Clause 1. — (TERMINATION OF SURCHARGE UNDER FINANCE ACT, 1961, s. 9, AND RELATED INCREASES IN DUTIES.)

FINANCE (No. 2) BILL – in the House of Commons at 12:00 am on 1st June 1967.

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Photo of Mr Terence Higgins Mr Terence Higgins , Worthing 12:00 am, 1st June 1967

I beg to move Amendment No. 2, in page 2, line 7, to leave out from ' Act' to the end of line 13.

The Committee will be aware that this Amendment seeks to change the Clause as it now stands and, in particular, to alter it with regard to renewal of the regulator powers. In moving the Amendment, we are effectively asking the Chancellor to justify the perpetuation of those powers. Ever since the regulator was introduced in 1961 the House of Commons has been fortunate in having a number of illuminating debates which have customarily, though not always, taken place on the Question, "That the Clause stand part of the Bill," but on this occasion we felt for a number of reasons that it would be more appropriate to table an Amendment.

The first reason is that the Clause is in a more complicated form than is normally used to refer to the regulator. The usual form is simply to renew the regulator powers, whereas this Clause does a number of other things. In particular, it consolidates the powers under last year's regulator.

The second reason is that, as it now stands, the Clause gives to the Chancellor of the Exchequer somewhat greater powers than he had under the previous arrangements. Effectively, what he would have under the regulator if the Committee were not to accept the Amendment would be the right to increase or decrease Purchase Tax by 10 per cent., but this is 10 per cent. on an amount larger than it was last year, because the Chancellor of the Exchequer has meanwhile increased a number of Purchase Tax items by 10 per cent. Therefore, this is in some ways an extension of the regulator rather than a renewal.

The third reason is very important. We must appreciate that the regulator is effectively a convenience for the Government. Without the regulator, if the Government felt, during the course of the following year, that it was necessary to make a change in the Purchase Tax, they would have to ask the House to pass new legislation to do so. We might well consider the regulator as a convenient arrangement for the Government of the day, and one of the reasons why it was introduced originally—

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

I should not like my hon. Friend to mislead any member of the Committee. It was ruled 10 years ago by Mr. Speaker of the day that Purchase Tax rates could be raised on the Adjournment of the House, for the precise reason that no new legislation is needed. It may be done by Treasury Order.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

I am grateful to my hon. Friend, but my point is that if we are to give the Chancellor of the Exchequer the powers we are now considering it is right and proper that they should be debated adequately and a reasonable justification given for them.

First, I should like to clarify on the size of the regulator. There can be no doubt that the powers we are now asked to give are very considerable. The present Prime Minister, when shadow Chancellor of the Exchequer, described them as among the very largest powers that had ever been taken by a Chancellor of the Exchequer in time of peace. I should be grateful to the Financial Secretary if he would clarify precisely the sums involved.

I pointed out last year that the taxation affected was divided into five main groups. The figures given last year of the estimated yield in 1966–67 were alcohol, £646 million; tobacco, £1,030 million; oil and petrol, £830 million; Purchase Tax, £670 million; and other duties, £20 million. That made a grand total of £3,200 million. Ten per cent. of that sum, plus or minus, would come to £320 million. In his reply—admittedly rather late at night—the Chancellor said that I had somewhat over estimated the amount and that it was something under £200 million. I appreciate that the right hon. Gentleman could not then give precise figures, but with this sort of difference between our estimates we must know exactly what the amounts of the individual components are. I should be grateful for an accurate reply.

There is also a drafting point. I raise this question, because although I am sure that it is in order, these things sometimes do not go as well as they might. For example, Clause 20 appears to correct one of last year's drafting mistakes. I will be grateful if the Financial Secretary can confirm that although the regulator is to renew the amount of the duties that have gone up in the interim and the whole thing is embodied in a single Clause, there is no problem in renewing the full 10 per cent. on the increased amount.

Section 9 of the parent Act of 1961 very clearly stated that the purpose of the regulator was to influence the economy, if it should appear expedient to the Treasury to do so, with a view to regulating the balance between supply and demand in the economy; in other words the relationship between the real resources or capacity or the United King- dom economy and the demand for these resources. It is true that for a very long time the purpose of the Government has been not merely to raise sufficient taxes to meet the expenditure which the Government will incur, but to adjust demand to resources and, through the fiscal mechanism, to attain a number of other objectives such as full employment, restraint of inflation, and so on.

4.15 p.m.

But the Committee should be clear that though that is the ostensible purpose of the regulator, there should be some limits on its use. There would be a case, for example, for the regulator to be used if some emergency arose during the year which could not reasonably have been foreseen or, alternatively, to smooth the passage of the economy if there would otherwise be some sudden change in the level of taxation, or in the level of demand on the economy. On the other hand, I suggest that it is not right to use the regulator to make increases or decreases in taxation that could properly have been included in the Finance Bill and debated on the basis of the fact that they could be foreseen.

We very definitely raised this point last year in the debate on the regulator, when we pointed out that it was likely that the economy was becoming overheated and that the effect of the Selective Employment Tax in taking steam out of the economy would be deferred. The Chancellor of the Exchequer then felt that all he needed was renewal of the regulator powers, and he saw no reason to take action through the Finance Bill. We had that debate in June, and within a matter of weeks the right hon. Gentleman produced the July measures and introduced the use of the regulator to control the economy.

It would be wrong for us to feel that the regulator is an instrument to be used to meet foreseeable circumstances. Rather, it is an instrument to be used only to smooth the passage of the economy during the year or to meet unforeseen emergencies. For this reason, we very definitely believe that today we should have an indication of what the Government think the course of the economy is likely to be over the next year or 18 months.

There has been increasing pressure on the Chancellor of the Exchequer to publish explicitly the various components of his forecasts. I hope that on this occasion he will see fit to go a stage further in improving the amount of information we have. This need has been explicitly recognised. The Financial Times recognised it shortly after last year's debate on the regulator, when under the heading: Squeezing the Facts from the Chancellor Mr. Sam Brittain advocated full publication of official forecasts. Other people—for example, Mr. Andrew Shon-field in the current issue of Encounter under the title "The Pragmatic Illusion"—attack the right hon. Gentleman's reluctance to give more information on his forecasts, while this week's edition of the Economist puts forward the same argument. If we are to decide whether the regulator ought to be renewed we ought to know what expectations the Chancellor has about the economy.

The disadvantages of not doing this are very considerable. The Economist, in the article to which I have referred, points out that if this is not done there is a grave danger that, far from foreign opinion in regard to sterling being reassured, the fact that the Chancellor is not giving a coherent forecast leads to a mistaken view that sterling is not strong. This, I suspect, was somewhat the case at the time of the regulator debate last year. It is also true that the whole of Government thinking tends to be not in quantitative terms but in terms of vague generalities. Therefore, events arise which should have been foreseen where the regulator would not have to be used, but it has to be used because of the lack of quantitative analysis which with an explicit statement of the forecast, would have been able to be appraised by the public at large.

Real resources are not considered, but only the monetary magnitudes. We are dealing with ordinary accounting concepts and a few figures here and there rather than with major forecasts. This is particularly true in the case of the regulator, where the Chancellor is given the option of using these enormous powers. The real reason is that the country has a right to know when taxes are being imposed, particularly by the use of the regulator, what estimates the Government make about the authority for imposing taxes and the need to impose taxes to maintain the economy in a state of balance.

Again, as the Economist points out, the Revenue estimates presented to Parliament are necessarily dependent on the Government's estimate of what the money income will be. If these are made explicit it is unlikely that unforeseen events will occur which could have been avoided. I hope that we shall have a comprehensive answer, because we cannot hope to have the regulator balancing supply and demand if the Chancellor is not prepared to say what he thinks supply or demand are likely to be.

The counter arguments are surely false. The first is that perhaps the Chancellor's estimate will turn out to be wrong. That is quite possible, but it does not appear to inhibit him. I shall not mention the National Plan again,but it did not seem to inhibit the framers of the Plan or the Chancellor in giving the Budget out-turn. This is a false reason for saying that he should not publish forecasts. The Chancellor forecasts many things, some of which turn out to be right and many wrong, but that is not a reason for not setting out forecasts in a coherent way.

The second reason is that if a forecast of a wage increase is given it will encourage wage claims, but the Chancellor has already suggested what the change in wage rates is likely to be. None of these is really a coherent reason. Because of this, while we appreciate the right hon. Gentleman's attachment to the "Silent Service" and his nautical reference in his Budget statement to "Steady as she goes," he should consider being rather more forthcoming in this respect.

One thing needs particular attention. We have to consider the need for a coherent view to be presented by the Chancellor. Hitherto, he has been much more forthcoming than some previous Chancellors, but the statements he has made have tended to be rather piecemeal. Individual figures have been forecast and they have not always been for the same particular period. The essential point is that we need to know all the variables, because otherwise we cannot work out whether the forecast as a whole hangs together.

The crucial element is the forecast of consumption expenditure, for two reasons. The first is because this is much the largest element of demand for which the Chancellor may plan for using the regulator. Secondly, it is because it is the element of demand which the regulator affects. To get an overall picture we need to analyse the whole pattern of demand, consumption, investment, either current or capital, and Government spending and exports.

In winding up the Budget debate this year, the Chancellor, I think, was genuinely attempting to be more forthcoming. He said that he had been asked to give a forecast of incomes. It would be more accurate to say that he had been asked for a forecast of incomes and consumption. It is the relationship between these elements which is vitally important. One makes a first estimate of the gross national product and works out what it means in terms of personal incomes and relates that to disposable income and to a price index and real disposable income. This, after allowing for saving consumers' expenditure, gives the final consumption. This then gives the gross national product. Once one cuts out one part of the circle it is impossible to tell whether the odd statements which the Chancellor makes from time to time giving the individual components of demand are consistent and whether they hang together.

Therefore, it is very important indeed that we should have a figure for consumption both because it is the consumption which will be directly affected by the regulator if the Chancellor uses it, and secondly, because consumption is the main element in the demand which the regulator is designed to control either upward or downward. In this respect, we should give some attention to individual components. The Chancellor has always been concerned only with the overall picture, for example, the question of motor car sales on which I know the hon. Member will be particularly interested—

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

Yes.

Turning from consumption to the elements of demand we should consider also the position concerning investment. This is an extremely gloomy picture. It seems that between 1966–67 the fall in real terms will be something like minus 10 per cent. in manufacturing, distribution and services. We need to know what the expectations are in this respect. The pattern is certainly very sad indeed. Again, the Chancellor has been more forthcoming. In a Written Answer on 16th February he gave some information which suggested that the change in public expenditure investment would be plus 8½ per cent. for 1966–67 and again plus 8½ per cent. in 1967–68. Nevertheless, the overall picture will be something like plus 2 per cent. over 18 months, when public expenditure is getting an increasing emphasis as against private expenditure.

I turn for a moment to supply because, as I said, the regulator is designed to limit the resources of the economy or supply to the actual demand for those resources. We are still very concerned about the Chancellor's estimate of a 3 per cent. growth rate. I do not think that the Chancellor met this point in his winding-up speech on the Budget. He has said that he expects to see a 3 per cent. growth rate in capacity between December, 1966, and December, 1967, but he has not given us the figure for the year on year.

4.30 p.m.

In winding-up the debate on the regulator last year, the Chancellor suggested that I should have due regard for arithmetic. The relationship between these two is, I imagine, merely a matter of arithmetic, but we need some facts to go on. Therefore, I should be grateful if we could be told what the year on year figure for growth will be. Unless we are told this figure, we cannot tell whether the Chancellor's estimate, for which he has given us no real foundation, is consistent with those other outside forecasts which suggest that the rate of growth in capacity will be very much less.

The Chancellor's December to December figure of 3 per cent. compares with the figure of 1·8 per cent. which the National Institute published in its last review—a difference of about £300 million. We cannot decide whether to give powers of the kind contained in the Clause, and which we seek to amend, unless we know where we are to a closer degree than £300 million here or there. It is, moreover, £300 million of the taxpayer's money. Therefore, I hope that the Chancellor will tell us what the year on year figures are and whether he has any reason to suppose that his forecast has changed since that time.

Finally, I think that we need to decide, in considering whether to accept the Amendment, what the circumstances are in which the Chancellor will actually use the regulator and in response to what indicators he would propose to do so. The country is at present in an extremely difficult situation, which was summed up, perhaps, in the concluding paragraphs of the London and Cambridge Economic Bulletin for March, 1967 in this way: Clearly, he"— that is, the Chancellor— need not now add to the overall tax burden to choke off an excessive growth of demand. Equally he cannot, in our view, reduce taxes in any appreciable way without the danger of stimulating a more rapid growth of demand than the external balance (and our creditors' good will) can sustain. In spite of protestations to the contrary, we see no evidence that the existing policies and practices have as yet achieved any significant improvement in our underlying rate of growth of productivity or in our propensities to import and our ability to export. It would seem that the Chancellor is in a dilemma. It is right that we should ask this question: in what circumstances, if he cannot go up and he cannot go down, would he expect to use the regulator during the period of the next year or 18 months? If unemployment continues to rise, it would be a reasonable assumption, judging from previous Chancellors, that he would use the regulator to reduce Purchase Tax and to increase consumption. Or, if the balance of payments seemed less good to him than he was hoping, he might take measures which would increase taxation by use of the regulator and, therefore, divert resources, as he might hope, to the export markets.

But what will the Chancellor do if these two things happen together? Does he propose to put the regulator up, or does he propose to put the regulator down? At this point, we need to know very definitely what the Chancellor's objectives are. The general objectives of the regulator are set out in the parent Act. We are now in a situation where we are not at all clear what the Chancellor's objectives are. Has he, as the popular Press and hon. Members have suggested in the past, been converted completely to the Paish doctrine, and does he propose to use the regulator to achieve the level of unemployment which has been advocated by Professor Paish? If this is so, when we come to consider the Amendment we need to have a clear statement upon this point.

Moreover, what does the Chancellor propose to do in using the regulator as to the relationship between private and public investment? He told us in his Budget speech that, if by any chance private investment should increase, he would rein back public expenditure. The fact of the matter is that the right hon. Gentleman will recognise that it is extremely difficult to rein back public expenditure in the short run. If the Chancellor finds in the next year that private expenditure increases and that public expenditure cannot be reined back, does he propose to use the regulator to reduce consumption and, therefore, provide a gap which can be used to increase investment; or does he propose to use some other means? The Committee has a right to know whether the Chancellor proposes to use the regulator in circumstances where he finds that private investment is rising.

I have asked the Chancellor a great many questions, but I do not think that it is unreasonable, when we are asked to approve a measure of this kind, and when we are considering an Amendment of this kind, which suggests that the Chancellor should not have the use of the regulator, that the Committee should examine very closely indeed what the Chancellor's views are, both as to his objectives and as to the circumstances in which he would use the regulator, and particularly what his views of the economy are. I hope that we shall have estimates from the Financial Secretary on the Chancellor's outlook for the future, and that we shall also have answers to the other various questions which I have asked, before we come to consider whether the Committee should or should not accept the Amendment.

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

The hon. Member for Worthing (Mr. Higgins) certainly made a meal of that. He started by telling us that one reason why he and his right hon. and hon. Friends have tabled the Amendment is that the regulator was used last year. This is a very weak argument, because the small difference in percentage has no bearing whatsoever as regards the use of the regulator on demand. It is hard to understand why right hon. and hon. Members opposite have tabled the Amendment other than that it is probing or searching, or whatever term the hon. Gentleman cares to use. If he really means to press it to a Division, I shall find it extremely difficult to understand. Then it will begin to look as though the Opposition are standing on their heads the arguments used by the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd) when he introduced this measure.

The crux of the argument on the regulator was put rather better by the hon. Gentleman from the Front Bench last year, when he said this: … before the Committee approves the Clause it should look at the question in the light of what the economic situation is likely to be, because we should grant this power only if we consider it justified in the light of what is likely to happen both to the level of demand and resources in the United Kingdom."—[OFFICAL REPORT, 16th June, 1966, Vol. 729, c. 1831.] The hon. Gentleman made that point very clearly last year, because it was a shorter speech made late at night.

The crux is whether we should grant this power for that reason, or whether we should have the additional regulator—the Purchase Tax and excise regulator—because it is a useful measure, as was outlined by the right hon. and learned Member for Wirral when it was first introduced.

I will take, first, the argument as to whether the hon. Gentleman is right in asserting that we should grant this power to the Chancellor only if the economic circumstances are such as would seem to warrant it. The hon. Gentleman and others opposite could congratulate themselves on the fact that they were right when they agreed not to vote against the measure last year because, they said, they knew that the Chancellor would need to use it. They were right in forecasting that the regulator would be used, but that is not exactly the same as saying that the fact that it was used is right. Nor does it mean that the Opposition have some unique powers of forecasting, merely because they were able to forecast one or two months ahead of the debate which we had last year. It would take a much wiser man or woman than many here in the Committee, or, indeed, in the country, to forecast the pattern of demand and the general economic picture over the next 12 months, which is what the hon. Gentleman was waxing so eloquent about.

When the hon. Gentleman says that we should grant the power to use the regulator to the Chancellor, and that it should be used, only if there are unforeseen circumstances, I immediately ask: foreseen or unforeseen by whom? Who is able to foresee what circumstances are likely to be in the next 12 months? As I say, there are very few who could foresee whether we are likely to have to use the regulator, not that it is such a powerful weapon or a great power which we are giving to the Chancellor, although, as I shall try to show, it has considerable importance.

One can hazard a guess about what might happen in the next 12 months. Very many hon. Members and forecasters outside are keen to hazard guesses about what will happen. They are likely to be right as often as not, perhaps three times out of four or even nine times out of ten. Even an uninformed person could hazard a guess and be right about the use of the regulator. In a sense, it is an even chance whether we use the regulator or not. It is rather like guessing whether something is Stork or butter; without even tasting it, one has an even chance of being right.

One can guess—and many do—whether we are likely to have to use the regulator, but it would be a foolish man who said definitely that we should or should not need to use it in the next 12 months. It would, therefore, be most unwise to exclude use of this power from the Chancellor from the standpoint of our overall control of the economy. Guessing about the economy is a hazardous business. There are many factors apart from normal economic factors, which are difficult enough in themselves. When one thinks of what effect there could be on our economy from the Middle East situation, the Hong Kong situation, the Common Market situation or the Nigeria situation, one begins to appreciate how difficult it is to foresee—and this is what the hon. Gentleman wants—whether we shall have to use the regulator in the next 12 months.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

As the hon. Gentleman will find when he looks at HANSARD tomorrow, he has misunderstood my argument. Among the several points I made, the one relevant to the argument which he is now raising is that, unless we know what the Chancellor's view is, we cannot tell whether he proopses to use it for something which is foreseeable, or, at least, which he foresees, or for something which he does not foresee.

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

I think that even my right hon. Friend would agree that what he foresees as likely in the next 12 months is not likely to be any better as a forecast or guess than most other economists' guesses. This is a serious point. I doubt that there are many people who could be certain. They may make a forecast, as my right hon. Friend and others have done, but there are few who could be so certain as to say, "I shall only use the regulator if such-and-such happens". That is really asking too much of any Chancellor, no matter how able, as I believe the present Chancellor to be.

There is an important question here, a question more of principle. The hon. Gentleman referred to what was said in 1961 by my right hon. Friend the present Prime Minister, and reference was made to it last year as well. My right hon. Friend made a very important point on that occasion. Speaking of the regulator, he said: But it oversteps the margins of the relation between the Government and the House in the matter of taxing power."—[OFFICIAL REPORT, 4th May, 1961; Vol. 639, c. 1641.] Should any Government have such powers at all? As the hon. Gentleman says, this is giving power to a Chancellor not to raise that amount of revenue, but to be able to do so quickly and very much more easily than he could otherwise.

As to amount, the hon. Gentleman is quite right to get away from some of the obscurities we had last year, with all sorts of figures mentioned—£300 million, £200 million and £150 million. One understands some of the reasons for the differences. In the first place, the figure, according to the 1967–68 Financial Statement, is based only from last July, so it is not a whole year, and the figure is only £103 million because tobacco was excluded. But what is more important is how much the Chancellor can raise by the regulator, the total amount which he can raise. My understanding is that he could raise about £360 million. I would very much like to know precisely what the figure is. The Committee is entitled to know, if we are to give this power for use of the regulator, just how much money is involved in it.

4.45 p.m.

