Orders of the Day — Finance Bill

– in the House of Commons at 12:00 am on 24th April 1968.

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Order for Second Reading read.

4.10 p.m.

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

I beg to move, That the Bill be now read a Second time.

I do not propose to go through the Bill Clause by Clause, describing every nuance in relentless detail. The subsequent proceedings will provide opportunity for detailed discussion of this kind. I therefore propose this afternoon to concentrate on the Bill's main themes and in this review briefly to discuss some of the more important proposals and the main lines of criticism that have been developed since I made my Budget statement five weeks ago yesterday.

The main purpose of the Bill is, of course, to enact the proposals contained in my Budget speech for finding the very large amount of additional revenue that I thought it essential to raise in present circumstances. We debated the general aims and structure of the Budget during the four days of debate that followed my statement, and there is little I could add so soon after the Budget to the general review which I then gave to the House of our economic situation and prospects and the requirements with which they faced us.

What I think I can fairly claim is that while there has naturally been a good deal of criticism of individual proposals there has been a wide measure of acceptance both inside and outside the country that the total effect of the Budget measured up to the needs of the situation.

I start with the main revenue-raising measures, although not in immense detail. I described them in my Budget speech and they were extensively discussed in the Budget debate. I should like, however, to deal with two aspects which have attracted perhaps rather more critical attention than others. First, it has been suggested that I was too hard on the motorist and, therefore, on the motor industry. It must be borne in mind that the motorist is now a very large section of the community. Moreover, the increases bear at any rate some relation to capacity to pay, in that by definition they fall directly only on those who can afford to run cars.

The petrol duty falls heaviest on those who can afford to run more powerful cars, and the total effect of the increases can be exaggerated. A motorist who has a car that does 40 miles to the gallon and who drives 7,500 miles per year will be paying, on average 4s. extra a week. That is not a negligible amount, but it is not a demonstrably unfair share of the additional burdens I have had to impose.

Similarly with the Purchase Tax. For a car selling at a retail price, including tax, of £600 before the Budget the additional tax will be about £24. If it is bought on hire purchase, there will be an extra £8 on the deposit, with an extra 14s. on each monthly instalment. Those are not insignificant amounts, particularly for people on modest incomes, but they are not out of reason.

Those increases may no doubt lead to a slight reduction in domestic purchases of motor cars. But it would be exaggerating this out of all proportion to claim it as a threat to the prosperity of the motor industry, particularly provided the great advantages which that industry can be expected to reap in overseas markets from devaluation are fully exploited. I was encouraged to see that production for export totalled 93,000 cars in March, easily the highest on record, and more than twice as much, allowing for seasonal variation, as in the month before devaluation. Confidence about export prospects is very firm right across industry, according to a recent Financial Times Survey of Business Opinion. It was a major element in my Budget strategy to make room for the realisation of those prospects.

The other main criticism of the revenue-raising aspect of the Budget has centred on the proposed increase in the Selective Employment Tax, which is covered by Clause 46. I think that my Budget speech made it clear that I approached the prospect of an increase in S.E.T. with some reservations. But I could not in the present circumstances forgo the additional revenue the tax was capable of yielding, and in all the discussion I have seen too little attention paid to the tax's merits, which certainly exist, as with all taxes, and too much to its demerits.

First, it clearly is a major source of revenue—£325 million in 1967–68 and getting on for £500 million in a full year with the proposed increase——

Photo of Sir Harmar Nicholls Sir Harmar Nicholls , Peterborough

Sir Harmar Nicholls (Peterborough) rose——

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

I have hardly started on my speech.

Photo of Sir Harmar Nicholls Sir Harmar Nicholls , Peterborough

Is not the Chancellor of the Exchequer aware of the contradiction between himself and the President of the Board of Trade on the hotel industry? The grants to be given will be more than outweighed by the disincentive the extra tax will give that great industry. From the hotel point of view, we shall be worse off.

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

That interruption indicates the unfortunate effect of interrupting too precipitately, because I have something to say about the hotel industry. It will come more appropriately at that stage. The hon. Baronet might have guessed, as I was about to say a few things about S.E.T., that I was not leaving the subject after my first sentence.

Second, S.E.T. is a tax on services, which escaped very lightly, compared with goods, before the tax was introduced. S.E.T. broadens the base of taxation and is more progressive than most of our taxes on expenditure on goods. Even at the new rates its incidence can hardly be regarded as exorbitant. The rates of Purchase Tax on goods vary from 12½ to 50 per cent., and the duties on spirits and tobacco are much higher still. By comparison, even after the Budget increase, S.E.T. will represent only 5 to 6 per cent. of expenditure on services. It cannot be alleged that I have subjected services to a disproportionately high rate of tax.

Third, recent figures of unemployment in the distributive trades, in miscellaneous services and in the construction industry suggest that the tax has encouraged the more effective and economical use of labour in those sectors, and the resulting improvements in productivity should release resources for deployment in other sectors of the economy.

Fourth, the existing system of collection may seem cumbersome. Indeed, when is possible I should like to get away from it, but it is undoubtedly cheap. The estimated cost of the administration of the tax at the new rates will be 0·4 per cent. of the net yield in a full year. This compares with just under 1 per cent. for Customs and Excise duties and just under 1·4 per cent. for Inland Revenue taxes.

There have been complaints of anomalies and problems of classification. Complaints of this kind are to some extent the inevitable result of any attempt to be selective, but in fact the tax has worked surprisingly smoothly. Nearly 250,000 establishments have been registered for premium and refund, and the number of appeals against refusals to register particular establishments has been about a half of 1 per cent.—one appeal for every 200 registrations.

There has also been criticism of the alleged effect of the tax on the cost of living. In fact, the net effect of introducing the tax on the price of various direct services to consumers was around 1½ per cent., which means, in terms of the general index of retail prices, an increase of less than 0·1 per cent. There may also have been a small effect on the price of goods sold, but this could hardly have been very significant. Taking into account the yield of the tax, this means that the effect of S.E.T. on the cost of living has been only a small fraction, perhaps less than one-fifth, of the increase caused by indirect taxes, such as Purchase Tax or Excise duties, giving an equivalent yield.

It is too often forgotten that the real comparison should be not between Selective Employment Tax and no tax, but between Selective Employment Tax producing a substantial net yield and any other indirect tax producing a similar yield. It is accepted that in present circumstances tax has to be raised. The only question is which is the best way of raising it.

I have suggested that S.E.T. works reasonably smoothly, broadens the base of indirect taxation, has probably helped to improve productivity in the industries on which it falls as a net burden, costs one-third the amount of other taxes in administration, and has one-fifth the effect on the cost of living. The onus is on those who have criticised the increase in the tax to suggest another way of raising a similar amount of revenue that can match these advantages.

That does not mean that I regard the tax as it stands as perfect or immutable. As I told a group of my hon. Friends representing the Co-operative movement who came to see me the other day and argued a case with great force, I shall approach Mr. Reddaway's report, which I hope to receive during next year, with an open mind and great readiness to listen to any constructive criticisms and suggestions which may come from his inquiry.

During the Budget debates hon Members showed considerable interest in the concession of a refund of S.E.T. to hotels in certain rural parts of development areas, for which provision is made in Clause 47 and in Schedule 17 of the Finance Bill. I am sure that the House will wish me to say a word or two about this. We have proposed this concession for two reasons. First, we have been alive to the fact that, while our regional policies, and, in particular, the regional employment premium, do a good deal to promote industrial expansion in the development areas, the response may be much slower in areas which do not have a very strong industrial base.

The second reason for the concession is that whereas all other service industries cater to a greater or less extent for the local population the hotel industry mainly brings money into an area from outside. An improved hotel industry can thus at the same time stimulate local employment, increase incomes and improve what I can perhaps describe as the regional balance of payments.

We have, however, thought it right not to extend the S.E.T. concession to the more industrial parts of the development areas, where we can look to expansion from manufacturing industry and where R.E.P. is of substantial importance. Nevertheless, hotels in these areas will benefit from the proposed hotel development incentive scheme, under which there will be a higher rate of grant for development areas as a whole.

Photo of Mr Simon Digby Mr Simon Digby , West Dorset

I have listened carefully to the arguments of the Chancellor, some of which I accept. Does he not recognise that he has left out of account areas, particularly in the South-West, which were hard hit by this tax, and that there is no countervailing advantage?

Photo of Sir Harmar Nicholls Sir Harmar Nicholls , Peterborough

The same applies to the Midlands.

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

I am aware that there are difficulties of this sort. It is for this reason that I have made the hotel concession to which I have just referred. The hotel concession applies to the less developed, the less industrial, parts of development areas, including a substantial number of employment exchange areas in the South-West Region.

Apart from the main theme of raising revenue, I should like to identify three other subsidiary schemes in my Budget proposals, which are each reflected in the Finance Bill. The first is that of reducing tax avoidance. Every Finance Bill within my recollection has contained some provision to close loopholes which ingenuity has discovered in tile tax law, but this Bill, I believe, contains more than most.

One example is to be found in Clause 22, which imposes a charge to tax where a taxpayer chooses to accept a scrip issue instead of a cash dividend. Hon. Members will be aware that some companies have in recent months offered these so-called stock dividend options to their shareholders. A shareholder opting to take the scrip was enabled to avoid Income Tax and Surtax, and the benefit was usually split between the company and the shareholder, with the Revenue as the loser. The Bill provides that from Budget day onwards the taxpayer who is offered the choice of scrip or cash, and who takes scrip, will be treated for tax purposes as though he had taken the cash.

Another example is to be found in Clause 28, which withdraws the exemption for short-term gains on British Government securities within the so-called "neutral zone". The reason for withdrawing the exemption is that it has been grossly abused. Taxpayers of means were buying large holdings of securities in the neutral zone. By buying stock ex-dividend and selling cum-dividend just under six months later, they obtained six months' interest in tax-free capital form. It was not reasonable to allow this to continue. I repeat what I said in my Budget speech, that the similar exemption for long-term capital gains is not affected.

I ought to say something more about the new provisions for groups of companies in Part II of Schedule 12. In moving the Second Reading of last year's Finance Bill, my right hon. Friend the Chief Secretary mentioned the possibility that advantage might be taken of provisions enacted for the convenience of groups of companies. Cases have now arisen in which these provisions have been abused, and we propose to take remedial action.

