Orders of the Day — Amendment of the Law

– in the House of Commons at 12:00 am on 11th April 1967.

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Motion made, and Question proposed,

30. That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance, so, however, that this Resolution shall not extend to making— (1) amendments of the enactments relating to purchase tax so as to give relief from tax, other than amendments making the same provision for chargeable goods of whatever description, or for all goods to which any of the several rates of tax at present applies;(2) amendments of the enactments relating to selective employment tax so as to give relief from tax—

  1. (a) by way of exemption from, or a reduction in the rate of, tax except in respect of all persons of the same descriptions relevant for determining the rate of the employer's flat-rate contribution with which the tax is combined, whether that contribution is under the National Insurance Acts or under the corresponding enactments in Northern Ireland; or
  2. (b) by way of providing for payments to employers of an amount equal to the whole or a specified part of the tax paid if the proposed provision—
    1. (i) is in respect of employers in part only of Great Britain, unless it is in respect of all employers not already entitled to such payments in a part of Great Britain which is included in the areas specified as development areas under section 15(2) of the Industrial Development Act 1966; or
    2. (ii) extends to employers in Northern Ireland; or
    3. (iii) is in respect of all persons in any particular description of employment in all parts of Great Britain, and relief in respect of the whole of the tax paid could be given in respect of that description of employment by an order under section 9(1)(a) of the Selective Employment Payments Act 1966 adding that description of employment to the employments to which section 1 or 2 of that Act applies; or
  3. (c) by adding or removing any employer to or from the employers to whom section 3 of that Act applies; or
  4. (d) by amending the provisions of Schedule 1 or Schedule 2 to that Act;
(3) amendments of the Land Commission Act 1967.—[Mr. Callaghan.]

5.10 p.m.

Photo of Mr Edward Heath Mr Edward Heath , Bexley

It is the pleasure of the Leader of the Opposition to offer to the Chancellor of the Exchequer the congratulations of the Committee on his performance today in making his Budget statement. This, as the Leader of the House remarked last Thursday, is one of the traditional courtesies of the House, but because it is traditional I wish to assure the Chancellor that it is no less sincere.

We can certainly congratulate the Chancellor on the way he presented the statement, on its lucidity, and on the way in which he has stood up to what has been a very long performance. I know that he himself wishes to help the Committee as much as possible. He has indicated his intention of accepting various proposals. In this way perhaps he might consider whether there was some material in his speech today which could have been presented in some other form, perhaps in a written form, rather than the way in which we had it.

We welcome a very large number of useful but albeit small changes the Chancellor is proposing to make and which we shall see in the Finance Bill. In particular, we welcome the fact that he has now adopted two of the proposals which were put forward by the Opposition about Selective Employment Tax during debates on the last Finance Bill. We also welcome the fact that he is to improve allowances in the case of the two groups he mentioned, widows with children and single women with dependants. In this respect this Budget declaration was certainly an improvement on the one he made last year, which contained no individual social service improvements at all. We therefore welcome these.

I noticed that the Chancellor is to continue amending the Corporation Tax and Capital Gains Tax and also the conditions governing close companies. These are certainly changes we have urged on all Treasury Ministers from time to time ever since we first discussed this new legislation. I am glad, and I am sure the Committee is glad, to see that the Government are now adopting what we suggested, and that is to put forward proposals for discussion, as they have done for the new regional premiums, before they are turned into legislation and to discuss them in Committee of the whole House.

All these things we welcome, but the Chancellor will be the first to accept that, though useful, they are in fact small changes, the additional ones he mentioned, of an administrative kind which do not greatly affect the economy. So I have to ask: what is the main theme of the Chancellor's Budget statement as presented to us this afternoon? It is difficult to discern a positive theme from the Chancellor, unless it be the emphasis which he put on one matter which was received with cheers on both sides of the Committee and which might be summed up as being, "Let us go with Labour on a motorcycle". This is the great revolutionary change we are seeing as a result of this long Budget declaration we have heard this afternoon. This is the sum total of what the Chancellor had to tell us.

I wish that I could have congratulated the Chancellor on the brevity of his speech; but it was a long speech. I hope that he will give the Committee credit for having listened to it with patience, although we shall want to discuss it in detail in coming days. I turn for a few brief moments to the main declaration made by the Chancellor about the state of the economy, because it is on this that judgment really has to be made.

The Chancellor emphasised in a very favourable way the rising reserves and improved balance of payments, but over the whole of what he was saying hung the burden of the debt to the International Monetary Fund, part of which he has undertaken to repay this year and the rest by 1970. As far as rising reserves are concerned, he did not emphasise the extent to which this consists of hot money which could move away again very quickly. As far as concerns favourable balance of payments, he did not emphasise that the increase in exports over the last two years has been only slightly greater than the increase in the preceding two years.

It is the decrease in imports which has changed, and this can always be brought about if one clobbers the economy—to use the Prime Minister's favourite word—by deflation in measures such as those of 20th July. Therefore, the real problem is what is to happen when this acute deflation is removed? The Chancellor's problems are clear enough. He has stated them quite at length. First the problem is that there is a stagnant economy. That is the result of the long period of measures culminating on 20th July. Secondly, the underlying trend of unemployment is still upwards, and we look forward to an increase in the total number next winter. Finally, there is heavily falling private investment.

All this the Chancellor stated, but the question is how to get out of it, and that is not what the Chancellor stated this afternoon in his Budget declaration. This is the great omission from the Budget, and it is on this that it has to be judged. The Chancellor said that there are signs of continuing growth of exports, and also that Government expenditure is rising rapidly. Both things are true, but on his Budget judgment I can only deduce that he expects the upward trend of unemployment to continue. What he is doing is using Government expenditure this year to try to keep some sort of stability in the economy. What he has not done is to show yet how he can either inspire more investment next year and the year after, or how he can cut back Government expenditure to allow room for that increased investment.

All of these are just pious hopes for the future, but there has been no clear indication from the Chancellor today of how this is to be achieved. This is not the Prime Minister's would-be export-led reflation, but a downward investment-led state of stagnation. This is a standstill Budget for a stagnant economy. So I think the judgment on this Budget must be that it is the lost opportunities Budget. It is a statement of missed chances. The Chancellor has taken no opportunity within his current Budget judgment—and in this he seems to have accepted broadly the advice given from outside—to give any sort of incentive to individuals or to corporations—none whatever.

There is no change in direct taxation which could help to bring that about. There is no change in Corporation Taxation which would help to encourage investment. We always said that under this structure of Corporation Tax companies would hold up dividends rather than invest. This has proved true and is one of the main reasons why private industrial investment is rapidly declining at the moment. This has been proved, but the Chancellor is doing nothing to correct it. There are minor adjustments, but no real incentives to saving, no stimulant to investment in the coming year, or in the years up to 1970. There is no clear indication of tax reform or simplification. In fact, in this Budget statement there has been no new thinking of any kind whatever.

In an hour and a half from the Chancellor we have had nothing which is constructive, nothing which is new, nothing which would help him to meet the problems he has so clearly stated. Because it is a Budget of missed opportunities, it means that the people of this country up to 1970 will not have that improvement in their standard of living which they ought to have and which they deserve.

5.18 p.m.

Photo of Mr Robert Woof Mr Robert Woof , Blaydon

I am very glad to have the opportunity of speaking in this debate and to follow the right hon. Member for Bexley (Mr. Heath). I want to stress that the presentation of the Budget is undoubtedly a time of great Parliamentary activity. The care and administration of public funds and the control of expenditure are necessary elements in the life of government. The collection of revenue also forms a fundamental part. The Government have a hard task in meeting their financial obligations. It is also an obvious fact that no phase of Government activity gives greater controversy, even though in the course of life the great majority of people are profoundly affected by the Government under whom they live.

I would not attempt to hide the fact that the Government are subjected to the same kind of experience which every Government are subjected to, meaning that when prices rise, when there is a spectre haunting people's livelihood with dismissals, closing down factories and coal mines, when bank advances are diffi- cult to get, when sterner measures are introduced to reduce financial expenditure, then very strong resentment is directed against the Government, whatever colour they may be.

Whatever other symptoms apply, it is evident that people have always held different views and a different sense of things. Sometimes events themselves appear to be strange and difficult to fit into the scheme of things. Many are bewildered by a series of events that are taking place in the old economic life of Britain today.

There are those who are concerned solely with the dry-as-dust science of analysing and defining the economic structure of society. And there are those who are impressed with the wonderful strides that have already been made in the difficult work of civilisation and who accept that in the experiences of the past are to be found the fact and the wisdom upon which its progress for the future may be assured.

But I am reminded of Sir John Mandeville. He was famous as a writer of fourteenth and fifteenth century travel stories and legends. There is one with a particular sinister beginning. He tells the tale of a young man who was deeply in love with a beautiful lady. Realising that his misfortune was to be recorded in the book of fate, he was driven to desperation when she died. One night he broke open her tomb and lay with her. Nine months later a voice came to him in his sleep telling him to go back to the tomb and see what he had engendered on his lost love. When he did so, a dreadful dragon broke out of the vault and proceeded to ravage the country and destroy its people.

That story comes apt to my memory when thinking over the solemn events of the past nine months. The state of things expressed my thoughts that the dragon in our midst could be spelt in three letters —£ s. d. It underlines the serious problems of the nation's economy, in which the unpleasant consequences of productivity and national planning have been the casualties of deflation.

In any economic disruption, I have always taken the view that, in order to dispel illusions, discipline of the mind should enable one to probe into the inner meaning of things and help to form conclusions. But in the convulsion of events, while I fully appreciate the complexities and the vastness of the basic difficulties, I reservedly defended the Government in their desperation to escape from the dragon of inflation, as ever since they were elected nothing has agitated or preoccupied their attention more than the preservation of the £ sterling. The colossal burden of debt to be repaid to foreign creditors and the Government's resolve to solve the deep-rooted balance of payments problem—in all of these I conscientiously thought that the Government needed a breathing space to enable them to stand on their own feet.

The subject of money may be very mysterious and difficult to understand. It is true that it requires hard thinking. Economists and experts are partly responsible for the mystery that surrounds it, but I would imagine that one of the advantages of being an economist would be to know the reason why if one had the misfortune to be on the dole.

I realise that it would be unreasonable to discuss the British economy in isolation from the world economy, as the prospect for Britain depends on the state of the world economy. But having to acknowledge, as my right hon. Friend the Chancellor of the Exchequer went to some length to explain this afternoon, that the recent recovery of sterling is an encouraging performance, one cannot just forget the sacrifice of full employment, the 600,000 without work and their relative worsening standard of living. In sober terms, the Treasury's Economic Report for 1966, in its judgment, confirms this view, and for what stagnation has affected domestic policy. In fact, my right hon. Friend gave a hint that it had drastically slowed down output.

Even though the cookery book says that its recipes are tasty, it is often the case that puddings and dishes prove to be uneatable. However, making allowance for that, what we were anxious to look forward to was to hear how far my right hon. Friend the Chancellor would frame the Budget to lift the economy out of its present stagnation without damaging any surplus in the balance of payments. Fortunately, my right hon. Friend in his exposition gave a clear insight that the prospects are that we shall see the first substantial balance of payments surplus since 1962.

This surplus, as I understand it, together with the Government's other liquid reserves, should ensure that the £386 million which is due to the International Monetary Fund in December can be repaid. It must be borne in mind that the Government have, with a struggle, at least managed to repay 625 million dollars to the New York Federal Reserve Bank and the United States Treasury and 193 million dollars on the post-war North American loans. "Out of debt, out of danger" may be a good maxim, but with the further £543 million that is due to be repaid to the International Monetary Fund by May, 1970, it will be necessary to achieve an overall surplus in the years ahead to settle this account. My right hon. Friend made this, too, perfectly clear in his speech. If policies do not achieve such a surplus, it may well mean a longer wait for the modernisation programme, covering the whole of British industry.

We can agree that it is an essential task for the Government to transform the economy to lay the foundation for a better society and, at the same time, that a categorical imperative impels us to work to bring about a radical transformation of political economy. No parson or professor can talk us out of that.

Even though the Government have been seriously handicapped—or, I should say, have been more like a horse on tight rein, which pulls up sharp and drops the bit from beneath its teeth—there appears, from what my right hon. Friend said today, to be a hopeful sign that the Government are gradually emerging from their earlier unhappy plight and they are, as is clear on closer observation, now trying to build a stronger industrial base.

It should not be overlooked that the new industrial investment grants, which were increased last November, are estimated to be at the rate of about £60 million a year, and £150 million has been set aside for the Industrial Reorganisation Corporation to help modernise the structure and equipment of industry. In addition, following the Geddes Report, the Government announced a programme totalling about £70 million to help reequip the shipbuilding industry and strengthen its competitiveness, along with another programme of over £200 million for modernising our docks and port installations. These are some of the measures which should be appreciated in face of the need to achieve vital improvement.

As my right hon Friend said, in a strong and cautious observation today, the nagging problem of maintaining economic growth and avoiding another period of stagnation is still with us. Nine months ago, it had been argued that some redundancy was inevitable if the economy was not completely to stagnate. It had been further said that there must be movement between industries, occupations and areas with the labour which flowed from the more or less squeezed industries going into the growth and export-saving industries which the Department of Economic Affairs is anxious to encourage.

However, whatever method and practice we adopt, our first consideration is the relation of our object to the achievement of some salvation through material production. When the nature of things demands that we should get the maximum results, then we must work with colossal machinery for a large population. It is a characteristic of the things of this world that they are not crystallised or fossilised but they are in an eternal flux ever changing, ever in a process of transformation, rising and decaying. To the exposition of this we could devote many hours, but I always think that there is a perennial fascination in every study of industrial progress, linking the struggle of the past with the present and the future.

In this connection, everyone will be interested in what has now been proposed for the reduction of unemployment in the development areas and the plans set out in the Memorandum on a Regional Employment Premium for the Development Areas. As all right hon. and hon. Members know, this scheme involves extra premiums of about £100 million a year through the Selective Employment Tax.

Without enlarging on that administrative machinery, I say only that no one should be surprised that it gave many companies a respectable and reasonable reason for price increases. Action is always the reconciliation of contradiction in some higher form. What did we expect when the test of profitability is the criterion, which ensures that those things for which there is a demand shall be produced, and profit is the magnet which draws production after demand? Anyone who does not yield a profit will sooner or later go out of business and go bankrupt.

A classic example of that was drawn to my attention by a lady constituent. She took her poodle to a poodle parlour for a manicure and was charged 2d. extra for Selective Employment Tax. She "did her nut". She "went to town" about it, and, believe me, she took some pacifying.

As these proposals are yet to be debated, in anticipation of a wide variety of views, all our knowledge must be connected and combined into an understanding. I am, therefore, interested in paragraph 3 of the Memorandum, which says: A general feature of the Development Areas, as they are now called, is that they have been particularly dependent on some of the industries with contracting employment, and their share in the new and fast-growing industries has so far been barely enough to compensate for this contraction. That statement furnishes a basis for analysing the true position. It further illustrates the correct meaning of the words in paragraph 4, Coal-mining is an outstanding case where the brunt of the decline has been borne by the Development Areas. That special truth applies particularly to my constituency. It is no passing accident that it has been pitiably reduced to a position in which the restoration of the mining industry is no longer possible, or permissible even if possible. One cannot be blamed for exercising altruistic feelings on such matters, but under the pressure of experience I could feel inspired by a laudable ambition to alter the great adverse change. Omar Khayyam presses this home by asking, Ah, Love, could thou and I with Fate conspireTo grasp this sorry Scheme of Things entire, Would not we shatter it to bits—and then Re-mould it nearer to the Heart's desire! For years now, silence has succeeded the bustling life and tread of the miners' feet. We have been appealing for new industries to be created from the ruins of the old. If the new proposals are intended to mean anything at all, if they are meant to be directed towards the essential task of restoring the nation's productive power and to encourage new factories to be built, they may enable us to act with reasonable certainty of success.

Experience is an indispensable condition for this purpose. What I regard as significant is that, in years gone by, so long as such flourishing coal producing areas were vital to the existence of interdependent communities, it seemed natural enough that the internal structure would mould social relations of human life in the conditions in which it existed. Concentration of such a feature, obviously conditioned by the provision of services which were local in character, mattered very little, whether or not new industries were located in other parts of the country. But, as every action is accompanied by other actions, had the industrial structure of the constituency been different, we might then have been able to cope with and accommodate the great change without serious loss and scramble for jobs. It is a long time since we grasped the cardinal idea of encouraging permanent reorganisation of industrial basis with financial inducements. From that strategy, we would expect that relative advantages should accrue, by benefiting displaced workers who are unable to find work, even in neighbouring areas.

With such an objective in mind, it must be the Government's responsibility to seek to secure purposive change, because I believe that it would help to facilitate production of wealth, which can only be secured and determined by industrial efficiency. It will go a long way to encourage hope for my constituents, with the idea of removing the cataclysmic industrial disturbance to which I have referred, and which deprives them of distinctive employment, and make full use of vital manpower.

5.41 p.m.

Photo of Mr John Temple Mr John Temple , City of Chester

The hon. Member for Blaydon (Mr. Woof) said that the Government require a breathing space. The whole country has been treading water for 2½ years, and what the economy now needs, although it has not been given by the Chancellor of the Exchequer, is the "kiss of life".

This Budget was the most disappointing I have ever heard. It was very pleasantly presented by the Chancellor, as one would expect, but I felt that he was being as cautious as a cat. The same Chancellor has been caught out twice before. He has presented two Budgets, in April or May, in 1965 and 1966, and in July of each year has had to return and introduce severely restrictive measures into the economy. I am therefore not surprised at his extreme caution on this occasion.

The Chancellor said that he was introducing some minor changes. My goodness, they were minor! It will take me about a couple of minutes to run over all the changes he proposed. He proposed a slight improvement in the situation concerning National Savings and Premium Bonds. That is absolutely necessary, because in the past year there was net dis-saving on National Savings of about £5 million, even allowing for the very large factor of accrued interest within the National Savings movement.

The Chancellor also proposed authorisation for the trustee savings banks to introduce a unit trust organisation, something about which I am very doubtful. Those who invest in trustee savings banks usually expect absolute security, and no unit trust managers can guarantee absolute security of capital.

Relaxations are proposed on hire purchase for motor cycles and, I believe, three-wheeled vehicles. But most of the workers I know own motor cars or have an ambition to get one, and motor cycles are now largely used by the sporting types and not for travelling to work.