The next question is whether we should give power to use the regulator so that action can be taken quickly and easily, or whether we should leave it so that, other than for Purchase Tax, on Excise matters the Chancellor would have to come to the House with a new Bill. Nowadays, although, in theory, it is a matter for the House of Commons to decide, in practice it is one decided by the party with the majority in the House, so perhaps there is no great difference between giving this power under the regulator and insisting on the Chancellor bringing in a new Bill. Nevertheless, although that may be so in practice, I do not believe that we should give this power lightly. There is always a problem in a democracy in striking the right balance between the powers which the Executive should have in controlling a complex economy such as ours and adequate safeguards for this Committee and the House of Commons.

The majority party, in practice, ought not to give power to exercise the regulator too lightly or too easily to a Chancellor, but this is not an argument for not giving it at all. It is a dangerous argument, in spite of the way the House of Commons works in practice, to say that a Government, democratically elected, should not be given adequate powers to control the economy, and one of the useful weapons which any Government can have today is an additional power of regulator such as these provisions have perpetuated since 1961.

I have recently reread the 1961 debates. Some very good and cogent arguments were deployed by Conservative Members at that time. I cannot help wondering whether the present Opposition any longer accept those arguments. There were arguments of principle as to whether the regulator should be given at all. The right hon. Gentleman the Member for Birmingham, Handsworth (Sir E. Boyle), then Financial Secretary to the Treasury, and his right hon. and learned Friend the Member for Wirral both made a powerful case, in my view, for any Chancellor having this sort of additional power to control the economy.

I am wondering whether the Opposition will now vote for their Amendment. The hon. Gentleman did not say one way or the other. If they were to vote in that way against the arguments which were presented so cogently in 1961, they would make themselves idiots in the process.

Photo of Mr David Howell Mr David Howell , Guildford

I agree very much with my hon. Friend the Member for Worthing (Mr. Higgins) that, if we are to make a clear and sensible judgment about the renewal of the regulator and this Amendment, we must give an airing to the question of the evolution of demand in the short and medium term, and press the Chancellor to be a little more explicit about the view which he takes.

I do not go along with the hon. Member for Heywood and Royton (Mr. Barnett) in the rather tortuous argument which he put. It seems to me quite fair to say, "Let us at least have a general view about what would happen". No one expects the Chancellor to be 100 per cent. right, but it is a genuine asset in considering public policy and the development of business decisions in industry if we have a clear general view about what is likely to happen. Of course, it may well be overtaken by all kinds of events, but that does not destroy my hon. Friend's argument. Therefore, in examining the question of the regulator it is fair that we should look closely at the Chancellor's short-term strategy as it now stands in relation to the way he set it out a month or so ago at Budget time.

Whatever the Chancellor's views about long-term economic strategy, the long term which we curiously never seem to reach under this Administration, he can hardly be happy about the way the short-term strategy he outlined in his Budget is evolving and about the background to the regulator. The unemployment situation remains extremely tricky and dangerous, and it looks as though unemploy- ment may be rising above the deadline or ceiling of 2 per cent. that was laid down. That seems to me an undesirable trend in our economy and economic policy.

Secondly, the export situation in the immediate short term, which is the relevant background to the use of the regulator and other demand controls, is not shaping up in the way some of the more optimistic forecasts from Ministers on the Treasury Bench indicated only a few months ago.

Thirdly, as my hon. Friend rightly emphasised, there is the critical question of the steep decline in private investment, which is supposed to pick up next year but is at present falling very fast. It is difficult to over-estimate the damage to the sensitive plant of private investment which that does to the whole shape of the economy and the present trend.

What is happening with this sharp decline in private investment is that the Chancellor is reducing the room in which the regulator or any other controls of demand in the short term can be used. One cannot just say that private investment will pick up again and assume that no damage will have been done. In the meantime the whole process of innovation is being slowed up, and processes and methods are not being installed that should be installed, which will have a direct effect on our export performance in the coming years.

That is closely relevant to the question of how the regulator should be used and the trend of demand in the coming months. The estimate from the National Institute of Economic and Social Research is that in 1970 private investment will be running at a rate of only 12 per cent. higher than in 1964. That is a tragic commentary on all our efforts to increase the efficiency of the economy and private investment, the elbow room within which the Chancellor must operate and control the economy and use the regulators, including that which we are considering.

That is the trend which the Committee will agree must be reversed, and there should be a measure of reflation. That was not the Chancellor's immediate judgment at Budget time, but the general hint which seemed to emerge from what he said, was that he looked forward in due course to a measure of reflation. He said that he wanted: … a steady run up to a higher rate of growth …".—[OFFICIAL REPORT, 17th April, 1967; Vol. 745, c. 205.] The question we still face today, and will face on each Amendment dealing with this kind of matter, is how we have that steady run-up to a higher rate of growth without running into another balance of payments crisis in the next few weeks or months.

As we look at this judgment on the evolution of demand, we see that it is, as my hon. Friend said, a judgment and strategy based on some very fine arithmetic. I have very grave doubts, particularly when considering the regulator, whether we have the knowledge, statistics, skill or understanding in our economy at present to proceed on those fine arithmetical judgments in making our economic strategy. Basically what is needed—this is a crude and not a scientific judgment—is a big revival in private investment. That is the central point of an economic policy designed to increase efficiency, raise exports and achieve the other aims which hon. Members on both sides of the Committee are always outlining.

The question before us in examining the regulator and its renewal is how to fit into the jigsaw of the existing components of demand that essential boost to private investment. This subject has been raised before in the House and we shall have to follow it through in the Committee. How do we fit the boost to private investment into the unfolding pattern of demand within the overall limit which the Chancellor has given us as his estimate of a 3 per cent. rate of growth of productive potential? These are essential and relevant questions to our judgment on the renewal of the regulator under the Amendment.

We must again question, as did my hon. Friend, that 3 per cent. rate of growth of productive capacity. I accept the very important proposition that I read in the recent D.E.A. memorandum, "Future Work on Planning". The authors, from the Department of Economic Affairs, wrote: The greater the growth of demand the greater will be the increase in productivity, because, for example, of greater economies of scale and because a faster growth of demand will justify the installation of a greater number of up-to-date machines. That is an extremely important policy statement, or statement relating to policy, coming from the Department of Economic Affairs, and it is very relevant to the question of immediate development of demand and regulators and controls to be used on it. It is saying that higher demand as from now and a higher rate of growth of demand will lead to lower costs and more efficiency. That drives a coach and four through the whole concept of fixed productive potential, divinely ordained and brought down on tablets from Mount Sinai. It says that where Government operates on demand it will influence the productive potential or capacity of the economy.

It would be unkind to harp on intellectual inconsistencies in the Government's economic policies at this stage, but I hope that less emphasis is put on the whole question of there being that 3 per cent. productive potential, the elbow room within which demand can be controlled and operated. That was the first point I wanted to make when looking at the question of immediate variations in demand in the coming months and the use of the regulator.

Secondly, as my hon. Friend said, there is the whole question of how the components of demand will move, I have already mentioned private investment and I do not want to go over the whole range of others but to deal with the one where we are supposed to know exactly what will happen and where it has been said that we know roughly how it will unfold—the development of public expenditure. It is right in examining the use of the regulator and the Amendment that we should look fairly closely at that component. It may well be that if we can produce more sensible ideas in this sphere the elbow room for the Chancellor will be enlarged to that extent, and the need to run the economy in the continuous cliff-hanging drama of a sensitive touch here and a sensitive touch there will be correspondingly reduced, because I doubt whether we have the equipment or sensitivity to run an economy in that way.

A precise estimate has been made of the growth of public expenditure for the coming year. Throughout the coming debates the Committee should ask itself whether that component need really be such a fixed and given quantity and whether we must be resigned to the tremendous growth of public expenditure, whether it is something we must grin and bear because basically it cannot be controlled. If that is so, instruments such as the regulator must, of course, be given closer consideration. But if it is not so and we can see ways of varying public expenditure within the general growth of demand we should do so.

That is the one real growth area in the picture of demand at present, it is the one area where demand is whizzing up. Unless we can make sensible suggestions on the cost of Government and the whole range of public expenditure we are dooming ourselves to the kind of economic policy which rely on the regulator.

Photo of Dr Horace King Dr Horace King , Southampton, Itchen

Order. I do not want to interrupt the hon. Gentleman's argument, but on this Amendment we cannot have a far-reaching debate on economic policy generally. The hon. Gentleman must confine his remarks to the effect of the Amendment, which is related to the renewal of the regulator.

5.0 p.m.

Photo of Mr David Howell Mr David Howell , Guildford

I accept your Ruling, Sir Eric. I was trying to argue that, in order to assess the background against which the regulator must be used, we must have some idea of the way in which it is thought demand will move and the way perhaps in which the different components of demand could move with various changes in policy. I accept, however, that I may have been wandering into areas beyond that, and I shall try and confine my remarks to the question of the Chancellor's short-term strategy, movements of demand and the renewal of the regulator.

There is no doubt that the future trend of overall demand and the use of the regulator are much related to the question of the way in which different components of demand will move and, as I said in mentioning the cost of government and public spending, a major contribution could be made towards easing the situation in which the Chancellor has to operate, and, in particular, overcoming the conundrum of what to do about private investment—given that public ex- penditure is rising faster—by a far more intensive and firmer policy in the public sector of cost reduction and management improvements than anything we have seen so far.

I know that there are those who say that policy determines expenditure and that no great economies can be achieved in the public sector except by changes of policy, but I believe that we could achieve our existing public policies by considerable improvements in our management of the public sector of a kind which would mean significant easement to the pressure of demand and give more elbow room to the Chancellor in the operation of the regulator. We have just had a very interesting report on the management of local government.

Photo of Dr Horace King Dr Horace King , Southampton, Itchen

Order. The hon. Gentleman really cannot go into this. I have indicated to him the limits of the scope of the Amendment and he must now omit from the speech which he is reading those parts of it irrelevant to the Amendment.

Photo of Mr David Howell Mr David Howell , Guildford

I will accept your Ruling, Sir Eric, and leave aside the questions which I wanted to deal with and which are relevant to the evolution of demand but are, as you rightly said, outside the scope of this debate.

The Chancellor has decided on orthodox strategy, as he said last month. He will now no doubt feel that the regulator is part of the equipment he needs. He has propounded the doctrine of what I call the "sensitive touch"—constant intervention in the economy. No doubt he will be using the regulator as part of that doctrine. I believe that he will have the greatest difficulty, as have past Chancellors, in getting this fine arithmetic right.

I believe that the central aim of economic policy and the renewal of the regulator should be seen against this background and should be to get out of the cliff-hanging atmosphere in which our economic policy has to be conducted. I believe that, if we looked both at the questions I raised earlier and at the overall components of public demand, particularly public sector spending, we should be in a better position to make a judgment on the regulator and the Government would be better able to take some initiatives in economic policy and move out of the situation of masterly inactivity for which they are so spendidly equipped.

Photo of Mr Robert Sheldon Mr Robert Sheldon , Ashton-under-Lyne

The hon. Member for Guildford (Mr. David Howell) is asking for a measure of reflation over the next few months. The Amendment, designed to remove the regulator, would remove not only the power to increase the revenue but the power to reduce it and thereby the power to initiate reflation of a particular kind at any time over the next 10 or eleven months.

I find the Amendment hardly serious. This power must remain with the Chancellor during the period between Budgets. [HON. MEMBERS: "Why?"] I shall show why. The reference by the hon. Member for Worthing (Mr. Higgins) to the increase in the amount that can be raised by the regulator, because of the 10 per cent. that has already been incorporated into Purchase Tax, was rather trivial. In the case of the 25 per cent. rate of Purchase Tax, by raising it to 27½ per cent. one is increasing the amount that the regulator can raise by only one-quarter of 1 per cent. In the case of the 10 per cent. rate, it is 0·1 per cent. These are hardly great increases in the powers of the Chancellor.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

The hon. Gentleman has his sums wrong.

Photo of Mr Robert Sheldon Mr Robert Sheldon , Ashton-under-Lyne

No. If the hon. Gentleman looks at the financial statement, he will see that 27½ per cent. is 2½ per cent. more than 25 per cent. and that 10 per cent. of this is 0·25 per cent.

This fine adjustment my right hon. Friend will need to make use of, given the case, which is becoming more readily accepted, that annual Budgets are not enough, that economic circumstances change, as the hon. Member for Guildford pointed out, and that it is difficult to be sure in advance over a long period that one has the situation just right. The right hon. Member for Barnet (Mr. Maudling) got it disastrously wrong on one occasion and the right hon. and learned Member for Wirrall (Mr. Selwyn Lloyd) knew that he could not get it right. The hon. Member for Worthing, if the country were ever so unfortunate as to have him conducting its economic affairs, would not get it right either.

This Amendment would reduce the ability of the Chancellor to lower the amount of revenue raised as well as to increase it. But the downward use of the regulator is a weapon that my right hon. Friend may possibly have to use for the first time, because of the possible need for reflation between now and the next Budget.

My hon. Friend the Member for Hey-wood and Royton (Mr. Barnett) and I put down an Amendment which would have increased the amount of the regulator that could be of help in reflation. It would have allowed my right hon. Friend to increase the rates of Purchase Tax and Excise Duty by 10 per cent. and reduce them by 15 per cent. Unfortunately, that Amendment was not selected but I think that the Committee must accept that the ability to reduce taxation should be granted to a Chancellor of the Exchequer perhaps rather more easily than the ability to increase it.

This is a very pressing problem because the amount of deflation may well prove to be rather larger than is required, and it may well be that reflationary policies will have to be pursued fairly shortly. No Chancellor could forgo certain advantages of weapons at his disposal.

But the need to reduce the rates of Purchase Tax and Excise Duty may well be important for another reason—that the Chancellor now has many other taxes at his disposal. The introduction of Corporation Tax, Capital Gains Tax and Selective Employment Tax, added to the taxes which were already in existence, has given him a much wider range of instruments to use. As a result, it is possible Purchase Tax could more easily be reduced over the next 12 months.

The hon. Member for Worthing pointed out that there were always certain unforeseeable emergencies and I assume from that that the Chancellor might be allowed by him to use the regulator on such occasions. Of course, it is largely for unforeseeable emergencies that the Chancellor needs some instruments. The hon. Member for Guildford doubted whether we had the equipment for so sensitive a control, but the whole point is that we need this sensitive control of the economy because of the very narrow constraints of our balance of payments position.

To remove what sensitive control we have at such a time would be extremely wrong. The Chancellor has very little room for manoeuvre because of the balance of payments situation. He will succeed in getting his 3 per cent, increase in growth rate only if exports expand at the rate for which we hope, if imports are restrained at about the present or even below the present level, and if improvements in productivity are obtained. In so tight a situation my right hon. Friend cannot be deprived of this very important instrument.

If he were to be deprived of it, the consequences would be that we would have to return to much more stringent hire-purchase restrictions with the far more difficult position into which they would put certain manufacturing industries, discriminating quite unfairly between one industry and another solely because it is administratively more convenient to operate deflation in this way. He would have to place far more reliance on monetary measures with great difficulties for increasing industrial investment which we want to see, and there would be certain other disadvantages if other kinds of taxation were introduced.

The regulator is required because in these sophisticated days we do not expect the Chancellor to get it all right. Even if he were to get it all right, the economy is not level throughout the year. The economy does not operate at a steady level from April to April. There are certain rises and falls. If he is to get any sensitive control, getting it right means getting it right over the whole of the period and not just at the end of the period when he has shown that his sums have all added up. This is not control. Budget totting exercises of this sort died long ago. What a Chancellor needs is to get it right throughout the whole of the 12 months. To deprive him of this weapon would be a very dangerous step.

Photo of Mr John Peyton Mr John Peyton , Yeovil

I began to suspect that the hon. Member for Ashton-under-Lyne (Mr. Sheldon) was attempting to pull the collective leg of the Committee. It was only the serious expression on his face tha finally convinced me otherwise. He talked to us quite seriously about the Chancellor's unlimited opportunities for reducing taxation, as though the Chancellor had made a habit of it. The right hon. Gentleman is distinguished for many things—I do not want to go into such painful matters now—but the Chancellor is not distinguished for the use he has made so far of the opportunities before him of reducing taxation.

The hon. Member went on to entertain us further with the cautionary remark that we do not expect in these sophisticated days that the Chancellor should get it all right. I do not think I am breaking a confidence in any way when I say that such advice to the Committee was not necessary, because it is not a question of expecting at all. We know very well the Chancellor will not get it all right. What horrifies us is that the Chancellor only too often does not get anything right. For the hon. Gentleman to get up and make serious remarks like that is astonishing.

There was another interesting touch. The hon. Member for Heywood and Royton (Mr. Barnett) got sharply to his feet and castigated my hon. Friend the Member for Worthing (Mr. Higgins) for having made a meal of this somewhat indigestible subject. My hon. Friend may have had a fairly heavy lunch, but the hon. Gentleman himself went on to have a pretty substantial high tea off it and he was not the one to make accusations of that kind.

There is one serious question which we should ask ourselves. Can it be right to give such a power to such a Government when we know perfectly well that they have this ingrained habit of not making tax reductions but of increasing taxes? It is valuable for a Chancellor to have power to raise or decrease taxes in an informal manner, and no doubt we would be right to permit the regulator if the Chancellor's powers were limited and he could only reduce taxation. After all, he has put it on. By the standards of the Government, he has done only a minor piece of cheating. The Government slapped this bit on in the summer of last year and now they are incorporating it into the Finance Bill formally. This is not a proper use of the regulator which should be a temporary measure. Even if the tax is restored by some other legislative means, it is not right to confuse a temporary measure with the more permanent measures of taxation with which the Finance Bill deals.

I pause for a moment to think of the way in which the Government have gone on adding burdens on petrol, fuel oil, drink, and Purchase Tax, without pausing to think at all. I do not want to be distressingly funny on the subject, but we have recently read in a rather strange book, entitled "Pragmatic Premier", how the Prime Minister makes a habit of drinking gin out of a flower vase. Even the Prime Minister, well remunerated as he is, will not be able to continue to afford to consume his gin out of such large vessels if the Government continue in their present taxation habits.

5.15 p.m.

I am too defeatist to hope for any sensible answer to this question from the other side of the Committee, but the question which my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) should ask himself before deciding whether we should vote on the Amendment is whether we can trust the Government with it. Viewing the Government's record in this respect, I have the gravest doubts. However, I bow as always to the wisdom of my right hon. Friend and if he decides that it would be wrong to vote against the Amendment, with reluctance I would not do so myself. But I hope that he will address himself seriously to whether it is not the height of folly for the Conservative Party, knowing the Government's form as it does, to repose this method of informally increasing taxation in the hands of such a Government once again.

Photo of Mr Alistair Macdonald Mr Alistair Macdonald , Chislehurst

I do not want to make a meal of this; just a little snack. I could not quite understand the arguments advanced by the hon. Member for Worthing (Mr. Higgins) but perhaps this was a defect on my part. When he intervened during the speech of my hon. Friend the Member for Heywood and Royton (Mr. Barnett), suddenly I understood it in a flash, or at least I think I did. He wants the Chancellor to make more forecasts in order that he may determine whether the regulator is to be used upon something foreseen, or on something unforeseen. If it is to be used on something foreseen, he rebukes the Chancellor.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

It should be in the Budget.

Photo of Mr Alistair Macdonald Mr Alistair Macdonald , Chislehurst

That is the little gap which he did not fill, although he has now. He says that there should be some other measure at the time, but surely the whole point of the regulator is that it is to deal with contingencies, not with things which are certain to happen. His argument is that there should be a provision in the Budget to provide for something which may or may not happen. The whole concept of the regulator is to be able to deal with contingencies. By this mysterious doctrine one is thereby debarred from using the regulator, which is designed to meet possibilities, and instead one must provide some alternative positive measure then and there for something that may never happen. I could not understand this argument and for that reason it seemed to me that the proposal to knock out the regulator altogether was entirely inconsistent with the arguments advanced.

Photo of Mr John Biffen Mr John Biffen , Oswestry

There is now a well-worn tradition that, when, in considering the Finance Bill, we debate the regulator, it turns on some kind of compact, whereby the Committee agrees to the Government having these very considerable powers of potential taxation, which, as my hon. Friend the Member for Worthing (Mr. Higgins) says, can amount to about £300 million, in return for which we hope that we might have some indication from the Government as to what they think the fairly immediate future state of the economy will be, within which we can see the possible likelihood of the regulator being used.