The devices that concern us take broadly two forms. One of these consists, as a first step, in either transferring an asset between members of a group or carrying out a share exchange scheme by which the asset passes from one company to another. The shares in the transferee company are then sold outside the group. The other device is to drain a group company of its assets and claim a loss on the realisation of the shares in the drained company, although nothing has been lost so far as the group as a whole is concerned.

Paragraphs 14, 16 and 17 of Schedule 12 are directed against the first type of device, paragraph 18 against the second. Broadly, their purpose is to ensure that a gain to the group is not diminished or an artificial loss created for capital gains purposes.

The second subsidiary theme of the Budget and hence of the Bill is that of improving the administration of the tax system, with benefit to the taxpayers and the tax collectors alike. For example, Clauses 6 and 7 of the Bill, the principle of which I did not mention in my Budget speech, provide the legal framework for a new system of Customs clearance of passengers and their baggage, and are a contribution to efficiency, combined with economy in manpower, in the Customs and Excise Department.

At present, the basis of Customs control over incoming passengers is that each individual is questioned, however briefly, by a Customs officer. It is a straightforward and effective system for the restraint of smuggling, and I make no claim that we have found a magically better system. As passenger traffic grows, and it is growing very quickly, the system of individual questioning means that either the number of Customs officers has to grow or else the queues become longer; and we want to avoid both of these consequences, without opening the door to rampant smuggling.

We therefore propose to adopt the general principle of a "self-selection" system, under which a passenger who has something to declare goes through one channel and a passenger with nothing to declare goes through another channel, where he will be liable to spot checks.

Clause 6 places the obligation upon the passenger to "select himself" by declaring what he ought to declare. Surprisingly enough, the existing Customs taw does not include this obligation, but only an obligation to answer questions. We do not, however, want to oblige passengers to declare the small quantities of goods that are traditionally allowed duty-free; so Clause 7 enables these allowances to be legally defined and taken outside the scope of the arrangements to be set up under Clause 6. We also propose, in Clause 7, to give legal effect to the flat-rate system that the Customs have been using for the last few years to collect the amounts due from passengers where they exceed the allowances by only a moderate extent, instead of making detailed and time-consuming calculations of duty and Purchase Tax.

I should emphasise that the selective system regrettably cannot be introduced immediately. Besides the legislative framework, a good deal of physical preparation is needed by way of alterations in the layout of Customs halls, and so on. But I hope that the House will welcome this step towards modernisation of administration in a field that affects a large and increasing number of people.

Another example of this kind of administrative improvement is to be found in Clause 26, which exempts from Capital Gains Tax—though not from the short-term tax—gains of £50 or less in any year. The exemption will apply to individuals, but not to companies or trusts. In the case of married couples the exemption will apply to their combined gains. There is a marginal provision to taper off the exemption where the gain is a little in excess of £50. These small cases have caused a considerable amount of work both to the accountancy profession and to the Revenue, and the proposed exemption should yield a significant saving of effort.

The third of the subsidiary themes in the Finance Bill to which I wish to draw the attention of the House is that of equity. This has obviously not been a year in which I could propose major reliefs of taxation, but I have thought it important to try to make the tax system itself somewhat more equitable in certain respects, and to spread the incidence of additional taxation as fairly as possible.

One positive relief did seem to me to be justifiable even in the circumstances of this Budget. I refer to the proposal in Clause 14(1) which will help elderly people living on comparatively small incomes by raising the income limits for the age exemption for people over 65 from £401 to £415 for single persons, and from £643 to £665 for married couples. This will carry further what was done in last year's Finance Act, when the age exemption limits were raised to their existing levels to take account of a part year's increase in basic National Insurance retirement pensions.

What we are proposing with regard to the taxation of the investment income of minors and for life assurance will, in my view, make the tax system more fair.

Clause 15, together with the provisions in Schedule 8, implements my proposal that the investment income—that is to say, all income other than earned income—of minor children should be aggregated with their parents' income for tax purposes with effect from the year 1969–70. The basis for this proposal is that of equity between families. The family is a spending unit, and it makes no difference for tax purposes how any investment income that the husband and wife may have is divided between them.

My proposal will mean that the family as a whole will not gain a tax advantage by reference to the way the family's investment income is divided between parents and children. We say, in effect, that where a child has investment income it is part of the family pool of income in very much the same way as the parents' investment income, and it is fair to treat it as part of the parental income when determining the tax to be borne by the family.

It follows that the parent/child aggregation will continue only until the child reaches the age of majority or he or she marries when, in effect, a new taxable family unit is set up. Aggregation will also cease when the child ceases full-time education and starts to work full time. This will avoid the sort of problem which was raised by the hon. Member for Wan-stead and Woodford (Mr. Patrick Jenkin) in the Budget debate of taxing as the parents' income the investment income of a child who had left home and was earning substantial amounts on his own.

My proposals in Clause 16 for life assurance are also designed to produce a fairer result by limiting the tax reliefs for life assurance policies to the field that they are meant to cover. Life assurance is the established way by which people with little or no capital of their own can build up resources for the support of their families on retirement or death and, for that reason, it has long and reasonably enjoyed special tax reliefs. But these tax advantages have attracted the attention of people who see them as a means to build up what is nothing more than ordinary investment with the help of tax relief—in this case, by the addition of some life cover—at little cost to anyone but the Revenue. I will not spend time in describing these schemes, for their promoters have been blatantly frank in their advertisements.

This had to be stopped, but we have no desire to hamper genuine life assurance. What we have done, therefore, is to set out further conditions to which a policy must conform if it is to enjoy tax reliefs. Hon. Members will find the conditions set out in detail in Schedule 9 to the Bill. Apart from pure term assurances, the essentials are that the term of the policy must be at least 10 years, and the premiums must be paid annually or at shorter intervals and with a reasonably even spread. Moreover, in the case of an endowment assurance with a benefit on death, the death benefit must be a capital sum of at least 75 per cent. of the total premiums payable under the policy.

Where the policy does not satisfy the prescribed conditions, the broad consequence will be that it does not qualify for Income Tax relief on the premiums, and the net proceeds of the policy—that is, the payments made on maturity, surrender or any other chargeable occasion, less the premiums paid—will come into computation for the purposes of a Surtax charge.

Clauses 18 and 19, with which Schedule 10 goes, remove another long-standing anomaly by bringing into tax liability what are described as post-cessation receipts. Certain professional people—not only barristers—have been able to escape tax on earnings of their profession received after they ceased to practise, which were not taxed when they were earned because their accounts were drawn up on a cash basis. These are not necessarily the final year's earnings: they may be more, or they may be less, depending on how quickly the bills were sent out and paid. They will now be taxed for the year in which they are received, which will not necessarily be the first year of retirement. Some payments may not come in until a later year.

Clause 19 provides a measure of relief in relation to this charge for those who are now aged over 50. When first announced, this proposal for relief appeared to be regarded by some of my hon. Friends as over-generous, and others have since thought it inadequate. That does not prove that we have got it completely right, but it does not prove the contrary, either. However, I would emphasise that the relief is of a transitory nature only. It is the age now and not the age at the date of future retirement which counts, and only those who are now over 50 will benefit.

I believe that very many people will regard these proposals as a reasonable way of correcting a very long-standing defect in our tax laws. I do not think that they can fairly be criticised as ungenerous, even by those who have—perhaps a little unwisely—relied on the defect remaining for ever.

In the realm of Estate Duty, also, we have pursued the principle of fairness by seeking to put more reasonable limits on the way in which people can reduce the tax burden on death by disposing of their property in their lifetime. In Clause 30, for example, we propose to extend the gift period from five years to seven years. But we have thought it right not to deprive gifts made before Budget day of reductions in liability for which they had already qualified. Therefore, the Clause does not apply to gifts made more than five years before Budget day and provides that gifts made more than two years before Budget day, which have qualified for a percentage reduction of the charge under the existing law, shall retain the benefit of that reduction.

Similarly, we have proposed in Clause 33, to put an end to the benefit which attaches at present to policies of insurance effected in such a way that the proceeds on death form a separate estate and are not aggregated with the rest of the property passing on the death for the purpose of determining the rate of duty. In 1954, Lord Butler placed some modest restrictions on this rule of non-aggregation. However, since then the rule has been exploited increasingly in order to gain Estate Duty advantages on a scale which can no longer be accepted. Accordingly, Clause 33 provides, in effect, that such policy moneys should be fully aggregable with the deceased's own estate.

Our proposals here have no effect on the ordinary straightforward case where a man takes out a policy in favour of his wife, paying premiums of modest amounts within his income over a number of years. I must emphasise that, because there has been a good deal of misunderstanding about it. Policies of that sort ordinarily do not give rise to any claim for Estate Duty on the husband's death, nor will they do so under the new rules. This is because of the limitations to the Estate Duty charge which nave existed since 1959. The charge is limited to the proportion of the proceeds attributable to the premiums paid in the gift period before the death, but excluding premiums which qualify for exemption under the rule for normal and reasonable gifts. Premiums of reasonable amounts paid out of income will have qualified for exemption under that rule and, if paid after 19th March, 1968, will continue to qualify for exemption under the new definition of normal income gifts in Clause 32. Therefore, the great majority of policies will continue to enjoy the same protection as at present, apart altogether from the special concession to which I shall come later.

For policies which are chargeable to duty, the Clause provides, in general, that the new rule of aggregation shall apply in the case of a death after Budget day, regardless of when the policy was taken out. This has been attacked strongly by some commentators and, also, was attacked in the House in the Budget debate as retrospective taxation. It is not so. It is simply the application in this instance of the well-established rule that liability to Estate Duty is determined by the law at the date of death and not by the law existing at the date when the deceased entered into the relevant transaction.

In applying this rule, I know that I can rely on the support of the right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter), who defended it powerfully in 1954 when he was Financial Secretary to the Treasury in connection with this very question of the aggregation of insurance policies. In case he has forgotten his words, powerful though they were, and in case some hon. Members who have joined our counsels more recently have never heard them, for the benefit of the House perhaps I might repeat them.