I wholeheartedly welcome one of the Chancellor's proposals—the help through Income Tax relief to women with the responsibility for children, and also the improvement in the dependent relative allowance.

During the passage of the last Finance Act, we moved Amendments time without number from this side of the Committee to give relief from the Selective Employment Tax to part-time workers. That relief now is welcome, but why have the employers of part-time workers had to suffer that taxation for the past 12 months, when the Chancellor now admits that the recommendations we put forward were absolutely right?

The Budget is very disappointing. It will fail to get the growth which the Chancellor and the country need, and a great number of opportunities have been missed. When I glanced at the major provisions in the Financial Statement this afternoon, I noticed immediately that the Income Tax out-turn for the current year was £350 million down on the estimate, and practically every other tax was down compared with the estimates. That only confirmed that in the past 12 months the economy has been very stagnant. How different from the claims made by the Labour Party at successive elections!

There are extraordinarily few interesting features to comment on in the Budget statement; the omissions are more glaring.

The Chancellor anticipates economic growth, but he did not clearly indicate why. As far as I could make out, he based his anticipation on an increase of exports and public expenditure. I do not know if he is proud of the increase of public expenditure. I thought that the object of a Chancellor of the Exchequer was to curtail and minimise it. But he is looking to it as one of the factors making for economic growth, and I would much rather have seen him anticipating an early resurgence of investment in the private sector.

The Chancellor said that he did not propose to make the ordinary worker worse off. The standard of living has fallen in real terms in this country in the past two years by half ½ per cent.—which in itself is an astonishing achievement. Consumer expenditure has risen, and savings have fallen as well. National Savings have gone down, compared with 1964 and 1965, and the whole savings of the community have fallen in the past two years by about 16 per cent. With that diminution in the standard of living of our people, I can well understand that almost all sections of the community find it increasingly difficult to make ends meet. That is why there is very great pressure on wages at the present time.

Under a Conservative Administration, for year after year the great British public had become used to continual, gradual increases in the standard of living. They had come to expect them. When he spoke at General Elections, the Prime Minister never indicated that there would be a fall of ½ per cent. in the standard of living in real terms during the first two years of a Labour Government. I do not think that he would have got a majority if he had said that. But it has in fact taken place.

It is amazing how the growth targets of the National Plan have been aban- doned. Now we get very tentative estimates for growth from the Chancellor. He hedges his 3 per cent. round with great caution. One factor that is not in doubt is the growth in public expenditure expected both this year and in succeeding years.

The Chancellor went out of his way to say that he looked forward to a mixed economy in which private industry was profitable. Looking around private industry, I wonder how it has survived in such a fit condition as it is in today, because an enormous number of additional burdens have been falling on industry. There have been the increases in National Insurance, the Selective Employment Tax, Capital Gains Tax and the Corporation Taxes. The only businesses which are really booming at present are tax-gathering, the accountancy profession and the law. All members of the accountancy profession and lawyers should be very grateful to the present Government. I cannot think of two professions which are less productive of increases in the growth of the economy than lawyers and accountants. They are entirely ancillary to the economy, and yet they are booming.

The Chancellor is not personally responsible for rate burdens, but the rate burden in this country is a tax—and it is a very heavy tax on industry and commercial activities. Despite Government promises about relief of rate burdens, in the two years of Labour Government industry and commerce have borne an increase of 25 per cent. in their rate burden, with no set-off whatsoever. The domestic sector is receiving a certain setoff. These are examples of the increases in cost being placed on British industry by the Government.

The Government expect British industry to be competitive and not to put up prices, and yet every cost over which the Government have control is being increased and is imposing additional heavy burdens. Yet the public sector appears to be permitted to put up its prices almost by a cursory application to the Chancellor. We have had another example today by which, I gather, the Minister of Labour is promising a further subsidy to the Railways Board if it makes certain arrangements in respect of claims by labour in the Railways.

May I turn to some of the Selective Employment Tax proposals, including the Green Paper proposals of the Chancellor of the Exchequer in respect of a special Selective Employment grant to manufacturing industries in the development areas—proposals which I understand are to be implemented. What is important in many of these development areas is the encouragement of such industries as the tourist industry and other service industries. My right hon. Friend the Member for Argyll (Mr. Noble), who was Secretary of State for Scotland in the Conservative Government, is on the Opposition Front Bench. He knows that what is very important in large areas of Scotland and Wales, which are development areas, is an increase in the encouragement given to the service industries and the tourist industry. In the development areas only manufacturing industry will be helped by the Green Paper proposals. There is only a broad belt of manufacturing industry in central Scotland and in South Wales, and a little in North Wales, and the broad acres of Scotland and Wales will not be helped in any way by these Green Paper proposals.

Photo of Mr Michael Noble Mr Michael Noble , Argyll

They will do a lot of harm.

Photo of Mr John Temple Mr John Temple , City of Chester

I agree. I noticed that the Chancellor said that our invisible earnings had fallen substantially. One of the economic Reports recently gave as one of the reasons for this decline Hurricane Betsy, which took place in the United States in 1965. I will give an example of the way in which a relaxation of the Selective Employment Tax could add substantially to invisible earnings—and I give this example because it was referred to in the economic Report on Hurricane Betsy. That hurricane was paid for to a large extent through British insurance. British insurance, particularly Lloyd's brokers, conducts a large worldwide business; about £20 million of brokerage flows into London from overseas as a result of the direct activities of Lloyd's brokers. The Chancellor said that he will help British workers who are working overseas—he gave the construction industry as an example—with a relaxation of the Selective Employment Tax. He ought to look around those service industries which are making a substantial contribution to exports, either visible or invisible, seek out those sectors of business and commerce and give them assistance. One of the first to which he should go is the Lloyd's brokers who are bringing such an enormous amount of invisible trade into the country.

I should like to say a good deal about the present cost of a Labour Government, a point which has been brought out very frequently. What I find extremely depressing is the enormous deadweight cost of the Administration and the top hamper of a Labour Government. Almost every successive Budget which the Chancellor has introduced has brought increases in taxation. Today we have had a neutral Budget, but what the economy needs is "the kiss of life", not a neutral Budget. I therefore propose to come straight to the way in which I would give the kiss of life to the economy. My plans for prosperity and growth would very largely be based on a reduction of direct taxation and a simplification of taxation. There was nothing about simplifying taxation in the Chancellor's Budget speech. I was surprised about that, because normally every Chancellor pays at least lip service to the simplification of taxation. That was entirely omitted on this occasion.

My right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) set out his ideas very clearly in his Financial Times article last Thursday. Like him, I believe it essential for us to make a breakout now and to give some direct incentive to the workers of the country. The best way to do that would be through a relaxation of direct taxation.

Photo of Mr Arthur Woodburn Mr Arthur Woodburn , Clackmannan and East Stirlingshire

When the Chancellor of the Exchequer some years ago reduced direct taxation, it amounted to about £50 a year for a very wealthy man. Would the hon. Member give an example of the kind of incentive which he has in mind, because it seems to me that any reduction of taxation would be minimal to even the wealthiest man? How would that be an incentive?

Photo of Mr John Temple Mr John Temple , City of Chester

I am not speaking of the wealthiest man. I will come to the question of Surtax shortly. As for the ordinary man in the street, I will not quantify the amount. That can be done in Committee and to do it now would make my speech far too long. But I would point out that a standard rate of Income Tax of 8s. 3d. in the £ is 41¼ per cent., and that is a tremendously heavy burden as a standard rate of Income Tax. I know from personal experience that workers are interested practically entirely in the amount of money which they pick up week by week. They are not seriously interested in the gross amount which goes into the P.A.Y.E. tables in their respective offices, which calculate their salaries. One of the reasons for the pressure for increasing wages is the rate of direct taxation in the economy. Later I will come to the question of a large change from direct to indirect taxation as used throughout the European Economic Community, with which the right hon. Gentleman the Member for Clackmannan and East Stirlingshire (Mr. Woodburn) will be familiar.

I believe that direct taxation is a disincentive right across the board from the very high salary earner to the lowest wage earner.

The present rates of Surtax are ludicrous. I have heard the Chancellor frequently talk about the average rate of direct taxation. He never talks about the marginal rate. I am very disappointed that he reaffirmed today the Surtax surcharge for 1965–66. I have been reading a very interesting article on this subject, in the March issue of the Banker, by Professor Wheatcroft. One of his tables brought out that the marginal rates of Surtax for earned income or investment income of £16,000 a year—which is not an unusual salary these days; even the chief executives of the Steel Board are to have salaries of this nature. The marginal rate for earned income for a married man with two children would be 93·5 per cent. and if it were all investment income it would be over 96 per cent. He would be keeping Is. 3d. and 9d. in the £ respectively. The article comments, Top rates of this order are unknown in other comparable countries in the Commonwealth or in the U.S.A. It is quite unrealistic to think that we shall keep top executives in this country if we persist with these unfortunately high rates of tax. It is worth noting—and Professor Wheatcroft brought it out—that the highest net income which could be earned by any Surtax payer today is £7,000, which is only worth £3,500 in 1946 terms. This is one of the reasons why during the passage of the Companies Bill there were constant references to "top-hat" pension schemes—because of the high rates of Surtax from which we are suffering.

I now pass to my plea to the Chancellor for a simplification of taxation. I wonder whether the Chancellor would care to exchange his job for that of a junior executive in a small business in any week of the year, whether he would like to tackle the job of doing the P.A.Y.E. in a small office, as well as the National Insurance returns, redundancy payments and the Selective Employment Tax. That is a measure of the calculations which have to be done in any large or small office week by week. If in his spare time the Chancellor would care to read some of the explanatory memoranda which are sent to employers, he would find that they were almost as difficult to read as Treasury briefs during Finance Bill debates.

There is no doubt that both large and small employers are increasingly being made tax-gatherers for the Government. If the Chancellor wanted to go in for a more abstruse calculation, he could perhaps tackle his own Surtax return. Professor Wheatcroft makes it clear in his article that it takes 16 separate and successive calculations in order to achieve a return of Surtax. We are not all Professor Wheatcrofts. I remember him when he was a comparatively young man and when he used to be able to play 32 games of chess at once. We are not all capable of playing 32 games of chess simultaneously, but unless there is simplification of taxation we shall all need to be senior wranglers before we can deal with our own Income Tax returns.

I come finally to the subject of integrating our tax system with the European tax systems. The Chancellor said that he was having this subject looked at. There is very little time to do so. The Prime Minister has frequently said that it is his intention to get into Europe as, fast as possible—I gather, in the foreseeable future, but in Europe there is a rapid movement away from direct and towards indirect taxation. In January of next year the highest rates of direct taxation of salaries in France will be well under 50 per cent. and the maximum rate on any income in France will be about 70 per cent. That is the way in which taxation is moving in the European Economic Community. Unfortunately, we must live with a very high incidence of tax which is needed to pay for the social programmes to which both sides of the House are committed.

I sum up this Budget as a most disappointing Budget, the most disappointing to which I have ever listened. As my right hon. Friend the Member for Bexley (Mr. Heath) said, it is a Budget of missed opportunities. If I had been Chancellor of the Exchequer, I would not have dared in the present stagnant state of the economy to produce a neutral Budget of this nature. What is needed is a break-out, and that is just what we have not had from the right hon. Gentleman.

6.4 p.m.

Photo of Mr Christopher Rowland Mr Christopher Rowland , Meriden

In some ways I agree with the hon. Member for the City of Chester (Mr. Temple) that this Budget is disappointing, but it is disappointing for journalists. It is not a newsworthy Budget, but it is none the worse for that. There is always a tendency in politics to confuse activity with policy, and I see no reason to believe that having a Budget which does not make sweeping changes is of itself a bad thing. If anything, it shows that, broadly speaking, the Government's policies are beginning to work and are proceeding satisfactorily. I have never seen why we should commit ourselves to sweeping changes in tax levels, or in the tax structure, at one point in the year. If it so happens that sweeping changes are not needed, it would have been foolish to have made them.

The hon. Member referred to an alleged cut in the standard of living. I will not dispute his figure. I have always taken the view that, especially in the last year, when people have spoken of the need to pay our way, to tighten our belts, what they have really meant, but what few of us on either side of the House have had the courage to say, has been that we must make a small cut in the standard of living.

If that is correct—and I am inclined to think that it is—if anything the Government deserve credit for their courage in having done it. However, there are few who are prepared to say that openly. I did on "Panorama", which is about as open as one can get in this country, although whether it does one any good or gets one any credit in politics I am not yet sure.

I tried to catch your eye so early in the debate, Miss Harvie Anderson, because I want to speak especially about one subject, and in this I am prompted by my right hon. Friend's speech. I want to refer to a change which has attracted a good deal of comment, partly because there is not much else to comment about. It is the cut in the level of tax on three-wheeled motor cars and motor cycles. I do so for the very good reason that in my constituency there is the Reliant Motor Company, the leading maker of three-wheeled motor cars, which has another plant in the neighbouring constituency of Lichfield and Tamworth. Also in my constituency is the Triumph Motor Cycle Company.

I am in the unexpected position—I did not expect it three hours ago—of being able to give almost undiluted praise to the Chancellor for his announcement in this respect. The reason why this step has had to be taken is fairly simple. The people who want to buy three-wheeled motor cars are generally of modest means. In the last year they have not enjoyed much overtime work, and some of them have lost their jobs. The market has been extremely hard hit, which has been very serious for the firms involved.

In addition, people often buy a three-wheeled motor car as their first vehicle and therefore are not in a position of having another vehicle to trade in, which means that the level of deposit is of crucial importance in deciding the volume of demand. For those combined reasons, the industry has been having a very tough time recently, and I am glad that my right hon. Friend has seen fit to respond to the representations which have been made to him. I hope that he will now give a shot in the arm to the three-wheeled motor car firms and to the motor cycle firms in my constituency and elsewhere, for they have a very good export record and they want a good home market on which to found and expand their exports.

It is difficult for him to comment himself and so I should like to pay tribute to my hon. Friend the Parliamentary Secretary to the Ministry of Health, the hon. Member for Lichfield and Tamworth (Mr. Snow), who, in his constituency capacity, has fought with the utmost tenacity for this concession, primarily with the Board of Trade. We are glad to see that his efforts have now borne fruit.

The problems of these two industries have been correlated to a great extent with the rise of unemployment and the reduced purchasing power among some sections of the community. I take issue with my right hon. Friend on one matter. I would not like it to be thought that unemployment in a relatively prosperous area like the Midlands was necessarily any more tolerable than unemployment in a less prosperous area. There is a danger that the statisticians in the Treasury, taking the view that there are more jobs available than there are people seeking jobs, will think that everything is all right. But people are interested not only in the number of jobs but in the type of jobs. In the West Midlands, people have lost good jobs, by which I mean well-paid jobs. It is therefore important that we should consider unemployment qualitatively as well as quantitatively. Redundancy payments do not always solve the problem for the well-paid car worker who has lost his job or the well-paid contract colliery worker who has lost his job.

The Chancellor of the Exchequer was at pains not to make clear the level of overall unemployment at which the Government intend to operate the economy. I do not criticise him for that, because I think that it is clear to anybody who has any pretensions to economic literacy that the level of unemployment plays a part in determining the overall level of demand which is of crucial importance in the calculations of the Chancellor of the Exchequer. The quality as well as the quantity of jobs is important.

At the moment, in the West Midlands the National Coal Board is offering inferior jobs to coal miners who have lost their jobs, or are liable to do so, doing better-paid work, contract work, face work in collieries which have been closed. It is not always adequate to say that there is a job of some sort for a person if it is not anything like the job which he has been doing.

I should like to refer to one matter which my hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever), who now sits on the Government Front Bench, will remember I referred to in the Budget debates of nearly two years ago, and that is overseas investment. The Chancellor of the Exchequer referred today to the Reddaway Report and said, not unfairly, in summarising it in a sentence—I wished that he had said a little more about it—that it confirms the policy of selectivity in overseas investment.

Most of those, including myself, who were critical of the effects of Corporation Tax on overseas investment two years ago always have been in favour of selective disincentives to overseas investment and in favour of more information. The Reddaway Report gave us the information. It now rests with the Chancellor of the Exchequer to pursue a more selective policy.

The trouble still is that the Corporation Tax makes all new and existing overseas investment less attractive than investment at home. This will become more and more so as the overspill relief tapers off. If there is one thing which the Reddaway Report does not prove it is that there is not a bias in the present tax system relating to overseas investment. My hon. Friend the Member for Cheetham will remember the almost theological argument which we had on this subject. I am delighted that he is now in the Government, because he is one of the people capable of comprehending the theology of this subject along the lines in which I believe.

The Government have shown, perhaps rather late in the day, but nevertheless it is a good thing, that they are capable of adjusting the incidence of the Selective Employment Tax. On overseas investment it is still operating as an unselective overseas investment tax. I hope, therefore, that we can expect some more refined analysis and deliberations between the Government and the C.B.I, so that we can decide mutually which British investments we wish to maintain and expand and which we intend to run down.

I conclude as I began. The fact that no sweeping change is necessary, except in some cases like the one which I have mentioned concerning the motor cycle and three-wheel car industry, is the best proof that we could have that, broadly speaking, having gone through this extremely difficult time the Government and the nation are now coming through and that better times are ahead for all of us.

6.15 p.m.

Photo of Lieut-Colonel Sir Walter Bromley-Davenport Lieut-Colonel Sir Walter Bromley-Davenport , Knutsford

My criticisms of the Budget are twofold. First, the Government are spending too much money; and, secondly, as a result, taxes are still much too high and destroy incentives at all levels. This is particularly true as regards those who are successful, such as leaders of industry, on whom the prosperity and future of this country depend.

As my right hon. Friend the Member for Barnet (Mr. Maudling) pointed out in an excellent article in the Sunday Express, the highest rate of tax which anyone in the United States and France is called upon to pay is 70 per cent. In Sweden, it is 65 per cent. and in Western Germany 53 per cent. But in this country, under Socialist rule, with the surcharge, the top tax rate is 96 per cent. What does the Chancellor of the Exchequer get out of it? The answer is very little indeed. When he was asked a little while ago by my right hon. Friend the Member for Barnet what it would cost to reduce the maximum rate of tax to 14s. 9d., his reply was £4 million out of the thousands of millions of pounds which he spends.