It is not a lot to ask for. When we asked for the information last June, we suggested, in allowing the Clause to stand part of the Bill, that the regulator would have to be used in an upward direction because we believed that on the available evidence it would have to happen soon, and we were right. In July it was used, and that is the answer to the hon. Member for Heywood and Royton (Mr. Barnett). Of course it does not lie in the mouths of any of us here to say whether the regulator will have to be used at some stage during the year, but it is perfectly reasonable to say, on the existing evidence, whether it is likely to have to be used fairly soon. The Chancellor must be conscious of the advice that he has been getting this afternoon from below his own Gangway, from the hon. Member for Ashton-under-Lyne (Mr. Sheldon), suggesting that the regulator would have to be used in a downward direction.

I have some genuine support for this Amendment because, if it is carried and the Government are denied the regulator, they will be unable to use it in a downward direction, and on balance this could be advantageous at present. Although I am absolutely at one with my hon. Friend the Member for Gillingham (Mr. Burden) in looking for tax reductions, and I do not want to seem to be churlish in casting aside the possible benefits of the downward use of the regulator, it can only be a virtue if it is matched by reduction in public expenditure, and about that we cannot be certain.

I hope that the Financial Secretary will give us a little clearer idea of how he sees the potential use of these powers, if they are to be granted by our not pressing the Amendment, because of one very important omission from the Budget speech. It is an omission which has since, to some extent, been rectified in Economic Trends, which is an official indication of what was expected to happen to personal consumption. Although the Chancellor gave us a great deal of information from which we could make some deduction upon the likely course of the economy upon which the regulator might operate he did not give us any specific figures on personal consumption.

In Economic Trends, published within the last few days, there is reference to increases of personal consumption which: … made possible an appreciable rise in the volume of consumers' expenditure, and this rise may amount to around 2½ per cent. between the second half of 1966 and the second half of 1967. It is important for the Committee to bear those figures in mind when considering this Amendment, because the regulator must have its most direct effect upon the levels of personal consumption. There is no doubt that all the pressure that will come in its most strident form upon the Chancellor to do something about personal consumption will come from those industries such as the motor vehicle industry and the consumer durable industry, which have felt most harshly the effects of the credit restraint over the last twelve months.

My hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) quite rightly, is championing the cause of the motor trade, as we would expect. It is quite clear that if any boost is required in that direction, it need not—it probably should not—come from the use of the regulator. Much more effective will be the use of hire-purchase controls. The hon. Member for Chislehurst (Mr. Macdonald) looks surprised and aghast. That is the view of the motor industry. Does the hon. Gentleman wish to intervene?

Photo of Mr Alistair Macdonald Mr Alistair Macdonald , Chislehurst

It has just occurred to me that, as long ago as the Radcliffe Committee's Report of 1959, the concept of tinkering around with hire-purchase controls was strongly condemned as a measure for regulating the economy.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

Before my hon. Friend answers, would he observe that there was no regulator in 1959?

Photo of Mr John Biffen Mr John Biffen , Oswestry

I would also observe that even such distinguished commentators as the members of the Radcliffe Committee do not have the last word on the subject. If the Chancellor would like to take this opportunity of saying that he fully accepts the observations of the Radcliffe Committee and that hire-purchase control regulations are out of the Government's range of weapons to reflate the economy, it will be news which would be noted with interest, to put it no higher, by people inside and outside of this House.

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

I am interested in the hon. Gentleman's argument, because I have always understood that he was an advocate of no interference whatever in the economy—that we should leave things alone. Is he now telling us that he is advocating controlling the economy on this question of deflation or reflation through hire-purchase controls rather than any other method?

Photo of Mr John Biffen Mr John Biffen , Oswestry

No. If I were to start a speech advocating control of the economy through hire-purchase controls, I would very rightly be brought to order. What I am saying is that the regulator has most effect upon personal consumption, but there is ample evidence that non-durable personal consumption was holding up very well and that restraint on personal consumption comes largely from consumer durables and the motor vehicle industry. In those particular industries it is the impact of hire-purchase control which has more effect than the use of the regulator.

I am merely describing the situation which I believe to be of interest for the consideration of the Committee. May we leave it at that? One other point which I hope the Financial Secretary will comment upon is that touched upon by my hon. Friend the Member for Guildford (Mr. David Howell). I was concerned for his political virtue when he sought authority for his arguments by referring to the Department of Economic Affairs.

That aside, it is the whole question of whether the use of the regulator can be seen to have much relation to the quantum or profitability of manufacturing investment. The Chancellor quite rightly has been under considerable pressure about the present situation regarding manfacturing investment. I hope that we will not be told that it shall be the aim of the regulator to somehow or other contrive an almost unqualified increase in total resources devoted to manufacturing investment. What matters is profitable investment.

I hope, therefore, that when the Financial Secretary to the Treasury replies to the debate, he will indicate that his main concern is to use the weapons of economic policy which are being made available to the Chancellor by our possibly not pressing the Amendment, inasmuch as they can be effective to improve the profitability of industry, because I believe that it is through that method that we are most likely to see a much more successful outcome to our economic policy.

5.30 p.m.

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

I am emboldened to intervene at this stage in the debate for no other reason than that after an hour and a half no one has yet seriously argued that the regulator should not be renewed. That is the issue which is raised, formally at least, in the Amendment.

The hon. Member for Worthing (Mr. Higgins) pointed out at the beginning that it has in previous years been more usual to have a general discussion at this stage on the renewal of the regulator when debating the Question, "That the Clause stand part of the Bill", but he gave the reasons why the Opposition thought that it would be helpful this year to have a separate Amendment on the subject.

The hon. Member accordingly finds himself in, perhaps, what is for him unusual company in that, I think I am right in saying, the only person who has previously moved an Amendment against the renewal of the regulator was my former hon. Friend the Member for Ash-field, Mr. William Warbey, who is no longer a Member of the House.

Photo of Mr Iain Macleod Mr Iain Macleod , Enfield West

I would not like there to be any misunderstanding about this. It is a purely technical point. The Financial Secretary will understand that a year ago the regulator power was the whole of the Clause and, therefore, we could take it on the Motion, "That the Clause stand part of the Bill." We could not do so this year because many other matters, including Purchase Tax, are involved and we could not be certain that there would be a debate on the Question, "That the Clause stand part of the Bill." Hence the necessity to do it this way.

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

I was not challenging the reasons which led the Opposition to have a separate debate in this way.

Although it has been the practice sometimes to have a general debate on this topic, it is important in approaching it to remember that what we are discussing is whether my right hon. Friend the Chancellor of the Exchequer should have the renewed power to use the regulator. We are not discussing whether, at this point of time, my right hon. Friend thinks that he will need to use the regulator and still less, if he had to use it, in which direction he would have to use it or for what particular economic purpose.

The hon. Member for Worthing asked my right hon. Friend many questions and I suspect that he expected an answer to some of them rather more than to others. I will begin by answering those which are susceptible of a plain and clear answer. First, the hon. Member asked what was our estimate of the effect in the coming year of the use of the regulator one way or the other. The figures are, in our view, rather less than 10 per cent. of the amount that it is estimated will be received by the various taxes to which they relate during the coming year. The reason for that is that the very use of the regulator affects the consumption of the goods in question.

I will give the figures under the different groups to which the regulator can relate. They are now five groups. In Group A, tobacco, the estimate for the coming year is £1,020 million; Group B, which is spirits, beer and wine, £710 million; Group C, hydrocarbon oil, £950 million; Group D, Purchase Tax, £735 million; and Group E, other duties including those on betting, £80 million. These total £3,495 million.

Owing to the effect upon consumption of a 10 per cent. increase by means of the regulator, especially on the consumption of tobacco and spirits, we estimate that the likely yield now of a 10 per cent. increase on all groups together would be about £200 million rather than the £340 million which hon. Members have suggested.

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

Is my hon. and learned Friend giving figures for the year 1967–68 or for the 12 months from now?

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

Those figures would relate to a 12-month period. It would depend upon when the regulator was introduced. One can answer only in those terms.

Photo of Mr Jock Bruce-Gardyne Mr Jock Bruce-Gardyne , South Angus

When the hon. and learned Gentleman says that his estimate is £200 million, does that figure apply whether the regulator is used upwards or downwards? I should think that it would be rather more if used downwards.

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

The estimate is given for a move upwards. I agree that the figure might be rather more for a move downwards.

The second question put by the hon. Member for Worthing concerned a drafting point and whether, in the form in which the Clause is drafted, future use of the regulator would include a power to increase or decrease 10 per cent. in the rates as they will be as a result of the Clause or merely on the rates as they were last year. Subject to any point which the hon. Member may draw to my attention, I think that the drafting achieves the effect. It merely extends the power to use the regulator under the 1961 Act. At any moment when it is used, the limit is 10 per cent. upwards or downwards on any one of the Groups on the rates prevailing at the time when it is applied.

Photo of Sir Frederick Burden Sir Frederick Burden , Gillingham

I wonder why the Financial Secretary has not considered the effect of a downward move. This is something in which most people are extremely interested. Surely, the Government are thinking of removing or easing all taxes as well as increasing them. This should be considered.

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

If the hon. Member would like the precise figure, I will try to get it for him. All that we are discussing is the renewal of the power, which is for a move of 10 per cent. upwards or downwards.

The hon. Member for Worthing introduced what has been the general subject of the debate by asking some rather wide and general questions about my right hon. Friend's forecasts concerning the economic situation. As my right hon. Friend made clear in the Budget debates, he is anxious to assist the House of Commons and the public in general by forecasting and publishing his forecasts as far as he feels able usefully to do so. Indeed, in his Budget speech, as the hon. Member acknowledged, my right hon. Friend went a good deal further this year than Chancellors have done for many years past.

In doing so, my right hon. Friend issued a clear caution and warning and invited the House to treat those forecasts with the scepticism which he felt that they deserved, because forecasting is such an exceedingly uncertain science. I certainly do not think that it would advance the general purpose which my right hon. Friend wants to serve if with great frequency he started to give revised forecasts on topics of this kind.

It is only a few weeks since Second Reading and I have nothing to add to the information and general indication of trends which my right hon. Friend the Chancellor gave in his Budget speech and which my right hon. Friend the Chief Secretary gave in opening the Second Reading debate. In addition, the Treasury publishes every month the article on economic trends to which an hon. Member has referred. That is as far as we can usefully go by way of forecasting. Certainly, nothing has occurred since the time of my right hon. Friend's Budget speech to lead him to change the general advice which he gave to the House at that time or the forecasts which he made with the limitations which he placed upon them at the time he made them.

Photo of Mr John Biffen Mr John Biffen , Oswestry

Commenting on this article in Economic Trends, the Economist suggested possibly that it was a quasi- or semi-official comment on the likely development of personal consumption. Will the Financial Secretary take this opportunity to state clearly that it is an official Government view that personal consumption is likely to rise by 2½ per cent.?

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

This is an official forecast put forward on the basis of the information which is available to the Treasury month by month. It is making public such forecasting information as can be given by the Economic Section of the Treasury. The hon. Gentleman will find that the passage to which he referred is in line with and in accordance with the trend which my right hon. Friend the Chancellor forecast in his Budget speech. He made reference to the fact that he expected there to be an upturn in consumption expenditure towards the end of the year, particularly when not immoderate wage rises began again at the end of the period of severe restraint in the second half of the year.

Photo of Mr Patrick Jenkin Mr Patrick Jenkin , Wanstead and Woodford

Could the Financial Secretary confirm or deny the statement which appeared in the Financial Times that the figure of 2½ per cent. would have appeared in the Budget speech had it not been accidentally edited out?

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

The hon. Gentleman will not expect me to make any reference to a comment of that kind—

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

The question which we are considering now, therefore, is not for what purpose the Chancellor requires the renewal of the regulator in the sense of the purpose for which he intends to use it. He has no present intention to use the regulator. As I think the right hon. Member for Enfield, West (Mr. Iain Macleod) said, if there was now a purpose for which these taxes should be increased or decreased, they would find their place in the Budget, and that occurs to some extent in that we are consolidating the increases made by the use of the regulator last July.

What any Chancellor is doing at this point of time is to say that the regulator is a useful and necessary weapon to have to hand in dealing with the management of the economy during the coming 12 months. When one looks back at the history of this power, it must become almost automatic now that, each year, any Chancellor will seek the renewal of it. If we did not have the tradition that our main taxes and taxation powers should be renewed annually, as we do with Income Tax, Corporation Tax, Surtax and so on, one might envisage a measure making it a permanent power. However, we do not do things in that way. We think it right that these main taxation provisions should be renewed annually.

This power, which was introduced in 1961, has been used only twice since. One occasion was in 1961 and one was last year. The hon. Member for Yeovil (Mr. Peyton), in perhaps not one of his more serious speeches, questioned whether this power could be entrusted to the present Government. All I would do is remind him that he, like the rest of the Opposition, supported the Government in using the power as they did last July. As a responsible hon. Member of the House, I am sure that he must realise that it is a necessary power for any Chancellor to have.

For those reasons, I hope and feel confident that the Opposition will not want to press this Amendment to a Division.

Photo of Mr Michael Alison Mr Michael Alison , Barkston Ash

The most important point which the Financial Secretary made, which was accompanied by a point which he refused deliberately to make, was the assertion that nothing had changed very much in the last month to alter the Chancellor's view of the Budget judgement. However, if one looks at two recent statements, one made by the Chancellor and one appearing subsequently in Economic Trends, there is a contradiction in terms of the Budget judgment which he made.

The Chancellor said quite explicitly on 11th April, 1967, that the two main expansionary forces at work were higher exports and higher public investment. In his Budget speech, the right hon. Gentleman said that those were the generative forces at work for the forthcoming year. In the Economic Trends which came out about a calendar month later, we find that exports have been left out completely and that, under the heading "Aggregate Demand", over the rest of 1967, which means presumably the second, third and fourth quarters, we read: The main expansionary elements look like being private consumption and public investment. There could hardly be a more fundamental change in the assessment of the character of the economy within four weeks, switching from exports as the main expansionary force to private consumption.

5.45 p.m.

In those circumstances, one is bound to question whether the regulator, is relevant to the problem with which we shall be faced in the next few months. We all agree that the regulator is a useful and good instrument in itself. However, it is possible for the good to be the enemy of the best. If the pattern of the economy for the next 12 months is not to be exports leading the expansion accompanied by public investment, but private consumption and public investment, it is undesirable to have the regulator as the main determining weapon for adjustment, because it means that it will operate on the one sector—namely, consumption—which holds out some prospect for encouraging growth, in private investment, profits of firms, and so on.

The only instrument on which the regulator can be used here is this increase in personal consumption, but this increase I feel would be a good thing. I think that the prospects of getting back on target with our exports are at least partly dependent upon an increase in home demand for such things as motor vehicles, enabling industries to increase output and latter costs.

The most serious change in the approach of the Chancellor and the Treasury is to have substituted private consumption for exports as an expan- sionary force. Is it really the Government's view that they will get out of their balance of payments difficulties in the period which we are facing on the basis of a moderate rise in private consumption and a very substantial rise in public investment? Is that really the formula for getting out of our balance of payments difficulties? It is extremely unlikely. The weapon which we need at this time is a far more fundamental reappraisal of the Budget judgment. The whole prospect of exports, now explicitly dropped as an expansionary factor is far too gloomy, and the impact of increased public investment will be extremely serious.

One of the items in the Financial Statement which struck me was the bland assertion that public investment would go up by 8½ per cent. as a sort of substitute for the decline in private investment. They are not the same at all. They are two quite different animals, particularly when one reflects that half the increase in public investment is not on economic services but really on the social services. Though it may be desirable in itself, as a contribution to our balance of payments and making our exports more competitive, that sort of increase in expenditure will not get us anywhere in the short term.

The idea of an export led expansion is something to which the Government should get back. We want to know why it has been dropped. If it has been dropped and the whole emphasis is to be on public investment and private consumption, the one weapon which we do not want to use in the circumstances is the regulator.

The Financial Secretary helpfully gave us the categories in which the regulator can apply and the sort of scale of revenue which it can impose, but he is in great difficulty on at least two of them. Tobacco and wines and spirits are becoming increasingly less buoyant, particularly tobacco, and, if he uses the regulator, he will have to focus the main impact on the duty on hydrocarbon oils and on Purchase Tax, for example, for consumer durables. It is precisely this sort of stop instrument in the present juncture of our economic life which is likely not to contribute to exports but to reduce them, in the same way as the cutback in economic activity has reduced motor vehicle exports.

If the pattern is to be public investment plus private consumption, we must avoid the use of the regulator to hold back private consumption thereby again reducing the output and activity of the main exporting industries. For these reasons I feel that the Chancellor, who invited us to be irreverent about his forecast, has given us as solid ground for irreverence as has ever been given. The enormous importance of an expansion in exports has been deliberately and explicitly replaced by a growth in private consumption with an unchanged, enormous increase in the scale of public investment. For this reason we feel that there is sound ground for questioning the whole philosophy of the regulator as a link in the "stop-go" apparatus at this juncture in our affairs, and we shall watch this very carefully during the next few months.

Photo of Mr Jock Bruce-Gardyne Mr Jock Bruce-Gardyne , South Angus

I confess that I have been interested in the way in which most of my hon. Friends have assumed that if the regulator is used during the next 12 months it will be used upwards. This is an understandable assumption for them to make in the light of the Government's record. But I should have thought that if the regulator was to be used during the next 12 months it would be used downward. It is for this reason that, while I sympathise with the reluctance of my hon. Friend the Member for Yeovil (Mr. Peyton) to give the Government powers of this nature, I do not entirely agree with him. The Government's powers of economic forecasting as are so deplorably limited that it will be almost criminal to leave them without this power to adjust their forecasts of demand.

As my hon. Friend the Member for Barkston Ash (Mr. Alison) said, contrary to what the Financial Secretary said in his intervention, there has been a fundamental change in the Government's short-term economic judgment between the Chancellor's Budget speech and the latest issue of Economic Trends. My hon. Friend referred to the forecast in Economic Trends of aggregate demand. What it says about exports is that "there appears to be a pause in the growth of exports after the rapid increase in the second half of last year", a pause "which was not unexpected". I do not know by whom it was not unexpected, but it certainly was not expected by the Chancellor when he made his Budget statement, because, as my hon. Friend said, the two pillars of reflation on which he was relying were the level of public sector expenditure and the rise in export demand.

I take the view that we should allow the Government to have the regulator powers, because I believe that they will have to use them, and use them in a downward dirction, before many months are out. In fact, I suspect that not only have the Government already had to adjust their forecast since it was made, but that it was adjusted at the last minute before the Budget statement was made. I say that because if one examines the reports of the City editors on their background briefings during the days immediately before the Budget, one gets the feeling that the impression was created that the Budget would have a slightly reflationary bias.

Photo of Mr James Callaghan Mr James Callaghan The Chancellor of the Exchequer, Member, Labour Party National Executive Committee

There were no background briefings of City editors immediately before the Budget, or for some days before. I hope that the hon. Gentleman will not give the impression that there were.

Photo of Mr Jock Bruce-Gardyne Mr Jock Bruce-Gardyne , South Angus

I accept what the right hon. Gentleman says, but I know that that impression was created, and I think it was created with some substance, at any rate by the City editors, that the expectation was a mildly reflationary Budget.

Photo of Mr James Callaghan Mr James Callaghan The Chancellor of the Exchequer, Member, Labour Party National Executive Committee

I am sure that that was an impression which was created, but the hon. Gentleman said that it was created by the Treasury. That is not so, and I hope that he will not pursue the point.

Photo of Mr Jock Bruce-Gardyne Mr Jock Bruce-Gardyne , South Angus

If the Chancellor says that, I accept it, and I shall not pursue the point any further, but there were to my mind indications of a change of judgment at the last minute before the Budget statement was made.

We still have not had any explanation from the Financial Secretary of what the forecast of a 3 per cent. growth rate year-end on year-end means in terms of growth of output, taking 1967 on 1966. I cannot see why the Government should be reluctant to give this forecast if they are prepared to give the other. On second thoughts perhaps I can see why. The forecast would be so modest. I suspect about 1 per cent. or possibly just over that, that they would rather not hand it to their critics on the back benches, and perhaps, also, as we have seen in recent weeks, their critics on their own Front Bench. This, I suppose, is the reason, but it seems to be an inadequate one. If they can give the forecast year-end on year-end I do not see why they cannot give the forecast calendar year on calendar year.