In a totally analogous situation and in reply to an allegation that the legislation was retrospective, the right hon. Gentleman said: …this is not retrospective legislation. It is a fact, if one troubles to look back over the precedents, that in the field of Estate Duty, broadly and generally, though I would not say without exception,"— the right hon. Gentleman is always very accurate— the date of the death has been treated as the operative date for such purposes as this. That goes back to the earliest days of Estate Duty, to the Finance Act, 1894, which applied in the case of all deaths not taking place before the Act came into force…I would ask my hon. Friend"— some of them were being difficult about this issue even then— to appreciate the difficulty that one gets into if one adopts as a general principle the contrary argument and suggests that all arrangements that are made on the basis of the existing law cannot be altered and only future arrangements can be made. It would mean that any form of tax evasion or avoidance which was discovered by human ingenuity—from time to time human ingenuity does exert itself on this diverting pastime—could be checked only in respect of new arrangements. I must remind the Committee that not only would that interfere seriously in the operation of the tax, but it would really be contrary to the practice which has generally been adopted for a good many years by Governments of all political colours."—[OFFICIAL REPORT, 28th June, 1954; Vol. 529, c. 967–8.]

Photo of Sir John Hall Sir John Hall , Wycombe

But would not the Chancellor agree that a Treasury argument does not get any better by repetition?

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

I was about to say that, although the argument has had the benefit of repetition since 1894 in various cases, because of the respect I have for the right hon. Member for Kingston-upon-Thames and because of the burdens which I know a Financial Secretary to the Treasury carries in defending proposals, I would not propose to leave him in complete isolation. I therefore wish briefly to remind the House of what the noble Lord, Lord Dilhorne, then Attorney-General, also said, this time in 1962.

The noble Lord said: It is claimed that any person who enters into a transaction would be entitled to have the Estate Duty law frozen for his benefit as it stood at the time of the transaction. That, I think, is a startling proposition, and I find it difficult to believe that anyone entering into such transactions really expected that to be the case. Nor do I think it would be reasonable for them to have expected it to be. I am sure that their qualified advisers would warn them of the possibility that the law might be changed. I am not sure whether he was referring to himself or not— I do not feel that a case can be made out for exemption from such legislation on the grounds that they got in first and bought when Estate Duty was not leviable."—[OFFICIAL REPORT, 3rd May, 1962; Vol. 658, c. 1348.] I do not rest primarily on such distinguished precedents, which I know do not altogether impress my hon. Friend the Member for Ebbw Vale (Mr. Michael Foot). I am not resting on the words of anyone, but on the common sense of the matter. To say that changes in the law relating to Estate Duty can become effective only when all existing arrangements have run out would mean that reforms would take 20, 30, even 50 years before they became fully effective. This would virtually rule out any approach to lower rates and fewer loopholes. I do not believe that any Chancellor would accept such a situation and I certainly do not.

But the Government recognise that there may be some cases where policies have been entered into in the past and the premiums would not fall within the rules for normal gifts. In these cases, there would be an increased burden under the new provision for aggregation in cases where it might be said that the provision for the wife and children was nevertheless comparatively modest and that a charge operating on all deaths after Budget Day would work too harshly. To take account of this, we propose to maintain the old rule for pre-Budget policies in cases where the total value of benefits secured under all pre-Budget policies within the charge to duty on the death does not exceed £25,000.

In view of these arguments and the substantial concession I have made, I am sure that the great majority of hon. Members will admit that the fears expressed about this provision have been entirely misplaced.

Photo of Mr Michael Shaw Mr Michael Shaw , Scarborough and Whitby

Would the right hon. Gentleman comment on the differential in relation to the amount of benefit arising under such a policy—the amount chargeable to Estate Duty—which is very much smaller in most cases than the total amount of the policy which is coming into the £25,000 limitation? It seems to me to be a somewhat harsh differential.

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

It is only the proportion of the proceeds attributable to premiums paid in the gift period, and, in those cases, only those where the premiums exceed a reasonable amount, that will come into charge. However, this is a detailed point which perhaps we can pursue in Committee.

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

At present, one-sixth of total income is treated as an amount allowed for premium purposes. Is this the figure my right hon. Friend has in mind as being treated as "normal"—as coming out of income?

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

In certain cases relating to these policies it is slightly more complicated than that. It has to be shown that it is a reasonable provision which the man could make out of his income and that there is provision for a reasonable basis of assessment by the Inland Revenue. That is different from where the one-sixth is laid down rigidly. However, should I prove to have misinformed my hon. Friend about this, my hon. Friend the Financial Secretary to the Treasury will clear the point up later.

The imposition of the special charge, dealt with in Clauses 36 to 45, also reflects the need to establish a measure of fairness in the distribution of the burden of additional taxation. The increases in indirect taxation represent a considerable, although in my view not excessive, burden on wage and salary earners in the coming year. The burden on those who can supplement their incomes out of capital is relatively less severe and it is equitable that they should be called upon to make some additional contribution.

The special charge, which will be payable only on investment incomes of more than £3,000, and will become substantial only above about £5,000, will be a tax on those who, generally speaking, have a substantial amount of capital behind them. There is no doubt that people in this position have long been favourably treated by the tax system. The relative position of the big owner as against the big earner has greatly improved over the past 50 years.

There have been suggestions that the special charge will discourage savings. Even if this were likely on general grounds—and it seems rather improbable as regards the amount of savings as opposed to the form in which they are paid—the fact that, as I said in my Budget speech, the charge could not be repeated except at long intervals means that the normal propensity to save is unlikely to be affected.

It is not unfair to raise an additional contribution from those with substantial capital assets, and the means by which I have chosen to raise it, given that the charge is for this year only and is not a permanent addition to our tax system, are equitable and will not I believe have damaging longer term effects.

These, then, are the main themes of the Finance Bill—raising a substantial amount of revenue, reducing tax avoidance, and making improvements in the convenience and fairness of the tax system. The Bill includes a number of other provisions, including that for increasing the prize money on Premium Savings Bonds, and also a Clause removing the existing statutory impediments to a national lottery, which will enable hon. Members to decide the case in principle for or against a national lottery. I do not propose to anticipate the detailed discussion of these other provisions which will take place at later stages.

Photo of Mr Iain Macleod Mr Iain Macleod , Enfield West

The Chancellor has said that the Clause relating to the national lottery will enable the House to come to a decision on a free vote. It is the intention of the Government to take the Committee stage of the Bill upstairs. There is no debate on the Question, "That the Clause stand part…" during a Report stage. Is he envisaging a special debate, with a free vote, on this issue, quite apart from the other proceedings on the Bill?

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

I am anxious to have a reasonably full debate and I think that it should be on the Floor of the House and not upstairs. There will certainly be a free vote on this side of the House and I imagine that that will also be the case on the benches opposite. I would be happy to discuss with the right hon. Gentleman, as I would certain other matters, how we can conveniently arrange such a debate, either by Recommittal or on Report. It is my intention that the issue should be debated to the greatest convenience of the House as a whole.

To sum up——

Photo of Mr John Mackintosh Mr John Mackintosh , Berwickshire and East Lothian

Before my right hon. Friend sits down, would he say a little about Clause 47 and the basis of the selection of employment areas for Selective Employment Tax refunds for hotels, because this is a problem being actively canvassed and the basis of his argument would help? Perhaps he has already done so?

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

I know that many of us often attend parts of debates and hear parts of speeches, but I began my speech by dealing with this issue and trying to explain to the House that we made the selection essentially on the basis that we could not rely on expansion of industry to supply employment in such areas, and we endeavoured to draw a distinction between areas with some reasonable industrial base which would, therefore, benefit from the R.E.P. and those which would not.

I do not claim that it is a perfect distinction. Whenever one makes a concession of this sort one creates anomalies. I do not think that that is a reason for not making a concession when there is a reasonable case for so doing.

To make my third attempt to sum up, this is a Bill which gives legislative effect to a hard but necessary Budget, and I have no hesitation in commending it to the House for a Second Reading.

Photo of Sir Harmar Nicholls Sir Harmar Nicholls , Peterborough

Before the right hon. Gentleman sits down, can he tell the House whether he is aware that, despite the charming way in which he has moved this Second Reading, he has introduced a Budget which is the heftiest kick in the teeth that the taxpayers have had?

4.52 p.m.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

The House will appreciate the courtesy of the Chancellor in moving the Second Reading of his own Finance Bill—a somewhat unusual course but one which I am sure is appreciated. It will not go unnoticed that, while he began by saying that he would not deal with the Bill Clause by Clause, in the event he covered quite a number of Clauses. There are still some of those Clauses for which we shall have no satisfactory explanation before Committee stage, because there is no Explanatory Memorandum attached to the Bill. None the less, this kind of explanation is always useful when a Bill is to be considered in Committee.

On this occasion as never before, we find ourselves in a situation when a majority of the House at the Committee stage will be concerned with what I think the Americans would call a spectator sport. It will not be able to take part. The maxim that there should be no taxation without representation has been eroded by the way in which we find ourselves forced for the first time, to consider a Finance Bill in Committee upstairs.

This will place a very great burden on those who have the privilege, and it must be regarded as such, of serving on that Committee. At the same time, it makes it very difficult for Members of the House of Commons to put forward the views which their constituents represent to them individually. This is something which we clearly ought to point out at this stage and to stress that it is not, in our opinion, a satisfactory position, particularly as we are still to have only one day for this Second Reading debate. It does not look as though there is any real prospect of matters being fully discussed on Report.

This brings me to the point which the right hon. Gentleman mentioned in his closing words with regard to the position of the lottery Clause. We do not find the explanation which he has given on the procedural side very clear. As we understand it, there is already a Clause in the Bill—Clause 50—but it would not be possible to debate that Clause as such on Report because there will be no "stand part" debate. Are we to understand that the Government, having put this Clause in the Bill in the first place, are now to introduce a further new Clause on Report? Are we to be given additional time to debate the lottery Clause, presumably a full day, because it raises important points of principle, on which a free vote is to be held? Will this time be in addition to the time already expected for discussion of other Clauses? I hope that the Financial Secretary will be able to clarify this point for us in his reply.

Given that the Committee stage is to be upstairs, this debate assumes an unusual importance. It is right and proper that we should put the detailed points which the Chancellor has mentioned in a broader context than he did. We are concerned effectively with the principles of the Bill. In one sense, this is not so much a Finance Bill which is a script of Hamlet without the Prince of Denmark as Hamlet without the ghost, because inevitably behind the Budget judgments which the Chancellor has made we have the shadow of the incomes policy.