Why does the right hon. Gentleman impose this tax, which brings in so little? After reading that article, I asked my constituents that question and they all gave me the same answer, and I give it now. The answer is, hate. But the result is the killing of initiative and enterprise, and, incidentally, the brain drain of prospective leaders of industry who no longer see any future in working hard and taking risks under these conditions.

We often hear Chancellors of the Exchequer talking about the law of diminishing returns. But I do not think that I have ever heard a Chancellor of the Exchequer of any party talk about the law of increasing returns. I should like to give an example of what happened concerning indirect taxation in Germany. I am informed that a firm called Henkel Trocken, at Wiesbaden, turned out an excellent sparkling wine on which the tax was 3 marks a bottle. As a result, 13 million bottles were sold in the market. But then the shrewd German Chancellor of the Exchequer reduced the tax to I mark per bottle and the result was that they sold not 13 million, but 85 million bottles. In other words, the tax was reduced by two-thirds and six and a half times as much wine was sold. Not only did the German Treasury get more revenue—

Photo of Lieut-Colonel Sir Walter Bromley-Davenport Lieut-Colonel Sir Walter Bromley-Davenport , Knutsford

Not on this wine.

Not only did the German Chancellor get extra revenue, but think of all the poor people who were able to enjoy the wine. Here we work on different principles. We have high taxes so comparatively few people can afford to drink.

The whole attitude of the Socialist Government, and, indeed, in other quarters, to reducing taxation is wrong. If taxes are reduced, it is said that the Chancellor of the Exchequer is giving away money. Even The Times this morning refers to the possibility of the Chancellor of the Exchequer giving away £50 million. The right hon. Gentleman gives away nothing. It is not his to give; he takes away money. All that a tax reduction means is that he is confiscating less.

Let us consider on what principles the United States works. It is a pity that we do not copy that country, but I hope that we shall do so in future Budgets. During the last 50 years, America has become the most powerful nation in the world. It is true that the Americans have had rich natural resources, but these are by no means unique. Their population has been much smaller than that of China, India or Russia.

On what has their success story been based? It has been based on the realism, initiative and enthusiasm of the American people. In the United States, profit and money-making are wholesome things worth working for, and the sky is the limit. Americans believe in the equality of men before God and the law, but not in take-home pay. Great efforts are made in America to give the best education in business methods and technology. But good men are still short, however, particularly chemists, chemical engineers and other scientists. The Americans are, therefore, boosting the recruitment of men from overseas who have high academic qualifications and industrial experience—in other words, men who can step into commercial positions and produce immediate results.

Here in England, with our colossal and confiscatory taxes and no language barrier, we are the ideal hunting ground. Every day the newspapers are full of more and more tempting advertisements from American firms describing the brilliant opportunities for our best young scientists. The bigger engineering firms are increasing the pressure and sending over recruiters to follow up their advertisements. And day by day, in ever-increasing numbers, the brain drain goes on.

How long can this continue? I believe that the present brain drain can become a flood if our ship of State persists in sailing towards the becalmed waters of easy living for all at the expense of those who have the ideas and who do the vital work.

Let me give examples of what is happening every day. A big businessman told me last week that he had just lost two vital men, one of them to Madrid, where his London salary of over £7,000 a year had been turned into a tax-free salary of £10,000 a year. To give that man an equivalent income, he would have had to pay him £70,000 a year, which would have priced the firm out of the market. The other man whom he lost was a chemical engineer, who went to an American competitor in Italy. He could have met this man's new salary, but not his tax-free income.

He could have engaged a leading scientist from France, who would have put up his export contracts by millions provided that he could have taken home £7,000 a year tax-free and have a free car and no tax kickbacks, which was what he was enjoying in France. This would have meant paying the scientist from France a salary in this country of more than £30,000 to net the required salary after taxes had been deducted.

Is it really wrong that a top man, who can bring home millions of pounds in overseas orders for the benefit of all, should be allowed to save £5,000 or even more a year for the benefit of his family? Is it not common sense to believe that our best scientists would work harder and stay here if they could keep a fair share of what they earned? Saving for one's family and others is the noblest and most potent ambition in the minds of men.

What is the answer? As was pointed out in the Daily Telegraph some months ago, the reason for the crisis in our economy is really a simple one and the approach to it is equally simple. With each month that passes, Britain becomes a less attractive place to put money and a less attractive place to keep money. So long as this state of affairs remains and so long as there is such a strong prejudice against those with money and against those making and keeping profits, money and people will flow steadily out of this country. It has been the experience of every other country without exception that increased restrictions, unless they are widely accepted as just by those affected, serve only to accelerate the outflow of money and people.

If we start now to make Britain a tempting place in which to invest, our economy will be sound, but if investors are penalised or hampered at every turn we shall move steadily towards disaster. That disaster will hurt the poor more than the rich, even if we have a full-scale Left-wing tyranny. Redistribution of poverty is no solution. When the politicians, of all parties, realise the overwhelming importance of tempting business in rather than frightening it away, and when they speak and act as if they meant it, we shall have a happier and more prosperous country for everyone, rich and poor alike.

6.26 p.m.

Photo of Mr Raymond Dobson Mr Raymond Dobson , Bristol North East

I listened with great interest to the speeches of the hon. and gallant Member for Knutsford (Sir W. Bromley-Davenport) and the hon. Member for the City of Chester (Mr. Temple) with one main thought in mind. I was anxious to hear whether they would offer any alternatives to the Budget presented this afternoon by my right hon. Friend the Chancellor of the Exchequer.

Both hon. Members spoke a great deal and gave some useful thoughts to the Committee, but they can be condensed into two, each of them concerning taxation. One suggested that a reduction of direct taxation was possible and the other suggested simplification of the tax system. I do not want to follow their arguments very far except to say that I do not share their thoughts that that is the supremely easy job that the Budget can do and that it would increase our prosperity if it were to do it.

There are several reasons that we can learn from what the Government have been trying to do in the past two years. One is that they have not restricted themselves to fiscal and monetary policies. They have learnt to a very large degree the finesse of controlling the country's economy in such a way that they use a whole range of measures, of which the Budget is only one and, to some extent, a rather slighter one as the years go by.

The mere fact that the Government are aware of the need for central Government control is in itself a good thing. One of the strong points that came out of my right hon. Friend's Budget speech today was that we were making up the backlog of previous years. Do not hon. Members opposite agree with the figures set out in the Economic Report for 1966, which showed clearly that in 1964 we had a balance of payments gap of £761 million but that in 1965, thanks to the measures proposed by the Government, it was reduced to 348 million and by the end of 1966 to £189 million?

If one follows the arguments from right hon. and hon. Gentlemen opposite to which we have been listening, surely one is entitled to say that the Opposition ought to be suggesting better ways of controlling the economy so that we do not overspend and can balance our Budget properly. In his last two Budgets, my right hon. Friend the Chancellor has been doing precisely that, and most of the things which he has been trying to do have come out all right despite setbacks of which we are aware. In 1965, we managed to increase the value of our exports by 7 per cent. In 1966, the increase was 6½ per cent. There has been an increase in the volume of exports, though it has been very small.

As the hon. and gallant Member for Knutsford said, we have to export more, and it is significant that in 1965 and 1966 we increased our exports to the United States by 50 per cent. In other words, if the measure of economic force is the United States, the fact that we have increased our exports to that country by over 50 per cent. in two years is an indication that we have been able to compete in that very competitive market.

I was pleased to see that the Government have now taken real steps to stop the drain of defence expenditure overseas. I recall that in the course of his Budget statement last year, my right hon. Friend the Chancellor said: I emphasise the last few words of that quotation: ' some means is found for meeting the foreign exchange costs of these forces'."—[OFFICIAL REPORT, 3rd May, 1966; Vol. 727, c. 1449] He was referring there to our forces in Germany particularly.

I welcome the fact that my right hon. Friend has been able, apparently, to get into the realm of almost wholly writing off the cost of our forces now stationed in Germany. It is a creditable effort, if he has been able to do it. Many of my hon. Friends are sorry that he has not been able to do it before, and I expect that he and the hon. Member for Manchester, Cheetham (Mr. Harold Lever) share that view. To have got into that state earlier would have been a much happier situation for this country.

One of the centrepieces in my right hon. Friends' Budget is that the Government have realised not only that they can control the economy in all sorts of ways, but can do it against the background of regional development. We hear much more today about regional economic development and the need to balance out the regions. Everyone has accepted the need for balance between the regions for a long time, but, in the past. Governments have not wanted to tackle the problem in that way. I come from the South-West, and for that reason I ought to be pleased with the Budget, because we have a large amount of part-time unemployment in the hotel, catering and tourist trades, and we have a large proportion of service industries, particularly that of retail distribution which has a high percentage of part-time workers.

I welcome the move to make some change in the basis of the Selective Employment Tax. The tax itself has not upset the economy of the country very much, and that is in direct opposition to many of the statements from right hon. and hon. Gentlemen opposite. It could be shown that this is correct in relation to the South-West, in particular, but I do not intend to spend time on that now.

One other refinement in relation to the Selective Employment Tax which I was hoping that the Chancellor would bring in was to put the construction industry into the refund or premium classification. The reason I say that is that it is such an important section of industry, particularly in the expanding areas of the economy. One sees the order of size of the industry in the Standard Industrial Classification, and it is difficult to see which sections are excluded. It reads: Erecting and repairing buildings of all types. Constructing and repairing roads and bridges; erecting steel and reinforced concrete structures; other civil engineering work such as laying sewers and gas mains, erecting overhead line supports and aerial masts, opencast coal mining, etc. The building and civil engineering establishments of Defence and other Government Departments and of local authorities are included. Establishments specialising in demolition work or in sections of construction work such as asphalting, electrical wiring, flooring, glazing, installing heating and ventilating apparatus, painting, plastering, plumbing, roofing. The hiring of contractors' plant and scaffolding is included. I read the classification because it seems to me that it is at the very core of what we are trying to do to improve not only our social facilities, such as hospitals and schools, but also our personal needs in term of housing, office building and all the other things required in our localities. I want the Chancellor to look again at the possibility of including Instructional Order 17 in the new arrangements which he can propose.

One of the things which could have come out of the Selective Employment Tax was a very delicate control not only of taxation rates, but the way in which different groups could be put in and taken out to get more established Government control. It is fortunate that my right hon. Friend has recognised the importance of overseas construction work, which will be of great benefit. I only wish that he had done it in relation to what we need in this country.

The document on the regional employment premium is a very valuable one. The economic case for the regional premium has been very largely made out, despite the fact that there are obviously some disadvantages. It brings out clearly that, if there are increases in manufacturing industries in development areas, there is inevitably a slight spin-off into service industries due to the increased industrialisation in the area. However, there is still not enough done to bring manufacturing industry into the development areas.

Bearing in mind that the development areas are extremely large ones—the whole of Scotland, the whole of Northern England north of a line roughly between Scarborough and Barrow-in-Furness, central and southern Wales, and the whole of Devon and Cornwall—in the last year the Government have controlled industry in a rather negative sense by means of industrial development certificates only to the extent of 41 per cent. moving into development areas, which means that 59 per cent. were allowed to go elsewhere.

In the scheme of things, I thought that that was a bad balance, and I hope that it will be looked at and improved in the future. I would be in favour of the regional employment premium, provided that it recognised the need for some widening of the Selective Employment Tax and made sure that we used industrial development certificates in a better and more constructive way to help the development areas.

I hope, too, that the Government will not fail to use their powers under the Industrial Development Act. In Section 1 there is provision not only for assistance to industry in development areas, but the power for the Government to set up their own factories in development areas to help unemployment and progress in the regions. I hope that the Government will utilise their powers in that respect. I hope that more of this will be done during the next few years.

The most serious problem with which my right hon. Friend has had to contend has been the small rise in productivity during the last few years. Total production last year was only 1¼ per cent. above that for 1965, and industrial production showed an increase of only 1 per cent. Even worse were the figures given in the Economic Report for 1966, which showed that there had been a 3½ per cent. turn down.

On the whole, I was very impressed with the Budget, perhaps most of all because it did not contain any highlighted specialties. The only special thing about the Budget is that this is probably the last occasion on which the Committee of Ways and Means will meet to consider it. I was impressed with the Budget because in it my right hon. Friend seemed to be grappling with the main problems which face us.

I do not want to see a reduction in the standard rate of Income Tax while we still have not supplied the schools, the educational facilities, and the social provisions which we need. Frankly, I think that we can stand not having the 3d. off the standard rate of Income Tax, provided that we use the money for the things to which I have just referred. The Government have a very good record here compared with the record in previous years, but they need to improve even that record if we are to get the sort of social progress which we require.

I am sorry that my hon. Friend the Member for Meriden (Mr. Rowland) has left the Chamber. I am a little disappointed that the tax has been removed from motor cycles. They are a danger on some stretches of road and one is never sanguine about one's children wanting to use motor cycles. I accept that a motor cycle is useful to my hon. Friend, but I repeat that I regret the removal of the tax on them.

As the Chancellor made clear this afternoon, I think that we have to bear in mind the need to continue the prices and incomes policy. I got the impression that my right hon. Friend was saying that nobody could afford to relax, and that there was still pressure on various sections of the economy. We must continue with this policy.

I agree with the terms of the Budget, and I hope that my right hon. Friend will in due course take note of the criticisms which I have put forward.

6.42 p.m.

Photo of Mr Rafton Pounder Mr Rafton Pounder , Belfast South

The interesting and recurring theme of the three speeches which we have heard from the back benches opposite is that the Chancellor has seen fit to make no taxation changes, and this, therefore, shows that the economy is coming along quite well. I beg to differ fundamentally from that point of view. Following the period of the unprecedented freeze and squeeze during the past nine months it is essential that industry should get moving again and should be encouraged to do so. The quickest, simplest, and most common-sense way in which this can be accomplished is by reducing the taxation burden both on individuals and on companies, and yet in the Chancellor's statement this afternoon there was not a squeak about this.

The hon. Member for Bristol, North-East (Mr. Dobson) said that my hon. Friends had not told the House how they would reduce taxation, having said that they would like so to do. I, too, belong to this school of thought. I would like taxation to be reduced, and I suggest—I am not saying that this is a cast-iron case—that if one looks at Table II on page 5 of the Financial Statement for 1967–68, under the heading" Other Supply, Item IV", one sees an increase in expenditure of £995 million for industry and transport in the estimates between 1966–67 and 1967–68. No doubt a substantial part of that is accounted for by the nationalisation of steel and one or two other harebrained schemes. I think that some of this money could be utilised towards a form of either individual or company injection by means of a reduction in tax.

When there are conditions of incentive and competition, where individual and corporate initiative can be fully utilised, then and only then can the country hope to take its rightful place as a premier industrial nation. The present penal levels of taxation are stifling industry together with encouraging the brain drain and the emigration of skilled men whom we can ill afford to lose. This has been referred to by my hon. Friend the Member for the City of Chester (Mr. Temple) and my hon. and gallant Friend the Member for Knutsford (Sir W. Bromley-Davenport).

I think that what I am saying is particularly relevant when one looks at the top ceiling of British taxation on individuals and realises that it is 96 per cent. compared with 70 per cent. from its nearest overseas rival. These are not edited figures. The full table is available for anyone to see. Without any alterations or omissions one sees that we are leading the table by 26 per cent., yet this is a league table in which I am sure we all wish to be nowhere near the top. But today nothing has been taken off either company or individual taxation.

I accept, of course, that this country has only limited financial resources and that these must be used to the best advantage, The Chancellor said so this afternoon and this is the one point on which I fully agree with him, but v/hat has he done about it? The answer is, absolutely nothing. Last year's Selective Employment Tax was a nonsense. Its aims were questionable, and its application has been disastrous. The transfer of "Bunny Girls" into the coal mines has not come about, and who thought it would?

The minimal change which has been made this afternoon in the structure of S.E.T. is really only a fleabite at best. I grant that the Chancellor has made some concession to the tourist trade which is one of the nation's expanding currency earners. I am not familiar with the tourist trade in the west of England, or on the Lancashire or Yorkshire coasts, but I am familiar with the tourist trade in Northern Ireland, and it, like its counterparts over here, has been developing rapidly in recent years.

This industry was hit hard by the imposition of the S.E.T. and I think that my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) was right when in a recent speech he said that S.E.T. did not need reform, but chloroform. This marginal alteration in the S.E.T. provisions in respect of part-time workers engaged in hotels, and so on, represents a slight easing of the problem, but amounts to virtually nothing, because at the height of the season there are very few part-time workers in the business—it is nearly all full-time employment. It is only next month and in September that one will see any kind of part-time employment in the tourist industry.

Today's Budget is the biggest non-event of 1967. It is easy to put a brake on the economy. It is only when one takes one's foot off the brake that the dangers and pitfalls emerge. No attempt has been made in this Budget to come to grips with the prescription for expansion which this country so urgently requires. It is essential to move away from the economic seige conditions of the recent past. I do not think it unfair to say that the Chancellor has done nothing to create or stimulate an atmosphere in which the conditions necessary for expansion can be found. Stating a problem is one thing, I accept that doing so is the easy end of the scale, but the Chancellor is the one person who is in a position to take remedial action to get the economy going again and yet he has done nothing to this end.

Despite the Prime Minister's protestations of 20th July that he would seek to protect development regions from the squeeze, the pattern which developed during the winter months showed that his aims were not realised. It was inevitable that this would happen, because so many of the newly-created factories in development areas are branch factories of parent companies situated in the Midlands and the South-East. When some contraction was necessitated it was inevitable that this should take place in the branch factories, and this is what happened in Northern Ireland. We were faced with a series of the regrettable consequences of this pattern on an employment situation which hitherto had been looking more satisfactory than for some time past.

Last month, unemployment in Northern Ireland rose to over 8 per cent., and the fact that it was not higher had nothing to do with the Government. I am not being fractious; I am being strictly accurate. In Ulster—and this is probably true of development areas in Great Britain also—the economy is inherently a small company economy. These companies realised much of their hard-earned and preciously conserved reserves to tide them over the winter period until better days came. I speak as an accountant, with some knowledge of these matters, and I can say that many of these companies used up a great percentage of their reserves and resources in order to keep their labour forces more or less intact.

I am not criticising what these companies did, far from it, but the danger which is inherent in this situation is that should there be another squeeze—and who is to say when this might happen; let us assume that it will be later this year or early next year—these companies would not be able to cushion themselves against the ensuing icy blast, and it could be that development areas and areas of under-employment would be in as bad a position next winter as they were during the last one. They might even be in a worse position. It is therefore a great mistake, just because matters did not develop as badly as we feared in the autumn, to assume that the situation is as rosy as the Chancellor pretended this afternoon.