If, however, the Government's short-term economic judgment was right, I suspect that they might still have been better advised not to have taken the 10 per cent. surcharge into the Budget as they are doing on this occasion, because I suspect that there were such deflationary forces built into the economy by the time of the Budget that the Government were likely to be forced to undertake a fair amount of reflation during the coming autumn and winter, and by starting it earlier they might have been able to make it less panicky and less dangerous when it came.

But as my hon. Friend the Member for Barkston Ash said, I think that there are good reasons for believing that the Government's forecast is wrong. There are good reasons for thinking that the forecast of a 6 per cent. increase in exports is far too optimistic. This is hardly surprising, because if we look back at the mirror years of 1957, 1958, and 1962, we find that on each of these occasions there was either a positive drop in the level of exports, as in 1958, or a very much lower rate of increase than the trend figure would have led one to expect, as in 1962.

What is ominous on this occasion is that whereas in 1958 and 1962 imports dropped or failed to rise even more markedly than exports, during the first four months of this year imports have risen pretty sharply, and it is interesting, and to my mind a little ominous, to see the way in which the Chancellor has been adjusting his forecasts. On 1st December last, at column 674, he said that "we would swing into a large surplus in 1967." By 11th April of this year he was saying: We should move from last year's deficit of £189 million to a surplus in 1967 as a whole, with an even bigger one in 1968."—[OFFICIAL REPORT, 14th April, 1967; Vol. 744, c. 994.1 By 9th May he was saying: As far as can be foreseen, the present position … is that last year's deficit.. will be turned into a surplus during the course of this year … I would expect a substantial balance of payments surplus in that year."—[OFFICIAL REPORT, 9th May, 1967; Vol. 746, c. 1308.] I think that "that year", in that context, was 1968. It is fairly clear from that that the Chancellor has already been revising downwards his forecast of exports, and hence revising downwards the reflationary influence which he was expecting exports to have.

Therefore, it seems to me that on those grounds alone we should be expecting to see him use the regulator in a downward direction. I hope that I am not being too optimistic.

6.0 p.m.

Mr. Brace-Gardyne:

My hon. Friend says that I am. I cannot see that economic conditions later this year will be such as to lead the Government to use it in an upward direction. If it is to be used at all I think that it will be used in a downward direction.

Photo of Sir Frederick Burden Sir Frederick Burden , Gillingham

Does not my hon. Friend realise that there will be considerable wage increases when the squeeze is ended, and that it is, therefore, more likely than ever that the Government will have to mop them up by putting up the regulator to offset the increases in wages, which is what they have done for some time?

Photo of Mr Jock Bruce-Gardyne Mr Jock Bruce-Gardyne , South Angus

I was about to come to that. I am not so sure about the effect that these wage increases will have.

The stagnation of exports is not the only factor in respect of which, I suspect, the Chancellor—by no means for the first time this year—has been over-sanguine about the prospects for the economy. Many of my hon. Friends have referred to the evidence that has come forward since the Budget statement—the figures of new car deliveries, the very sinister underlying rise in the level of unemployment—which directly contradicts the figures which the Chancellor gave us in the Budget statement—and the figures for retail trade, which are not very encouraging.

My hon. Friend has just referred to the prospect of wage increases, but we now also have the prospect of substantial price increases in some sectors, such as electricity charges. If we have the degree of underlying deflation—unemployment and short-time working—which I would have thought we could expect by the autumn, the effect of wage increases plus the substantial price increases which are already in the pipeline might have an overall deflationary rather than inflationary effect, because prices would be tending to run ahead of earnings, and it is the figure of earnings that matters. I would think it open to question whether, on this ground, the Government are not going to have to intervene to use the regulator in a downward direction later in the year.

We have not heard any Government forecasts about the trend of international interest rates. There have been some recent indications that they may have bottomed out, and that there may even be a danger of their beginning to rise again during the summer. This, too, would obviously have an important impact on the Government's short-term economic judgment.

Another aspect which has to be in all our thoughts is the recent trend of unemployment and, in particular, unemployment in the regions. The Government have made great play of the fact that their regional employment policies have cushioned the effect of deflation in the regions. I was staggered to see some figures in the latest edition of Economic Trends contrasting the movement of percentage increases in unemployment in Great Britain as a whole and the regions during this period of deflation and during the comparable periods of 1961–62 and 1957–58.

The figures printed in Economic Trends are completely misleading. They put a very favourable complexion on what is happening. They suggest that the regions have been doing better than they have done before. They cover the periods, November 1957-November 1958; September 1961-September 1962; and July 1966-April 1967, which are not strictly comparable periods. I have made a quick calculation of the changes in unemployment in respect of the United Kingdom as a whole and Scotland—the region with which I am specially concerned—between May-July, 1957 and March-May, 1958, the same thing in May-July 1961, March-May 1962 and, again, May-July, 1966 and March-May 1967.

One finds in the case of 1957–58 an increase in unemployment in the United Kingdom of 57 per cent. and in Scotland of 53 per cent.; in 1961–62 an increase of 58 per cent. in the United Kingdom and 27 per cent. in Scotland, and in 1966–67 an increase in the United Kingdom as a whole of 109 per cent., and in Scotland of 60 per cent. There is no evidence here to suggest that the regions have in any way been sheltered from the effects of this deflation.

Photo of Mr Jock Bruce-Gardyne Mr Jock Bruce-Gardyne , South Angus

The Financial Secretary shakes his head, but the figures are there to see.

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

I am shaking my head for a different reason. I was wondering what relation this had to the question whether or not we should renew the regulator.

Photo of Mr Jock Bruce-Gardyne Mr Jock Bruce-Gardyne , South Angus

I can tell the Minister at once. If these trends are to be extrapolated and brought forward they mean that the Government would have to use the regulator, or some other intervention, to stimulate reflation of the economy. The level of unemployment in Scotland at the peak next spring, with normal weather conditions, will, I suggest, be at least 125,000 and in the United Kingdom as a whole at least 750,000.

Unless the Government have the powers of the regulator to intervene so as to stimulate the economy I suggest that we shall be facing intolerable levels of unemployment by next spring. If the Government delay using the powers which the House of Commons may decide to give them under the Clause I suspect that they will, as usual—perhaps through the Chancellor's successor—reflate too late and too much. Therefore, I would like to see the regulator used in a downward direction, and soon.

There may be balance of payments objections, but I cannot help suggesting that we are facing a classic devaluation situation with unemployment and imports rising and exports stagnating. However, I accept that this is beyond the scope of this debate. But I am sure that we would be better advised to reflate on a small scale now than to reflate to a panicky degree later on and probably with very little effect on the level of unemployment at the peak next spring.

Therefore, notwithstanding the understandable reservations of my hon. Friends about giving these powers to the Government, on balance I think that we should agree to give them the powers because, in view of the uncertainties of their judgments, we cannot afford to do otherwise.

Photo of Mr Patrick Jenkin Mr Patrick Jenkin , Wanstead and Woodford

My right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) has already explained why we found it necessary to table this Amendment. In view of the number of other Amendments tabled to the Clause there was a risk that when we reached the debate on the Question, "That the Clause stand part of the Bill", the Chair might rule that the Clause had been adequately discussed.

It has been a useful debate in many ways, although not for the information that we gained from the Financial Secretary. Apart from one figure—the estimate of £200 million as being the likely yield if the regulator is used in an upwards direction—there cannot be anybody inside or outside the Committee who is one wit the wiser for anything that the Financial Secretary has said.

Of course, we generally favour the retention of the regulator as one of the weapons in the Chancellor's armoury. It was introduced by my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) and was made more flexible in 1964 by my right hon. Friend the Member for Barnet (Mr. Maudling), but I agree with my hon. Friend the Member for Yeovil (Mr. Peyton) that that does not mean that we should necessarily and automatically accord its renewal to whichever Government is in office—certainly not without question or without searching the circumstances in which the Government might feel it necessary to use the power.

The Financial Secretary is right to say that the Amendment turns on the question whether or not the power should be accorded the Chancellor, but it will be use- less to debate that question if we did not, at the same time, examine the factors which could bear on the Chancellor's decision on whether or not to use the power. The debate has demonstrated over this matter how correct was the leading article in The Times Business Section on 31st May, which said, referring to the House resuming after the Recess: Few returning holidaymakers can ever have been confronted with so disagreeable and baffling a spectacle. Indeed, rarely has the economic outlook been less certain or the prospects more gloomy. This is the background against which we must decide whether or not the Government should have this power.

One is bound to reinforce the complaint of a number of my hon. Friends about the paucity of the information which the Government have given, even now, on their thinking on the short-term forecast. This has been roundly condemned in the Press. A pungent leading article in the Daily Mail yesterday said: An Estimates Committee of the House of Commons asks a Treasury official for more information about how the Government bases its economic forecasts, and is told: 'It would not be possible for us to reveal the particular forecasts on the basis of which advice was given to Ministers'. It went on: No wonder practically every forecast given in official economic surveys and grandiose planning schemes has been wrong. The statistics are the cosy preserve of Whitehall and lack the corrective of outside knowledge. When the Government keep their cards close to their chest and disclose only here and there one or two figures, that is exactly the danger which they are courting.

I hope that the Chancellor will go further than he has—he has begun—in disclosing the facts and figures of the forecasts on which Government policy is based. In his Budget speech, he gave us the 3 per cent. end-year to end-year growth figure, but little explanation of the figures on which it was based and most commentators have regarded it as most optimistic. In the article in Economic Trends, to which my hon. Friend the Member for Oswestry (Mr. Biffen) referred, the curtain was lifted another inch or two and we were vouchsafed the Government's indication of personal consumption, an increase of 2½ per cent. in the second half of 1967 over the second half of 1966.

But again, without any of the other factors, without the figures to close the circle to which my hon. Friend the Member for Worthing (Mr. Higgins) referred, it is difficult to see how this figure of 2½ per cent. can be justified. Some of the factors which would bear on it—these are the background factors to the question of whether or not the Chancellor uses these powers—show that the trend of unemployment is still unmistakably upwards, if the figures are seasonally corrected.

Seasonally adjusted, the figures show that it was 10,000 up in May and that the average in the last three months has been 17,000 up each month. Those are substantial increases. Industrial production is only just creeping up. From the last quarter of 1966 up to the first quarter of 1967 there is an increase of only ½ per cent.

Individual sectors of production show that, for instance, engineering orders continue to decline. At the end of 1965, the index stood at 165; a year later it was 153; by the end of March it was 150. Machine tool orders are still drifting down. In July, 1966, at the time of the squeeze, outstanding orders were £111 million; at the end of March they were down to £93 million.

A number of references have been made to the level of car sales. All these are important indicators of how the economy will develop over the next few months. Car registrations in April were the lowest for five years and about 30 per cent. below those of the same month last year. This has been the worst month since the July measures of 1966.

6.15 p.m.

These indicators give little hope that the estimate of 2½ per cent. increase in personal consumption is likely to be achieved, yet this is the Government's forecast, and one wants to know its basis. We hope that the Financial Secretary, in response to a number of requests, especially from my hon. Friend the Member for Worthing, will give some of the facts and figures on which this forecast is based.

Has it been based on higher wages with prices not falling, so that there would be a real increase in purchasing power? This might have been so until a few days ago, with the announcement of the electricity price increase, an increase which was justified solely by the Electricity Council's need to maintain the return on its capital. Every manufacturing industry will now justify a price increase for the same reason. Any stability of prices after the period of severe restraint is rapidly becoming a forelorn hope.

Will the increased consumption come from higher imports? We know very little of the Government's forecasts for imports, though there may be some evidence to suggest that they will increase. Certainly, the April trade figures for imports were very disappointing.

In the absence of any evidence to the contrary in these factors which I have been quoting, one must conclude that the Budget was wrong and over-optimistic and that the National Institute and the London and Cambridge Bulletin were nearer the mark. The National Institute's next publication comes out tomorrow and we shall see what it shows. They forecast a lower increase in the National Product than the Chancellor did and called for a mild measure of reflation.

That was the basis for my right hon. Friend's proposals in the Financial Times on 6th April. Once again, it seems that the Opposition are right and the Government are wrong. This has happened consistently over the last two and a half years and it looks like happening now

Thus, the use of the Regulator would rest on the possible need later for a measure of reflation. But that is only half the picture. As The Times said: The battleship is steering up the creek and it is likely to hit both banks at once. One must look now at the other bank, near which the Chancellor is steering the country. This is the balance of payments, on which there has been a remarkable shift of emphasis.

I have mentioned factors which give rise to gloom. The April trade figures were the worst since last July, and this was due not to imports of raw materials, but to those of manufactures, which must give rise to serious concern. Although there was a balance of payments surplus in the first quarter of this year, this appears to have been largely due to capital movements on major items like the take-over of Pye by Philips and the increased stake by Chrysler in the Rootes Motor Company.

One hopes that this sort of thing will not be counted upon regularly as a means of writing off our balance of payments, because one cannot balance the house-holding budget by selling the furniture—

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

Would the hon. Member get away from furniture and tell us how the use or not of the regulator will affect the level of imports of manufactured goods? Perhaps he would relate his argument to the Amendment.

Photo of Mr Patrick Jenkin Mr Patrick Jenkin , Wanstead and Woodford

The hon. Member is being too clever by half. The question whether or not the power is used must turn on the trend of the economy for the time being, for which the balance of payments and the level of imports are crucial. On this basis one is bound to assume that the Government have very little room for manoeuvre and, therefore, it might appear unlikely that the regulator will be used either upwards or downwards.

It is hardly surprising that we are finding evidence of dissension in the Cabinet. When the Home Secretary addressed the London Labour Party conference on 13th May he called for … a rapid rate of growth for the remainder of this Parliament". He said: We must make up the ground which has been unavoidably lost He was thereby clearly criticising the Chancellor's conduct of the nation's affairs and many newspapers assumed that the right hon. Gentleman was making a bid to take over the Chancellor's job. However he was swiftly slapped down, for the Chancellor, replying on 20th May when speaking to the Southern Regional Council of the Labour Party—what these members of the Labour Party thought at having these two speeches in successive weeks I shudder to think—said: … the Government does not intend to be diverted from the path of maintaining a surplus and securing a steady rate of growth". The Chancellor indicated that he at any rate was determined to press on up the creek.

This is all the result of two and a half years of Labour Government. The situation, as The Times stated, is "disagreeable and baffling" and, meanwhile, the condition of the people deteriorates, with rising unemployment and falling earnings in many important industries. Without going into the figures, I will merely say that in engineering, shipbuilding, chemicals and steel earnings are lower than they were in July of last year. Prices are going up, notably of electricity, but also the promise of increased gas prices. In addition, the Government have had a massive vote of no confidence in them from the electorate.

Speaking in a May Day rally in his constituency, the Foreign Secretary gave the answer to which we have become accustomed: The people originaly elected us, and reelected us in 1964, because they wanted a Government that would govern … I hope they will accept the consequences. They have not and will not accept them and now we are faced with mounting incompetence and dissension in the Government. That being so, why in heaven's name should the people accept them?

It is clear, from what the Financial Secretary said, that the situation is as baffling to the Government as it is to many commentators in the Press. The hon. and learned Gentleman has given no hint of what is in the Government's mind to deal with this situation. However, we agree that if the Chancellor's ship of State is to have any hope of remaining on course in the months ahead, the right hon. Gentleman must have all the powers and weapons open to him to manage and regulate the economy, including the use of the regulator. For this reason, I have no doubt that my hon. Friends will not seek to divide the Committee on the Amendment.

This has been a useful debate, not because we have been given any information by the Government but because we have had an opportunity to air our views on a subject which is causing great concern to many students of the British economy.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Photo of Mr John Peyton Mr John Peyton , Yeovil

I beg to move Amendment No. 102, in page 2, line 39, to leave out paragraph (b).

Photo of Mr Edward Mallalieu Mr Edward Mallalieu , Brigg

I suggest that it would be convenient for the Committee to discuss, at the same time, Amendments Nos. 90 and 103 and new Clause 24—Rebate on heavy oils.

Photo of Mr John Peyton Mr John Peyton , Yeovil

Before explaining the purpose of this series of Amendments, I wish to tell the hon. Member for Manchester, Cheetham (Mr. Harold Lever), the Joint Under-Secretary of State for Economic Affairs, how pleasant it is to see him on the Government Front Bench. Remembering the wisdom which we got from him last year, as opposed to what we received from his two neighbours at the Treasury, we naturally have the highest hopes that when he contributes to our debates this year he will give us some satisfaction, information and enlightenment. We have the highest confidence in him. I wish that I could bestow the same compliment on his colleagues.

I regret that at least in one respect the Government seem to have learned absolutely nothing. This discussion is germane to the whole fuel policy of the country. Despite that, we do not have on the Government Front Bench either the Minister of Power or his Parliamentary Secretary. If the Government will read the reports of last year's debate on this subject they will see that we raised precisely this matter.

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

Before the hon. Gentleman works himself into a great state of indignation, he may care to know that my hon. Friend the Parliamentary Secretary will shortly be here. No doubt he was taken by surprise at the sudden termination of the debate on the previous Amendment.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

Does not my hon. Friend recognise the evasiveness of that intervention by the Financial Secretary, in view of the fact that the Parliamentary Secretary was standing below the Bar of the House only four minutes ago and that, when my hon. Friend was called to move the Amendment, he promptly turned and left?

Photo of Mr John Peyton Mr John Peyton , Yeovil

I take no cognisance of what goes on below the Bar of the House. I am concerned only with the occupants of, or absentees from, the Treasury Bench. When debating a matter of this importance it is incumbent on Ministers to show interest and courtesy and to be here before the debate starts.

This matter is of great importance to the Ministry of Power and I find it disturbing that, for the second year running, we are being treated in this way. One can almost hear the sharp remarks that would have been made if those who are at present on the Government Front Bench, including the Financial Secretary, had been accorded this treatment when in opposition. Merely to be told that a Minister will be here within minutes or hours is not good enough. This is the way in which the Government habitually treat the House of Commons and, by doing so, they egg us on to make protests about the lack of concern Ministers show in our arguments.

Photo of Mr John Peyton Mr John Peyton , Yeovil

How can I deny that?

In the absence of the Minister of Power and the Parliamentary Secretary, and assuming their lack of interest, I will explain the purpose of this series of Amendments, which is to abolish the tax on fuel oil. I admit straight away that this was originally our misdeed. However, it is the opportunity of parties when in opposition to have a look at their record and, where they find that they were wrong, to announce their intention to put the matter right in future. We did precisely that last year, when we voted in favour of an Amendment to reduce the tax of fuel oil. This year we are going further; we are proposing to abolish the tax altogether. If the Government cannot offer us some reduction, then I will probably want to take the matter to a Division.

I suppose that the Commissioners of Customs and Excise find complexity an agreeable thing. Whether or not they do, it is their constant companion. I wish that people would get things sorted out so that we would not be dealing with the increase in a rebate but with the reduction of the tax itself. We have this unnecessarily complicated business of a rebate on a tax on a substance such as oil, so that we must argue about the rebate being increased rather than reduced or the tax being reduced or abolished. I still live with the optimistic hope that at some time or another the party opposite will get over its pathological antipathy to the oil industry as a whole. We have had enough sermons from the Government about the importance of our balance of payments. Very few industries make such a contribution to our balance of payments as the British oil investment. I hope that at some time hon. Gentlemen opposite will take on themselves the heavy task of educating their party in this matter.

I also feel that the proper arguments of the oil industry fall on deaf ears in the whole edifice of the Treasury, which is properly concerned with its own creatures, the nationalised industries. So concerned is it with the performance of this very difficult duty that it allows itself to be led into discriminatory and unfair attitudes towards the oil industry. I hope that at some time this attitude will come to an end. I will not deal with this subject at length, but I would instance the Government's whole treatment of the oil industry's overseas investment, which, I believe, in the long run, will be absolutely disastrous. The Government have never given an adequate explanation nor been fully alerted to the consequences of their own actions.

6.30 p.m.

The Financial Secretary will remember last year's debate on this subject, and I would remind him of some of the quotations I then made from the Government's White Paper on Fuel Policy. We read, in paragraph 17: Following this sudden reduction in demand for coal, a number of measures were taken to help the industry … In the 1961 Budget, a duty of 2d. a gallon (about £2 a ton, equivalent to protection in the region of 23s. 0d. per ton of coal used for steam-raising) was placed on oil used for burning. In paragraph 44 there is a clear statement, with which I do not quarrel at all, that the purpose of the fuel oil duty was protection for coal and not for revenue. The paragraph states: The most important of the existing measures of protection, which are described in paragraph 17, are the duty on heavy oil (and other oil used for burning … Later in the same paragraph we read this very interesting sentence: … it can be argued that, on fuel policy grounds alone"— and it was on fuel policy grounds alone that the tax stood— a reduction of the oil duty, and hence of the cost of fuel to industry, is in principle desirable. Those were the Government's own words; their considered views as expressed in the White Paper. I find it very difficult in the face of that statement to accept that the Government are justified in retaining the tax.