We still find ourselves, when asked to judge whether this is a reasonable Finance Bill, unaware of what the Chancellor's quantitative estimates have been with regard to the effectiveness or otherwise of the prices and incomes policy. Despite the clarion call which he made about his much-vaunted forecasts, we still do not have any estimate of what he thinks is likely to happen either to money incomes or prices. It is very difficult for the House to judge what weight it should give to the Chancellor's arguments. There was some disappointment, given that he had chosen to open the debate, that he looked at the whole matter in such a narrow context. I hope that even at this late stage, we may have some answer on this point from the Financial Secretary.

I want now to consider a minor question of incomes policy which affects the basic principle which all Chancellors have adopted, namely, that a Finance Bill shall embody what is the law. It seeks to put into legal format what the actual position is over company and personal taxation. I must say as strongly as I can that it is very unfortunate indeed that something which has become a nasty habit of the Department of Economic Affairs, namely, to create the impression that what was the Minister's wish was the law, seems to be extending into the Treasury with regard to dividend restraint. A few days ago we saw a rather remarkable letter in The Times Business News from the Fnancial Secretary which began as follows: In his letter you printed on April 17, Mr. Turner asked for an explanation of the Treasury's rulings on the dividends of Rio Tinto and Senior Economisers. He went on: Both decisions were in line with the guidance given by the Chancellor… A situation is created now with regard to dividend restraint where Treasury Ministers are giving the impression that what they are saying is legally binding. [Interruption.] I have looked at the words very carefully and, while they are framed in the disarming manner which the Financial Secretary invariably adopts, the letter is headed "Rulings" and his opening sentences refer to rulings. There is no legislative basis for the Government doing this. There is no dividend control in the 1966 and 1967 Prices and Incomes Acts, as the hon. Gentleman above all others will remember, having chaired that particular Committee. Yet the Government are seeking to give this impression.

It should be made as clear as possible that it is an area in which the Treasury does not have legal authority or authority from this House, and it is very undesirable indeed that the Treasury, which must rely on people looking at the Finance Acts as they stand, looking at this Finance Bill as it stands, should suddenly create an impression that they have have powers which they do not in fact possess.

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

Would my hon. Friend agree that not only is the Treasury trying to exert some sort of legal responsibility which it has not obtained from the House, but it is also trying to exert it in a most extraordinary manner? We have had cases where one company, Pergamon Press, has been alloyed to increase its dividend over and above the permitted limit, and another company has been refused permission, although in each case both companies had forecast that they would increase their dividends. There has been no legal basis for this whatever. Is it not urgent that we should end such abuses?

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

I entirely agree. I do not want to go into too much detail, but the inconsistency of the Treasury wishes is important. None the less, in this Bill, we are discussing matters specifically set out in legislation which fulfil the traditions we expect of Treasury Ministers.

There were very good reasons why the Government did not include dividend restraint in the two previous Acts, because it strikes at a very important point with regard to principle. Clearly, it is merely window dressing, because if the profits are not distributed the shares tend to increase in value, and it is possible to take a profit by selling them anyway. It is undesirable that the Government should be discouraging distributions when distributions may go into new investment in other areas where there is growth and higher profits and, very likely, in present circumstances into firms making exports. We are moving towards the position which my right hon. Friend the Leader of the Opposition, when discussing the effects of Corporation Tax on distribution, described as the survival of the fattest. This is an unfortunate development in the context of this Bill.

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

Is the hon. Gentleman arguing that in the context of the present economic situation we should allow unlimited dividend distribution and at the same time restrict wage increases, or is he arguing that we should allow unlimited wage increases, dividend increases and price increases?

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

The hon. Gentleman knows my views perfectly well. I do not propose to go into this matter in detail now. It is perfectly true it is a mistake to suppose that the prices and incomes policy has any element of fairness in it. To distort the allocation of resources in the economy by dividend control in such a way that all incomes will be lowered, simply in order to provide window dressing and secure support for the Government's prices and incomes policy is absurd. Statistics clearly show it has failed compared with the policy previously followed on a voluntary basis.

I turn to the basic principle which underlies the Budget and the Bill. We accept that the object of the Bill must be to balance aggregate supply and demand in such a way that the economy is kept on an even keel. But, in practice, the application of this principle this year means that the Chancellor of the Exchequer is determined to reduce consumption. The object of his exercise is to reduce the standard of living of the people to achieve his economic ends.

It is important to spell out why we are confronted with the kind of Bill we are considering today. First, there is the question of timing. The hallmark of the Government's economic policy has been the way in which they have mistimed the application of economic measures, dating back to the original Declaration of Intent and the failure of the then Chancellor of the Exchequer to take deflationary measures in time, to the abortive 1966 measures, the way in which the Chancellor of the Exchequer last year clearly let the economy get out of control, the way in which he adopted an optimistic attitude, his "Sunny Jim" speech which led us into the tragedy of devaluation, and all the cuts which have followed.

I will not weary the House with recounting the kind of speech which we were hearing this time last year, although I find it strange to see the Chief Secretary sitting on the Government Front Bench, having listened to all the optimistic views of the Chancellor last year and finding himself obliged to justify all the measures necessary to correct the mistakes made at that time now.

On the question of timing, I want to pose a very serious set of questions to the Chancellor. There has been some change, although the right hon. Gentleman did not recognise it today, between the economic situation at the time of his Budget and his latest statement. We have had some additional figures on the trade side and the unemployment side. On the trade side, the kind of headlines which we get from The Times is, "Ominous or just disappointing?" The right hon. Gentleman will concede that the figures are certainly disappointing and possibly ominous. On the unemployment side, the kind of headline which we read is "Unemployment rise puzzles the analysts".

Looking at the forecast which the Chancellor has published, we have, on the one hand, an estimate that productivity will rise by about 3 per cent. and, in the main forecast, an estimate that output is likely to rise by about 2·7 per cent., which would suggest, contrary to what the Prime Minister said yesterday, that the trend in unemployment would be rising. It is possible to rationalise the Prime Minister's view by saying, "We will keep the productivity figure at 3 per cent. and take the other more optimistic forecast of output which the Chancellor has published, a 3·3 per cent. as against a 2·7 per cent. rise in output. That will give us a figure showing that unemployment is falling." This is what the Prime Minister is saying, and I presume that the Chancellor agrees.

But, if that is so, the Prime Minister is making also taking the optimistic forecast about exports. It is possible that he is right. It could depend to a large extent on the view that one takes about the prospects of world trade.

It could also be that he is now taking an optimistic view about the rise in productivity. If that is so, we need to ask what will happen to the level of unemployment if we make the same assumption about growth, but feel that capacity will grow faster because of the increase in productivity. This means that the level of unemployment will rise still further. If we consider both points and the Government are proved over-optimistic about output but we are in a situation in which productivity increases faster than expected, the prospects for unemployment are very serious indeed.

The House would generally concede that it was not possible, from the Prime Minister's answers yesterday, to ascertain precisely the Government's views, and it is irrational to take part of the main forecast and part of the optimistic forecast and marry them together. I hope that we shall have from the Financial Secretary a clearer explanation of the Government's view. If there is one danger which the Government have been in time and again it is in not doing the right thing because they have taken too optimistic a view of this or that economic indicator.

The second reason why we find ourselves confronted with this Bill is concerned with the question of money supply. It seemed from one of the remarks which the Chancellor made in his Budget speech that the reason why he conformed to the borrowing requirement imposed by the I.M.F. was, not because he was determined to do so for reasons of policy, but because the credit of this Government was so bad that they had great difficulty in borrowing. This raises the whole question of money supply and the Government's commitments.

The third reason why the Government confront the House with the Bill concerns the question of Government spending. It is not possible to divorce the Finance Bill, which is designed to raise revenue, from the question of what the revenue is to be spent upon.

When speaking in the Budget debate on 25th March, at columns 928–9, the Chief Secretary pointed out that public expenditure rose by an average of 4·6 per cent. a year in the last five Tory years, and that it will rise, he expects, by an average of 4·4 per cent. a year in the five years of Labour Government. What he did not say was that, in the same five Tory years to which he referred, the economy grew by 4 per cent. a year and personal savings, in real terms, practically doubled. This subsequently appears from a Government reply, whereas in the five Labour years economic growth seems certain to be scarcely more than an average of 2 per cent., even on the optimistic assumptions which the Government are now making, and personal saving has tended to stagnate. In the absence of any further encouragement to saving, which is a substitute for taxation—and we are not likely to see much increase in saving in the present inflationary situation—this brings out that we cannot have effective social policies or firm priorities if our economic failure is as bad as the failure of the present Government over the last few years.

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

When the hon. Gentleman talks about public expenditure, does he mean that the Government are spending that money on consuming goods and labour or is he including in public expenditure the transfer of private spending to spending through the Government? In the latter case, there is no increase in spending. It is simply a transfer of spending by the private individual to spending by the Government.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

I will deal with the question of aggregate demand later. The point I make is that much of the spending that has been going on has been uncontrolled. We pointed this out at great length in the debate on the Votes on Account. The points which we made on that occasion were valid. I was glad to see that this was picked up in the Press, particularly by Mr. Peter Jay in an article in The Times of 4th April this year headed, Now let us take Mr. Diamond by the hand hand (gently). We have the greatest respect for him. I think there is some case for going into this point in some detail and quoting a few passages from that article. Mr. Jay quotes from Mr. Diamond in HANSARD of 25th March: 'The next question asks why we have failed to control public expenditure, in the sense that we have allowed it to grow faster than intended. The short answer is that we have not; we are precisely on target. In two years' time I expect to be announcing that we have hit the bull's eye (and later)…we are, I repeat, back on target—on our original target.' Mr. Jay goes on to say: Attack may well be the best form of defence; but this is ridiculous. I think I should stress that the reason why we have a Finance Bill of such severity today is largely because of the way in which public spending has not been controlled. Mr. Jay goes on: What, after all, were all those agonising cuts about, if at the end of the day the total is still quite untouched? 'On target' seems scarcely the mot juste for the solution to an equation whereby the National Plan minus July 27, 1965, minus July 20, 1966, minus July 24, 1967, minus November 20, 1967, minus January 16, 1968, equals the National Plan. The final point which needs to be made is that all these cuts affect the initial priorities which the Government assessed and, therefore, their overall plan on the social side is grossly distorted. This results in a bad allocation of resources that the right hon. Member for Clackmannan and East Stirlingshire (Mr. Woodburn) mentioned a few moments ago when he intervened.