The development of the regions depends upon expansion in the private sector, and there has been an undoubted bias by the Government towards the public sector. Quite apart from the political arguments which a preference for the public sector must evoke, it is questionable whether, economically, it makes sense to penalise private enterprise companies as they have been during the past two and a half years if we hope or desire to attain a uniform standard of prosperity throughout the United Kingdom.

I was amazed when, this afternoon, the Chancellor said that when private investment recovers there will be room for it. I should jolly well hope so! In a mixed economy like ours it is essential that there should be an extensive private investment programme.

I had hoped that the Budget would outline the beginning of the simplification of our tax structure, but it is not to be. Among the plethora of forecasts and estimates with which the public is bombarded annually at this time of the year the one which stands out is the Board of Trade's estimate that investment in manufacturing industry was likely to fall by 10 per cent. during 1967 as compared with 1966. That is terribly serious. The Chancellor is not being fair when he says that when the economic situation changes investment programmes can be resuscitated, and that this figure of 10 per cent. may not prove accurate in the context of our economic improvement. I do not accept that argument.

It is easy to cut back an investment programme merely by a stroke of the pen, but it is difficult, in the short-term, to get a shelved investment programme into operation again. Therefore, the cut back which has been estimated in investment in private manufacturing industry must have a substantial and perhaps serious effect on our industrial expansion prospects this year and upon our power to increase efficiency and our attempt to maintain international competitiveness, in a situation in which our exports can prosper and, therefore, the country can prosper.

Industry is not optimistic about its prospects for 1967. Successive C.B.I. surveys—which are quite impartial—make it clear that obstacles to enterprise, efficiency and expansion must be eradicated, but not a word in the Budget announcement was calculated to lift the prevailing mood of uncertainty. There was no stimulus to hearten industry. During the past three years public expenditure has rocketed by £1,769 million. Couple this with stagnation in pro- duction and one wonders whether the nation can prosper.

Surely the time has come when public expenditure must be brought under control. It is questionable whether this country can afford such levels of expenditure. This process cannot continue without storing up grave trouble for the future, making further tax increases inevitable and eliminating any prospect of getting rid of the disincentives inherent in the present burden of taxation. In the past 2½ years higher levels of taxation have been the order of the day in every Budget and mini-Budget. Today there were no big increases, but nothing has been done to encourage enterprise and initiative.

There is one interesting statistical figure which indicates the sort of disincentive under which the country is now labouring. In 1964 a married man with two children, earning what was then the average industrial pay packet, paid £23 in tax on additional overtime earnings of £100. In 1967 the figure is £32 per £100 of overtime earnings. It is no good claiming that this can be accounted for by the fact that the average pay packet increased during the intervening three years; this is a bogus argument. It is a clear case of increased taxation to a large extent absorbing the extra £9 which, hitherto, had gone into the pocket of the individual concerned.

We have to get away from short-term expedients, with each expedient creating fresh problems that work against our long-term national prosperity. Stagnant production and falling investment, to both of which we have been subjected in the past 2½ years, are the ingredients of economic doom. Nothing has been done in the Budget to combat either.

The Chancellor paid tribute to the increase in National Savings. This has surprised me, as I have in front of me a table of net receipts in National Savings for the years 1964, 1965 and 1966 and, contrary to what I understood the Chancellor to say—namely, that national savings were improving—there has been a down-turn of £395·3 million in the last two years. This is a drastic fall. But not only National Savings have been falling; all personal savings have dropped, and have virtually reached the point of standstill. If we were able, somehow, to encourage a re-infusion of savings, of whatever kind, it would help to prevent future tax increases. Although the Chancellor made one or two minimal alterations in respect of holdings of Savings Certificates, they represented nothing like the boost which could have been expected.

What was there in respect of fuel tax? Instead of the reduction that some expected there was a rounding up of a ½d. or an increase of 1 per cent. Many development areas are at the end of long transport lines. Northern Ireland is a case in point. Fuel costs are of enormous relevance to economic development in this area—and this applies to the Highlands of Scotland as much as to Ulster. A practical and effective way of assisting these regions would be to bring in some form of fuel tax reduction—perhaps a small one in the first place. I know from my experience of living and working in Northern Ireland—quite apart from having my constituency there—that transport costs over the years have presented a considerable barrier to economic expansion and development and to the attraction of new industries.

Having listened with great care to the Chancellor I cannot believe that this is the only Budget that we shall have in 1967.

6.58 p.m.

Photo of Mr Laurie Pavitt Mr Laurie Pavitt , Willesden West

The hon. Member for Belfast, South (Mr. Pounder) has echoed the theme song that has run through all the speeches made by hon. Members opposite. Their major points have been that the Chancellor should have decreased direct taxation and public expenditure. I differ from hon. Members opposite in my attitude to both these points. I well recall the phrase that went the rounds a few years ago, during the "we never had it so good" period. The phrase was, "private affluence and public squalor."

I am certain that we came out of our last two economic crises in the wrong way, by having a direct reflation in respect of consumer goods. The Chancellor has been wise in being prepared to provide good public services and public administration. If people want good things they have to pay for them.

In our debates there has often been criticism of Government administration from the benches opposite. If there is to be an increase in social security and social services provisions, inevitably public expenditure will increase. If I had to choose between hospitals, schools, roads and liner freight trains, on the one hand, and washing machines and vacuum cleaners, on the other, I would choose the former every time.

The Opposition's other main theme has been that of the incentive of a reduction in direct taxation. This is the seventh Budget that I have heard. I remember that in that presented by the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd) he made great play about the need for further incentives and gave a large amount to Surtax payers. I fought all night, shortly afterwards, to get a few shillings a week rise for nurses.

We must be selective. A reduction in direct taxation does not mean that firms will immediately export more. In every Budget during the five years that I was in the House when the Tories were in power, we were told this. We pleaded for business firms to accept the incentives and produce and export more, but it never worked. They received the inducement but failed to deliver the goods. The present Government and Chancellor have the right approach in trying to be selective, putting pressure on and releasing it wherever either method will do most good.

I have heard the voice of the hon. and gallant Member for Knutsford (Sir W. Bromley-Davenport) resound many times through the Chamber, but have never had the good fortune to follow him. He made the point that the lack of the incentive of a reduction of direct taxation leads to a brain drain. I hope that he has read the reports in today's newspapers of the excellent lecture by Professor Titmuss, on the economic consequences of this for the United States. We pay £7,500 of taxpayers' money for every man trained to be a doctor. If he then goes to the United States, they cash in on our investment; this goes on throughout every sector of the brain drain. This is a subsidy to the United States coming not only from this, but from poorer countries which is of a size and potential to be able to do without it. America could do its own training, and could afford to pay for it.

The Chancellor has done about right in this Budget. If I were Chancellor I should be delighted to play Father Christmas and make people pleased and get pleasant headlines in the Press, but, after a period in which the Government have had to take unpopular measures and difficult decisions to organise the economy—when it must have been a temptation for the Chancellor to ease things a little—he was right more or less to hold a standstill, giving a little where he thought that it might be useful, and to raise the whole question of the use of Selective Employment Tax to bring down unemployment in the regions where it is unduly high, until he could be certain that any other action he takes will be the most effective.

I welcome my right hon. Friend's promise to stop gaps where tax is avoided by astute accountants. One of our great objectives in every Budget is fair play, and the Pay-As-You-Earn taxpayer is always a little unhappy because his taxation is deducted weekly, no argument, and any refunds to which he may be entitled are secured only with some effort. I remember one hon. Gentleman opposite pointing out that his accountant saved him his whole Parliamentary salary and advising hon. Members on this side to do the same. There are many ways in which the taxation laws can be circumvented and I welcome my right hon. Friend's statement that he will take special measures to prevent them.

I think that both sides welcome the concessions to widows with children and single women with dependants. The whole community will favour this further fiscal assistance. I am disappointed, however, that more help could not have been given to old-age pensioners who are still in employment, especially as it is estimated that by 1990 there will be 10 million over-65s.

We were glad that the Government got rid of the earnings rule for widows two years ago, which meant that they could go to work to bring up their children without the amount of their pay being docked from their pensions. I am sure that we would also welcome fiscal measures to reduce the burden of the earnings rule and the incidence of taxation on elderly working people when the economy can stand it. This is a measure of social justice which must have a high priority in the Government's thinking.

As one who fought hard last year for an alteration of the Selective Employment Tax, I am glad that the Chancellor has brought down the tax for those working between eight and 21 hours a week to 50 per cent. of the former figure. We still have the "put-and-take" methods of paying in and then getting 50 per cent. back; this is an inconvenience in many ways.

The tax has operated hard on the retail trade and distribution. I have an interest here. I am a Co-operative Member and am, naturally, interested in the way in which such a tax bears on a publicly-owned organisation like the Co-operative movement.

Over the last 12 months, the number of people working between eight and 21 hours a week fell considerably, by about 11 per cent. These were largely married women who were doing a useful job. One of my differences with the Chancellor is that I cannot so arbitrarily divorce services from production. They are both different sides of the same coin. We cannot have successful industry and commerce if the services which enable it to work are not able to do an efficient job.

I am disappointed that the Chancellor said nothing about the anomalies of Selective Employment Tax, particularly at the continuation of his reliance on the Standard Industrial Classification, a list compiled for an entirely different purpose, as the test of whether people are "in" or "out" for repayment or premiums. An example of the anomalies in retail distribution is that of milk processing, which is part of the production of milk and without which it is illegal to sell milk. If it is processed, those who do it still come within distribution, although they are producers.

People who are self-employed get a tremendous advantage in this respect and I hoped that the Chancellor would say something about the difference between the self-employed who do not attract S.E.T. and those in other spheres who do. There has been an increase in the number of people who leave regular work and become contract workers, thus avoiding the tax. I hope that, when my right hon. Friend considers methods of stopping gaps in the avoidance of taxation, he will find some way of getting round this.

I was surprised to find that coffin-makers are in an anomalous position because of S.E.T. If one's coffin happens to be made by someone in association with a funeral undertaking, the workers are taxed, but if a carpenter makes one's coffin separately, this comes within Order XIII, Minimum List Heading 479, relating to other wood manufacturers, and not only is the tax not paid, but a premium is received for it.

Without wishing to be morbid, it is ridiculous to think that in choosing one's coffin or undertaker one must be careful to note on which side of the industrial classification one falls because, depending on that, the coffin will be cheaper or dearer. My right hon. Friend will no doubt tell me that he hopes that the tax will not be passed on to the consumer. In this case, he can be certain that the user of the coffin will not pay any tax any longer.

There are a number of other anomalies which I had hoped my right hon. Friend would have been able to clear up. An interesting one applies to sausage manufacturers. A sausage and meat factory receives a separate premium, while if one's local butcher makes sausages he must pay the tax. The same differentiation applies to shop fitting contractors and bespoke tailors. We are anxious to have more efficiency and economy in the community. We hope that people will make their shoes last longer. However, if one has one's shoes repaired, the shoe repairer pays the tax. If one buys a pair of new shoes, the man who produces them gets the premium. In a Budget debate these anomalies may seem trivial, but they are the sort of things that make commerce and industry tick. We must do all we can to prevent unfairness in the operation of our taxation laws.

I had hoped that my right hon. Friend would do something about investment allowances on commercial buildings for other than productive factories. On the basis of the plea that I made previously—that service is a general part of the process of an efficient community—a shop which turns over to self-service or which computerises or reorganises and manages to centralise its warehousing, thus making it more efficient and enabling it to pro- vide a cheaper service to the consumer, is worth our notice and we should encourage these trends. The investment allowance was withdrawn by the Board of Trade some time ago. I hope that, as the economy strengthens, my right hon. Friend will consider this aspect of investment allowances for other than production, remembering that the services offered by the retail distributive trade and others is of great importance to the community generally.

I hope that, in spite of the tremendous amount of economic pressure that exists for more and more production and exports, we will not disregard the services that are offered to the community. There is a tendency to think that those who offer services are second class citizens. We do not go out of our way to give praise and support to, for example, the milkman who delivers milk in two feet of snow somewhere in the wilds of the constituency of my hon. Friend the Member for Glasgow, Govan (Mr. Rankin). That milkman is offering a valuable service, particularly to old people. Meanwhile, the man who, in Burton-on-Trent, is making beer not only gets S.E.T. back, but receives premium as well.

I also hope that, in our attempts to improve the economy, to make greater advances with our production and exports, with the need to redeploy labour, and so on, we will not become too materialistically minded and that we will remember that while the man who produces goods is given every encouragement the man who provides the services which make it possible receives no fiscal or financial help whatever. This discrimination has never been the policy of the Labour Party and I hope that, despite the great pressures in the present economic situation, it will not become the policy of this party to penalise those who provide valuable services to the community.

7.15 p.m.

Photo of Mr Norman St John-Stevas Mr Norman St John-Stevas , Chelmsford

I hope that the hon. Member for Willesden, West (Mr. Pavitt) will forgive me if I do not follow him into the byways and sufferings of coffin purchasers and sausage manufacturers, but turn to the general theme of the Budget.

There seems to be a death wish hanging over the supporters of the Government today, because we have not only had the obsession of the hon. Member for Willesden, West with coffin buyers, but, earlier, we had a long necrophiliac metaphor from the hon. Member for Blaydon (Mr. Woof), the relevance of which I was unable to follow.

If this Budget proves anything—and I presume that it must prove something—it surely shows the Chancellor's complete lack of psychological acumen, for the Budget is still a great national occasion. It is an opportunity to make new departures in fiscal and economic policy and to stimulate not only economic activity, but to appeal to the heart and imagination of the nation. But today we had from the right hon. Gentleman a dreary survey of the economic situation delivered in a turgid monotone—a survey which any of us could have found in a child's guide to economics, or from an examination, if we had the time, of the spate of White Papers that have been pouring out from Government offices in recent days.

We also had a sort of pot-pourri of minor changes, of which the most explosive was that in relation to the relaxation of restrictions on the hire-purchase of motor-cycles. This is likely to be known as the exhaust pipe Budget, because it will increase the amount of noise but is likely to increase nothing else. Once again, an important opportunity has been thrown away. The Chancellor said that it had been an off year for the economy. It has also been an off day for the Chancellor.

My right hon. Friend the Leader of the Opposition found great difficulty in seeing a theme in the Budget. But the Chancellor provided one when he said, in dealing with some minor adjustments in the rates of Purchase Tax, that the final result would be roughly the same. To my hon. Friends that is much more a threat than a promise. What is disturbing to the Opposition is that the Budget promises a continued discrimination against the private sector of industry and a continued upsurge in public expenditure.

The Chancellor said, in a phrase which I am sure he would not claim he originated, that it was not his intention to kill the goose that laid the golden eggs. I fully accept that it is not his intention to cut the goose's throat, but there is more than one way of dying. One can die just as surely by a process of slow strangulation as by a short, sharp stroke—and when one is a corpse it is a matter of comparative indifference what has been the cause of death.

Photo of Mr David Steel Mr David Steel , Roxburghshire, Selkirkshire and Peeblesshire

The hon. Gentleman is obsessed with death, too.

Photo of Mr Norman St John-Stevas Mr Norman St John-Stevas , Chelmsford

One cannot escape infection from the air one breathes.

The signs of weakness in the economy, and particularly in the private sector, are unmistakable. The most deadly statistic of all is that applying to the decline of private investment in manufacturing industry. The figure represents a fall of about 10 per cent., and that is only partly compensated by the rise of 8½ per cent. in investment in the public sector, because that is investment of a different nature.

The Chancellor said that he wished to dispose of what he described as the mischievous view held by the Opposition that public investment was unproductive. That is a gross distortion of the view held by my right hon. and hon. Friends. We do not consider public expenditure or public investment to be mischievous. What we regard with abhorrence is the distortion of the economy so that public investment expands at such a rate that it undermines investment in the private sector.

The Chancellor of the Exchequer went on to mention the incomes policy and singled out for praise the cautionary words of the General Secretary of the T.U.C., Mr. George Woodcock. Apparently, Mr. Woodcock had said that the alternatives to an incomes policy were a rise in unemployment, a reduction in the growth rate and increased taxation. The objection of the Tory Party is not to an incomes policy as such. As my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) has said on more than one occasion, we believe that it has an important though minor part to play. Our objection is that we have not only had an incomes policy, but have had all Mr. Woodcock's alternatives as well. We have had a rise in unemployment, we have had a reduction in growth rate, and we have had increased taxation. That is the essence of the Opposition's criticism on this point.

Photo of Mr James Dempsey Mr James Dempsey , Coatbridge and Airdrie

Can the hon. Gentleman give examples?

Photo of Mr Norman St John-Stevas Mr Norman St John-Stevas , Chelmsford

I will provide the hon. Member with examples in due course, and I hope that he will be here to hear them.

The right hon. Gentleman then passed to the role of monetary policy in the economy, and particularly to the part played by the banks. In this passage of his speech he announced a startling change. He said that from this time on demands for special deposits were no longer to be regarded as crisis measures, but as routine adjustments. All that means is that we shall have a crisis all the time. I do not know whether the Chancellor of the Exchequer is a philosophical nominalist, but unless he is he really cannot believe that that portentous announcement has made any difference at all to the situation.

My three general groups of criticism of the Budget are as follows. The first, and by all means the most important, is the lack of any concrete proposals to stimulate economic growth, and I link this with the failure of the Government to curb public expenditure. My second major criticism is of the inadequacy of the right hon. Gentleman's medium and long-range forecasts of development of the economy. My third set of criticisms concerns the missed opportunities that are strewn throughout the Budget with a non-seasonable profusion like autumn leaves.

I deal, first, with the question of economic growth. I concede fully that the Government have had considerable success in righting the balance of payments, and I agree with the Chancellor of the Exchequer that in 1967 we are likely to have a substantial surplus in the balance-of-payments account. I would put it at between £150 million and £200 million. Some credit is due to the Government, but the vast majority of the credit is due to British industry—to the workers in industry, and the managements in industry, who have made this supreme effort and have done so well—

Photo of Mr Norman St John-Stevas Mr Norman St John-Stevas , Chelmsford

The hon. Gentleman says that they have always done it. I would say that they have tried to do it, but have frequently been impeded by Government actions of one kind or another.