The coal industry, because of a failure to contract it quickly enough, faces a most uncertain future.

Photo of Mr John Peyton Mr John Peyton , Yeovil

It has already had one very substantial measure of assistance during this or the preceding Parliament when it was relieved of debt amounting to £450 million. That burden was passed to the taxpayer. That was the time when it would have been equitable, reasonable and fair to say to the oil industry, "We will relieve you of this handicap, which we put on you because we felt that the coal industry had handicaps enough of its own." We have not had that response at all.

Although we made this clear again this year, it is so very unreasonable that the Government—I understood from the Financial Secretary's reply just now that the Parliamentary Secretary to the Ministry of Power would be here in minutes, but, even now, though we are talking of purely fuel matters we have with us neither the Parliamentary Secretary nor the Minister. It is treating the House of Commons with singular disrespect. The problems we are now discussing are at the very heart of the responsibilities of the Ministry of Power, yet neither the Minister nor the Parliamentary Secretary can bother to turn up to take notice of arguments that we believe to be very important, and to which we had no satisfactory answer last year.

The question I should like to ask the Minister of Power—and perhaps one of his colleagues will be good enough to pass it on to him—is: what is to happen when North Sea gas becomes available? There is a very heavy royalty to pay on North Sea gas, but is there or is there not a proposal to tax this raw material? It is on that sort of thing that we want information. As it is, I find the retention of this tax a piece of inexcusable, old-fashioned, real dyed-in-the-wool reaction.

The Prime Minister is the great man, the great crusader of the technological revolution, the man who was to prepare Britain for the 'seventies, the man who, in this House, instanced fuel as an especially fit subject for planning. Where are those words now? They have gone away on the wind—useless and worthless. I hope that now the Parliamentary Secretary has come in—

Photo of Mr John Peyton Mr John Peyton , Yeovil

—he will not sit down so low at the Table. Pray let him rise a little higher.

I shall not repeat all that I was saying before the hon. Gentleman arrived, but I had said that the Prime Minister had always in this House instanced fuel as a proper sphere in which an exercise in planning could profitably take place. Nothing has happened.

We on this side always said that any dogmatic attitude to a fuel policy would be highly dangerous and misleading, because no one can foresee technological developments. We pointed out that if in 1956 anyone had made a hard-and-fast decision on which fuels should be developed and used, the gas industry would have been planned out of existence altogether. Yet here it still is—quite apart from North Sea gas. There was the Algerian methane, and then the I.C.I. process.

The gas industry is now on the threshold of immense developments, with a capacity—

Photo of Mr Edward Mallalieu Mr Edward Mallalieu , Brigg

Order. I hope that the hon. Gentleman will not pursue the gas subject too far.

Photo of Mr John Peyton Mr John Peyton , Yeovil

I accept your Ruling at once, Mr. Mallalieu, but let me conclude my sentence by saying that the gas industry is on the threshold of a great opportunity to make a great contribution to our fuel policy. What we want to know is how the very valuable raw material from the North Sea is to be treated in comparison with or in contrast to fuel oil, which is taxed and which is its competitor.

I have always understood that the intention of the Government was to lower costs by increasing efficiency. They have not done it. Here is a splendid opportunity for them to take at least one measurable step along that excellent road. We have constantly listened, in the House and elsewhere, to Ministers' pleas to increase industrial efficiency—yet what kind of contribution do they make? All they do is first to impose and then continue the imposition of this kind of burden which, for the benefit of the Parliamentary Secretary, I repeat that I admitted quite frankly was something for which we on this side stand in the sackcloth of repentance for having originally introduced it. I believe now that it was a mistake.

The Government have the opportunity of rectifying the mistake that was made by a previous Conservative Administration. It is a tax which, during the years between 1961 and 1967, has yielded a total of £385 million. It is expected that in the current year that the yield will be £90 million. It is a quite unnecessary burden on industry. The steel and metallurgical industry has to find £11½ million as its share of the tax, engineering has to find £7 million as its share, the bricks and pottery industry has to find £2 million, the glass industry £1¾ million, the textile industry £3¾ million, the food industry £4 million, agriculture £2½ million, the building and contracting industry £1¾ million, home heating £5¼ million and electricity generation £17 million.

Only the other day the Electricity Council was faced with the necessity, under its masters, of putting up prices to meet its financial target. I do not quarrel with that, but would it not be a helpful thing to cease this discriminatory policy? The gas industry has at the moment no tax on its raw material, but the electricity industry has to face this tax. It seems absolutely wrong to tolerate these sort of burdens which the Government are now wantonly continuing on the shoulders of the industry which the Government constantly exhort to efficiency. The Confederation of British Industry has said: We continue to advocate that the duty on heavy oils be abolished. Yet, like most of the sensible advice offered to this Government, it is treated with contumely and turned away without result.

To impose discriminatory taxes upon any fuel is a mistake. Those who flatter themselves that by clever manipulations of fiscal and other methods they can achieve a fuel policy are fooling themselves in a very big way. An efficient, effective, useful fuel policy depends upon flexibility and one of the principle aims should be cheapness of fuel. It may be that in certain respects we have to balance against cheapness the factor of security of supply, but I do not believe the Minister of Power should ever allow himself to become a social service Minister nor to act as the President of the Board of Trade has acted in respect of development areas.

The main responsibility of the Minister of Power is to organise and to produce a policy which contributes to the efficiency of British industry by ensuring that the supply of fuel is as safe and cheap as is reasonably possible. I find it intolerable that the Government should still be continuing these quite unnecessary and gratuitous burdens on industry. I am glad to have support on this Amendment by my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) with whom I have co-operated on a number of occasions. Nearly always in our campaigns we have had the goal of a reasonably cheap fuel very high on the list.

6.45 p.m.

Photo of Mr Teddy Taylor Mr Teddy Taylor , Glasgow Cathcart

It is a very great pleasure to speak on this Amendment after the speech by my hon. Friend the Member for Yeovil (Mr. Peyton). He has covered all the general points very fully and his case has been extremely convincing. Particularly when we bear in mind that the Government have said on previous occasions that this tax was under review and they considered its abolition, in view of the other points made by my hon. Friend it will be very difficult for them not at least to give an indication that they are prepared to reconsider this tax.

My hon. Friend, with customary generosity and courtesy, he has left one aspect to be taken up by other hon. Members. That is the effect of the tax on Scotland, with which I propose to deal. Many of the measures which the Government have brought in by the Budget and previous financial legislation have not taken account of the implications in Scotland and other development areas. It is appalling that while many Ministers have said that Scotland has been sheltered from the freeze and the Government's economic measures, at the same time we have received figures from the Minister of Labour which show that in the first quarter of this year unemployment in Scotland increased at twice the rate of that in the rest of the country. This tax, which we hope to abolish by this Amendment, may have been largely responsible for that fact. There has been no indication of the effect in Scotland. Even the small marginal increase which took place with the regulator could have a profound effect.

The main purpose of the tax is to get industry and commerce to change from the use of oil to coal. If the price of coal were the same throughout the country there would be no discriminatory effect but that is not the case. I plead with the Financial Secretary to bear in mind the effect of the tax on areas where the price of coal is unreasonably high. For several years the Government have adopted a policy of differential prices for fuel. My hon. Friend mentioned the effect on the steel industry where the high cost of oil is a very considerable burden. In Scotland, we have a vital steel industry employing about 40,000 men. Unfortunately, a considerable tax on fuel oil results in the industry having to change to coal and if the price of coal is high that has a very significant effect.

Steel works in Scotland have to pay about 133s. a ton for coking coal. This is the highest figure of any region in the country. In South Wales, where there is S.C.O.W., R.T.B., and Guest Keen, the price is 115s. 4d., almost £1 a ton less. If we have a tax on fuel oil which encourages industry to change over, it will have a dramatic effect on the Scottish producer who has to pay £1 a ton more than is paid in Wales. In Yorkshire, the price is 100s. a ton. So long as we retain the tax on fuel oil it has a discriminatory effect on Scotland and other areas where alternative fuels to which industry is channelled are very expensive.

The same happens with regard to gas. It was pointed out recently in Answers to Questions put by me that the price of gas in Scotland is considerably higher than in the rest of the country. Since then there has been a 19 per cent. increase while other areas have had an increase which is not even half that amount. So long as the tax remains it has a very serious effect.

Quite apart from the Scottish aspect, which is very important, there is the general effect of the tax on prices. It is alarming to find the Government continually exhorting industry to restrain prices and not to allow inflation to go ahead while at the same time almost every financial measure the Government take has the effect of raising prices. There has been much inflation and there will be much more essentially because of actions by the Government. Before the Financial Secretary agrees to allow this tax to go on for one more year, I ask him to look at the implications and to try to get the facts and figures to see how it affects the regions. I believe that the information on which policy should be based is just not available in the Treasury, in the Ministry of Power, or elsewhere.

I will give just one example. I am concerned with the future of the steel and coal industries in Scotland, particularly in view of the implications of our joining the European Coal and Steel Community, where chaos seems to reign at present. I have, therefore, tabled some detailed Questions to try to get figures. At the end of January I asked what information the Minister had about fuel prices in Scotland affecting the steel industry. The answer was that the Minister had no information more recent than that which I quoted during the Committee stage of the Iron and Steel Bill on 1st December, 1966,

We are asked to agree that this tax on fuel oil should continue for one more year on the basis of inadequate information. It is on the basis of an inadequate appreciation of what the implications will be for the development districts and for the steel industry in particular. In view of the assurances which have been given in previous years about the Government's reconsidering this tax, now is the time to abolish it. We need a substantial boost to try to bring prices down throughout the country. This is one thing which would help. It would help the regions in particular, because they have been so shockingly neglected by the present Government.

Photo of Mr Eric Ogden Mr Eric Ogden , Liverpool, West Derby

The hon. Member for Glasgow, Cathcart (Mr. Edward M. Taylor) asked what the effect of this tax is on Scotland. My own writ does not run north of the Border, but I should like to put this question to the hon. Gentleman, through you, Mr. Irving. What effect would the Amendment have, if carried—I would hope that that is a big "if"—on the Scottish coal industry? Does the hon. Gentleman believe that the National Coal Board, Scottish Division, or the Scottish Division of the National Union of Mine-workers, would support the Amendment? I think that the hon. Gentleman has a fair knowledge of Scottish affairs. If he thinks that the Scottish miners would welcome the Amendment he has a big think coming.

The hon. Member for Yeovil (Mr. Peyton) said that part of the business of the Minister of Power should be to look after security of supply—I think that we would all agree with that—but that his main purpose should be to provide low-cost power. As the Minister of Power is a member of the Cabinet, does not the hon. Member for Yeovil think that he should also pay regard to the effect on our balance of payments and to the effect that an Amendment such as this would have on our national fuel policy?

I hope that the Government will give no consideration to this proposal. The arguments as to low costs may be attractive in the short term, but, if we are to have a national fuel policy based, to a large degree, on British indigenous fuels, this levy on imported fuels, which is the equivalent of 27s. a ton on the cost of coal, should be maintained for another 12 months.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

I shall deal with the contribution of the hon. Member for Liverpool, West Derby (Mr. Ogden) later in my speech. I shall not directly follow him.

I wish at the outset to go back to the peroration of the Financial Secretary on 15th June of last year, when we debated a very similar Amendment in Committee on the Finance Bill. That Amendment was also in the names of my hon. Friend the Member for Yeovil (Mr. Peyton), who led, and myself, who followed him, with a number of supporting speeches from others of my hon. Friends. The Financial Secretary then said this: I hope that what I have said will be sufficient to assure hon. Members that the whole question is open, and will be considered in the review and also by the Government in deciding what action to take after the completion of the review. It is because the review is in hand that I cannot say anything more specific and it would have wasted everyone's time to expect the Minister of Power to be able to contribute to our discussions."—[OFFICIAL REPORT, 15th June, 1966; Vol. 729, c.1530.] The hon. and learned Gentleman almost did not arrive today. Only after the most clamorous protest could we secure the presence of a junior Minister in the Chamber to listen to this debate which is concerned with fuel and power economics.

The Minister of Power inaugurated nearly two years ago the review to which the Financial Secretary alluded last June. A few days ago we opened our morning newspapers to see a grinning Minister of Power, with a grinning Chairman of the National Coal Board, with a grinning Chairman of the Electricity Council, with a grinning Chairman of the Gas Council, having a weekend junket on their departmental expenses. What were they doing? They were trying to reconcile the conflicting interests of coal, gas and electricity.

But the review has already taken nearly two years, and still the Minister of Power will give no indication as to the date of its completion. Meantime, this highly unsatisfactory position persists, with the coal industry being heavily protected against fair and commercial competition by oil. The degree of protection is variously estimated. It cannot precisely be assessed. It depends on the respective calorific value of the fuels, on transportation costs and other considerations, the one being an imported fuel and the other an indigenous fuel; but very roughly the degree of protection for coal is 23s. per ton.

Last year, in my speech in Committee on the Bill, though we were then only half way through the year, I was shouted at in derision by coal mining Members on the benches opposite when I said that the bituminous coal output of Britain would drop from 186 million tons in 1965 to 175 million tons in 1966. In the event, I was 1 million tons out, or about ½ per cent. The final figure for coal output was 174 million tons. It will be much lower this year. The miners are leaving the pits in droves. I expect that the coal mining labour force may come down to 400,000 before this year is out.

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

The pits are being closed in droves.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

I will deal with closures, perhaps, in a few moments, but I do not want to go too far from oil.

Photo of Mr Sydney Irving Mr Sydney Irving , Dartford

Will the hon. Gentleman deal with paragraph (b)?

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

Yes, Mr. Irving, but coal and oil are very closely related, and the output of coal this year is likely to be down to 160 million tons.

My case is that it is no longer necessary to protect our coal industry by heavily taxing the principal commercially competitive fuel, which is fuel oil. The reason why it is not necessary to protect the coal industry any longer is that put into my mouth by the hon. Member for Coatbridge and Airdrie (Mr. Dempsey). He said a few moments ago, "The pits are being closed in droves". Of course they are. In the words of the late Mr. Aneurin Bevan, I would never subscribe to a policy of keeping open obsolescent coalmines as ancient monuments. My case today is that coal production is concentrated in efficient pits, most largely, and, therefore, the coal industry no longer needs the protection of taxation placed on fuel oil.

7.0 p.m.

Photo of Mr Eric Ogden Mr Eric Ogden , Liverpool, West Derby

Will not the hon. Gentleman agree that it certainly needs and deserves protection at least for a limited period so that, while the closure of pits goes on, there is time and opportunity to take alternative employment to the areas concerned? If his Amendment were accepted now, there would be immediate and wide-scale closures without the opportunity to take alternative employment to the mining areas.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

I do not want to be drawn too deeply into the economics of coal mining, and I reply to the hon. Gentleman in two sentences. Six years have passed since the fuel oil duty was imposed to protect the coal miners. The rundown has been steady and progressive, and there has been no heavy unemployment in the coal mining areas. Credit for that goes to the Tory Government most largely because the Labour Government have merely carried on Tory Government policies to prevent unemployment in the coal mining areas.

There is now no longer need to protect the coal industry. For almost six years we have suffered—my hon. Friend gave a magnificent figure here—the aggregation of revenue collected from this tax at £385 million. That has happened since the time when my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd), then Chancellor of the Exchequer, imposed the tax. He did not say that he was protecting the coal industry. Oh, no—he said that he wanted the revenue. I was then a Tory Member sitting on the Government side—corner seat, second bench below the Gangway—and I was aghast at his action. I divided the Committee against my own party. I took a ragbag of Members with me into the Lobby—one other Tory only, my hon. Friend the Member for Tiverton (Mr. Maxwell-Hyslop), a couple of Liberals—

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

Not the hon. Member for Orpington (Mr. Lubbock) because he did not arrive until 14th March, 1962, when he was first elected.

Photo of Mr Eric Lubbock Mr Eric Lubbock , Orpington

I should have been with the hon. Gentleman if I had been here.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

No doubt, the hon. Gentleman would have been with me. There were one or two Liberals and one or two Socialists with me then in 1961. I was castigated by the Whips in characteristic fashion for having voted against my own party, but, in the following year, 1962, when my right hon. Friend the Member for Barnet (Mr. Maudling) was Chancellor of the Exchequer, we did it again. My right hon. Friend, in his pronouncement, changed the reasons for the policy. He said quite candidly that it was temporarily to protect the coal industry; and he re-emphasised that—"temporarily to protect".

It has gone on year after year, and now, with the removal of the regulator, the 2d. per gallon on fuel oil is to be made 2·2d. per gallon. Thus, wehavetwo considerations on this Amendment. My hon. Friend the Member for Yeovil and I are opposing the consolidation of the regulator into the former level of fuel oil duty, and we are grateful to the Chair for combining in your selection new Clause No. 24, by which my hon. Friend and I seek the total abolition of the fuel oil duty.

This year, I add one further and important reason to all the reasons which I have canvassed in speeches during the past six years about the iniquity of this form of taxation. It is highly inflationary for industrial users, but it is now very damaging in the context of electricity for domestic consumers. I shall be very careful here, Mr. Irving, not to incur your wrath, for I should not like you to check me again and suggest that electricity would be out of order. I have very respectable statistical precedent to quote.

From the Annual Report and Accounts for the year ended 31st March, 1966, of the Electricity Council we learn that 5,819,000 tons of fuel oil were used in electricity generating stations during the year to 31st March, 1966. I repeat that for the benefit of the Financial Secretary—I should not like him to laugh it off as irrelevant—5,819,000 tons. The duty levied at £2 a ton means that the Treasury is charging this nationalised industry £11.6 million. It is nothing for the Parliamentary Secretary to the Ministry of Power to grin at. He ought to be crying not grinning.

On 12th May, the Minister of Power made his startling pronouncement about electricity prices. He said that, on average, they would rise by 10 per cent. all over the country. Today, during business questions, I asked the Leader of the House when we were to have a debate about it. It is highly inconvenient for the Labour Party to have a debate on this issue, which touches the pocket of every elector in the country. This is why the Minister of Power announced it on 12th May, one day after the borough elections.

Photo of Mr Iain Macleod Mr Iain Macleod , Enfield West

It did not do him much good.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

It did not do him any good at all.

But had he announced it before the borough elections, the Tory gains would have been even bigger than they were. Electricity charges touch 97 per cent. of the electors. They are fed up with the area boards. I take the Midlands Electricity Board, the worst of them all, as an example. The Midlands Board is putting up its charges, but not by an average of 10 per cent., in Dudley, in Stourbridge and in Coventry. It is nice to see the Paymaster-General listening to me. The right hon. Gentleman has gone now. I have driven him out of the Chamber.

Photo of Mr Joseph Symonds Mr Joseph Symonds , Whitehaven

He is bored with the hon. Gentleman.

Photo of Mr Joseph Symonds Mr Joseph Symonds , Whitehaven

Of course he is bored; we are all bored.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

The Midlands Board is worst of all. It is putting up its charges by 15 per cent., according to the consultative council. I am not talking about industrial supplies alone; I am talking about the domestic as well.

What does the Electricity Council think about this? It is paying £12 million of duty. If it did not have to pay the £12 million, it would not have to put up its charges so much, would it? I must hang my argument on the Amendment, Mr. Irving, so I return to the Report and Accounts of the Electricity Council for the year ended 31st March, 1966. In paragraph 12, on page 8, we read: Apart from these unavoidable difficulties, which can broadly be categorised as problems of growth, the industry has throughout the quinquennium had to bear the burden of fuel oil duty, which cost nearly £12 million in 1965–66; over and above the fuel oil tax, it has also borne the extra costs involved in affording a degree of preference to coal over other fuels. That is why electricity charges are going up—the mismanagement of the Socialist Government, who cannot run their own nationalised industries.