The next point of principle is related to the one that I have just made. The Government feel that there is a fundamental point of principle and a strong case for taxing business more in order to subsidise particular industries in one way or another. This is diametrically opposed to the view which we take. We believe that it is wrong to have what has frequently been described in the House as a Welfare State for Industry. It may be, as the Financial Times has stated on several occasions, that the Chancellor of the Exchequer does not appear to be against profits. In one sense what is wrong with the Chancellor's policy is that he is not sufficiently in favour of losses. We believe both in the incentive of profits and the effect which threat of losses may have on efficiency. We do not think that the right policy is to increase taxation consistently on all businesses in order to give hand-outs to some businesses. This is the wrong approach in a number of areas. We have stressed on many occasions the importance which we attach to the need for building up infrastructure in regional policy compared with a policy of handouts which is unlikely to have a significant effect relative to the cost, and probably will have an adverse effect, on many intermediate or grey areas.

Photo of Mr Michael Foot Mr Michael Foot , Ebbw Vale

Can the hon. Gentleman give us some instances of the occasions when he and his party have voted against hand-outs to private industry so that we may judge what may have been the economic consequences?

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

The I.R.C. is a clear case in point. I go further and refer to the clear commitment made by my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod), that we do not believe that expenditure on S.E.T. premiums or on regional employment premiums is the most effective regional policy. I do not want to go into details now, but we made a clear stand. We are not prepared to see a constant increase in taxation so that the Government can allocate money in the way in which they think would produce the right pattern of industry. We are convinced that the right way to allocate resources is by the encouragement of profits, because that is likely to reflect the wishes of the consumers. This is not the same as a welfare state for individuals. It is right and proper that inefficient firms which make losses should, if necessary, go out of business.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

I do not wish to give way to the right hon. Gentleman again. I invariably give way, but I appear to be going on far longer than I anticipated, and, of course, we have only one day for the debate.

I want to make one other point about tax increases on which I hope we shall have an answer from the Financial Secretary. It is not insignificant to note that the proportion of taxes, rates and contributions as a percentage of G.N.P. has been rising very fast under this Government. The figure for taxes, rates and contributions as a percentage of G.N.P. in 1964 was 32·8 per cent. and the figure in 1967 was 38·2 per cent., which is a very substantial increase. Could the Financial Secretary in his reply tell us what the figure will be after the proposals in the Finance Bill have been implemented? This is a very important point.

Photo of Mr James Dickens Mr James Dickens , Lewisham West

Will the hon. Gentleman agree that this rise in the proportion of G.N.P. taken up by taxation is characteristic of all advanced industrial countries over the past five years? Whereas in Great Britain there was no significant increase in the decade until 1964, in other countries there was. We have recently caught up with them in this respect.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

I would be inclined to say that we had gone back to their position rather than caught up with them. The percentage figure is radically affected by the growth in G.N.P. That is a major reason why that percentage has gone up so much under the present Government.

I turn now to the effect on the cost of living of the Government's proposals in the Finance Bill, because there is no doubt that their attitude towards prices is ambivalent. If we look at the figures it is significant that the Index of Retail Prices rose by nearly half a point between February and March this year to a new peak of 122·6. The index shows an increase of 1·8 per cent. since devaluation November, 1967; of 5·1 per cent. since the freeze began in July, 1961; and of 13·6 per cent. since October, 1964. We now confronted with a situation where devaluation will continue to have a very considerable effect.

It is important to point out, when considering the Finance Bill and the need for it, that the Government made a conscious decision to ensure that the effect of devaluation was asymmetrical. As a result of the Revenue Act its effect in encouraging exports was less than its effect on imports. It is the Government's clear policy to make devaluation work through an increase in the imports and the cost of living, rather than by an in crease in exports. It introduced an element of asymmetry which was not necessary in the first instance. As a result of the Bill we shall see a further increase in the cost of living, and I hope that we shall be given a clearer indication than we have previously had of exactly what estimates the Government have made of that.

I find it difficult to ascertain any principle in relation to some of the specific measures. For instance, the special levy which will have, the wrong effect on aggregate demand, in regard to married women's property, and the aggregation of minors, where the confusion is still considerable despite the explanations which we have had. None of these seems to have been based on a clear point of principle, unless it be to bolster up support for the incomes policy by appealing to the Left wing, and to hon. Gentlemen below the Gangway. In terms of economic policy these measures seem devoid of any rational whatsoever. This is something which we will need to consider during the later stages of the Bill.

On the question of Purchase Tax, I think it is significant that, apparently on a point of principle, the right hon. Gentleman has decided to increase the number of rates and to widen the spread of the bands. As Mr. Brittan said in an article in the Financial Times shortly after the Budget: This is in sharp contrast to the whole direction of changes under previous Chancellors, which was to reduce the number of bands, narrow the differences between them… The aim was to transform the Purchase Tax gradually into something more like a general sales tax. He went on to say, and this is an important point of principle: Other things being equal, a uniform rate of taxation is preferable on goods. A wide spread means that the State is interfering with consumer choice by pushing it artificially in certain directions; and in extreme cases it can be very unfair between two people of identical incomes but different tastes. It is unfortunate that the Chancellor of it, the Exchequer should have adopted this principle.

There are other more detailed points. The Chancellor will no doubt have seen that some of the technical Press has suggested that Clause 22 seems to have been misdrafted, and perhaps the Financial Secretary will comment on this. Mr. Davenport in the Spectator this week said that Clause 33, as far as the aggregation of minors and insurance policies was concerned, was likely to have unfair effects.

It is unfair that we should be presented with a Budget which places increasing stress on the S.E.T. It is not necessary to set up the Reddaway Committee to abolish the tax. The anomalies which pervade it have been clearly set out in the House time and time again. We on this side of the House are clear that the S.E.T. is a mistake, and as my right hon. Friend the Member for Enfield, West said, we intend to abolish it at the earliest possible moment.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

I would rather not give way I am coming to my peroration.

It seems that the principles on which the Chancellor has based his Finance Bill are open to very severe objections indeed. I have endeavoured this after noon to list what I believe are the right principles which should be adopted, but the fact is that the severity of the Bill is due almost entirely—indeed, I think entirely—to the mismanagement of the economy over the last three years, and the persistence of the Government in pursuing certain policies in the field of taxation and redistribution, particularly on the company side. We believe that the Government's policies are likely to result in lower economic growth and greater inefficiency. We do not believe that this policy of high taxation which the Government are adopting, partly because they have to, but partly because it fits in with their view of economic affairs, is likely to result in the well-being of this country in the future. For that reason, I hope that my right hon. and hon. Friends will join me in opposing the Bill which we do not believe is based on right principles, and which does not provide any solution to the problems of this country.

5.25 p.m.

Photo of Mr Michael Foot Mr Michael Foot , Ebbw Vale

I had not intended to participate in the debate, but the hon. Member for Worthing (Mr. Higgins) has provoked me. I should therefore like to make some comments upon what he said and some comments too, on the Budget and the Finance Bill which is now before us.

Compared with the atmosphere in the House yesterday, the situation is somewhat placid. It may have been noticed by some hon. Members that it is impossible for the House to maintain emotional tension at a high peak for more than 24 hours at a time. That possibly accounts for the low temperature in this debate, but I think that it would be wrong for the Government or the House to think that the matters which we are debating today arouse less controversy and feeling in the country than those which we debated yesterday. In many respects I regard today's debate as of even greater importance than the emotionally charged matters we discussed yesterday, and I hope, therefore, that we shall have a debate in which we range over the whole field of economic policy, even though the Chancellor of the Exchequer started his speech by confining his remarks to the specific matters in the Bill.

I approach the matter in that sense not because I wish to criticise the Chancellor in particular. As I have said to him before, I bear him no ill will whatsoever. It is true that occasionally he has strayed from the strict path of Socialist rectitude, but that hardly makes him a marked man on the present Treasury Bench. I therefore approach him with at any rate as much comradely feeling as I have towards the rest of them. It is in that spirit that I shall come to him in the course of my remarks.

In his peroration at any rate, the hon. Member for Worthing purported to say that he was presenting an alternative policy. The major criticism by his party refers to the whole question of the scale of public expenditure, and the charge that public expenditure is out of control. If we were to remove that part from his speech, and that part from the case put forward by hon. Gentlemen opposite, they would have very little left. I do not say that they would have nothing left, but they would certainly have very little.

That has been the major part of their case. They say that the principal reason why we have got into these difficulties is that public expenditure has got out of control. According to them, if measures had been taken earlier for controlling public expenditure we would not have had a Budget of this severity. I do not think that it is straining the facts to say that the principal argument of the Opposition relates to this question of the scale of public expenditure.

Their argument is based on the fact that the Government drew up plans for the future scale of public expenditure on such items as pensions and education on the basis of an expansion in our economy of 3 per cent. or 4 per cent. per annum over a number of years, and when they discovered that they could not get that rate of expansion they took no sufficient steps at an early enough date to cut back the level of expenditure. I do not think that that is a misrepresentation of at any rate a considerable part of their argument.

If that is the case, the Opposition have a responsibility to say how much they would lop off in each of these categories. If that is so, they would have to cut much more than the Government proposed in their January measures from the education and health programmes and the rest.

That certainly divides us from hon. Gentlemen opposite, because my criticism of the measures for controlling public expenditure was that, in some respects, particularly as they referred to prescription charges and the raising of the school leaving age, they were too severe. I do not criticise the Government because, having discovered that the pace of expansion was not proceeding as fast as all of us desired, they still went ahead with their public expenditure programmes. They were right to do so. They might have said more plainly that they might have to raise taxation to do it and it would have been wiser it they had never made statements before the election about not raising taxation. I made no such statements, because I thought that they were unwise when made in the 1959 and 1964 elections.

As a Socialist, I believe that it is right to alter the balance between private and public expenditure. In proceeding with their original plans for expenditure in many of these fields, the Government have acted correctly, although they did not have the desired scale of expansion. But for hon. Gentlemen opposite to talk about cuts is to ask the House and the country to accept something which they have not tried to argue.