Although Government policy has helped to right the balance of payments, it has done so at a very heavy price—the virtual cessation of growth in the economy. It was the Chancellor of the Exchequer himself who said that cessation would be an intolerable cost—those were his words, I believe—to pay, but that is the price the economy has paid in the past year, and it is quite likely to have to pay it again in future. In 1966, national output increased by only 1 per cent. over 1965, and in 1967, although the Chancellor of the Exchequer had his forecast, the National Institute of Economic and Social Research estimates the growth as likely to be only ½ per cent. Once again, Britain will be bottom of the world league in economic growth, and there we seem likely to remain.

The right hon. Gentleman did one thing, and I welcome it. He at last gave a figure for the future growth of the economy over the next three years—a very vital figure to have. He thought it likely to be 3 per cent. He added a warning. He said that this was a forecast, and adjured us to treat that forecast with "the necessary degree of irreverence". That, indeed, is advice from an expert, since he has certainly put this principle into practice when dealing with his right hon. colleagues the First Secretary of State. Nevertheless, I concede that it is very good to have an aim, yet an aim is no good by itself. Once one has an aim one then needs the means to achieve it. If, as the Chancellor of the Exchequer indicated, the means to produce the results are to be the same as before, it surely follows in logic that we shall end up with the same result, lack of growth.

The Chancellor of the Exchequer ended his oration with a nautical flourish —"Steady as she goes". That, in landlubber's terms, is, "The same as before". This makes me feel that the right hon. Gentleman's forecast is likely to be false, and that we shall have the same negligible rate of growth that we had last year. Some degree of scepticism is legitimate about the Chancellor's figure when one thinks of the 4£ per cent. annual growth rate in the National Plan, which we are nowhere near today; in fact, further from it than we ever have been.

If one says that we need growth and positive measures to bring it about, it is incumbent to put forward constructive suggestions of one's own. I would mention two ways of stimulating economic growth: first, the provision of additional incentives throughout industry, particularly to executives in the middle income ranges; and, second, a modest increase in consumer demand, because this is the surest way of stimulating capital investment.

Both results could be achieved by a reduction in direct taxation. A reduction in the Income Tax of only 3d. would have a profound psychological effect out of all proportion to the amount of money remitted. It would be a sign that we were moving away from the high level of personal taxation associated with the present Government to a system in which lower taxes prevailed. It should never be forgotten that one of the great achievements of the period of Conservative rule since the war was the reduction in direct taxation. We found the standard rate of Income Tax at 9s. 6d. in the £, and had got it down, when we left office, to 7s. 9d. Since then it has been going up again.

This failure to reduce direct taxation is one of the most reprehensible omissions in the Budget, because the right hon. Gentleman is not this year under pressure from abroad. Every Chancellor of the Exchequer since the war has had the dilemma that with relaxed taxation there has been increased demand and consequent balance of payments difficulties abroad. That is not the position now. A small reduction here could have been absorbed by the economy.

There is also a strong social case for a reduction in the burden of Surtax—not as a piece of class legislation, but as a piece of community legislation, since the whole future of the economy depends on the efforts of a comparatively small number of people in industry and commerce who bear the heaviest weight of responsibility. I hear the Financial Secretary say that we got it, but what we got was a discontinuance of a penal measure—of a levy that we were told at the time was, in any case, likely to be once-and-for-all. The righting of a gross and anomalous injustice is not the equivalent of reducing the normal level of Surtax rate.

The reason for the right hon. Gentleman's failure to reduce the level of direct taxation does not flow merely from timidity but directly from his failure to curb public expenditure. Public expenditure along with unemployment are virtually the only things which have consistently risen during the past 12 months. While Government expenditure continues at the present rate there is no scope for tax reduction. In the absence of growth, and if we do not achieve the 3 per cent. target, the only way of coping with increased Government expenditure will be by imposing higher taxes in the next Budget. Suppose one does achieve that rate of 3 per cent. growth, if Government expenditure continues at the present rate the vast majority of that growth will be absorbed by Government expenditure. There will be nothing left over in the private sector for consumer expenditure, in other words, for increase in people's incomes.

Photo of Mr Jon Rankin Mr Jon Rankin , Glasgow Govan

In view of the trend of his speech in which the hon. Member is advocating a reduction in Government expenditure, would he tell us whether that reduction would apply to the £135 million of loans which private industry has received from the Government over the last three years?

Photo of Mr Norman St John-Stevas Mr Norman St John-Stevas , Chelmsford

That is a most interesting suggestion and were I Chancellor of the Exchequer I would give it serious consideration. One has to look at the whole field of Government expenditure and see where one can curb and prune. [HON. MEMBERS: "Where?".] All right. Hon. Members opposite cry in unison in a duet, "Where?" I shall answer that tuneful interruption in due course, not fully because I am not a Chancellor or a shadow Chancellor, but a humble back bencher. I shall make one or two suggestions along those lines.

To return to what I was saying, what the people want is money in their pockets and the opportunity to spend it for themselves. I take issue with the hon. Member for Willesden, West, who, unfortunately, has disappeared at this point. He gave us a further dose of Government puritanism with his attack on what he called private affluence and public squalor. He said that if he had to make a choice between a liner train and a washing machine he would prefer a liner train. That is an interesting point of view, but many housewives if they were given that choice would settle for the washing machine because they would not know what to do with a liner train.

This is an illustration of a more general principle which runs through Government policy, a puritan approach that discriminates against private expenditure and ordinary people spending their money as they please. It is the principle that somehow it is a bad thing to enjoy oneself and somehow it is a bad thing to own possessions and property. Put in more general terms, the essence of Socialism is misery just as the essence of Toryism is enjoyment. We cannot, however, get to a situation where people are able to keep more money of their own to spend unless we have a most rigorous examination of public expenditure.

The vague promise which the Chancellor made that he would look at public expenditure and examine it over a period is totally inadequate. I realise that I am laying myself open to the remark that the Devil can quote Scripture to his own ends, and that if I am wrong I have no doubt that I will be corrected, but I believe it was Aneurin Bevan who said that priorities are the religion of Socialism. If so, the Chancellor by avoiding any scheme of priorities of Government expenditure in his speech was little better than an apostate.

Earlier, I was asked to make some specific proposals about reduction of Government expenditure. I hope that the hon. Member for Coatbridge and Airdrie (Mr. Dempsey) will listen to the announcement which, a short time ago, he was so eager to receive. This, also, was a point raised by the hon. Member for Bristol, North-East (Mr. Dobson). It is not the job of the Opposition to prepare an alternative Budget, but I should be prepared on my own authority alone to put forward these items of public expenditure where economies might be made. Had I been Chancellor of the Exchequer I would have restored prescription charges and reduced subsidies for school meals, applying them only to those who need aid.' [An HON. MEMBER: "Farmers' subsidies?"] I refuse to be deflected into the field of agriculture.

The last part of my indictment concerns missed opportunities. There again, I was asked to specify what I meant. This was the point singled out by the Leader of the Opposition, in his brief intervention. I have not time to give an exhaustive list, but I will give a few main ones. First, there was the opportunity of getting rid of the anomalies of Purchase Tax and substituting a much more rational value-added tax. That would be a step of simplification and, therefore, welcome in its own right and it would have two other beneficial side effects. It would prepare the way for our entry into the Common Market and it would open the way to providing adequate incentives for our exports which would not violate the rules of the G.A.T.T. or of the Common Market.

The second opportunity which I greatly regret was missed was that of relieving poverty. Millions of low-paid workers with large families are suffering real want and hardship and real poverty. All that the Chancellor could do for them was to pay a Pecksniffican tribute to what he called their "pinching and scraping". They do not want sympathy from the Chancellor, but concrete help. Hope has been continually held out by the Government for an increased system of family allowances. I fully support that and I think it should be linked with a simple incomes test. I indict the Government for a callous disregard to what I call without exaggeration the new poor.

Photo of Mr Derek Page Mr Derek Page , King's Lynn

Does the hon. Member think that the reimposition of prescription charges and reduction of help for school meals would help the families to whom he is referring?

Photo of Mr Norman St John-Stevas Mr Norman St John-Stevas , Chelmsford

I am grateful to the hon. Member for giving me an opportunity to clarify what I said. I had telescoped it in the interests of brevity.

What I should like to see in a system which abolished prescription charges or reduced the subsidy for school meals would be a means by which those in real need could get those services at reduced price or at no price at all, while those who do not need their bills paid for them would make an adequate contribution. I am grateful to the hon. Member for allowing me to elucidate that point, which I did not make entirely clear.

The third missed opportunity which I regret concerns the failure to overhaul the travel allowance. The Chancellor referred fiscally to this as a useful gain to the Exchequer, but it is a gain bought at a price because it is cutting down freedom to travel at a time when this was never more important. It is economising on the most effective form of practical international relations. The present travel restrictions on currency injure our prestige abroad because they lead us when we go abroad to the necessity of sponging on foreign friends.

In fairness, I must say that the Budget could have been worse. We might have had another birth of one of Professor Kaldor's brain children. We have suffered from the birth of Corporation Tax and Selective Employment Tax which have already thrown the fiscal system into confusion. I say to the hon. Member for Roxburgh, Selkirk and Peebles (Mr. David Steel) that this is the only sphere in which I would approve of abortion.

I must welcome at least one thing in this Budget. That is the belated acceptance by the Chancellor of the Opposition's advice on Selective Employment Tax in one important respect, in relation to part-time workers. It would have been better, of course, to exempt them altogether from the application of this unfair and anomalous tax, but at least in this Budget we have had a step in the right direction. This Budget is dull, dreary and unimaginative. It does nothing to stimulate economic growth. It has done nothing to liberate, as a Budget should, the talents and energies of our people. It is a Budget which is totally irrelevant to the needs of the nation.

7.40 p.m.

Photo of Mr Jon Rankin Mr Jon Rankin , Glasgow Govan

I have listened with great interest to the hon. Member for Chelmsford (Mr. St. John-Stevas). He always speaks in a fascinating way, but whilst he was speaking I remembered another St. John who looked and beheld a new Heaven and a new earth. I realised how far the hon. Gentleman, to my sorrow and distress, had travelled from the ideals of his great predecessor. We shall welcome him back into that fold any time he cares to return.

I was one of those who had some bitter things to say a year ago about the Budget. I shall not repeat some of them tonight, other than to say that I agree for the most part with what my hon. Friend the Member for Willesden, West (Mr. Pavitt) said when he welcomed the modifications which have been introduced to the Selective Employment Tax.

During the course of its infliction upon us, I tried to probe its effects on another industry on which it had been applied, namely, the military industry. I addressed Questions to my right hon. Friends the Secretary of State for Defence and the Chancellor of the Exchequer. I discovered a rather strange thing. In the military industry there are a great many service people. I mean by "service people" people who carry out services for the soldiers, sailors and airmen who are doing our defence work. I discovered that this tax was applied to these people.

The overall purpose of the tax was to drive people out of the service industries into productive and useful industry, which implied that a great many people in the military forces were not doing useful work. However, despite the fact that a fair amount of tax was being paid in respect of these service people, the Answer was that no individual in the service side of the military forces had been driven out from the service side into more useful and productive industry. The tax had had no impact on our military forces. This was an interesting discovery. To ensure that neither of my right hon. Friends was wrong, I asked both of them and got the same answer from both.

If the tax was of no use, why put it on? It seems to result in the very silly process that the Secretary of State for Defence goes to the Chancellor with his budget, which will include what will be expected to be paid by way of S.E.T. The Secretary of State will get that amount of money. Then he will pay some of it back to the Chancellor in the form of S.E.T. on service people.

However, I shall not be critical tonight. There are always anomalies. I suspect that this was one of the outstanding ones. I shall congratulate my right hon. Friend the Chancellor, because I think he gave us some cheery information. He told us that exports were up by 14 per cent. This is a clear indication of what the Labour Government have been doing during the last year. A 14 per cent. increase in exports is far better than talking about pennies, two-pences and sixpences here, there and everywhere. We want to send more of our products into the world and keep our people busy. This has been happening on the whole, but I shall have a few words of criticism to say about that.

My right hon. Friend told us that imports have risen by 3 per cent. This means that more stuff is coming into Britain. More of the things we need to clothe ourselves with and more of the things we need to eat are coming in. Moreover, there has been an improvement in the balance of payments of £630 million. These are not trifles. We must pay tribute to the Chancellor for these arresting figures and that sign of progress.

My right hon. Friend went on to admit that within that complex unemployment was too high in some regions. I intend to look at some of the bad features as well as praise the good ones. One of the regions where my right hon. Friend said that unemployment was too high is Scotland. The last return of unemployed on 23rd March showed that 81,000 persons were unemployed in Scotland, an increase of 7·8 per cent. over the figure at the end of 1966. I am sure that none of my right hon. Friends on the Front Bench will disagree that this is a bad figure. It is worse, because it represents an increase. What do the Government intend to do about it?

The Chancellor also said that on the whole earnings had been higher throughout the year and that there had been increased productivity. We welcome that. I want to see those higher earnings and that increased productivity coming to Scotland, because in Scotland the average annual wage of the industrial worker, on an eight-hour day over a five-day week, is about £52 less per year than the average wage for a similar worker in the London area. That represents a maldistribution of the good things of the United Kingdom which we in Scotland cannot tolerate and which we look to the Government to put right.

One or two of my hon. Friends have pointed out that the Government have a scheme of regional planning and regional development in order to meet such problems, and we have directed special attention to one part of Scotland, the Highlands, where not only is there unemployment but from which there is a continuing outflow of people towards the better areas of the United Kingdom and the higher wages which can be earned away from the Highlands.

In considering how to deal with the problem in the north of Scotland, we must think of the problem as it affects not a part of Scotland but the whole. We have thought too much about parts and not enough about the whole, with the consequence that we have a wrong type of development in Scotland in that the prosperity which comes to the country centres itself round the central belt and neglects the Borders and the Highlands. That is a false constitutional set-up. We must have work and wages spread more evenly over the whole area.

I shall not discuss the Borders because I do not know the Border problems as well as I know the Highland problems. I have lived and worked in the Highlands, I know the people there, and I know their troubles. The usual attitude, in trying to solve the problem of the Highlands, has been to concentrate on putting money into the land, into the pulp mill business, into afforestation and industry of the type which I call the supply industries. I do not know how many millions of pounds have been buried in the land of the Highlands, but I know that, at the end of the day, the problem of unemployment and movement away from the Highlands still presents itself as viciously to us as it did 50 years ago to those who were trying to solve it then.

We must look for a different kind of solution. We must try to bring into the Highlands not just supply industries but the breeder industries, the industries from which others automatically arise. The trouble with the Highlands of Scotland is that they missed the Industrial Revolution and so stagnated in the grip of the landlord. They never got away from him. The hostility which is manifested within the Tory Party towards the proposal to develop the Highlands industrially is inspired by the Tory Party's still being in Scotland basically the landlord's party, particularly in the Highlands. I say that not in an unkind way.

Photo of Mr Jon Rankin Mr Jon Rankin , Glasgow Govan

No. I am merely stating a truth. That is the reason for all the criticism. I hope that, having heard the sermon from the modern St. John, the Tories will try to mend the error of their ways and that, if they are anxious to see the Highlands become a place to which people will go, they will support us in telling the Government that the Highlands must not miss the scientific and technological revolution which is now taking place elsewhere in Britain; and in many parts of the world. It is here that the health and wealth of the Highlands will grow. We must ensure that they take part in this revolution.

If we are to make certain that that is done, we must stop talking in terms of £1 million or so. We must think of big money. Of £40 million or £50 million going into the Highlands in order that the revolution which is taking place elsewhere in the world does not pass them by as the Industrial Revolution passed them in earlier days.

When I say that I want to see the breeder industries coming to the Highlands, what do I mean? Already, the plan which I put forward two years ago has, from other sources, received publicity which it did not get when I first mentioned it. Generally, the idea is that we must develop at Invergordon on the Cromarty Firth a great new port into which will come the petroleum from which so many modern industries derive and on which the production of polythene, fertilisers and refined products of all kinds are based. This is what we want to see.

People tell me that we must have power to do it. We have power in the Highlands; power provided by the Hydro-Electricity Board. But it is important that the power be cheap. If we are to produce all the various derivatives to create the employment, we must have cheap power, and that cheap power must come from the Hydro-Electricity Board. It can come at cost, and, under statute, the board has the right to provide such power at cost price.

We have all the ingredients, power, water, entry points and the raw materials to bring new life and a new way of living to the Highlands of Scotland. If we go ahead with that, there is another essential. We heard earlier about the need for education, and if we are to have these types of industry coming into the north of Scotland, they must be accompanied by a university. It is 20 years since I first raised in the House the need for a university at Inverness. It is now more imperative than ever, because it is essential that we produce the people to man these new industries. They will bring others to the Highlands.

I do not believe in trying to prevent people leaving any place. If Highlanders want to leave and seek their fortunes in other parts of the country and the world, good luck to them. But I want to ensure a state of affairs in the Highlands that will bring students to a university to be trained in the new sciences and bring in replacements for those who are leaving.

The same sort of outflow of people is happening in Britain as a whole, and we have heard about that tonight. There is the brain drain to America, about which I gave figures in a speech in the House on Friday, showing its great extent. The challenge to us is that if we are to stop the brain drain we can do so only by making this country so attractive industrially and educationally that people will want to come to it. We should make it easier for immigrants to enter Britain than I believe it to be in many cases. I think that people trying to come to Britain from the East and from certain countries in Europe, to get jobs here and be educated here, find it rather difficult to get into the country. The Government should see that the intake of people wishing to come here is as easy as the output of those going westwards.

In his speech today, my right hon. Friend the Chancellor pointed out that our exports had increased by 14 per cent. over the last year, which was very welcome news. He instanced the type of exports that have gone up, such as shipping, civil aviation and technological products. It is good to know that some of our civil aviation products are selling abroad; we are exporting them more easily and in larger quantities. I think that the supersonic airliner, in which, with France, we are investing about £500 million, will become one of our greatest exports. Already no fewer than 73 countries are on the list of purchasers, each indicating its willingness to pay £7 million for this aircraft when it is ready to fly. That is, we have in hand at present a potential of over £500 million-worth of orders, and once the aircraft embarks on its first proving flight, I am certain that the list of applicants to purchase it will be double or treble the existing list.

That is the type of business that we shall find immensely rewarding. I trust that the Government will proceed as quickly as possible to show their confidence in Concord by going ahead with the production orders. This is the third time I have said that over the weekend.

