact that they impose the taxes. I thought that we responded to that point fully. I draw attention to column 980 in HANSARD of 21st July where I gave the exact details of the way in which the Government proposed to deal with their own contracts. I said: Departments may agree to pay up to 90 per cent. of the ascertained extra cost to the contractor resulting from his Selective Employment Tax payments in respect of personnel employed on the construction site only."—[OFFICIAL REPORT, 21st July, 1966; Vol. 732, c. 980–1.] Different arguments were to apply to term contracts where Departments would be authorised to pay up to 100 per cent. of the extra cost. I made it clear that the contractor would recover about 75 per cent. of the increased cost of the tax. It is not the intention of the Government that any contractor should cover 100 per cent. of his increased costs.

The right hon. Member for Enfield, West (Mr. Iain Macleod) said that in his own banking firm as soon as the Budget was announced he and his co-directors sat down to consider how they could, by economies and greater efficiency, absorb as nearly as possible the whole tax. I am sure that that is what many businessmen have done. Therefore, it is obviously impossible for the Government to propose, never mind to legislate, to contractors or to the world at large that a fair arrangement would be for one party to a contract to pay to the other 100 per cent. of the tax. In the majority of cases a firm may be completing a civil engineering or electrical contract for a firm which has to pay Selective Employment Tax. It would be wholly wrong for the Government and against their policy, to propose in any single case that 100 per cent. of the tax should be passed from one party to the contract to the other. The Government are acting in a very reasonable way regarding their own contracts. They are setting a course of conduct which they have deliberately said that they hoped local authorities and similar bodies would follow.

All that I can say about private contractors is that I take the right hon. Gentleman's point. He proposes this as an interpretation Clause to the variation clause. He starts on the basis that if a man enters into a fixed price contract he takes a gamble on what happens and acts accordingly in his costings. That is a proper, wise piece of business foresight—I do not want to use the word "gamble". It is a calculated risk. There is a great deal to be said for entering into contracts on that basis. It is sensible, especially in these times, that there should be an extension as far as possible of fixed price contracts. I accept the argument of the hon. Member for Folkestone and Hythe (Mr. Costain) in that respect. But this Clause deals with the situation in which there is a variation clause and therefore the assumption that the two parties are aware that circumstances may arise in future which will cause them to vary the price agreed in the contract.

Nobody could have anticipated this tax. It is a new form of tax Nevertheless, this kind of variation clause indicates the kind of relationship in which the two parties can get together as reasonable businessmen who hope to do business together in future and say to each other, "The Government are doing so-and-so. We are doing the best we can. We do not expect you to carry the lot. We expect a reasonable compromise arrangement to be made."

I am sure that that is the best way. Any kind of imposition by law would be bound to affect one party differently and disadvantageously from another. But circumstances will vary very considerably, and I should have hoped that the ideal way of giving effect to what is in everyone's mind is that there should be a reasonable discussion between the two parties to the contract, knowing what is in the Government's minds, knowing that it would be right for there to be some sharing in this, and knowing that it would be wrong for the whole of the tax to be passed on by one party to the other.