In the context of fuel oil again, in paragraph 67, the same Report continues: At present, Electricity Boards are handicapped in competition (a) by stiffer financial objectives than the Gas Boards; (b) by the oil duty which the Generating Board pays but the Gas Boards do not; and (c) by the limitation of the Generating Board's freedom in the choice of fuel for new stations. Further, on page 22, paragraph 70, we read: … the Electricity Council believe that the economic welfare of the nation demands that the special cost of supporting coal should be borne by the community as a whole and not by electricity consumers, who include industries upon whose efficiency we are dependent for improving the nation's balance of payments. To whom is this Report addressed?—to "The Rt. Hon. Richard Marsh, M.P.", the Minister of Power, by the chairman of a principal nationalised industry appointed by the Minister of Power. Here is this chairman castigating and clobbering his own Minister—

Photo of Mr Eric Ogden Mr Eric Ogden , Liverpool, West Derby

Mr. Ogden indicated dissent.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

It is no good the hon. Member nodding dissent. The chairman is clobbering his own Minister for a policy inimical to the interests of electricity generation in this country. Really, the person he should be castigating personally and privately, in Select Committees and upstairs and by every means at his disposal is the Chancellor of the Exchequer, who is the principal culprit in pursuing a policy inimical to the interests of British industry, to domestic consumers for they use large quantities of fuel oil, and to our national economy.

This will be the fifth time I have voted during the Committee stage of the Finance Bill on the abolition of fuel oil duty. There is hardly a Member who does not privately agree with me. Only the Whips on the Labour Government benches prevent hon. Members opposite voting with me, save only the 37 Members of the National Union of Mineworkers, who, of course, owe an allegiance to the union which sends them here. Dreadful! [Interruption.] Do I include the hon. Member for Liverpool, West Derby

Photo of Mr Eric Ogden Mr Eric Ogden , Liverpool, West Derby

I am proud to be included.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

I am delighted to defer to the hon. Gentleman. If I were sent here by the National Union of Mineworkers I should vote on a National Union of Mineworkers' ticket, but I do not have a National Union of Mineworkers' ticket.

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

What union does the hon. Member belong to?

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

I have never needed a union ticket all my life. I am unlikely to acquire one now.

This will be the fifth time I have voted on this matter, and I hope that this time not only will the whole Conservative and Liberal benches vote in support of the Amendment but that we might also collect a few conscientious Socialist votes from among non-coal-mining Members. It is a good cause. Eventually, the Chancellor will have to admit that, economically and politically, he has been wrong in continuing the duty, and will accordingly abolish it.

Photo of Mr Michael Alison Mr Michael Alison , Barkston Ash

You kindly said that you would allow me to speak to Amendment No. 90, Mr. Irving. I hope that the Financial Secretary will note as I speak and confine myself to that Amendment that it is substantially different from, and more specific than, the points we have so far debated. I hope that he will therefore be in a slightly more flexible and liberal frame of mind than he would otherwise be in dealing with a more sweeping proposal.

I apologise for the rather wordy nature of the Amendment, but it is wordy because I have "lifted" it almost verbatim from the Finance Act, 1961, when it applied to a similar relief given in that Act in respect of the fuel oil duty to horticultural producers. That is a useful precedent. Here we are dealing with a sector, the electricity generating industry, which is immeasurably more relevant to the economy than the horticulture sector, to which relief has already been given.

I briefly remind the Financial Secretary of the special relevance at the present juncture of our economic affairs, when productivity is the key to our progress and expansion, of the need to promote and encourage the consumption of electricity and not to discourage it in industry. One of the most pertinent points here is that Britain is not very well placed in the amount of electrical energy which we put at the hand or elbow of working men in industry at the work bench. The latest figure suggests that the United States operative in manufacturing industry has at his elbow three times the quantity of horse power, which largely means electricity, compared with the British operative. In Germany the operative has about 25 per cent. more. In the interests of expanding the economy and raising producivity, we need to encourage industry to put more machinery, which, in the last analysis, means more electrical power, at the disposal of the operative in manufacturing industry.

7.15 p.m.

It is against that background of the need to increase electrical power per operative that the Financial Secretary should remind himself of the paragraph in an interesting article in the latest issue of Economic Trends entitled, "International Comparisons of Costs and Prices", where we read this statement about the rising costs of energy as between the United Kingdom and Common Market countries. It says: There is a substantial body of evidence to show that whatever the absolute level the United Kingdom's prices of energy have tended since 1958 to rise relatively to those in the Common Market countries and the United States. That is a Treasury statement from the Minister's own Department, published only yesterday. It is clear evidence that energy prices in this country are tending to rise compared with those in the United States and the Common Market.

I need hardly remind the Financial Secretary that rises in electricity costs and prices have a very persuasive and permeating effect on the economy. The cost of electricity comes into the Index of Retail Prices and therefore tends to be a factor in wage claims based on the cost of living, and may very well enter into labour costs per unit of output in manufacturing industries. There is also the direct impact of higher electricity costs in industrial use and there is a further indirect result upon commercial users and users in the distributive services. As my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) pointed out, they are probably the most pervasive cost factor in the economy, applying directly or indirectly to the private consumer and to industry.

It is against that background that one must register the shattering news which the Minister of Power broke to the House and the country on 12th May that the Government now propose to allow the Electricity Council to increase the energy costs of this country by increasing the price of electricity by an average of 10 per cent. next September. For some area boards that means an increase of 15 per cent. The Times estimated £50 million as the likely increase in industrial costs coming into effect in September, at the worst possible juncture for the economic performance of this country.

The simple Amendment provides an immediate and concrete opportunity to mitigate that substantial increase in costs which the Central Electricity Generating Board and the Electricity Council have been permitted to place upon the consumer. By reducing the fuel oil duty to the users of oil for generating electricity, there would be an immediate relief to the Central Electricity Generating Board, apart from the Scottish Boards, of £13 million. That is confirmed in an explicit statement given to me by Mr. Brown, the Chairman of the C.E.G.B. that the fuel oil duty for 1966–67, on the basis of 6 million tons of oil burnt, will be £13 million. That is the duty it will have to pay if the Amendment is not accepted, and one must add to that the Scottish figures.

Photo of Mr John Peyton Mr John Peyton , Yeovil

If my hon. Friend is talking about Central Electricity Generating Board figures, there are two points. First, they would not cover any oil burnt in Scotland. Secondly, they would not allow for the effect of the regulator over the full year—that content of the figure my hon. Friend is quoting would only come from August last year to March of this year.

Photo of Mr Michael Alison Mr Michael Alison , Barkston Ash

I am grateful to my hon. Friend for pointing out that I have underestimated the burden placed by the fuel oil duty on the electricity generating industry at the present time.

If the Government were to accept Amendment No. 90, they would immediately relieve the burden of electricity costs by £13 million to £15 million and possibly more. That is about a quarter of the debit which the Minister of Power said on 12th May was to be incurred as a result of the drop in electricity sale. He said that the gap would have to be closed by this sensational increase in prices. Thus, to reduce that debit by about £15 million is not something to be sniffed at. The burden can be reduced in this way simply by a stroke of revenue reform and my Amendment should therefore be given careful consideration.

I hope that the Financial Secretary would agree that there are really no solid grounds on which the Government could object to relieving the generating authorities of this fuel oil duty. But I will deal with two of the grounds on which the hon. and learned Gentleman might possibly level objections. First, there is the revenue aspect. The revenue would be reduced by about £15 million but the revenue from hydrocarbon oil, including light oils, is £880 million to £900 million a year, so surely to relieve electricity generation of duty to the extent of £13 million to £15 million—under 2 per cent. of the duty from hydrocarbon oils—would not make a serious dent in the revenue. It could easily be made up by the mere buoyancy of the revenue. There are plenty of places, shown in the Financial Statement, where the loss could be balanced by a cut in expenditure—for example, the proposal to spend £50 million this year on acquiring company securities. If the Government reduced that to £30 million or £35 million, they could offset the loss in revenue.

Secondly, it may be that the Government consider that my proposal would contravene the explicit policy, set out in the White Paper on Fuel Policy and elsewhere, to afford a measure of protection to the coal industry. I remind the hon. and learned Gentleman, however, that, so far as the generating authorities are concerned, the question of a preference for coal does not in any way hinge upon the presence of the fuel oil duty. It is wholly irrelevant. The duty, in so far as it protects coal, does not apply in the case of the electricity generating authorities, because there is perfectly clear statutory authority vested in the Ministry of Power, to require the Central Electricity Generating Board and the Electricity Council to use coal as a fuel rather than oil. The Government can thus enforce the preference in that way.

There is the obvious case of the Electricity Act, 1957, which explicitly gives the Minister power of a general character to give the electricity authorities a direction in the national interest if necessary to use coal instead of oil. But perhaps more directly relevant are the words of Mr. F. H. S. Brown, Chairman of the C.E.G.B.: We are required to get Ministerial consent under Section 2 of the Electric Lighting Act, 1909, before we can build a power station. The Minister can, quite properly of course, and does use that statute, which requires us to get his permission to build a power station, also to define what fuel that power station should burn and to veto any proposal of ours to change the fuel of that power station. Thus, the £13 million to £15 million imposed on electricity generating in fuel duty has nothing to do with the protection of coal and the idea that it has is mistaken. It is simply a revenue source.

And it is obvious that the idea of taxing the electricity generating authorities, with the result that it is passed on in higher industrial costs and the cost of living, could hardly be more irrelevant to the economic needs of the country. I ask the hon. and learned Gentleman to weigh carefully whether he cannot accept my modest Amendment to relieve electricity generating of the need to pay fuel oil duty, just as the gas industry, horticultural users and the chemical industry have been relieved.

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

We are discussing three separate but related topics. The first is the proposal that we should exempt heavy hydrocarbon oils from the consolidation of the regulator. The second proposal, in New Clause 24, is that we should abolish these duties completely. The third proposal, in Amendment No. 90, is that we should exempt it in relation to the electricity production industry. I will deal with these in turn, but perhaps, first, I could group the general proposals relating to hydrocarbon oils, because the arguments I put against New Clause 24 are basically the same as those against exemption from the consolidation of the regulator.

The hon. Member for Yeovil (Mr. Peyton) began by asking whether the Customs and Excise likes complexity for its own sake and has to make a rebate of a tax it has already levied. I was surprised to hear him say that, since he is a former Minister in the Ministry of Power. It is for purposes of effective control that it is necessary that all these oils shall be taxed before they are released and distributed, otherwise it would be impossible to check evasion. This is done; and a rebate is needed to deal with those oils which are entitled to bear a lower rate of tax.

Photo of Mr John Peyton Mr John Peyton , Yeovil

I would not like the fact that I was once in a subordinate position in the Ministry of Power to be thought to carry me along the road of total agreement and complete countenancing of all the practices of the Commissioners of Customs and Excise.

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

Or perhaps even of all the practices of the Minister the hon. Gentleman served. I do not know.

Secondly, the hon. Gentleman urged that we should get rid of what he called our pathological antipathy to the British oil industry and cease the continuation of a policy which he abhors but which was pursued by the Government of which he was a member. I have noticed some reluctance among the supporters of these Amendments to recall the history of the duties they are now attacking. They say that, although the duties were introduced originally for revenue purposes, they were retained solely for the purpose of protecting the coal industry. That is not correct.

It is true that these duties, when originally introduced in 1961 by the then Chancellor of the Exchequer, were said by him to be on revenue grounds, but, in fact, Ministers in the last Government made it clear that they were being retained both for revenue purposes and for protection of the coal industry. Therefore, one has to look at this both from the point of view of fuel policy and from the point of view of revenue policy.

We had a debate on this subject last year and, as we have been reminded, I said then that the whole question was open in the review of fuel policy which was taking place. This is a much pro-founder review of this extremely complex subject than has previously been carried out. As the hon. Member for Worcestershire, South (Sir G. Nabarro) pointed out, the review has continued for a considerable time, but my right hon. Friend the Minister of Power has given an assurance to the House that he will make a statement on it before the Summer Recess, and that a White Paper will be published later in the year. The Committee will, therefore, not expect me today to deal with the fuel policy aspects which have been raised.

7.30 p.m.

I entirely agree with my hon. Friend the Member for Liverpool, West Derby (Mr. Ogden) that it would be quite wrong and most disturbing to make an alteration of the kind which has been proposed quite independently and separate from and in anticipation of the results of that fuel policy review. It may be—I say nothing one way or the other—that the outcome of this review will result in some changes of taxation in relation to fuel policy. Certainly that aspect will fall for consideration in the review. In something which was created to make a balance between different fuels, it would be wrong to make alterations in anticipation of the outcome of the review.

Mr. Allison:

The Financial Secretary will bear in mind that no firm date has been given for the presentation of the fuel review. Meanwhile, a firm date has been given—September, this year—on which electricity charges are to rise. I hope that he will address himself to that point when discussing taxation relief for electricity.

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

I will deal with electricity charges in a moment. I will deal, first, with the general argument of the new Clause.

The first and primary consideration which leads us to reject this new Clause at present is the heavy revenue cost involved. The return from these heavy hydrocarbon oil duties is estimated now to amount to £88 million in a full year. As my right hon. Friend said in his Budget statement, this is not a year in which he feels able to make any major changes of taxation and a change of that order would be major.

While dealing with the cost aspect, I can give the figures of what is involved in the consolidation of the regulator in relation to this duty. If we were to exempt these fuel and other duties, we estimate the effect would be a loss of between £7 million and £8 million directly. I say "directly" because one of the factors involved here is that one cannot separate completely this duty from other duties which are involved. If we were to grant an exemption here, there would be pressures for extending exemption to other duties which are the subject of the consolidation of the regulator increases.

The duty was imposed primarily to raise revenue and produces a major yield. It would not be appropriate to abolish it on revenue grounds except in the context of a full Budget review in which the claims of other candidates for tax reduction would have to be weighed and we would have to consider and survey alternative means of recouping the revenue loss.

It has not been argued that the existence of this duty acts adversely on our industry's competitive position for exports in relation to other countries. That could not be argued, because this is one of the duties which qualifies for rebate under the export rebate scheme. The effect of the duty is extremely widely and thinly spread over industry as a whole and is estimated to represent only 0·2 per cent. of the gross output of manufacturing industries.

The existence of this duty is not something which is exceptional in relation to other countries. We have heard a lot in recent debates about the prospect of a need for harmonisation of indirect taxes between this country and the E.E.C. countries in the event of our application to join the E.E.C. being successful. To state it generally, our present level of fuel oil duty is about the same as the average of the Community as a whole. We reject this proposal, first, because any major alteration in the duty on fuel oil must await the outcome of the review of fuel policy, and, secondly, purely from a revenue point of view, we cannot in the present Budget treat separately a duty which is producing a revenue of this order.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

A point was made by my hon. Friend the Member for Yeovil (Mr. Peyton) and myself which is a matter of fundamental principle. We are all agreed that it is undesirable to tax food or fuel. There is no other case known in this country of taxing fuel other than this fuel for production purposes. The only other form of fuel which is taxed is motor transport, which is an entirely different consideration.

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

Although the hon. Gentleman is consistent in the campaign which he has always waged against any form of taxation of fuel, very many of his hon. Friends are urging us to change our indirect taxation system in a way which would model it on that prevailing in the E.E.C. countries.

All I am pointing out is that in this respect what we do is already in line with what is being done in the E.E.C. countries. Whereas up to now it has been a general article of taxation faith in this country that we should not tax food or fuel—and there have been rare exceptions to that, of which this is one—this is something which we shall have to review if we are asked to bring our indirect taxation into closer harmony with the systems which apply on the Continent—unless on entry into the E.E.C. we are able to persuade others to our way of thinking.

On the Amendment of the hon. Member for Barkston Ash (Mr. Alison), dealing with the effect of the duty on electricity generation; I begin by confirming his figure. The burden of this duty on the industry amounts to about £13½ million. He is arguing that, whatever be the position in relation to the duty as a whole, this industry ought to be relieved of that burden. Purely from a revenue point of view, our objection is that in what is basically a taxation standstill year, we would not feel able on those grounds to accept an Amendment which would involve a reduction in revenue of £13½ million.

If it were to be argued that some concession should be given, but at the price of recoupment elsewere in taxation, then a very strong case in these circumstances has to be made for singling out this industry for preferential treatment compared with other possible candidates for tax reduction, including, in particular, other users of heavy oil. The elimination of heavy oil duty in this respect would in itself undermine to some extent the protection afforded to the coal industry; but, more important, it would give rise to claims for exemption by other users of heavy oil and oil subject to duty leading ultimately to a complete extinction of that protection.

To give an example. It would be argued that there is really no reason why oil burned to generate electricity to provide domestic heating should go free, when oil burned to provide central heating in the home should continue to be taxed.

Photo of Mr Michael Alison Mr Michael Alison , Barkston Ash

I do not think that the hon. Gentleman has taken the point, that there will be compensating reductions in costs to consumers in practically every sector, including the domestic users of oil for central heating, through the reduction in electricity lighting bills.

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

The hon. Member has somewhat exaggerated the likely effect of his proposal upon electricity charges. This point was also raised by the hon. Member for Worcestershire, South. The heavy oil duty element in electricity is a very small amount. It amounts to about 0·02d. per unit or just over 1 per cent. on average, of the revenue from sales of electricity. It is so thinly spread over industrial, commercial and domestic consumers of all kinds that elimination of the duty completely would not have any significant effect on electricity prices or industrial costs.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

I did not make any assessment, I quoted from the Report of the Chairman of the Electricity Council. He gave the figure as £12 million a year for fuel oil duty charges and that has to be set directly against the £100 million recoupment envisaged by the Minister of Power in his statement on 12th May last. That is one-eighth, 1½d. in the 1s., 12½ per cent. and it is totally irrelevant to talk about 0·02d. per unit unless the Minister tells us what is the cost of electricity per unit against which he is setting off this tiny reduction.

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

I am telling the hon. Member what is the potential reduction in electricity charges that could come from accepting the proposal of the hon. Member for Barkston Ash and pointing out that it is fallacious to think that it would have any significant effect on prices or that it could in any way affect the forthcoming price increases, which are attributable in the main to the need to make provision for heavy capital cost of building in the power stations.

In this connection, the same points apply as I made earlier, about the competitiveness of British industry in relation to its competitors abroad. To sum up, a major alteration of this kind in the incidence of heavy oil duty could not be made prudently on fuel policy grounds in advance of the outcome of the review, on which the Minister has promised to make a statement in July. From a revenue point of view—and the duty was primarily introduced as a source of revenue and it has produced a major yield—it would not be appropriate to alter the duty except in the context of a general Budget review, in which these tests could be weighed and considered, together with the claims of other candidates for tax reduction.

Photo of Mr Eric Lubbock Mr Eric Lubbock , Orpington

I am tempted to intervene as a result of the Financial Secretary's remarks on the electricity supply situation, because I thought that there was a great deal of force in Amendment No. 102, in the name of the hon. Member for Barkston Ash (Mr. Alison), if not for the case of removing fuel oil duty. I can understand what the Financial Secretary has said about the impossibility of reducing the revenue by £88 million in a stand-still year, but this cannot be applied to the case of the electricity industry, where, he has been telling the Committee, the amount is an extremely small one, so small that it would not have much effect on the price increases due to be placed upon the consumer in the middle of this year.

I could not help thinking, as the hon. Gentleman spoke, that the consumer is never in a winning position. A few years ago we were told that price increases in the electricity supply industry were necessary because we had to keep old plant in commission to meet the demand which had been under-estimated. Now we are told that these price increases are necessary because of the vast programme of capital expenditure which has been undertaken by the generating boards. Whatever happens, we have to face these enormous price increases every year, and even if this does not go a long way towards eliminating them it is at least a step in the right direction.

On another occasion we could argue for a relaxation of the financial targets of the electricity supply industry, but at least the hon. Gentleman could accept this Amendment and deal with a part of this increase which hangs over the consumer's head, and make it unnecessary. I wish that he had adopted a rather more accommodating approach towards this particular Amendment. I would not endorse his statement that an alteration in fuel duty affects the electricity supply industry, and that he must await the outcome of the fuel review later in the year.

7.45 p.m.

This is a complete nonsense because the capital expenditure programmes of the generating boards have been determined for many years in advance. The hon. Gentleman will probably know that under construction or planned at the moment we have over 25,000 megawatts of coal-fired electricity, whereas we have only 4,000 megawatts of oil-fired electricity, and 2,000 megawatts of dual. So, whatever decision is made now will not affect the amounts of coal and oil respectively which are burned in these Central Electricity Generating Board stations over the next five to 10 years, because the stations are already planned and will be brought into commission, notwithstanding any changes in taxation policy by the Government in the meanwhile.