In the debate yesterday, they demanded, often justly, more items of public expenditure. I too, would like to see more expenditure on housing and other facilities in the Midlands and other areas with a heavy immigrant population, but that demand came from hon. Gentlemen opposite. It would add to public expenditure and put it more out of control, if that is how to describe these matters. But it is an improper description, because the proper definition is not public expenditure being out of control, but the amount of expenditure which the House decides to devote to these social purposes.

We are prepared to defend to the limit the Government's proposals for increasing the proportion of public expenditure. The Government do not have to apologise to us for that. They have to apologise for much, but not for that. Therefore, I hope that, when the Opposition think again of protesting against the programmes of public expenditure, they will present detailed estimates to the House of what cuts in the social services and social provision they think would be necessary to put their proposals into effect.

I suggest that neither the House nor the country should listen again to any Opposition spokesman, however eminent, saying that public expenditure is out of control, unless he performs this exercise and fulfils this condition.

Photo of Mr Jack Diamond Mr Jack Diamond , Gloucester

Knowing my hon. Friend's feelings and views and knowledge of the facts, I feel sure that he will not leave that point without referring to defence expenditure, where the party opposite made it clear that they would spend much more than we proposed.

Photo of Mr Michael Foot Mr Michael Foot , Ebbw Vale

My right hon. Friend has anticipated what I had in mind, and I shall have something to say to him on this topic as well as to those on the other side of the House. There is one field of which it might be said that public expenditure is out of control or is being gradually brought under control—on the advice of this quarter of the House——

Photo of Sir Eric Fletcher Sir Eric Fletcher , Islington East

Order. We are discussing the Finance Bill and not the question of general public expenditure. Even in the Second Reading debate, it is customary to make some reference to the Bill.

Photo of Mr Michael Foot Mr Michael Foot , Ebbw Vale

I should have thought, Mr. Deputy Speaker, that every word which I have uttered so far was strictly in order, particularly after——

Photo of Sir Eric Fletcher Sir Eric Fletcher , Islington East

Order. With great respect, it is not in order to continue, in a Second Reading debate on the Finance Bill, a general debate on public expenditure. I have allowed the hon. Gentleman to say what he has said because the subject was raised by the Opposition Front Bench spokesman, but, in the interests of order, we must debate the contents of the Finance Bill.

Photo of Mr Iain Macleod Mr Iain Macleod , Enfield West

Further to that point of order. I rarely leap to the defence of the hon. Member for Ebbw Vale (Mr. Michael Foot), but this is a matter, I am sure you will agree, Mr. Deputy Speaker, of the general interests of the House. We are discussing a Finance Bill, which is the legislative clothes for the Budget, which depends, almost more than anything else, on the level of expenditure planned by the Government, on which there can be different opinions. With great respect, surely arguments about public expenditure must be in order on the Second Reading of the Finance Bill.

Photo of Sir Eric Fletcher Sir Eric Fletcher , Islington East

I have just said that, to some extent, it is relevant, as the last two speeches have shown, to refer to the general level of public expenditure, but, on the Second Reading of the Finance Bill, it is customary to refer to the contents of the Bill rather than to allow the debate to become a general debate on public expenditure.

Photo of Sir Harmar Nicholls Sir Harmar Nicholls , Peterborough

On a point of order. That Ruling, Mr. Deputy Speaker, to some extent restricts us in doing our duty. Unless they can relate the Finance Bill to the whole economic situation, the Opposition cannot explain the damage which this Budget will do.

Photo of Sir Eric Fletcher Sir Eric Fletcher , Islington East

I appreciate that, but a number of hon. Members will presumably wish to debate the contents of the Finance Bill.

Photo of Mr Michael Foot Mr Michael Foot , Ebbw Vale

I will do my best to abide by your Ruling, Mr. Deputy Speaker, but I must urge one point. I believe that, in previous years, the debate on the Second Reading of the Finance Bill has gone almost as wide as that on the Budget itself. Indeed, one of the purposes, surely, of the Second Reading debate is that the debate on the general direction of budgetary policy can be resumed after four or five weeks, during which the House and the country have considered their implications.

If the question of the scale of public expenditure or of detailed items in which it might be suggested that economies should be made were ruled out, all that would be left for debate is the revenue-raising part of the Bill, which would make the discussion entirely lopsided. However, I am sure that, if I stray again, you will pull me up——

Photo of Sir Eric Fletcher Sir Eric Fletcher , Islington East

Order. With respect, the hon. Gentleman is not correct in saying that, in previous years, the debate on Second Reading of the Finance Bill has been as wide as the general debate on the Budget Resolutions. It never has. However, this is a matter for the House, and, as I have said, references to the general level of public expenditure may be made, but I should not have thought that the whole debate should degenerate into a debate on that subject, because other hon. Members will wish to debate the contents of the Finance Bill.

Photo of Mr Michael Foot Mr Michael Foot , Ebbw Vale

I will confine myself, in dealing with expenditure, to the one matter to which the hon. Member for Worthing and my right hon. Friend the Chief Secretary called my attention. There is one field in particular in which more severe economies are possible than the Government have already made, and which would enable them to introduce a Finance Bill whose revenue-raising provisions would therefore need to be less severe than those of this one. I refer, of course, to defence expenditure.

Many of us are very glad that the Government have taken steps curtailing defence expenditure east of Suez and in the Middle East, but I was extremely concerned to hear the Prime Minister say in a speech only a few days ago that we should look for no further relief from defence cuts as a contribution to the solution of our economic problems, at a time when we are still burdened with the consequences of the pledge about the maintenance of huge Armed Forces in Germany until the end of the century. This pledge imposes on the finances of this country a huge burden in diplomatic circumstances entirely different from those which prevailed when the pledge was originally given. It was an absurd pledge to give, and it is wrong that the Government should pursue the policy laid down by the Prime Minister of thinking that no further substantial cuts in the level of defence expenditure can be sought.

A second argument was raised by the hon. Member for Worthing and is an issue of great importance, affecting the verdict which we will have to give on this Finance Bill. I mean the whole question of the level of unemployment which the Finance Bill is supposed to envisage. I suggest that one of the main parts of the reply which the Government give at the end of the debate should be devoted to this subject. It is of paramount importance.

Most of us in the Labour Party, at any rate, and many hon. Members opposite have, ever since the Full Employment White Paper of 1944, held it to be a principle of financial policy that the level of unemployment is one of the chief criteria in deciding whether a Budget is right or wrong. We have said that the level of unemployment and employment which a Budget or a Finance Bill seeks to secure is probably the major test about which we are concerned.

Discordant views about this matter have been presented from different quarters. We want to know what level of unemployment over the next 18 months the Government have envisaged in these proposals. Do they still take the same view about the desired level of unemployment as the Governor of the Bank of England? I hope that they will tell us. The Governor of the Bank of England pronounced this Budget first-rate. I feel that it is a little patronising of Governors of the Bank of England to speak in such terms. I think that they should keep their mouths shut, particularly as they have given such bad advice in the past which has so often been taken by previous Chancellors of the Exchequer, and particularly as this Governor went on in this instance to give some comfort to the Opposition, who obviously did not think that the Budget was first-rate, or, if they did, had tried to conceal it.

Having given a bouquet so gracefully to my right hon. Friend the Chancellor, the Governor of the Bank of England gave a bouquet to the Opposition and said that all these measures should have been taken earlier. The Governor of the Bank of England should not speak in this tone, particularly as the previous speech by this Governor had attracted much attention oil precisely this question of the level of unemployment. The Governor holds the view that we should have a level of unemployment over the years to come considerably higher than the one we have had from about 1945 onwards. He expressed that view at the conference to which he went in September, 1967, in Rio de Janeiro. He said that it had been agreed by the Government that there should be a higher level of unemployment and a higher margin of unused resources than we had had through previous years.

The Governor said this at a time when there was a level of unemployment of more than 2 per cent. throughout the country and in some constituencies, such as mine, heavy, persistent, serious unemployment at a level of 4 per cent. and 5 per cent.—and, in some of my towns, even more grievous than that. That is why some of us regarded that speech as outrageous. It was a speech in which the Governor appeared to be condemning—I shall come to the question of development areas in a minute or two—areas all over the country to heavier unemployment than we have known in the past. That is why many of us raised the question in the most direct manner with the Government at that time. We received what we thought was a form of repudiation from the Government of the Governor's pronouncement. It was not as direct a repudiation as we wanted, but at any rate the Government did not give 100 per cent. support to the Governor of the Bank of England.

We want to know now whether the Governor of the Bank of England has changed his view of last October about the appropriate level of unemployment. Has devaluation changed his estimate of what should be the proper level of unemployment? If so, why does not he make a speech about it? He is a very garrulous Governor who does not suffer any inhibitions about making speeches.

Photo of Sir Harmar Nicholls Sir Harmar Nicholls , Peterborough

Is the hon. Gentleman saying that the Governor of the Bank of England must keep his mouth shut when £923 million worth of budget is being inflicted on the nation? Is not the Governor an expert witness? Has he not got advice which should be taken into account?

Photo of Mr Michael Foot Mr Michael Foot , Ebbw Vale

I am not proposing to lock him up because he has made a speech. I am saying that the speech of the Governor, especially in his references to the Budget and to the Chancellor, was extremely patronising and superfluous. I am trying to turn now to his more serious remarks about unemployment. I want to know whether the views of the Governor about the appropriate level of unemployment have changed since devaluation. Despite his garrulity and despite his eagerness to lay down the law to successive Governments, the Governor has not made any fresh statement. Does he approve of the Budget on the basis that it will maintain unemployment at the level he considered appropriate last September and October? We want to know the answer and whether the Government now repudiate, following devaluation, the level of unemployment which was accepted by the Governor of the Bank of England at that time.

This is not a trivial or secondary matter in any sense. We think that it is of absolute, paramount importance that the Government should declare to the country what is their expectation about the level of unemployment over the next 18 months and tell us how soon they think that they can get the unemployment level down to a level which we in the Labour Party would think acceptable. Let there be no mistake: the present figure is far above what we in the Labour Party consider tolerable. That applies to the country as a whole. It applies even in Lewisham. It applies even more to development areas.