The importance of technological exports is that they are practically all profit. The bits and pieces that make them up are cheap, and what we are exporting is our design, knowledge and ability as scientists and technicians. For last year, these exports represented £260 million of technological goods and technological advance, helping to create the 14 per cent. increase in exports of which the Chancellor was so proud today.

In most spheres that we care to examine, the Government have had an excellent record during the past year. The Chancellor put the matter very fairly when he spoke of that today. It was worth saying, and I thought that the party opposite would have shown far more appreciation than they have displayed so far. Perhaps if the hon. Member for Glasgow, Cathcart (Mr. Edward M. Taylor) catches the eye of the Chair, either tonight or on another occasion, he will make up for all the omissions of his right hon. and hon. Friends by giving the Labour Government and the Labour Chancellor of the Exchequer the praise that they so thoroughly deserve.

8.9 p.m.

Photo of Mr David Steel Mr David Steel , Roxburghshire, Selkirkshire and Peeblesshire

The Budget has been something of an anticlimax to the day. It makes me wonder if the system of presenting the financial accounts should necessarily be accompanied each year by every conceivable form of tax proposal. The most exciting event of the day was surely the appearance of the hon. Member for Pontypool (Mr. Abse), and even that was somewhat duller than usual. The hon. Member for Worcestershire, South (Sir G. Nabarro) must have wondered whether it was worth his while coming here at half-past four this morning to be first.

Why must we have minor changes in the hire-purchase restrictions on three-wheeled motor cars lumped in with possibly major changes in the tax structure? As proof of the perhaps passing importance of Budget Day, I am sure that everyone would agree that the measures taken last 20th July had far greater significance in the economy as a whole than anything we heard on this so-called important national day.

I shall be very brief in some initial reactions to the Budget.

The point which may have escaped attention is that many of the measures of last July have become quietly entrenched in the Budget. The 10 per cent. increase in indirect taxation and the considerable increase in fuel tax have become endorsed in the Chancellor's statement, and that is a matter for some regret. It is also a matter of regret that the Budget has not yet tackled the question of the real poverty which exists. It exists in comparatively small quantities in this country but nevertheless it exists. The minor measures which were announced today were encouraging, but when one stops to examine them one finds that an increase of £35 in the tax allowance for single people with dependants or widows or widowers with children is very small beer indeed. It will apply only to those who are earning sufficient to pay Income Tax, and to those with higher incomes who are paying tax at the standard rate of 8s. 3d. this momentous announcement will mean an extra income of about £12 to £13 a year. This has not been a notable Budget for increasing social justice or eliminating poverty.

In all the remarks of hon. Members, particularly from the Conservative benches, about the need for the Government to prune public expenditure, what they have meant is that there is a need for an attack on some of the social services. I, too, believe that there is a need for the Government to prune public expenditure, but the place where it ought to be pruned is in defence expenditure. When we look at the figures issued to us—and the public are becoming increasingly aware of this—we find that of the total Government expenditure of £11,000 million in the 1967–68 Estimates, nearly £2,000 million is on defence purposes. That is a very large proportion.

It is very interesting to observe in the information surveys which we read from time to time that the issue of defence expenditure and overseas expenditure has risen in the list of popular political topics. Usually it is matters nearer at home and more directly affecting the pocket, such as the rate of Income Tax, or increased prices, in which people are interested, but this item of defence expenditure has been moving up the league table, and I believe that the public are becoming increasingly wary of Governments which spend vast sums of public money buying islands in the Indian Ocean, which are visible only at low tide, and covering them with concrete. The Labour Government came to power pledged to a scrutiny of the role of Britain in the world and the amount of our national resources being devoted to this sort of project. The dreams of the hon. Member for Glasgow, Govan (Mr. Rankin) about massive investment in the Highlands will never be realised as long as there is massive investment in the wrong direction, and that is why I am very disappointed that the Budget takes us nowhere in the right direction. I very much regret that.

The one item about which the Chancellor spoke in terms of defence saving was when referring to the cost of troops in Germany. But he went on to say—I am not sure that I heard him correctly of whether it was in the forthcoming year or in the present year—that he would achieve a saving of about £100 million on defence and aid. I want to know what are the cuts being made in overseas aid. This saving should not be lumped with the saving in defence expenditure. This is a subject on which the Government have been open to criticism of double-dealing in making cheese-paring cuts in such expenditure as overseas students' fees—cuts, which do us great damage in the world, in sectors where public expenditure ought to be increasing and not where it ought to be cut. I hope that we shall not have these financial statements lumping defence and aid savings together so that we are unable to tell what the overseas development programme is and how it is developing.

The Government quite rightly made great play when they came into office about having a Cabinet Minister responsible for overseas development. Now there is no Cabinet Minister responsible for overseas development—an objective which seems to have gone further and further down the Government's priorities.

My third observation on the Budget concerns its effect on Scotland. The most striking feature is that the influence of the Secretary of State for Scotland is nowhere evident in the Budget. This is no particular criticism of the Secretary of State as an individual, because the influence of the Secretary of State for Scotland has never been evident in any Budget. There is growing unease in Scotland that this is so. Even where references have been made to Scotland, they have often been misleading.

I refer to the imposition last year of the Selective Employment Tax. The theory of introducing a tax differentiating between the needs of manufacturing industry and of service industries may well have been justified in terms of the prosperous economy of the South-East or the Midlands. It may well have been the right thing to do. I do not know. But it was the wrong thing to do in Scotland, where many of our service industries, particularly in some parts of Scotland, play a vital part in the economy. Some service industries, such as tourism, ought positively to be encouraged by the Government in the same way as tourism is encouraged in Eire or by the Stormont Parliament in Northern Ireland.

Far from receiving direct encouragement to develop tourism in Scotland as a saver of foreign exchange and an earner of foreign exchange, we have had policies directed from a London base which have had precisely the opposite effect. The modest changes in the Selective Employment Tax—the concessions to part-time and overseas workers—are both extremely welcome. They follow precisely Amendments put down by Liberal Members to last year's Finance Bill and even if they have been adopted 12 months late, it would be ungracious not to recognise the concessions and to welcome them.

But the Selective Employment Tax as a whole has done considerable damage in parts of Scotland, and I am not clear what Government policy is for the future of this tax following the publication of the Green Paper on regional employment. I would point out to the Chancellor that it is most important not to brush off Scotland as a single uniform economic region. I should be grateful to the Chief Secretary for the Treasury for his attention on this point of my speech if on nothing else. I very much agree with the hon. Member for Govan that it is most important—and this is surely the purpose of publishing the Green Paper in advance of legislation, which I welcome—that in considering aid to industry in Scotland there should be discrimination and differentiation between industry in the central belt, which by and large will be of the heavier type, and the smaller industries which we ought to encourage to go to the Highlands, the North-East and the Borders. If that is not done, although Scotland as a whole would benefit from regional employment programmes, the mini-drift which we have within Scotland to the central belt will not be tackled.

That is why I want to see this differentiation in the regional employment scheme when it comes to fruition and why I regret that Scotland as a whole has been dismissed as one unit when the problem varies so much. The heavy unemployment problems from which Scotland as a whole has suffered are not the problems of the Borders; these are problems of quite a different type, of depopulation. It requires Government action and it is receiving action, but it must not be a blunt instrument used to tackle both problems in the same way.

I hope that a scheme will be devised to encourage smaller industries to go to those parts of Scotland where a variety of industry is so much needed. If that point has been taken by the Government and they ignore everything else that I have said, I shall nevertheless be pleased. But we have seen nothing of this kind so far revealed in the Budget, and I only hope that we shall see it when legislation follows with the regional employment scheme.

8.20 p.m.

Photo of Mr John Lee Mr John Lee , Reading

With a great deal of what the hon. Member for Roxburgh, Selkirk and Peebles (Mr. David Steel) said I found myself in agreement, particularly with his strictures on the Selective Employment Tax. It would be churlish not to say a few congratulatory words, at least initially, about my right hon. Friend's Budget. When at the beginning of the Budget statement my right hon. Friend twitted an interrupter and suggested that he come back at 5 o'clock if he could not bear listening to my right hon. Friend, I thought that the Chancellor was doing himself an injustice, because he delivered a massive speech with his usual engaging charm, and he made it lucid and compelled my attention throughout.

I should also like to be able to say a few words of congratulation about at least some of my right hon. Friend's proposals. That about the widows' allowance was fully in accordance with the best traditions of the Labour Party. It is the kind of compassionate and humane measure which we expect a Labour Government to introduce, and the same must be said about the proposals for allowances for women with dependent relatives. There are one or two other things which merit a word of praise. The concession about stamp duty for house purchase, which has hardly been mentioned, is also a socially desirable measure, albeit minor.

However, I am afraid that, welcome though the inadequate concession about the payment of Selective Employment Tax in respect of part-time employees is, those are about the only positive words of praise which I can say about the Budget. If I had had the Budget in my hands, I would have introduced a larger earned income allowance. There has been a lot of log-rolling on that subject, and in a debate on a Private Member's Motion some weeks ago, hon. Members opposite spoke of the "grinding taxation" which was "stifling the initiative of so many people". All that really amounted to was special pleading in favour of the higher income groups.

To assist people and to staunch the brain drain and to affect the maximum number of people, the right thing to do is not to reduce the standard rate of Income Tax and still less to reduce Surtax rates; it is to increase the earned income allowance. I am sorry that the Chancellor did not feel able to do something in that direction. The crucial income groups in this country for the economy are those earning between £1,000 and £2,500 a year. They are the beginners in the managerial and professional occupations and the persons in middle management. They, apart from the poor to whom I shall refer later, ought to be helped for economic as well as social reasons.

I am sorry that the Budget contained nothing about family allowances. There has been much talk, rightly so, and much publicity at the behest of the Child Poverty Action Group in recent months which has brought home to those who did not realise it before that in the groups of people with large families the most acute forms of poverty now generally lie.

Those are the concessions which I would have liked to have made. I shall probably be the first hon. Member to take part in the debate who will regret the absence of an increase in taxation, in at any rate one respect. Last January, the Financial Secretary had to listen to my strictures on the subject of a capital levy. I shall reiterate my plea for such a levy, although it is of no use in this Budget, at any rate for future reference for the benefit of the Chief Secretary. Until and unless the Government realise how great is the inequality of capital wealth, in spite of the Corporation Tax, Capital Gains Tax, Estate Duty and even the new Development Levy, they will find it very difficult to enlist the wholehearted support of trade unionists for an incomes policy.

One of the most extraordinary things about the Budget speech, which was delivered so competently, pleasantly and lucidly, was the almost complete absence of any reference to what must be, whichever way one looks at it, the most difficult problem facing the Chancellor. It is what he is to do about the incomes policy next July. I am one of those who voted for the Third Reading of the Prices and Incomes Bill last August with extreme reluctance. I am bound to say that unless I hear more about the redistribution of capital wealth, I shall not bring myself to vote for the extension of any form of statutory control over incomes, even in a much modified form which, I imagine, is all that any hon. Member on this side of the House would regard as being tolerable.

It is surprising that there has not been something said on the subject of the failure of the incomes policy to be applicable over the whole range of incomes. We have heard nothing in this debate, and nothing in other economic debates recently, about the fact that the incomes policy is totally ineffective for many self-employed people, many exempt private companies and salary incremental scales and that no attempt has been made to apply the incomes freeze or incomes restraint to salary increments, on the somewhat disingenuous ground that this was a pre-arranged contractual situation.

Unfortunately, the incomes policy has involved the violation of a number of contractual situations. I do not regard that of itself as being wholly wrong. At least, it would not be wholly wrong if the incomes policy were applied right across the board and if from the beginning it had been coupled with tackling the whole subject of the maldistribution of wealth.

I realise that the Chancellor still has these things in mind. We have not heard very much from him in recent years about the wealth tax which he talked about some while back, but at least he has given us the promise—at least, this is how I interpret his words about tax avoidance—that there will be some tough legislation next year. Do I understand that to mean that if necessary that legislation will be retrospective to cover some of the more ingenious and socially undesirable tax avoidance devices which come to light in the course of investigation? If that is so, I welcome that legislation. I am squeamish—perhaps most lawyers are—about retrospective legislation. Some of us felt a bit squeamish about the retrospective legislation on the Burmah Oil Company in the last Parliament. But here the need and social justifications are so great that one can stretch a point and say that it is reasonable if that is what is in mind.

The Government deserve, and the President of the Board of Trade in particular deserves, a great deal of praise for the quite remarkable success of the export drive in the last two years. When one is the general of a successful army, one is entitled to praise, just as conversely the general of an unsuccessful army must take the rap. The President of the Board of Trade has been in charge of Our trade affairs since the Government took office. He has been uniformly successful and he deserves very warm praise, particularly for the remarkable success achieved in the United States.

The Chancellor of the Exchequer too can take credit for the improved balance of payments situation. But here I enter a caveat. Have not we been through this situation before of a quite dramatic reversal of fortunes after a crisis only for it to be followed by an equally dramatic and sudden counter-reversal? I do not say this by way of criticism of the Chancellor of the Exchequer, but he did not put nearly enough emphasis on the fact that a sudden loss of confidence in sterling could plunge us back into a situation similar to that which confronted us last July.

There is a large number of other measures which should have been considered and which should be considered in the lull which has followed last year's crisis and finally to dispel the possibility of yet more sterling crises arising. Apart from anything else, I should have thought that the Government would regard it as electorally highly undesirable if we were to find ourselves in another financial crisis about 1968 or 1969.

The Chief Secretary will remember that he answered a Question of mine a few days ago about the value of the United Kingdom private portfolio investments. His reply was that the market value of these was £3,600 million, of which £2,200 million was in the non-sterling area and about £1,400 million in the overseas sterling area. That was the position at the end of 1965. My right hon. Friend went on to say that a comparable estimate was not available for 1966, but I believe that there is not much reason to believe that the situation has changed very much since then.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

The Chief Secretary to the Treasury (Mr. John Diamond) indicated assent.

Photo of Mr John Lee Mr John Lee , Reading

The time has come for the overseas portfolio investments to be lumped in with the sterling balances. We must nationalise private investments overseas. This will upset quite a lot of people, but we must put up with their wrath. Whatever way the Government turn, once they move out of the present rather neutral position denoted by today's Budget, they are bound to offend the bankers. If we go forward with the redistribution of wealth, for which this party stands, it will offend them. If we revert to full employment which, alas, we left behind temporarily last year, we shall offend them. I suspect that if we cut military expenditure in the way suggested by the hon. Member for Roxburgh, Selkirk and Peebles we shall offend some of them because they will think that we are ducking out of their control.

I sometimes think that some of the banking fraternity do not want this country to succeed too much economically because once we have established ourselves successfully they will no longer have such control over our destiny. That has been the experience of two, if not three, previous Labour Governments, and I have no particular reason to doubt that much the same situation will arise in future. I therefore hope that my right hon. Friend will give consideration to nationalising overseas portfolio investments.

There are other problems which should also be considered. In October, in answering a Question of mine, my right hon. Friend the President of the Board of Trade referred to the number of companies registered in the United Kingdom which were owned or controlled by the United States. The book value of the assets at that time was given as £1,900 million and the number of companies so controlled 1,600.

I object to this, not on Chauvinistic grounds, but for these reasons: first, a number of American firms—we have had good examples of this recently with the Roberts Arundel firm at Stockport and earlier with J. L. Caterpillar Tractors Ltd., of Glasgow—are obviously intensely hostile to trade unions. Whatever some hon. Members opposite may think, the trade union movement is an integral part of the country's life. It is probably to the trade union movement that we owe most of the advances of ordinary people, more so than to the Labour Party itself. I do not like the idea of remote control by anonymous persons abroad who have a dislike for trade unions of the kind of which most employers in this country were cured some 20 or 30 years ago.

There is another reason why we should check and reverse that tendency. Whatever may be the idea of affinity between the United States and this country—to my way of thinking it is too great, but I realise that there are hon. Members, on both sides, who disagree with me—we are trade rivals. We manufacture the same things, we compete in the same markets. Therefore, if British firms are acquired by American interests and if there is a contraction of world trade or a failure to expand for various reasons, possibly because of difficulties in increasing international liquidity, if the directors who control those interests in America are faced with the choice of making our workers unemployed or their own workers unemployed, they would prefer to make ours unemployed. They are not likely to get much restraint in this from the United States Government, of whatever complexion, because the United States Government would prefer to export its unemployment than to have it in its own country with all the explosive electoral consequences which that could involve.

I thought it a great pity when the former Conservative Government refused to stop the reacquisition of the Ford Motor Company, at Dagenham, two years ago. It is disturbing to think of the number of firms and the variety of manufacturing interests in this country which are now controlled in the United States.

There is yet another reason for objecting to this process. Whatever may be the short-term capital gains to the account, this inevitably involves an increased deficit item in invisible earnings with the payment of dividends, for example, across the exchanges. This is why we should stop this kind of thing as far as we can.

The subject of devaluation has not been mentioned in the debate. I suppose that at a time when, with cautious optimism, there is a mood of self-congratulation and even a few hon. Members opposite—the hon. Member for Chelmsford (Mr. St. John-Stevas), for example—are gracious enough to concede the Government credit for the measure of improvement in the economy, it may seem strange and incongruous even to mention such a subject.

I believe that sterling is over-valued. If we were to devalue—and we now have the opportunity to do so and catch everyone unawares, instead of doing it at a time when it is expected, though that again would offend the banking fraternity—it would provide a tremendous boost to our exports, over and above the boost which they now have. Another reason for doing it now is that, if it is done when the economy is at full stretch, one cannot respond to the stimulus of exports in the same way. Now is the time to do it when there is some slack in the economy. However, I realise that that is a forlorn hope, but I ask my right hon. Friend the Chief Secretary to bear in mind that, at an appropriate moment, a moderate devaluation might be sprung on the country.

8.40 p.m.

Photo of Mr Bernard Weatherill Mr Bernard Weatherill , Croydon North East

I hope that I shall be forgiven if I do not follow the hon. Member for Reading (Mr. John Lee) too closely in what I have to say, because I disagree entirely with everything he has said in the 15 minutes during which he has been speaking. I could hardly believe my ears, but I thought I heard him say that he regretted that taxation had not been increased. Then he wanted to nationalise overseas investment. I take the opposite view, because I agree completely with my hon. Friend the Member for Chelmsford (Mr. St. John-Stevas), who said that even threepence off the standard rate of Income Tax would have had a tremendous psychological effect. As for a tax on capital, I can only say to the hon. Member for Reading that that would be the death knell to saving. I have always taken the view that it is mad to encourage people to save and then term the return which they get on their savings as unearned income. Most of the money which goes into savings has been earned in a very hard school. I hope that the Chancellor of the Exchequer will not listen to any advice which his hon. Friend has given. If he does, it will surely lead to the road to bankruptcy.