I would refer to the comment of the hon. Gentleman the Member for Worcestershire, South (Sir G. Nabarro) about an increase in coal prices. This is a serious matter for this country. If one looks at the comparison between Britain and the United States, one finds that since 1950 our prices have increased by something over 75 per cent., whereas in the U.S.A. the cost of coal has remained absolutely constant. I am taking this information from a paper by Mr. Donald Clark, the Chief Planning Engineer to the Central Electricity Generating Board. Here we have a situation in which oil has remained constant in price, or has been reduced in the last few years, whereas the Central Electricity Generating Board has had to pay 75 per cent. more for the coal which it is using.

This means that electricity prices have had to go up practically every year. A very illogical situation will obtain in a short while when we start using natural gas, because then, as has been pointed out, we shall have coal, and natural gas, which are not subject to taxation at all, and oil which is. Yet oil and natural gas are both hydrocarbon products. I do not see how one can make this distinction between them in logic. That is a matter which remains to be settled—whether the electricity generating boards will be able to use natural gas in their power stations.

I very much doubt whether the Minister will be able to withstand the pressures of Mr. Brown and his colleagues for such use, because it obviously makes economic sense today. It is a matter of some disappointment that the hon. Gentleman has not felt able to accede to this modest Amendment, which would put our electricity supply industry in a better financial position. It would help to mitigate the vast increases which are to be demanded of the consumer, and would have been a step towards a more sensible fuel policy in the long term.

Photo of Mr Patrick Jenkin Mr Patrick Jenkin , Wanstead and Woodford

I recollect that last year, when I intervened in the debate at this stage, on this subject, I had the misfortune to provoke the Financial Secretary. He put it down afterwards to his Irish temperament. I can assure him that I will avoid doing anything of the sort tonight. I intend to be extremely brief.

The speeches made by my hon. Friends the Member for Worcestershire, South (Sir G. Nabarro) and Yeovil (Mr. Peyton), were characteristic and above all, as the Financial Secretary has acknowledged, were completely consistent with everything that they have been saying for many years in relation to the fuel oil tax. There is a very great deal in their argument in favour of the eventual abolition of this tax.

My hon. Friend the Member for Barkston Ash (Mr. Alison) initiated a sub-debate within the debate which hon. Members on both sides have found interesting. They certainly found his speech persuasive. The figure of £13½ million as the cost of meeting his Amendment is certainly not large by the standards of the yield of the tax as a whole and of the Budget. As I listened to my hon. Friend, however, and to the hon. Member for Orpington (Mr. Lubbock), it was impressed upon me that almost the whole of the arguments which they were addressing about the type of fuel oil used in the electricity industry were equally relevant to the type of fuel oil as used in any industry. One is bound to say that this is a tax which puts up industrial costs. For that reason, it is a tax which sooner or later, and sooner rather than later, should be abolished.

The Financial Secretary gave the cost of total abolition in reply to new Clause 24 as £88 million. One begins to wonder whether this will be yet one more tax which reaches the point that it becomes too expensive ever to abolish it. For that reason, we support entirely Amendment No. 102 to avoid its consolidation. At least, let us lay down a marker and say that the tax must not at this stage be increased and state firmly that when circumstances allow, it must be progressively reduced and eventually abolished.

For those reasons, I hope very much that my hon. Friend the Member for Yeovil will feel it right to press his Amendment to a Division.

Photo of Mr John Peyton Mr John Peyton , Yeovil

I intervene only briefly to say how obliged I am to my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) for his advice that we should divide in support of the Amendment. On this occasion, I am more than usually pliable and open to advice from such quarters and am very willing to accept it.

I felt extremely sorry for the Financial Secretary. He stood there, pale and loitering, at the Dispatch Box, hesitating, most unlike himself, for words, ashamed that he had once again, on behalf of his wretched masters, to come here and expose the same unfortunate, negative, bankrupt case that he tried to defend before us last year.

Neatly, and humbly, I accept the advice of my hon. Friend and will certainly divide the Committee in favour of the Amendment.

Question put, That the words proposed to be left out stand part of the Clause:—

The Committee divided: Ayes 189, Noes 122.

Division No. 339.]AYES[7.53 p.m.
Alfdritt, WalterBradley, TomCullen, Mrs. Alice
Anderson, DonaldBray, Dr. JeremyDalyell, Tam
Archer, PeterBroughton, Dr. A. D. D.Davidson, Arthur (Accrington)
Armstrong, ErnestBrown, Hugh D. (G'gow, Provan)Davies, Dr. Ernest (Stretford)
Atkinson, Norman (Tottenham)Brown, R. w. (Shoreditch & F'bury)Davies, G. Elfed (Rhondda, E.)
Bacon, Rt. Hn. AliceBuchan, NormanDavies, Ednyfed Hudson (Conway)
Barnett, JoelBuchanan, Richard (G'gow, Sp'burn)Davies, Harold (Leek)
Beaney, AlanButler, Herbert (Hackney, C.)de Freitas, Rt. Hn. Sir Geoffrey
Bence, CyrilCallaghan, Rt. Hn. JamesDell, Edmund
Bennett, James (G'gow, Bridgeton)Cant, R. B.Dempsey, James
Bidwell, SydneyColeman, DonaldDiamond, Rt. Hn. John
Bishop, E. S.Concannon, J. D.Dickens, James
Blackburn, F.Craddock, George (Bradford, S.)Doig, Peter
Booth, AlbertCrawshaw, RichardDonnelly, Desmond
Boston, TerenceCrosland, Rt. Hn. AnthonyDriberg, Tom
Boyden, JamesCrossman, Rt. Hn. RichardDunnett, Jack
Dunwoody, Mrs. Gwyneth (Exeter)Jackson, Peter M. (High Peak)Palmer, Arthur
Dunwoody, Dr. John (F'th & C'b'e)Jones, Dan (Burnley)Pannell, Rt. Hn. Charles
Eadie, AlexJones, T. Alec (Rhondda, West)Park, Trevor
Edelman, MauriceJudd, FrankParkyn, Brian (Bedford)
Edwards, Robert (Bilston)Kerr, Mrs. Anne (R'ter & Chatham)Pearson, Arthur (Pontypridd)
Edwards, William (Merioneth)Kerr, Dr. David (W'worth, Central)Pentland, Norman
Ennals, DavidLawson, GeorgePrentice, Rt. Hn. R. E.
Ensor, DavidLedger, RonPrice, William (Rugby)
Evans, Albert (Islington, S.W.)Lee, Rt. Hn. Frederick (Newton)Probert, Arthur
Fernyhough, E.Lee, John (Reading)Pursey, Cmdr. Harry
Finch, HaroldLestor, Miss JoanReynolds, G. W.
Fitch, Alan (Wigan)Lever, Harold (Cheetham)Richard, Ivor
Fitt, Gerard (Belfast, W.)Loughlin, CharlesRoberts, Albert (Normanton)
Fletcher, Ted (Darlington)Luard, EvanRoberts, Gwilym (Bedfordshire, S.)
Foot, Michael (Ebbw Vale)McBride, NeilRobertson, John (Paisley)
Forrester, JohnMacColl, JamesRobinson, W. O. J. (Walth'stow, E.)
Fowler, GerryMacDermot, NiallRogers, George (Kensington, N.)
Fraser, Bt. Hn. Tom (Hamilton)Macdonald, A. H.Ross, Rt. Hn. William
Freeson, ReginaldMcGuire, MichaelRowlands, E. (Cardiff, N.)
Galpern, Sir MyerMackie, JohnShaw, Arnold (Ilford, S.)
Ginsburg, DavidMackintosh, John P.Sheldon, Robert
Gourlay, HarryMacMillan, Malcolm (Western Isles)Short, Mrs. Renée(W'hampton,N.E.)
Gray, Dr. Hugh (Yarmouth)McMillan, Tom (Glasgow, C.)Silkin, Rt. Hn. John (Deptford)
Greenwood, Rt. Hn. AnthonyMcNamara, J. KevinSilverman, Julius (Aston)
Gregory, ArnoldMacPherson, MalcolmSlater, Joseph
Grey, Charles (Durham)Mahon, Peter (Preston, S.)Snow, Julian
Griffiths, David (Rother Valley)Mahon, Simon (Bootle)Steele, Thomas (Dunbartonshire, W.)
Griffiths, Rt. Hn. James (Lianelly)Marquand, DavidStewart, Rt. Hn. Michael
Hale, Leslie (Oldham, W.)Mason, RoySymonds, J. B.
Hamilton, James (Bothwell)Maxwell, RobertTaverne, Dick
Hamilton, William (Fife, W.)Millan, BruceTinn, James
Hannan, WilliamMiller, Dr. M. S.Tomney, Frank
Harper, JosephMitchell, R. C. (S'th'pton, Test)Walker, Harold (Doncaster)
Harrison, Walter (Wakefield)Morgan, Elystan (Cardiganshire)Wallace, George
Haseldine, NormanMorris, Alfred (Wythenshawe)Watkins, David (Consett)
Hazell, BertMorris, John (Aberavon)Wells, William (Walsall, N.)
Henig, StanleyMoyle, RolandWhitlock, William
Herbison, Rt. Hn. MargaretMurray, AlbertWilliams, Alan (Swansea, W.)
Hilton, W. S.Norwood, ChristopherWilliams, Alan Lee (Hornchurch)
Houghton, Rt. Hn. DouglasOakes, GordonWilliams, Clifford (Abertillery)
Howarth, Harry (Wellingborough)Ogden, EricWilliams, Mrs. Shirley (Hitchin)
Howarth, Robert (Bolton, E.)O'Malley, BrianWilson, William (Coventry, S.)
Hoy, JamesOram, Albert E.Winnick, David
Huckfield, L.Orbach, MauriceYates, Victor
Hughes, Hector (Aberdeen, N.)Orme, Stanley
Hughes, Roy (Newport)Oswald, ThomasTELLERS FOR THE AYES:
Hunter, AdamOwen, Dr. David (Plymouth, S'tn)Mr. Ioan L. Evans and
Hynd, JohnPage, Derek (King's Lynn)Mr. Charles R. Morris.
Jackson, Colin (B'h'se & Spenb'gh)
NOES
Alison, Michael (Barkston Ash)Elliott,R.W.(N'c'tle-upon-Tyne,N.)Legge-Bourke, Sir Harry
Awdry, DanielEmery, PeterLewis, Kenneth (Rutland)
Bell, RonaldErrington, Sir EricLloyd, Ian (P'tsm'th, Langstone)
Bennett, Sir Frederic (Torquay)Fletcher-Cooke, CharlesLubbock, Eric
Berry, Hn. AnthonyFortescue, TimMcAdden, Sir Stephen
Bessell, PeterGilmour, Ian (Norfolk, C.)MacArthur, Ian
Biffen, JohnGilmour, sir John (Fife, E.)Mackenzie, Alasdair(Rose&Crom'ty)
Black, Sir CyrilGlover, Sir DouglasMacleod, Rt. Hn. Iain
Blaker, PeterGoodhart, PhilipMcMaster, Stanley
Body, RichardGoodhew, VictorMarten, Neil
Bossom, Sir CliveGrant, AnthonyMaxwell-Hyslop, R. J.
Boyd-Carpenter. Rt. Hn. JohnGrieve, PercyMaydon, Lt.-Cmdr. S. L. C.
Braine, BernardGriffiths, Eldon (Bury St, Edmunds)Miscampbell, Norman
Brinton, Sir TattonGurden, HaroldMitchell, David (Basingstoke)
Hall-Davis, A. G. F.More, Jasper
Bromley-Davenport, Lt.-Col. Sir WalterHarvey, Sir Arthur VereMorgan, Geraint (Denbigh)
Brown, Sir Edward (Bath)Hawkins, PaulMurton, Oscar
Bruce-Gardyne, J.Heald, Rt. Hn. Sir LionelNabarro, Sir Gerald
Burden, F. A.Heseltine, MichaelNoble, Rt. Hn. Michael
Campbell, GordonHiggins, Terence L.Onslow, Cranley
Carlisle, MarkHiley, JosephOrr-Ewing, Sir Ian
Chichester-Clark, R.Hill, J. E. B.Osborne, Sir Cyril (Louth)
Clegg, WalterHogg, Rt. Hn. QuintinPage, Graham (Crosby)
Costain, A. P.Holland, PhilipPeel, John
Craddock, Sir Beresford (Speithorne)Hornby, RichardPeyton, John
Crosthwaite-Eyre, Sir OliverHowell, David (Guildford)Pounder, Rafton
Cunningham, Sir KnoxHunt, JohnPowell, Rt. Hn. J. Enoch
Dalkeith, Earl ofHutchison, Michael ClarkPym, Francis
Davidson, James(Aberdeenshire, W.)Jenkin, Patrick (Woodford)Ramsden, Rt. Hn. James
Dean, Paul (Somerset, N.)Johnston, Russell (Inverness)Renton, Rt. Hn. Sir David
Dodds-Parker, DouglasKaberry, Sir DonaldRidsdale, Julian
Drayson, G. B.Kirk, PeterRodgers, Sir John (Sevenoaks)
Eden, Sir JohnLangford-Holt, Sir JohnRossi, Hugh (Hornsey)
Royle, AnthonyTaylor, Frank (Moss Side)Winstanley, Dr. M. P.
Scott, NicholasThatcher, Mrs. MargaretWood, Rt. Hn. Richard
Sharples, RichardTilney, JohnWorsley, Marcus
Shaw, Michael (Sc'b'gh & Whitby)Wainwright, Richard (Colne Valley)Wright, Esmond
Sinclair, Sir GeorgeWalker-Smith, Rt. Hn. Sir DerekWylie, N. R.
Smith, JohnWeatherill, BernardYounger, Hn. George
Stainton, KeithWhitelaw, Rt. Hn. William
Stodart, AnthonyWills, Sir Gerald (Bridgwater)TELLERS FOR THE NOES
Taylor,EdwardM.(G'gow,Cathcart)Wilson, Geoffrey (Truro)Mr. Eyre and Mr. Monro.

8.0 p.m.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

I beg to move Amendment No. 4, in page 3, line 29, to leave out "27½" and to insert "16½".

It will be well known within the Committee that it is not in order to seek to raise any level of Purchase Tax. An hon. Member may only seek to reduce a level of Purchase Tax, and I am thus confronted with considerable technical difficulties in the fact that this Amendment relates itself to the three existing rates of Purchase Tax after consolidation which become, including the regulator, 11 per cent., 16½ per cent. and 27½ per cent. I contend myself technically therefore, with seeking to reduce the 27½ per cent. rate to 16½ per cent. in order to precipitate a general debate on all Purchase Tax matters.

You will note, Mr. Irving, that new Clause No. 1, though not selected by the Chair for association with the present Amendment, in effect deals with the same matter but in the context of the motor industry only; for motor cars pay Purchase Tax, after consolidation of the regulator, at 27½ per cent. New Clause No. 1 seeks to reduce the rate to 16½ per cent., and therefore I shall deal largely with motor cars this evening.

There are, of course, a large number of other goods which are subject to the 27½ per cent. rate and which my hon. Friends may like to mention in the course of their speeches. They include furs, haberdashery, jewellery, fur rugs, mirrors, sewing machines, lighting fittings, hand lamps, garden ornaments, radio and television sets, musical instruments, gramophones and radiograms, gramophone records, umbrellas, smokers' requisites, luggage, cameras, diaries, calendars, stationery, road vehicles and bicycles, hair treatment materials, toilet requisites, perfumery and certain drugs and medicines.

The aggregation of the revenue collected at the rate of 27½ per cent. from all those chargeable items would be £450 million in the year 1967–8. The aggrega- tion of the revenue collected at the 16½ per cent. rate of Purchase Tax in 1967–68 is estimated at £75 million, and the aggregation of the revenue from the 11 per cent, rate at £210 million, making a total revenue from Purchase Tax after consolidation of regulator, of £735 million.

It does not take any great mathematical acumen to work out that if the whole of the 27½ per cent. items were reduced to 16½ per cent., the cost to the revenue would be £180 million, and the total yield from Purchase Tax would be reduced from £735 million to £555 million.

Mr. MacDennot:

Mr. MacDennot indicated assent.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

I am glad to see the Financial Secretary nodding assent at this early stage.

The element of Purchase Tax revenue in respect of motor cars is by far the largest of any of the goods on which Purchase Tax is chargeable. At the full rate of 27½ per cent., motor cars account for a revenue in terms of Purchase Tax of £148 million. Were the rate of Purchase Tax on cars reduced from 27½ per cent. to 16½ per cent., the loss of revenue would amount to £59 million, and the residual revenue in respect of motor cars would therefore be £89 million.

I confine myself to motor cars because, as an hon. Member representing a Midlands constituency, I am concerned with the impact of the economic and financial measures of 20th July, 1966, on the motor car industry, which is largely though not entirely centred in the Midlands. These measures have had a dire effect there, as elsewhere, and we may have been reminded of it only this evening, because tonight's Evening Standard headlines the decline in motor car production during March of this year: Sales of new vehicles during the month of March were 25 per cent. below the level of March, 1966, and sales of secondhand vehicles were down by 12 per cent. For the first quarter of this year, sales of new vehicles were 16 per cent. down on the first three months of last year. If anything, the April figures are worse. The Daily Mail had this to say on 16th May: Car sales in Great Britain fell last month to 96,735, almost 30 per cent. below the same month last year. This is the lowest April figure for five years. The Financial Times reported on the same day: New car registrations in April fell to 96,735, the lowest April figure for five years and nearly 29½ per cent. below the same month last year. This was the worst month for the car industry since the squeeze began last July, and some industry leaders are putting heavy pressure on the Treasury and the Ministry of Technology for early relief. In fact, though no official pronouncement was made, it was reported that the motor car leaders went to the Treasury on 24th May. The Financial Times of 25th May said: Representatives of the motor industry, led by Sir George Harriman, president of the Society of Motor Manufacturers and Traders, met Treasury representatives again yesterday in an extension of the discussions started last week. It went on to say: It is believed that the Government has, in fact, conceded the industry's case for early relaxations of hire-purchase and/or purchase tax restrictions on car sales and that the negotiations are now concerned with details. There may be hon. Members of this Committee who, in their innocence, will argue that the home sales of motor cars have no bearing on export performance. There are a few naive creatures of that kind in the Ministry of Technology at the present time. It is interesting to recall that when the present Joint Parliamentary Secretary to the Ministry of Labour, the hon. Member for Birmingham, Spark-brook (Mr. Hattersley), was on the back benches he used to attack his Front Bench and the Minister of Technology on this very point, because, as a private Member, he took my view, that we cannot export motor cars successfully unless there is a buoyant home market. The Minister of Technology always denied that.

I shall not go into this in depth at this stage, but I want to bring out for the first time in this House the figures supplied to me by the industry—and they may be confirmed from Board of Trade statistics—of the dramatic differences between Tory policy for the motor industry in this country, and Labour policy. During the 13 wasted years which the Prime Minister and his helots talk about endlessly, they always omit to note that it was very difficult to get a motor car in 1951 for one's own use, but in 1964 one family in four in this country owned a motor car. Cars proliferated. A car was no longer a sign of affluence, it was a household necessity, and in every year that passed the motor industry of this country produced more cars for export and for domestic sales. The achievement was magnificent, and the curve of production was ever upward.

When the Labour crowd got in, that was the end of those halcyon days, because 1965 and 1966 show a very dismal story by comparison, and I shall quote the figures both for exports and for home trade. If anybody doubts the importance of this industry to Britain, let me tell him that the vehicle industry, not motor cars only, now exports about £800 million worth of goods, representing about 16½ per cent. of all Britain's exports. I do not believe that motor car exports can continue to grow unless there is a steadily increasing demand from the home market, and not a downward trend of domestic sales of new motor cars.

Here are the figures which seem to support my views: In 1964 the home production of motor cars was 1,161,886. In 1965, the first year of Labour Government it declined by 5·6 per cent. to 1,069,374 motor cars. In 1966 there was a further decline, a 10·6 per cent. reduction compared with 1964, and home sales were down to 978,684, so in 1964, 1965, and 1966, as a comparison, there was a steady downward trend in home sales.

8.15 p.m.

I now take the export figures, because the whole purpose of the squeeze, the tire-purchase restrictions, the increased taxation on cars, the increased taxation on petrol, and the remainder, was to get exports up. The following figures represent the measure of the failure of the Government's policy: In 1964 car exports were 705,754. In 1965 car exports declined by 7·5 per cent. to 652,671. In 1966 there was a further calamitous drop to 624,995, or a drop of 11·2 per cent. compared with 1964. That is the measure of the Government's failure to promote exports of motor cars. The squeeze at home on the motor car trade, on this narrow front, which has caused so much hardship in the Midlands, so much dislocation of labour, and so much unemployment and short time working, has had no success whatever in the export field.