Many of the policies that the Government have pursued about development areas deserve every support. I have often said so in the House, in my constituency, and elsewhere. That is one of the reasons why I asked the hon. Member for Worthing about his attitude towards the so-called hand-outs to private industry, in case he might be opposed to it. We in the development areas want to know what the Tory Party's proposals are. I have the answers from the hon. Gentleman. One of his answers is that he would reduce the amount of advantage that is given to the development areas. The hon. Gentleman says that he does not think that it is appropriate that we should have the assistance that many of the areas have at the present time under the discrimination in the Selective Employment Tax. So we have that clear.

It has always been my case—I believe that the facts prove it irrefutably—that a proper expansion in the development areas will never be achieved in a time when the country as a whole is stagnating or expanding at an extremely restricted rate. There will never be for the development areas the full advantage of the discriminatory taxation arrangements that the Government have properly made until we get the boom. When we get the boom, it is all the more essential that the Government should maintain all the directions and all the dykes to prevent excessive expansion from taking place in the Midlands, London and elsewhere, so that we guide the next boom properly into the development areas.

I have never believed that we shall be able to solve the problems of the devlopment areas in a period of stagnation. That is just another reason why I want to get out of the stagnation as fast as possible. This is why I am critical of the Bill, because I do not think that it gets out of this recession anything like fast enough. Indeed, as far as I can see, although we have not had the figures yet—I think that we should have the figures before the Bill goes any further—the Government are reckoning on the maintenance of levels of unemployment which we in the Labour Party consider to be unacceptable during, say, the next 12 or 18 months. If that is to be the position throughout the country as a whole, I do not see much prospect of our solving the unemployment problem to a sufficient degree in the development areas.

As far as my constituency goes, it means that the situation will continue in which hundreds of people are tramping the streets unemployed—unemployed in conditions in which we are preventing those areas from carrying through the recovery which they so passionately desire. Therefore, my main criticism of the Budget, of this finance policy, and of the policy of my right hon. Friend the Chancellor is that he is proceeding much too slowly with the expansion of the economy and thereby condemning resources to be wasted in the development areas, as well as in the rest of the country, for far too long.

This is not only my case. It is the case which many of my hon. Friends have been advocating for a long time and it is the case which to a great extent has been approved and adopted—I do not say in every detail, but generally—by the Trades Union Congress. This is quite a change in the alignment of forces in the country. I think that the Government should take into account the fact that in, shall we say, seven points out of ten the policy advocated by the Left wing of the Labour Party has now been approved by the executives of the trade unions. It is now incorporated in the document on the economic situation which the trade unions have published, a document which is acknowledged to be of first-class importance. Most of the arguments we have advocated for years have now been approved in that document.

Central to that document is the argument that we should go for expansion at a much faster rate than the Government envisage. It is suggested that the rate should be 6 per cent. and the trade unions say that we could get that rate if we went for it. We might have to have more intervention in the economy and to take steps to prevent ourselves being held up again by another run on the £. So much the better. Those on these benches, as opposed to the rest of the House of Commons, are in favour of making this country independent in that sense, at the earliest possible date.

We do not wish this country to be at the mercy again of the kind of run on the £ we have had ever since 1951. We have, therefore, proposed that we should liberate ourselves from restrictions imposed on us by our international creditors. This is the third policy. The Prime Minister talks as if there are only two policies, of restriction, limitation, slow expansion as advocated by the Government, on the one hand, or the policy of much more serious deflation advocated by the Opposition and the full laissez faire doctrine with which they support it. We say that there is a third policy and the kernel of that policy is to secure the support of the mass of the trade union movement.

The Government are not going the right way to secure that support. Although, of course, I cannot discuss it in detail now, the Chancellor could not possibly deny that a central feature of his policy, a policy which will involve a headlong clash between the Government and the trade union movement. That is the road upon which the Government are travelling. The passivity of this debate must not conceal the seriousness of the situation.

We are facing a situation in which a bigger gulf is being dug between the trade union movement and the Labour Government than at any time in my memory, a gulf which the Government will not be able to bridge by the pace of their expansion and by saying that the alternative is much more severe unemployment. The Government must alter their course. I do not expect them to do so immediately, for they have already committed themselves so heavily. Some of us have tried to warn them for months past that if they committed themselves to a prices and incomes policy of this rigid nature they would head for these difficulties. They have risked a showdown with the trade union movement and an industrial clash whose consequences cannot be foreseen.

The industrial clash the Government will gel into under the financial provisions of this Bill is one of which they cannot themselves determine the exact circumstances. No one could tell in 1966 that it was likely to be the seamen's strike which would set off the controversy. It looks today as if there will be a clash with engineers or that some other circumstance will set it off. Therefore, even at this late hour, I urge the Government to reconsider their major economic stategy. Let them seek a course which is one of reconciliation with the trade union movement even if it involves a clash with our international creditors.

If we have to clash with our international creditors we shall have to have many other economic measures to protect ourselves, of course. But, if the Government make that choice, they would have a fighting chance of seeing the economic recovery we certainly all hope for, the economic recovery which devaluation gives us a chance to secure. If we see the opportunity of that economic expansion being used to introduce Socialist policy, it will be understood by the mass of working people. The present policy will not be understood. Despite all the expert skill, efficiency and agreeable manner of the Chancellor of the Exchequer, what he proposes is a continuation of the policy we have had in the years before. Indeed we have had it for decades.

The policy which is collapsing is not a Socialist policy. The Opposition Front Bench has every interest in pretending that it is a Socialist policy which is collapsing, but the Governor of the Bank of England does not call Budgets first-rate when they are Socialist Budgets, nor do those who have acclaimed the Budget of my right hon. Friend. It is a continuation of Conservative policy. This country is suffering from continuous doses of "sound Conservative finance". We have to escape from thinking that we can expand the economy only at the miserable snail's pace which the Treasury and bankers at home and abroad think desirable. It is not only creditors abroad, the Treasury and the City which believe in these rigid terms, but most of the newspapers of the country also. Cecil King and Co. preach this defeatist doctrine also. This country has got into a state of morbidity about its economic prospects and difficulties. In fact we are one of the strongest economic nations in the world. We have huge resources.

Compared with before the war, we have enormously increased exports, far more than we have increased imports. Compared with before the war we have multiplied exports ten-fold and imports by only six-fold. We have turned our nation from a debtor nation, mainly due to the war effort, into a creditor nation. We can now use the advantages we have as a creditor nation if only the Labour Government would recognise that it is better to go into battle with our friends than burdened with the legacies of the policies of our enemies.

Therefore, I urge the Government in the period between Second Reading of this Bill and the introduction of the prices and incomes policy to reconsider their strategy. I hope the Cabinet will reconsider it at the highest level and come forward with proposals for a reconciliation with the policy of the trade union movement. This is the real leadership for which the country is waiting.

5.58 p.m.

Photo of Mr Kenneth Baker Mr Kenneth Baker , Acton

As this is the first occasion on which I address the House, I wish to pay tribute to the previous Member of Parliament for Acton, Mr. Bernard Floud. We were political opponents, but that did not prevent us from being good friends and he always treated me with characteristic kindness. In Acton, he was liked by people of all parties and his death came as a great shock to his many friends.

Acton has a unique political record, because four former Members of Parliament live there. There is my hon. Friend the Member for Carlton (Mr. Holland), his predecessor whom some hon. Members may remember, Mr. Sparks, and before him, Mr. Henry Longhurst, the golfing correspondent, who won the last by-election in Acton in 1943, and also the Member who represented the constituency from 1918 to 1929, Sir Harry Brittain. It will not have escaped the attention of hon. Members that of those four, three are Conservatives, which I find a satisfactory proportion. I can assure hon. Members that the political volatility in Acton is at an end.

I am glad to have been called to speak on the Second Reading of the Finance Bill and I want to make two comments on it. First, I believe that the Chancellor has misread the economic signs. I agree with some of the comments made by the hon. Member for Ebbw Vale (Mr. Michael Foot). I believe that the Chancellor has over-deflated the domestic economy. To take out £600 million this year and £929 million in a full year is overdoing it and I am as disturbed as the hon. Member for Ebbw Vale about the rising trend in unemployment. If this trend continues for the next two months the Chancellor will have to take urgent action to reflate the economy and mitigate the harshness of the Budget. This is, after all, the most harsh Budget we have had in peace time. In the 13 years of so-called Tory wasted rule—a period which is rapidly assuming an aura of a golden age—we never had to introduce a Budget even half as harsh.

My second comment is that, having read the Finance Bill, I feel a tremendous sense of disappointment. I am disappointed that yet another opportunity has been lost to start the long and necessary work to revitalise and reshape our entire tax system. The most important job on the domestic front for any Government, irrespective of party, in the next five to 10 years is to reshape our tax system. Our present system is the most complicated in the world. Daedalus could not have made for King Minos a more confusing and obscure labyrinth. Each year we witness a struggle between the cleverness of Treasury officials and the cleverness of an army of private accountants. It is a struggle which is usually fought to a draw—it is a battle without honour, a war without blood and a devastating waste of human intelligence.

Our tax laws are so complicated that in the Finance Bill 16 of the 50 pages are given to blocking up loopholes, although the Chancellor in his speech today seemed to be proud of that. But when we must spend one-third of the Finance Bill blocking up loopholes he must agree that the system which we are trying to shore up is suspect.

The system which I would like to see is one based primarily on a sales tax whereby spending rather than earning is taxed. The system which we have at present is the one which we inherited largely from Gladstone, subject to the pressure of events over the years—mainly the pressure of two world wars—and it would be surprising if such a system were appropriate to the conditions of today. It certainly is not. I would therefore like to see a system based on a sales tax.

The introduction of such a system would mean that direct taxation would be cut substantially but that indirect taxation would rise substantially, and also—those of us who advocate this course must face this fact—that those who are less well off in the community would be adversely affected. Thus, at the same time as introducing such a reform, I would like to see a complete reform of the social security system; and these twin reforms would, I submit represent real progress.

It is exciting to think that we have got to the threshold of achieving these twin reforms because they are dependent so much on technological advance and the use of computers. I therefore suggest that before the right hon. Gentleman introduces any more tax changes—although it is not up to me to say whether the party opposite will have another opportunity of doing so—he should pay considerable regard to three principles which I believe should underlie any tax system.