One of the disadvantages of speaking rather early in this debate is that one has had no chance to examine the Budget proposals at leisure or in detail. However, today there has been nothing very much to examine. As my right hon. Friend the Member for Bexley (Mr. Heath) said, it was a Budget of lost opportunities, and he pointed to the fact that in his one and a half hour speech the Chancellor said nothing new and nothing particularly constructive.

I wish briefly to comment on the opportunities which have been lost in the Budget. Of course, as other right hon. and hon. Gentlemen have, I welcome the concessions which the Chancellor has made, but such concessions as they are will do nothing to move the economy out of its present state.

The first and greatest lost opportunity in the Budget is that it has failed to give any incentive to individuals or businesses to work harder and save more. In a recent debate, I drew attention to the fact that at its present high level Income Tax is a tax on effort and on work, and I noticed with interest that in the Press last week the miners of South Wales were being condemned for the high rate of voluntary absenteeism.

It is frequently asked why it occurs, and the answer is quite simple. It is because, with Income Tax at its present very high level, it does not pay to work. If it is possible to earn enough money in four days, why work on the fifth? That may be an anti-social attitude. I do not condone it, but I understand it, and I would say to the right hon. Gentleman that it is an attitude which is by no means confined to miners, because, unhappily, it is rife throughout industry, from the board room to the shop floor. It is useless to call upon people to work harder unless the Government make it worthwhile for them to do so. There is only one cure, and that is a reduction in direct taxation. This is the first essential if we are to have the economic growth which is basic to our future prosperity.

There may be a few saints, and I salute them, who work for the love of work, or for some other ideal, but for the great mass of people in this country financial incentives to secure independence and to secure freedom of choice are still the strongest spur to effort. Lack of incentives to work and to save are the root causes of our present stagnation. It is useless for the Chancellor to attempt to cure the economy by pruning its branches. What he has to do is to manure its roots.

What is needed is a switch from direct taxation to indirect taxation and a simplification of the Purchase Tax arrangements. I welcome what the Chancellor said this afternoon about the new Purchase Tax arrangements for cars, but why has he not gone further. On 13th February I introduced a small Ten-Minute Rule Bill which had the short title "Export Encouragement". The burden of my case was that tourism was the fourth largest earner of foreign currency and the largest earner of dollars.

At the moment the only way in which Purchase Tax can be avoided is to have the goods which a visitor purchases sent to the boat or plane. Visitors from overseas want to wear the clothes they buy here and to use the goods they purchase. I can testify from my personal knowledge and experience as the proprietor of a business which does a large export trade how much extra business is lost because of the present petty restrictions, and my experience must be magnified thousands of times throughout Britain.

I hope that in Committee the concession which the Chancellor has given to cars will be extended to all visitors who purchase goods which carry Purchase Tax, provided that payment is made in travellers' cheques or in foreign currency. If he were to do this, he would not only end a great deal of frustration and misunderstanding, but would provide a tremendous stimulus to the three million visitors who will come to this country this year to spend more of their money. Last year they spent nearly £350 million. To give this concession to all goods which bear Purchase Tax, and which are paid for in foreign currency or in travellers' cheques, would not cost a great deal of money set against a sum of that magnitude, and I hope, therefore, that the Chancellor will have second thoughts about this. What is important, too, is that it will enable the retailers who cater especially for the tourist trade to prove that they are playing their part in the drive for exports.

I was interested, too, in what the Chancellor said about close companies, and I await with great interest the details of his reforms, and reforms I hope they will turn out to be. I hope that in framing these he has taken note of what was said during a debate in the House on 10th February about the problems which face small businesses in particular. I proposed a Motion on that day, and the Government accepted what was said.

I hope that the changes in the close company regulations will include a change in the level of director remuneration. I hope that the principle of a reasonable commercial rate will be applied, instead of the present maximum laid down in Section 74 of the Finance Act, 1965. I also hope that the close companies who borrow from participators at a proper commercial rate will be able to charge the interest so paid to tax. It is iniquitous that those who back their own efforts with their own money should be penalised as they are now.

No one wishes to support failing or inefficient businesses, but present close company provisions are penalising efficient businesses and making it exceedingly difficult for new businesses to start or to break through the barriers that they meet in their early days. I hope that at some time during the year, if not in Committee on the Finance Bill, the Chancellor will find the money to establish the Small Business Development Bureau which I have previously advocated. The object should be to help businesses to introduce new products and new processes, and to encourage efficiency and the growth of small firms, which now represent 90 per cent. of all our firms.

The Chancellor said that his aim was to encourage profits and to take his fair share of them. I hope that he will bear in mind that he has a 40 per cent. stake in every business, large and small. He does not need to take equity shares in businesses; he gets 40 per cent. of everything they make, anyway. The present close company provisions discourage the making of profits, and I therefore hope that the Chancellor will bring forward proposals to help and encourage rather than to frustrate the many firms who will now come into this category.

My main condemnation of the Budget is that it contains no proposals for a cut in Government expenditure, which is the prime cause of high taxation and inflation. While everyobdy else is expected to cut back, Whitehall plans to spend more—about £660 million more this year, or an increase of about 81 per cent. It is a forlorn hope. As Bill after Bill comes forward, up and up go the costs of administering the Government machine. The Government payroll has been swollen by no less than 17,200 extra civil servants in the last six months and over 42,000 extra since the Labour Government came to power.

I do not blame these excellent civil servants, but they produce nothing. The cost of administration is a burden that has stunted our growth and until we have a Government willing to cut back their spending we shall never get out of the economic mess in which we now find ourselves.

8.54 p.m.

Photo of Mr Cyril Bence Mr Cyril Bence , Dunbartonshire East

We have had three contributions from Conservative benches this evening in which the main theme of their perorations has been the expression of dis- appointment that the Budget provides for no cut in Government expenditure. I have been in this House for sixteen-and-a-half years and regularly every week on the Order Paper Questions have been put down or points have been made in debate by hon. Members on both sides of the House asking the Government to spend more—on roads, schools, hospitals, the Navy—

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

And the Small Business Development Bureau.

Photo of Mr Cyril Bence Mr Cyril Bence , Dunbartonshire East

And the Small Business Development Bureau. Governments have been asked to increase subventions to farmers. We are constantly having demands for Government Departments to spend more money. This is what Government Departments are doing.

Revelations by the Estimates or Public Accounts Committees of over-charging of Government Departments are followed by motions and speeches by hon. Members opposite saying that Government Departments should recruit more technical personnel to keep a tighter grip on contracting companies. Since I was a youth I have noticed that when the Labour Government is in power everything in the Civil Service is bad, but that under the Conservatives, everything is good. This reminds me of a comment in a weekly journal, "You can take his advice; he is completely non-political. He has been a Conservative all his life." This is the attitude of the party which considers itself the establishment.

Suggestions for cuts in expenditure this afternoon have been amazing. The hon. and gallant Member for Knutsford (Sir W. Bromley-Davenport), in what was if not the first at least the most cohesive speech I have ever heard him make, wanted to cut expenditure on social services, as did the hon. Member for Chelmsford (Mr. St. John-Stevas). But the hon. and gallant Member said that he wanted a Britain which was good for the rich and the poor and that this was Conservative policy, yet he wants to cut the social services for the poor. The hon. Member for Chelmsford wanted to cut the money spent on school milk and meals and reimpose prescription charges. These things benefit the poorest people. How they can plead for the under-privileged and at the same time ask for less expenditure where it is to the greatest benefit of the under-privileged is beyond my comprehension.

Not one Conservative Member suggested a cut in expenditure in the sphere which every sovereign state considers the symbol of its nationhood. The place to look is the wasteful 18th and 19th century expenditure of the symbol of military defence. One thing I am pleased about is that this Government have started to economise here. I believe in N.A.T.O. and other associations for the defence of the free world, but surely they should be able to bring about cuts in the nationalist symbols of bombs and guns. Let us have a common defence system and thus reduce our expenditure. No Conservative Member has advocated cuts here.

I disagreed completely with my hon. Friend the Member for Reading (Mr. John Lee) when he said that we should not worry if we offend the bankers. We are a small manufacturing and trading nation of 50 million people—

Photo of Mr John Lee Mr John Lee , Reading

What I said was that we were bound to offend the bankers, whatever we do.

Photo of Mr Cyril Bence Mr Cyril Bence , Dunbartonshire East

That is not so. I do not think that those who run our banking system want to crush us under their heel. That may have been true a couple of centuries ago, but it is not true today. The bankers of Britain wish to cooperate with the Government. Indeed, they must co-operate for the sake of their security and future. The future of Britain and, therefore, of the bankers depends on this country having a good relationship with the nations with which we trade.

We must export to live and many of the countries which buy our products have totally different standards from us. I believe that the bankers of this country, America, France, Switzerland and other great nations are prepared to co-operate with their Governments because they realise that each country must maintain a high trading position in the world if it is to be commercially viable.

I have spent many years in industry. I have never thought it good policy to offend those with whom one is doing business. And we must do business. We cannot create a sort of monastery in Britain and we must learn to live in the world as it exists. Considering certain aspects of the world, we may not like this idea, but we must trade with other countries and we cannot, on our own, reform the whole world. We must, therefore, adhere to international banking practices.

The Chancellor is skilled in handling these matters and maintaining confidence in our unit of currency. I would not like to see him suddenly devalue it. After all, if the firm which employed me and paid me £20 a week suddenly handed me 20 £1 notes which were worth only £10, I would probably lead a strike in that factory. I hope, therefore, that the Chancellor will make it clear that we, as a great manufacturing and trading nation, will do everything possible to ensure that our currency remains stable.

I was sorry to hear the hon. Member for Roxburgh, Selkirk and Peebles (Mr. David Steel) suggest that the Secretary of State for Scotland had not put pressure to bear on the Chancellor and had not had any influence on the Budget. The Scottish team in the Government has been doing a wonderful job, and this applies not only to Scotland but to Wales and the North-East. We recently had the Chancellor's proposals in the Green Paper and we probably have the best team representing these areas that we have ever had. The prospects for Scotland are better than they have been for 20 years. We indeed have an able, forthright and imaginative team in the Government representing Scotland.

Photo of Mr Paul Dean Mr Paul Dean , Somerset North

At the risk of embarrassing the hon. Member, may I ask him to tell us how all this ties in with the result of the Pollok by-election?

Photo of Mr Cyril Bence Mr Cyril Bence , Dunbartonshire East

I was in the Pollok by-election, and I am quite certain that if another election were held there in 18 months the result would be reversed.

When one inherits a debt of nearly £1,000 million one cannot in two years, without hurting someone, wipe it out. We have had to take unpleasant measures. The previous Conservative Government suffered from the same thing as a result of their own folly, and their own Chancellor of the Exchequer had to do something about it. When the Conservative Government put the stop on, their votes began to disappear, but I can assure the hon. Gentleman that we shall recover the votes that have been lost, because it will soon be seen by the Scottish people—

Photo of Mr Robert Cooke Mr Robert Cooke , Bristol West

Before the hon. Gentleman returns to the subject of the debate, would he address himself to this problem? He is saying that this Budget in some way helps Scotland, if I follow him that far. He is saying that the Green Paper helps Scotland largely because of tax reliefs and incentives of one kind and another; in other words, Scotland is to pay less taxes in one way or the other. Which parts of the United Kingdom will be called upon to pay the full rates of the taxes imposed by this Government? It seems that everyone is, in one way or another, to be singled out for relief—who is to pay at the full rate?

Photo of Mr Cyril Bence Mr Cyril Bence , Dunbartonshire East

As a result of what is outlined in the Green Paper an extra £40 million will be pumped into Scotland, thanks to the pressure put by the Secretary of State for Scotland and his brilliant young team—

Photo of Mr Robert Cooke Mr Robert Cooke , Bristol West

Where will the money come from?

Photo of Mr Cyril Bence Mr Cyril Bence , Dunbartonshire East

From the general body of taxation. The money will arise in the economy as a result of the continuation of efficient and competent government.

The hon. Member for Roxburgh, Selkirk and Peebles, who has had unavoidably to leave the Chamber, criticised this annual ritual of the Budget and the general climate of anticipation that goes before it. This seasonal thing is something that we have inherited from a pastoral age, as I think "Nye" Bevan used to say, and it is about time we tried to get some stable element into our fiscal system so that industry and commerce and individuals, too, might have a steady period of direct taxation.

This annual change is probably outdated. We might have a five-year Parliament during which variations would be in indirect taxation only—perhaps an added-value tax—but let us have Income Tax and the tax allowance structure stabilised over a longer period. In that way we would avoid the annual anticipation by the Press. Under the Tory Administrations before any Budget the Conservative Press said that it would be a tough Budget, so that when the Chan- cellor of the Exchequer did, in fact, put on some extra burden, but one that was less than had been anticipated, the Budget could be claimed to be good.

The Opposition Press said that taxation would be lowered, so that the Budget could be said to be terrible if the Chancellor of the Exchequer did not lower taxation. This journalese campaign around the Budget is very undesirable. I hope that we can eventually break away from this annual Budget in the old traditional terms. This is why I appreciate the Budget today, because it is a statement of the economic state of the nation and the possibilities and probabilities. The Chancellor has been stating that he may at some time in the future be able to take some action by indirect taxation in such a way that industry and commerce, and individuals, can see what their incomes and resources will be over a longer period.

I come to the matter of my concern about Selective Employment Tax. There is a case for an employment tax. Under "Parkinson's Law" throughout industry there is a tendency, if it is made easy enough, for employers to pile up labour forces. They appear to think that the bigger the number of workers they have in their charge the more important they are. It was worth while to give this system a trial over a period to see where anomalies are, but there is a very serious anomaly. It is very difficult in a modern economy to split up the process of production of a commodity and to say that at one stage in converting raw material to a finished product it is manufacturing industry and at another it is service industry.

I declare a very modest interest in this matter, for I was employed in the motor Car industry. Everyone working in a motor car factory is servicing machines to produce cars. Everyone is a service man serving automatic machines and conveyors and transfer machines. Every worker in the British motor plant at Longbridge is a service worker. He services machines which send little bits and pieces along a conveyor belt, but he cannot run that conveyor belt from Long-bridge to Glasgow. It is run on to a road carrier. The man working the conveyor belt is a production worker, but the man driving to Glasgow is a service man.

In Glasgow, every garage proprietor who distributes motor cars has within his mark-up a margin allowed for pre-distribution inspection and rectification. This comes out at between £15 and £20 per car. Yet in the factory at Dagenham or Longbridge there are teams of men doing this job at every stage. The British Motor Corporation, Ford's, at Dagenham, or Leyland's, will get 12s. 6d. per man for all the service men in their factories who are doing this job, but the garage proprietor who is distributing cars and has to inspect and rectify errors made on the production line, has to pay 25s. per man. This is an anomaly and an injustice. It is a burden on the service industry producing sewing machines, all consumer durables, motor cars and commercial vehicles.

We shall not get the maximum economic use out of a commercial vehicle if we have not had at our disposal an efficient service industry. The presence of an efficient service industry is a major contribution to the economic and continuing use of a product whether it is a sewing machine in a textile factory or a motor car. The presence of expert mechanics who can service typewriters, computers and all sorts of business machines, is as much an element in the economic use of the product as is the man engaged in the factory.

I cannot understand how this distinction can be drawn in consumer durable industries between the so-called producer and the man who services. They are all engaged in servicing. Nobody in a motor car factory produces anything. Everybody services machines which produce. The men assemble. As soon as a vehicle gets on the road, the man driving it, instead of driving it in a number of parts along a conveyor belt, drives it along the road and is therefore classified as being in a service industry. This does not make sense to me. It is only in this field that I make a challenge, because I know a little about this matter.

Most garage proprietors are tied by a franchise to the major motor manufacturers. Under that franchise they have a fixed service charge for servicing the vehicles. This applies not only to motor cars, but to many machine tools, where there is a contractual fixed service charge for periodic service and maintenance.

Many garage proprietors find it impossible to give efficient and practical service to commercial vehicles on the service charges to which they are tied by manufacturers. Their reaction is simple. I know a case where there has been a terrible row between a manufacturer and one of its biggest main agents. The main agent said to the manufacturer, "It is all right for you. You have 60 men to do this job and you get 12s. 6d. for each of them. I have 25 men and I pay 25s. each for them".

If service agents stop employing first-class mechanics and go out of business, there will be a tremendous loss of efficient transport to the nation. Complaints are made about vehicles being in bad condition. I know a man who had a car serviced at a garage and who went only a few miles before the wheel dropped off. It happened to my hon. Friend the Member for King's Lynn (Mr. Derek Page). The boys who changed the wheels round forgot to put the nuts on the last wheel.

The Highlands of Scotland and the rural areas of Wales have been mentioned. One of the greatest contributions which we could make to life in these areas would be to ensure that the servicing of machinery and equipment was as cheap as possible. There is at present very little manufacturing industry in these areas. I do not believe that the immediate prospects are bright for manufacturing industry being lured there. One thing which we could do for the agricultural producer in the Highlands and for others would be to ensure that their machinery was serviced as cheaply as possible. If we could help servicing in the Highlands, in rural Wales, and in the Lake District, if there was an incentive for servicing to be put on a higher basis, whether for the tourist trade or for consumer durables, this would be a great incentive for people to take their holidays in these areas and also for industry to move there. The motorist will go up to the Highlands of Scotland if he is sure that there are better opportunities to get service and if the service is cheaper. It is all part of the incentive.

I congratulate my right hon. Friend the Chancellor on his Budget. I usually congratulate every Chancellor on his Budget, because, to me, it is a miracle, an act of genius, with our traditional concept of finance and the creation of money by the banks, to produce a Budget at all. It is the banks which create the money and bring it into society as a debt. In effect, we give the bankers the sole right to manufacture money. They are the monopolists. Anyone else who starts manufacturing money will land in gaol.

No money comes into existence except as a debt. No one gives it away. It is lent out. The Chancellor will lend millions of pounds to all sorts of people, and he will have to pay interest to the institutions which created it. What is more, the banks take interest on the product which they manufacture only in the form of that same product. They are the monopoly producers of the commodity and they are also the monopolists in providing the commodity which pays for the loan of the commodity. It is all crazy to me, and I regard it as a miracle that any Chancellor of the Exchequer can produce a Budget under our system. How Chancellors get away with it I do not know, but they always do.