Now let me consider overall production, for this is not only a matter of the Midlands. Let us consider the national resources entailed in building new motor car plants on Merseyside, in building new plants in Scotland, or at Luton, or Dagenham, or elsewhere. It is surely a question of the national resources entailed. Here are the detailed figures, which are even more illuminating: In the last year of Tory rule, in 1964, 1,867,640 motor cars were produced. In the first year of Labour rule that figure declined by 7·8 per cent. to 1,722,045. In the second year of Labour rule, in 1966, it further declined by a very large margin to 1,603,679. There was a 14·1 per cent. reduction in motor car output between 1964 and 1966. I say that that is the measure of the failure of the Labour Party to secure more vehicle exports by their policies.

They said that they brought in all measures of 20th July last to get exports up, and to remedy the deficit in the balance of payments. At least on one-sixth, that being the vehicles industry of Britain, they have failed dismally in their motor car and motor vehicle policy to secure an increase in exports. The Midlands today are turgid. The Midlands are the industrial hub of Britain, and industrial activity there revolves around the motor trade. The Midlands are turgid because motor car output has gone down, and the culprit is, of course, the policy of Her Majesty's Government.

I do not believe that Sir Patrick Hennessy, the President of the Society of Motor Manufacturers and Traders, is a good Tory. He may vote Labour for all I know. He has never done me any kindness, nor my party, but from time to time he makes speeches which approximate to what I say in the House of Commons at regular intervals about the motor industry. I quote him tonight for the benefit of the Financial Secretary. At the annual general meeting on 20th April Sir Patrick Hennessy said: True, we earned a record £800 millions—or over £1,500 for every minute of every day—through the export of our various products; true, too, that we are the world's largest exporters of commercial vehicles and agricul- tural tractors. All this is good and our ascendency must be retained. But we are not exporting nearly as much as we could, and this is especially the case with motor cars. For this there are a number of reasons quite apart from labour problems at our factories. Then he said: The restrictions on our home market, by preventing the spread of production costs over maximum output, have already promoted price increases here and are threatening competitive price levels abroad. In addition, diminishing profits are tending to curtail essential investment. Because of the external duties, the lights are changing from amber to red at the valuable frontiers of the Common Market countries. Rhodesia is no longer open to us. The Commonwealth nations are more and more interested in local production and there are a number of developing countries outside the Commonwealth where this comment also applies. And lastly, E.F.T.A. is not, so far, what we hoped it would be. None of these factors is within the control of the industry. And our manufacturers are to be left to linger in low gear. That is clearly the message of last week's Budget proposals. It was a barren Budget, bereft of any encouragement whatever to industry. But we are, of course, still supposed to export to more and more. Let those words speak for themselves. I can do no better. They are far more eloquent, coming from a leader of this great industry, than any words I could pronounce in this Committee. But I give the Financial Secretary a warning from the Midlands. He is hardly a Midlander, perched on a branch at Derby. The motor trade is centred in and around Birmingham, and the motor workers live largely in Worcestershire, which is why they elected me as their Member. [Interruption.] I said "largely". I agree that there are a few motor car workers in Coventry. If I were the hon. Member for Dunbartonshire, East (Mr. Bence), who is a good "Brummagen" citizen, I would not draw attention to Coventry. There are three Coventry Members—all Labour. Where are they? Not one of them is here to hear me talking about the motor car industry.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

They are not busy. They should be supporting me in trying to knock the Treasury down in respect of the Purchase Tax on cars.

I have alluded to the drop in home sales of motor cars in March—down by 20 per cent., and in April—down by 30 per cent. What the Committee has to remember is that the first half of every year is the best and the second half the worst. Therefore, there may be far worse to come in the second half of this year than we have experienced in the first half, notably in March and April. I quote from the Financial Times of 17th May under the heading The worst car slump since 1929?This end-year slump has grown sharply in recent years. Over the past five years the percentage split first half year and second half year has been as follows: 1962, 59 per cent. in the first half of the year and 41 per cent. in the second; 1963, 55 per cent. and 45 per cent.; 1964, 58 per cent. and 42 per cent.; 1965, 62 per cent. and 38 per cent. and 1966, 66 per cent. and 34 per cent. So if for 1967 the figures are 66 per cent. for the first half year and 34 per cent. for the second half year and the figures follow the trend of March and April, the motor car industry will be in a dreadful condition during the off-season period—the second six months of the year.

Photo of Mr Robin Maxwell-Hyslop Mr Robin Maxwell-Hyslop , Tiverton

Will my hon. Friend remind the Committee which Government were in office in 1929?

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

I am grateful to my hon. Friend. The Labour crowd were in. I had forgotten that. I must say, in fairness to the Labour crowd, however, that in 1929 motor cars did not loom so large in the economy as they do today.

I want the Treasury to reinvigorate the motor trade. I do not say "invigorate" because we did that between 1951 and 1964. Let the Treasury bear in mind the fact that there are only two ways of doing it. One is by the relaxation of hire purchase, which is a relatively quick and relatively mild way, and the other way is by a reduction in Purchase Tax. If the Treasury reduces Purchase Tax on cars it takes a long time to have effect. We have had recent experience of that. I remind the Financial Secretary that my right hon. Friend the Member for Barnet (Mr. Maudling), when Chancellor of the Exchequer, gave us all a Guy Fawkes Day bonus on 5th November, 1962, and brought about the biggest single reduction in Purchase Tax on any commodity in one swoop. He reduced the Purchase Tax on cars from 50 per cent. to 25 per cent. But it took seven months for the Purchase Tax reduction, dramatic as it was, to work its way through the entire economic system.

Photo of Mr Alistair Macdonald Mr Alistair Macdonald , Chislehurst

I well remember the episode to which the hon. Gentleman refers. It had the effect of taking £50 away from everybody who owned a car and also seriously jeopardising the prosperity of car hire firms, as I know very well. I have heard many bitter complaints about the abruptness of that reduction.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

The hon. Member is a latter-day fiscal Scrooge. Who has ever heard of the community being unhappy when taxes are reduced? Only the hon. Member, and he is a fiscal Scrooge. I am not unhappy when that kind of thing is done.

But I am being utterly serious in saying that there is a fundamental cleavage in our respective approaches to these matters. The Treasury Ministers take the view that it can get more exports by damping down and depressing the home market. I take precisely the opposite view. Until the home market is reinvigorated in motor cars—the most expensive and most sophisicated of consumer durables—it will not be possible substantially to increase our exports.

I point out to the Financial Secretary the results of Government policy upon the British Motor Corporation, as shown in its accounts for the last six months, published a few weeks ago. The company lost £7½ million in half a year. I agree that some of the loss was due to industrial disputes, but it was most largely due to the freeze since 20th July last.

I make no apologies for concentrating on the motor trade, because new Clause No. 1 is the motor trade, and although, Sir Ronald, you have not called it with the Amendment, it amounts to the same thing. I want what is in new Clause 1—a unilateral relief of Purchase Tax on motor cars—as infinitely the preferable recourse to relaxation of hire purchase as a means of raising once again home sales of cars and thereby reinvigorating an industry which, it should endlessly be repeated, is worth £800 million a year of British exports, or 16½ per cent. of the total.

I hope that I shall have some support from Scotland. The hon. Member for Dunbartonshire, East was a neighbour of mine in the Midlands 15 years ago. We lived a few hundred yards apart, and we were always interested in the motor industry. Scotland is interested in the industry today. Bathgate is not doing so well. Let the hon. Gentleman speak for Scotland and for British cars, for this is the means of driving the Volkswagen and the Mercedes and all these other wretched foreign vehicles off British roads.

8.30 p.m.

Photo of Mr Cyril Bence Mr Cyril Bence , Dunbartonshire East

The traditional outlook of light engineering in Britain goes back to the nineteenth century—that the basis of successful exports is a sound home market. This was the traditional concept not of Liberalism, but of Conservatism—that a vast, protected home market gave the chance to market surplus products at a low price in world markets.

I have always strongly advocated our joining the European Economic Community, on the grounds of the twentieth century demand that to satisfy a home market with an economic product one must manufacture for the world. I would reverse the proposition of the hon. Member for Worcestershire, South (Sir G. Nabarro). I believe that, to give the British consumer a good product, a manufacturer with all the latest techniques of automation must be able to market his product in the rest of the world.

To think solely in terms of a huge production for a home market to get exports is to fail lamentably. The success of Japan, America and West Germany is that they have built up not a solid home market, but a good foreign market. Therefore, their manufacturers give the home consumer a better product than we can. This is the result of the twentieth century technical change.

I was employed in the motor industry in the West Midlands for some years. This change is the reason that many of us advocate the breaking-down of tariffs to extend world trade so that we can manufacture for world markets instead of our own narrow national markets. I am very proud of the motor trade, which I think has made a great contribution to the world's economy, especially with the social revolution wrought by the internal combustion engine. I went into the trade in 1918, from which time we have made a great contribution in that way.

One of the greatest problems in marketing many consumer durables, but especially the motor car, in the world, whether Europe or America, is the system of franchise established between manufac- turers and distributors. It is almost impossible for a British manufacturer to get a franchise in France or Germany. N.S.U., in Germany, controls practically all the service stations. It is difficult to get agencies in Europe for B.M.C. or Rootes products.

In our country, the manufacturers—B.M.C, Ford and Vauxhall—give a franchise to garage proprietors as sole distributors. This is done in the United States, Canada and Australia, also. Holdens are getting almost complete control in Australia. This is done in Europe. Through Total and N.S.U. and other agencies, garage proprietors in France have the same system. One of the difficulties for a British manufacturer is to distribute and service his product through a chain of service stations in world markets.

The hon. Member for Worcestershire, South quoted figures for the export of motor cars, but they did not include the vast trade under what is called "C.K.D.". B.M.C. has an assembly plant in Europe, Canada and America where crated components are sent not as motor cars, but as light engineering products and assembled under this system of "complete knock down". That form of traffic has increased considerably because of the development of container terminals and container traffic. It is becoming more economical to export the 3,000 or more units that go to make up a motor car in containers and to assemble them in the countries in which they are to be marketed, where local labour can be employed—

Photo of Mr Ronald Russell Mr Ronald Russell , Wembley South

Order. The hon. Gentleman is getting rather wide of the Amendment.

Photo of Mr Cyril Bence Mr Cyril Bence , Dunbartonshire East

I merely wish to point out that it is not fair to place on the present Labour Government responsibility for the difficulties experienced by the motor car industry during the past year. I wanted to mention some of the difficulties being faced by the industry and the techniques being employed to overcome them. I have mentioned one such technique and will, for the moment, leave the matter there

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

I confess at the outset that I was somewhat misled by the remarks of the hon. Member for Worcestershire, South (Sir G. Nabarro) on Second Reading about the purpose of the Amendment, because he then indicated that his intention was not to seek the wider adoption of 16½ per cent. as a rate which he described as being monstrously complicated. He said that his object was to get a major debate on T.V.A. and the means of rebating it for exporters. Perhaps he has transferred that intention to another Amendment.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

I hope to launch that debate on Report. In view of the deplorable condition of the motor industry today and the fact that the industry's representatives visited the Treasury last week, I thought that I should give precedence and priority to the important matter of reducing Purchase Tax.

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

I am grateful to the hon. Gentleman for that warning, but if I had had notification of it I would have come prepared to answer more fully the debate which he initiated. Instead, I came prepared to answer the debate of which he had given me warning.

The hon. Gentleman began by saying that the Amendment is in its present from because he is able to make proposals only to reduce taxation and not to increase it; and he has, therefore, tabled an Amendment proposing to reduce the 27½ per cent. rate to the 16½ per cent. rate as a peg on which to hang a debate about the motor industry. In replying to that I must, however, look at the substance of the Amendment.

The hon. Gentleman gave his estimate of the cost of the Amendment, if accepted, as £180 million. I think that, in making his calculation, he ignored what would be the effect on consumption if the tax change proposed in the Amendment were made; and our estimate is that the cost in a full year would be about £165 million. As to the effect of this rate of duty on the motor industry, he began by saying that the rate—and I believe that he meant, in particular, the regulator increase—had had dire effects on the motor industry. It is a matter for argument how much the effects of which he is complaining are due to the effects of the Purchase Tax duty and how much to the hire-purchase restrictions included in the July measures.

The hon. Member for Worcestershire, South went on to give figures about the decline in the sale of motor cars both in the home market and overseas. He described that as the measure of the failure of the Government to get car exports and to assist the motor industry. I am sure that he would be one of the first to assert that when any industry does well, be it in home sales or abroad, this is due, and due alone, to the wonderful efforts of those in the industry. It is only when an industry does badly that the whole responsibility for the achievement, or lack of achievement, of the industry is laid at the doors of the Government, particularly a Labour Government.

I thought that the fallacy of the hon. Gentleman's position was exposed by the letter which he read from Sir Patrick Hennessy, which gave a much fairer appraisal of all the difficulties that have been confronting the motor industry's exports. As Sir Patrick said, very many of those factors are outside the control of the industry. Equally, they are outside the control of the Government.

As my hon. Friend the Member for Dunbartonshire, East (Mr. Bence) pointed out, to a very great extent these are marketing problems which the motor industry has had in other countries. One knows, for example, of the great efforts—and, a few years ago, the immensely successful efforts—of this industry in increasing its sales in the American market which is one of the markets that has been disappointingly hardening for the industry.

In these circumstances, and in a situation in which the Government have had to take severe economic measures to reduce demand at home, it is very questionable whether to have attempted to exempt the motor industry at home from the restrictive effects of those measures would have assisted it materially to overcome those difficulties it has had in these foreign markets.

I can see, and the Government understand, that from the long-term point of view, a large and prosperous home market is an extremely important factor for the industry's export trade, but it is not the only factor of which the Government could take account when they were having to contend, as we still are having to contend, with the balance of payments problem that has been confronting the country now for some considerable time.

The hon. Gentleman referred to a report that had appeared in the Financial Times alleging that Sir George Harriman had been received recently by the Treasury and that it appeared that the Treasury's attitude to Purchase Tax on cars was weakening. Perhaps the hon. Gentleman did not see, but that story has been corrected in the Press. It was incorrect. Sir George Harriman was not received at the Treasury. That may be some indication of the accuracy of the prediction that was contained in the report.

It is true that, naturally, representations have been made by the motor industry to the Treasury, and these will be considered, as are other representations received about the effect of taxation and the other July measures upon different industries. In particular, the Treasury keeps under continuous review the effect of those measures upon an industry occupying as important a part in our economy as the motor industry does. The hon. Gentleman will not expect me, therefore, in a debate on whether the 27½ per cent. rate of Purchase Tax should be reduced to 16½ per cent., to comment any further upon that. I must advise the Committee that in present circumstances it would be quite inconcievable to accept an Amendment the cost of which to the Revenue would be at a rate of £165 million a year.

8.45 p.m.

Photo of Mr Iain Macleod Mr Iain Macleod , Enfield West

One of the difficulties of giving advice to my hon. Friends the Members for Worcestershire, South (Sir G. Nabarro) and for Yeovil (Mr. Peyton) is that if one advises them to divide, they always do so—and do so with enthusiasm—while if one advises them not to divide one has much less certainty about the response one will get.

On this occasion, however, I must say that I hope that my hon. Friend the Member for Worcestershire, South will not press his very cogent arguments to a Division. That hope is based on the point of cost alone. A sum of £165 million is most formidable, and, although we shall with enthusiasm at the appropriate time suggest a reduction in direct taxation, we feel that this can be and should be balanced by reductions in transfer payments and Government expenditure. Nevertheless, I think that this short debate has been very well worth while because of the speech of my hon. Friend the Member for Worcestershire, South and because it has shown clearly that there is a fundamental difference between the two sides of the Committee.

Indeed, there are two fundamental differences. The first is the one to which my hon. Friend referred which concerns the belief held by hon. Members opposite that the royal road to increasing exports is to damp down the home market. I agree with my hon. Friend that that is nonsense, particularly in relation to car manufacture. Car exports will come only from a buoyant home market, and it would be wise for the Government to take this into account.

The other fundamental difference goes wider and I touch only briefly on it now. We are from time to time urging what one might call moderate reflation on the Government and, in my judgment, slowly the Government will give way to us. The reason, and this is the fundamental difference between us, is that we on this side take a gloomier view about it than do the Government Front Bench. We are not as optimistic about the 3 per cent. growth and we do not take the particularly complacent view about unemployment. The relevance of this to the Amendment before the Committee is that here is the tap which the Government can turn if they wish and the tap which always first leads into deflation and can lead out of deflation into renewed growth.

I am very much more worried—I have said this many times—about the level of unemployment than the Government seem to be. I have prophesied, and I repeat it, that the June figures—we shall see whether I am right or wrong in less than three weeks—will probably be higher than in any June since 1939. If that is so, and succeeding months are like that, the Government must consider whether they are wise to be as obdurate as they are to suggestions which come from this side of the Committee.

There are these two fundamental differences in relation to this matter, the one outlined by my hon. Friend and that which lies behind all these Budget debates. I quote from a Press notice dated today, issued by the Board of Trade, on the turnover of the motor trades in March. It has come into my hands since my hon. Friend spoke on this Amendment. The first sentence is: The total turnover of the motor trades in March was 13 per cent. lower than in March, 1966. It goes on to say: This fall compared with a year earlier is considerably greater than any recorded during the last twelve months but trading in March last year was moving up to the peak recorded in April which included some pre-budget buying; in addition the comparison may be affected by the Easter holiday this year being within the March period whereas last year it was in the April period. Those qualifications are fair enough, but they do not take away the impact of the opening sentence that the turnover in March was 13 per cent. lower than in March 1966, and that the fall compared with a year earlier is considerably greater than any recorded during the last 12 months.

I urge the Financial Secretary to reflect on this debate even if my hon. Friend the Member for Worcestershire, South decides not to press the Amendment to a Division, because here is a way to relieve the employment situation. I do not say that it is necessarily wise, because I understand the Government's position, but if they are as worried as some of us are about unemployment they should reflect very much on the statement made by my hon. Friend. If we agree to pass soon from this Amendment, I hope that the Government will not pass from it in their thoughts, because I believe it is later than the Government think.

Photo of Alan Williams Alan Williams , Swansea West

I had not intended to intervene in this debate, but I have been distinctly upset by the rather pious arguments advanced by right hon. and hon. Members opposite about the sanctity of the level of demand in the car industry, because, if I recollect correctly, in October, 1958, right hon. Members opposite removed all hire-purchase restrictions on cars, to create a 30 per cent. boom in car sales, to create a pre-election boom to enable them to win the 1959 General Election.

Photo of Alan Williams Alan Williams , Swansea West

"Rot", says the hon. Member for Worcestershire, South (Sir G. Nabarro). This is the level of con- tribution we have come to expect from the hon. Gentleman.

If it is rot to say that that was a carefully created boom, why, hire purchase restrictions having been removed 12 months before right hon. and hon. Members opposite held a General Election, were hire-purchase restrictions re-imposed six months after they had won that General Election on the boom created in the car industry? So let us not have any of the pious nonsense we have had from right hon. and hon. Members opposite. They do not care about the car industry. They merely care about a few petty political points they might be able to make at the moment.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

I had not intended to intervene in the debate again. The hon. Member for Swansea, West (Mr. Alan Williams) has referred to a few petty local difficulties. If he thinks that the troubles of the motor industry in the Midlands today are a few petty local difficulties, he should resume his place on a parish council, where he would be in a more appropriate setting than in the House of Commons.

I will answer his gibe about the Tory Party as a matter of historical fact. The Tory Party reduced the Purchase Tax on motor cars from 50 per cent. to 25 per cent, on 5th November, 1962, 23 months before the General Election held in October, 1964. Had it been an election gambit, the reduction would have taken place a few months before the election. The hon. Gentleman did not do me the courtesy of even listening to my speech. He has just entered the Chamber. He spoke from ignorance, innocence and inexperience of the House of Commons.

With those few words of admonition to the hon. Gentleman, may I thank my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) for his propitious and happy advice as to my behaviour at the end of this debate on this important Amendment. I readily accept that advice. I shall continue my efforts on behalf of the motor trade during the next few months, which, I believe, will be critical to it.

The Financial Secretary had not been briefed properly by the Treasury, save only as to the harmonisation of taxes. He displayed his lack of knowledge of the motor industry in what he said in his reply. Despite the inadequacy of the reply, I shall on this occasion beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause ordered to stand part of the Bill.