My hon. Friend the Member for Edinburgh, East (Mr. Willis) will remember the story that I have often told about the little town of St. Helier, in Jersey. St. Helier financed the building of its market with market scrip because it would not pay Barings, of London, 10 per cent. on the money it wanted. So St. Helier created the money itself. It got its market, without any debt at all, and we all know that in Jersey there is still very little Income Tax. In this country, however, there is, and still the money monopolists make the money.

What a crazy system, but we always expect successive Chancellors to produce a balanced economy, with stability in our unit of currency, and so on. Today, my right hon. Friend the Chancellor of the Exchequer gave a brilliant exposition, a wonderful exercise within the confines of our crazy system, trying to convince everybody that the system is all right and that the present Government would do a lot better than the previous one in overcoming the contradictions in a stupid system.

9.23 p.m

Photo of Mr Hugh Wilson Mr Hugh Wilson , Truro

I shall not follow the hon. Member for Dun- bartonshire, East (Mr. Bence) in his attack on the bankers or in his eloquent discription of the nonsense of the Selective Employment Tax, although I had a good deal of sympathy with him in that. There is only one point I shall make about nonferrous metal mining. I shall not fall into the trap into which, he said, some of my hon. Friends had fallen of asking for reductions in taxation without saying where the money could come from.

It has already been said that the Chancellor has missed an opportunity in his Budget, and the same view has appeared in the Press this evening. Whatever may be the truth of that criticism as a generality, in a particular respect it is undoubtedly true. Once again, we have a Budget in which no tax concession is proposed for the non-ferrous metal mines of the United Kingdom.

This is a very old idea, which, to my knowledge, has been urged over the past 16 or 17 years. It used to be proposed regularly by Sir Douglas Marshall, the then Member for Bodmin, and it was supported by Cornish Members on every occasion. Those interested in tin mining have always argued that the best way to secure the revival of tin mining in the West Country is to have a tax concession which, in one way or another, gives a tax holiday on the first year or two of tin production, tin being an exceptionally speculative metal to deal with. A similar concession is given in several other countries.

I touched on that point in my speech on the Motion I had before the House on 10th March. My remarks on the tin mining were reported in cols. 1912 and 1913 of the OFFICIAL REPORT of that date. I drew attention to the fact that on 21st June, 1961, the present Prime Minister moved a new Clause in the Committee Stage of that year's Finance Bill making exactly that proposal. It was never accepted by the Treasury, on a variety of grounds, most of which boil down to the fact that it is said that such a concession would be a precedent for other industries, and would be claimed by other people. I have never believed that to be true. I think that there are exceptional features about non-ferrous mining which could be distinguished from other sorts of industry. The Southern Irish, the Canadians and a number of other people have not found that a concession of that sort landed them in such difficulties.

I shall not go into all the arguments, for a number of hon. Members want to speak. But the Chancellor should read the speech of his right hon. Friend the Prime Minister on 21st June, 1961, cols. 1513 to 1526 of the OFFICIAL REPORT, which goes into the matter fully, and which repeated arguments used many times in this House. Such a concession would not result in loss of revenue, because no revenue is coming in from new mines at present. A good deal of exploration is going on in the West Country because of the growing shortage of tin in the world and the fact that it is largely produced in countries whose political stability is not certain. There is great interest in the revival of tin mining in Cornwall, but not much has happened so far beyond exploration, because, when it comes to the point, the various concessions made to induce new enterprises to start up have not been sufficient to make anyone risk his money on such a speculative venture.

Those who are interested in tin mining in Cornwall are unanimous that only a concession on the lines proposed by the Prime Minister in 1961 would cause the revival of Cornish tin mining. If the Exchequer would not lose any money, because it does not receive any tax from new mines at present, and if, as is commonly believed in Cornwall, such a concession would lead to an increase of employment in an area where unemployment is above the national average, surely there is a very good reason for making an exception and introducing it, taking the risk that it would create a precedent, especially as other countries have made such a concession without apparently landing themselves in difficulties?

The matter should be re-examined because the additional help for the development areas proposed in the Green Paper would not have any effect on tin mining since it is not a manufacturing industry within the terms of the Selective Employment Tax, and the additional incentives to the introduction of factories in the development area of the South-West would not affect the issue. If the concession could be made, some ventures would start up. That would create em- ployment and would not cost the Revenue anything.

9.30 p.m.

Photo of Mr Derek Page Mr Derek Page , King's Lynn

A year ago, in introducing his 1966 Budget, my right hon. Friend the Chancellor of the Exchequer spoke of three targets—the need to maintain the value of the £, the need to promot production and the need to ensure full employment. No one would question that he has succeeded in his first target and that he deserves to be congratulated on that. It is important for the whole country. He has won a very great and creditable victory.

But how has my right hon. Friend performed on the other two targets? Production went up one point in 1966 compared with 1965. The Opposition have little to crow about on this because, whenever they had to introduce freezes, similar affects occurred and I remind them that the Government are tackling a problem which was already there when they took office in the form of a deficit twice as large as any that the Conservative Government ever had to tackle. It is surprising that worse results did not take place.

The employment situation is not so happy. There have been over 600,000 unemployed at the peak and every man who is out of work without wishing to be unemployed is a stark tragedy for himself, his family and every one of us. We must all examine our consciences for every unnecessarily unemployed man.

When the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd) introduced his squeeze to get rid of a £400 million deficit, he ended up with a peak of a little under 1 million unemployed, so if we had relied entirely on squeeze to get rid of a deficit of £800 million we could have expected the better part of 2 million unemployed. So some credit is due to my right hon. Friend for having used other methods which have ameliorated the effect, such as the import surcharge and income planning. They contributed to reducing the problem.

We must not be complacent. We should be complacent at our peril. I believe that we have had half a loaf and that there was some substance in the charge made by the hon. Member for Chelmsford (Mr. St. John-Stevas) when he quoted Aneurin Bevan as saying that Socialism was the language of priorities and accused the Chancellor of being an apostate, because such failure as there has been in maintaining full employment has not been because of planning, but because of lack of adequate planning.

A year ago, and in 1965, a number of us called for certain other measures to be adopted, in particular physical controls on imports and a more drastic reduction in arms expenditure. It may not be the best of manners to say so, but, nevertheless, one can now only tell the Government, "We told you so". We said then that a measure of unemployment would be the result of not having these weapons to hand.

But the country appears to be pulling out of it and I hope that the lesson has been learned. We all know better than to expect anything more favourable from the Opposition. Our choice is between the Government we have and the alternative we might have and we know which side our bread is buttered on. We trust that the Government have learnt the lessons of their own administration.

I understand that certain welcome changes are to be introduced in the Selective Employment Tax. The reduction in the tax for part-time workers will be very welcome to Norfolk. Particularly in the holiday part of the coast, it will be a great blessing. I cannot help feeling that we need a more fundamental reexamination of this tax. It is dreadfully cumbersome and its anomalies are endless. So many have been quoted that one more will suffice—the anomaly that factories making prefabricated buildings attract a premium, while conventional builders have to pay Selective Employment Tax and do not get anything back.

That sort of anomaly is inherent in the system, but there is a criticism which goes deeper and which needs consideration. Does the tax have any relation to the fundamental problem of insufficient efficiency in British industry? I have always been convinced that the basic trouble with British industry and the reason we have lagged behind our competitors has been the inadequate volume of fixed investment in plant and machinery and infrastructure. We have only to consider the fact that Germany, comparable in size and development, invests in fixed invest- ment about £2,000 million a year more than Britain does.

Some hon. Members opposite have spoken of the need for incentives and have said that people are not working as hard as they should. I do not believe it. Our people work hard and work long hours, but it is no use telling a driver stuck in a traffic jam about the need to work harder when his opposite number in Germany has miles of autobahn stretching ahead of him. Of course, the country with the higher fixed investment will get better productivity and it is the lack of this capital investment which explains why we have lagged.

Through the S.E.T., we subsidise manufacturing industry by giving premiums to areas like Birmingham, where motor cars are manufactured. If I am correct in saying that what is wrong with British industry is insufficient capital investment, too many men using too little machinery, then to subsidise labour is the worst thing to do. We ought to subsidise the machinery more heavily to get more horsepower per man. That is the way to increase efficiency.

There is a very good case for an earnings tax. I believe that the S.E.T. should be drastically reshaped, that it should be applied throughout industry and should be proportionate to earnings. It is not only the man on low earnings who needs to be moved around if industry is to be made more efficient. Many of those in the higher earning brackets also need to be moved around, but the impact of S.E.T. on the higher income brackets is nothing.

There should, therefore, be a percentage application. It should be linked with higher investment allowances, not only in manufacturing, but in service industries. If we want fewer people to be employed in the service industries, we should encourage those industries to have more plant and machinery, more automation. That is done not by cutting, but by increasing investment allowances. This tax, admittedly an experiment, needs drastic revision.

I am pleased to hear about the possibility of concessions—probably by way of S.E.T. changes—for development areas, but we also need to think more carefully about what a development area is. I heard some Scottish Members today speaking of earnings in Scotland being somewhat lower than the average for Britain, but I wonder whether they realise that in many parts of the country—I think that Cornwall is one area and Norfolk certainly is—earnings are about £5 a week less than the national average.

I press the Government, while making concessions to the development areas, also to consider those areas which have low earnings. Norfolk has not had unemployment as high and as persistent as that of some other areas, but unemployment deserves considerable attention from the Government.

Photo of Mr Hugh Wilson Mr Hugh Wilson , Truro

Would not the hon. Gentleman agree that it might also be advisable to consider what should be developed in a development area and not to give an incentive to manufacture in an area which does not manufacture?

Photo of Mr Derek Page Mr Derek Page , King's Lynn

I would agree with that. What I was saying about the Selective Employment Tax and the need to reshape it and to encourage automation and efficiency in service industries would probably fit in with what the hon. Gentleman has in mind.

We should take into account average earnings in designating development areas. In Norfolk, unemployment has not been as persistent as it has been in other areas, but it is undesirably high at the moment. In my area it is a little over 4 per cent. We have some redundancies coming along, unfortunately. But the persistent problem in my part of the country has been miserably low earnings. It is scandalous that a man's average earnings should just about be equal to what an average family can get in social security benefits. It is even worse when one realises that taxation goes from Norfolk to help to pay for benefits in areas which are better off.

I have repeatedly said that in deciding the boundaries of development areas and the economic help which should be given to areas in need we should not be so mediaeval as to consider only the question of unemployment, but the real need of the under-paid people should also be taken carefully into consideration.

9.41 p.m.

Photo of Mr Alick Buchanan-Smith Mr Alick Buchanan-Smith , North Angus and Mearns

One of the chief subjects which have occupied our atten- tion has been the Selective Employment Tax and how it is applied in development areas. I appreciate the thoughtful way in which the hon. Member for King's Lynn (Mr. Derek Page) spoke about this matter. Instead of accepting the tax as a general concept as happened last year, we should be considering the roots of the tax and what it is achieving to see whether it is doing the job which it is meant to do. I should like to return to that point later.

Speaking more generally, I join my hon. Friends in expressing general disappointment that so little has been done by way of incentive for those, in particular, who are prepared to work hard. There has been talk today of executives in industry and higher management and people in research, science and technology who are going overseas because they have more opportunity to keep what they earn or to earn more. But we have not only the brain drain but the brawn drain. Working people are migrating from these shores because the prospects for them overseas are greater than they are in this country.

As one who employs people, I believe that there is no shortage of people in this country who are prepared to work hard and long hours and to do difficult jobs. But many people are discouraged to work as hard as they are capable of working in the national interest because of the lack of incentive in our tax system. This is the most disappointing thing about the Budget: there is no forward-looking reform of our tax system. We have had enough new taxes in the last two years, but it is disappointing that there is no prospect, not just of simplifying the tax system, but of easing the effect which the burden of taxes imposes on people. This has been mentioned in the context of the Common Market.

It is unfortunate that we did not hear from the Chancellor of the Exchequer some indication that he is carrying out a review into the place which an added value tax may have in our tax system. It would have given us much more encouragement if our approach to the economy were a constructive approach rather than the standstill approach which we had today.

I should like to direct my main remarks, as so many hon. Members have done, to the question of the development areas. As my hon. Friend the Member for Belfast, South (Mr. Pounder) said, the Government must not be lulled into a sense of false security about the less fortunate areas. This winter we have been blessed with fine weather and it has masked, to some extent, the effect of the squeeze and freeze on areas like Scotland. Let them not forget either that when a squeeze or freeze is applied, it is normally 15 to 18 months after it is imposed before its full effects are seen in development areas and in the less fortunate areas. That takes us, not to the winter which has passed, but to next winter. Therefore, I urge the Government not to be lulled into imagining that the problems of the development areas and of Scotland have been solved merely because unemployment has not, perhaps, reached more drastic heights, bad though it is.

The third thing of which the Government must remind themselves concerning Scotland is that its unemployment figures this winter have also been masked by the high level of migration, which last year reached the highest level ever. This, again, must not be forgotten when dealing with the problems of these areas.

I certainly support the Chancellor of the Exchequer if he can bring forward any form of proposal that will help development areas, either at a time of reflation or at a time of deflation, and protect those areas so that they are not clobbered with whatever measures are taken to control the economy as a whole. That certainly has not been achieved fully in our economic history. I wish the Chancellor well if he can find the solution.

What the Chancellor has done in his Budget today, however, and, in particular, in the Green Paper published last week, has done little to give us in Scotland confidence that he has tackled the root of the problem. What the Chancellor has done in the Green Paper is to add an extra premium for those working in manufacturing industry in the development areas. So far so good, because we all want to see manufacturing industry in Scotland and in other development areas. This does very little, however, to help development areas in which there is little manufacturing industry. Unfortunately, in the case of Scotland, this applies to a great area of the country.

I do not want to go over the arguments which have been put by hon. Members opposite, as well as from this side, but I remind the Committee that in the Highlands of Scotland only 10 per cent. of those in employment work in manufacturing industry. In the north-east of Scotland, in the area which I represent, only 30 per cent. of those employed work in manufacturing industry.

Photo of Mr Cyril Bence Mr Cyril Bence , Dunbartonshire East

The hon. Member will, I am sure, agree that this measure is an incentive for small unit manufacturing industry to go to the north of Scotland.

Photo of Mr Alick Buchanan-Smith Mr Alick Buchanan-Smith , North Angus and Mearns

I agree; I concede the point. I said that as far as the proposal goes, it is good. I am trying to show, however, that if the Chancellor and the President of the Board of Trade think that by this measure they will soften the effect of the Selective Employment Tax during the past year, they are quite wrong. To put it in proper perspective, the help that the Chancellor is giving for those areas is very little.

When the President of the Board of Trade made his statement to the House last week about the Green Paper, I was heartened to some extent when he said that one could not hope in any one proposal to help all the development areas with all their different problems. In answer to questions, he admitted that problems of areas with a low proportion of manufacturing industry might have to be dealt with differently. I took heart from what was said and hoped that in the Budget today we might see a relaxation of the Selective Employment Tax for these development areas. That, however, is what we have failed to see.

Speaking, I am sure, for my hon. Friends on this side, that is what we are disappointed about in the Budget. The people of Scotland will be disappointed that the half-promise which we were given last week has not been put into effect in the Budget. As the hon. Member for Dunbartonshire, East (Mr. Bence) has said, every little helps. Much as we would like to see a development of manufacturing industry in the Highlands, the North-East and the Borders, we must face the fact that in an area like Scotland and on the edge of Scotland, it is inevitable that if employment is to grow we must look to the service industries to provide that growth in employment.

I want to mention three points in relation to that. Contrary to what the hon. Member for Glasgow, Govan (Mr. Rankin) said—and he was corrected by his hon. Friend the Member for Dunbartonshire, East—in certain areas of Scotland there are not the physical qualities and attributes required to attract a great mass of manufacturing industry. It is wrong to try to kid people living in those areas that in every little village it will be possible to set up some form of viable manufacturing industry; and, in the long term, manufacturing industry has no future unless it is viable. That is probably more true in Scotland than in many other development areas.

The second matter which must be remembered about manufacturing industry is that, with the growth of automation and modernisation and of labour saving machinery and methods, while industry may grow, and while the physical investment in it and its output may grow, it does not necessarily mean that employment will grow. That is particularly true of the new and modern industries which have come to Scotland over the years. Those industries do not necessarily create more employment in the same way that the older established heavy industries did in the past. The forces in manufacturing industry today are directed towards saving labour rather than creating more employment.

The third point which is particularly important is that many of the new industries coming to Scotland are branch factories of larger concerns in the United Kingdom or overseas. Very often, the factories in Scotland are merely production units. They are not complete concerns and do not have complete sales staffs, office staffs and research and development facilities with the extra employment which goes with them. They do not provide extra employment of a service nature which simetimes goes to other areas of the United Kingdom and there is no extra employment to qualify for repayment of the premium. Firms coming to Scotland do not have that tail behind them creating more employment, and that is a point which the Government should bear in mind.

We have to accept that if we are to get a growth of employment in Scotland, inevitably it means a growth in our ser- vice industries. It is worth while reflecting that in many cases our manufacturing industries are well served in terms of building grants, investment grants, training grants, and advance factories, and so on, and we looked forward with hope to some relaxation of the Selective Employment Tax in respect of other industries which are not manufacturing, but we were disappointed.

Mention has been made of the value of the tourist industry to Scotland, and I do not need to re-emphasise how important that is. It is an industry which is growing at the rate of 15 per cent. per year and, in 1964–65, it was valued at something of the order of £65 million. We welcome the small concession in the Budget towards part-time workers, which the Chancellor said would be of particular benefit to those in the tourist industry. However, it is somewhat cynical when one realises that it will take effect only in September, when the tourist season in Scotland is drawing to a close. Although we welcome this small concession, the tourist industry in Scotland will not see the benefit of it this year.

This is cynical, and it sums up my feelings about the Budget, that all the Government are doing for Scotland is promising jam for tomorrow, but nothing for today.

Whereupon Motion made, and Question, That the Chairman do report Progress and ask leave to sit again—[Mr. Harper]—put and agreed to.

Report of Resolutions to be received To-morrow.

Committee also report Progress; to sit again Tomorrow.