The first principle is simplicity. Taxes must be simple and understandable to ordinary people. Our taxes are not. Some research done at Glasgow University about 18 months ago showed that of a sample of factory floor workers and executives hardly any knew what rate of tax they paid and what their marginal rates of tax were, that rate being of particular importance, it being the rate they would pay on any increases. It would be interesting to know how many hon. Members could answer those two questions. I wager that very few of them could. But I would also wager that anybody asked those questions would feel that both rates are too high.

A further example of complexity is provided by the Income Tax returns which are now being dropped through our letter-boxes. It has become the custom for even ordinary people to hand these returns to professional advisers because ordinary people do not know how to fill in these forms. Again, it would be interesting to know how many hon. Members fill in their own tax returns. I think that the answer would be very few. Does the Chancellor fill in his own, or is this one of the domestic duties which he pushes over to someone else at the breakfast table?

The second principle is that of equity. Taxes must not only be fair but must be seen to be fair. I feel that there are many instances of inequity being perpetuated by the Bill. For example, it is inequitable to aggregate the income of husband and wife. I should have thought that it was unnecessary to debate the pros and cons of that in this, the 50th anniversary year of women's suffrage. The Bill goes further because now the investment income of infants is to be aggregated with that of parents. This is inequitable. The Treasury is turning the family into a sort of financial pudding in which the separate identity of the ingredients is lost. There are cases involved in this aggregation which will lead to real injustice. I have in mind a case where money has been settled on a child as a means of compensation when one of the parents has died. I hope that in Committee the Treasury Ministers will look carefully into cases of this kind. A further example of inequity is the present Estate Duty. This tax is paid only by the miserly, the eccentric, or the unlucky. I would like to see it replaced by a legacy duty coupled, possibly, with a gift tax.

Another example is the distinction in our tax system between earned and unearned income. There was a time when such a distinction was valid but I question whether it is still valid. Unearned income arises, after all, from capital which in one way or another has been taxed. If it has been inherited, there is Estate Duty. If it has been gained during one's lifetime, there is Capital Gains Tax. If it has been saved out of earnings—and that is the most unlikely circumstance of all—there is Income Tax. It seems grossly unfair to penalise the income arising from this capital by a higher discriminatory rate of tax, particularly since it bears most heavily on people of modest means who have put money aside for their old age.

The third principle which I recommend to the Treasury Ministers is that taxes should not hinder the production of wealth, which is just what our present system does. It is almost impossible for people today to save out of their incomes. Yet in the final analysis the expansion of private industry—the better machines, better factories and more employment which we all want to see—comes from private savings; but this Budget does little to encourage that. Hon. Members who have looked at the Japanese economic miracle will have seen that between 20 per cent. and 30 per cent. of incomes are saved, whereas in this country the figure is just over 5 per cent. The Bill does nothing to encourage savings, and this is a major omission.

The Bill also does nothing to relieve the extremely high rates of personal direct taxation which, I believe, are a major disincentive in our society. Far too many of my contemporaries have already left this country for good, and still the trend goes on. About 42 per cent. of newly qualified engineers leave each year and about 23 per cent. of scientists leave upon qualification. They take this step because they cannot earn enough here and because they cannot keep a high enough proportion of what they earn. I hope that, as a matter of urgent attention, the direct taxation rate will be reduced.

Following this Budget the British taxpayer is the most heavily burdened taxpayer in the world. The burden is too great. I feel that our position as individual taxpayers is rather like our position as a country. It was summed up well in a couplet by Robert Graves, who wrote: In the midst of life we are in debt, Here to pay and gone to borrow. That is the position in which we find ourselves as individuals and as a nation. That is our position after three and a half years of Socialist misrule. The Bill is the monument to those three and a half years and one hopes that it may be the tombstone as well.

6.10 p.m.

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

The whole House listened with great interest to the hon. Gentleman the Member for Acton (Mr. Kenneth Baker). One of our happy traditions is that hon. Members making their maiden speeches usually refer to their predecessors, and I know that the House heard with pleasure the generous remarks which the hon. Gentleman made about his predecessor. Sharing that same spirit of generosity, perhaps I may follow another tradition and remark that the hon. Gentleman kept just within the tradition of maiden speakers in being non-controversial.

The hon. Gentleman spoke of tax reforms. It may well be that, as a result of his speech, he will find himself a member of the Committee on this Finance Bill. If he does, I shall hope that his obvious enthusiasm will survive the long and weary hours and that he will accept his labours as part of the way of getting one's views across. The hon. Gentleman's ability is obvious. The whole House looks forward to hearing him again. For my part, I look forward to disputing with him on some future and more controversial occasion.

The hon. Gentleman referred to the number of loopholes in our tax law and the measures taken in this Bill to stop them. In this connection, I shall quote from "Essays on Economic Policy". Volume I, by a certain Mr. Nicholas Kaldor. I suggest that this passage is relevant and ought to be considered. In 1957, Mr. Kaldor wrote: Thinking mainly of the degree of consent or toleration on the part of the community towards a particular system of taxation, the voluntary or loophole-ridden system is as good as you can get, because those who are particularly upset about the taxes they are called upon to pay have some outlet and do not have to pay so much, whereas other people who do not feel so strongly about it can go on paying more. The law creates a safety valve which prevents the infuriated minority from becoming thoroughly recalcitrant members of the community. Strangely enough, I had not heard that quoted before, but I came across it and thought it an interesting aside on some of our discussions about loopholes. I do not think that anyone could seriously accept the view which Mr. Kaldor expresses because the stricken payer of tax nowadays does not show his feelings by his own ingenuity but, rather, by the ingenuity of his tax consultant.

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

Will the hon. Gentleman agree that that interesting quotation may well explain a good deal of what went on when the learned gentleman who wrote those words was closely associated with the present Government?

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

No. It shows what a fertile mind he has and what a great value it is to have a fertile mind; but the obvious corollary to having a mind like that is the ability to extract from it those things which can be nut to practical use and to leave aside those which cannot.

I regard this special Finance Bill as fully worthy of support, even though it is rather severe. I am particularly pleased to support it in general, despite its severity, because of its unique character. This year's Budget has to deal with the consequences of devaluation. It calls for sacrifices, which cannot be repeated, but on this occasion I feel that they ought to be accepted. The Chancellor has made great efforts to be fair and to make sure that the tax load is shared equitably. I accept the examples which he gave as showing the principles of fairness which permeate the Bill.

Yet we know that it will be very difficult to obtain true equality of sacrifice. It will be difficult because for one thing, to ask for a curb on profits in our present system is to ask for something which cannot really be done. One of the essential purposes of profits is to form a basis for future investment, and we cannot separate those profits which are to be used for investment which is valuable to the community from those which will not be so used.

Second, we cannot have price control—the impossibility of it is now beginning to be accepted—because of the massive bureaucracy which it would entail, the difficulty of controlling quality or changes in quality, and the other effect which I have already mentioned in connection with profits. Once one controls prices, one in effect controls profits and then, very largely, one controls investment in a way which cannot be accurately determined.

The real choice left to the Chancellor at the end of the day is to reduce consumption. By reducing consumption, he can free factories and get them to change their outlets for goods, putting them into exports. Purchase Tax is one of the important ways by which this can be done. But, whatever the Chancellor does to this end—I accept that he has acted fairly—and however ingeniously he operates through the medium of the Finance Bill, those who are worse off will be most affected.

Those with high incomes will not be affected to anything like the same degree because the characteristic of people with high incomes is that they are able to put the lop portion of their earnings into savings. They can take a long view, taking an average of the bad years with the good. The well-to-do have this enormous advantage over those who spend all they earn and whose reduction in consumption is easy to achieve.

For those who spend all they earn week by week, any increase in Purchase Tax, even if it be matched or exceeded by increases in the rate of Surtax or in the higher rates of taxation, will mean that there is not equality of sacrifice. People at the lower end of the scale cannot take the long view. They cannot do other than spend what they have each week.

Therefore, as fair as he tries to be in trying to bring about the true equality of which he spoke, the Chancellor will need to move towards a higher rate of growth, not only for the increased prosperity which it will bring but because it is an essential condition for a fair distribution of the tax burden and a fair distribution of wealth in the community.

In my view, this Finance Bill marks the end, or what I hope will be the end, of a great period of adjustment. Over many years now, this country has undergone some fundamental changes to which it has had to adjust, and realisation of these changes has come only in the last year or so. Two great factors have changed against us. The first is exports to the Commonwealth. Throughout the 1950s, our exports to the Commonwealth, excluding South Africa, amounted to about 40 per cent. of our total exports. Last year, they amounted to about 25 per cent. These markets have grown but our exports to them have increased only slightly, while in proportional terms they have fallen considerably.

The reduction in exports to the Commonwealth has meant a readjustment in the living standards which we had assumed. In earlier years, we controlled the tariffs of the Commonwealth countries because they were, in the main, Colonies. We controlled their trade agreements largely in our favour. We had people in the Commonwealth who controlled the buying decisions, who bought from firms in this country which they knew and from which their background came. Then there was the massive surge towards independence, particularly in Africa, and we lost heavily. I compute the loss in our exports at between £500 million and £1,000 million in foreign exchange per year. This was the massive drop occurring from 1960 onwards.

Second, there was the great change in Government expenditure overseas. Between the war, over the whole period 1919 to 1938, it amounted on average to less than £3 million a year. Last year, it amounted to £450 million.

Whereas, before the war, Commonwealth countries paid for their own defence in various ways, for their embassies and High Commissions and for a number of other factors, defence and diplomatic representation are now paid for very largely by us. We have had to reconsider our whole defence rôle and shall now have to think about reconsidering the amount of diplomatic representation suitable for a country of our size and our type of growth. I hope that my right hon. Friend the Chancellor will turn his attention to this in due course. We have had those two major factors possibly resulting between them in an adverse change of about £1,000 million or more for which adjustment will have to be made, and is having to be made right now.

The hon. Member for Acton talked about the golden years. They were not golden years of Tory prosperity. They were the prosperous years in one sense because we were still living on our past, and that past came to an end in the early 1960s. By a process of delay we are only now beginning to realise fully the consequences for us as a country of what happened in those years. Now, if we want a new kind of prosperity, we shall have to accept certain fundamental changes, and appreciate their magnitude, because factors that operated so very much in our favour no longer operate.

Because of this, the Bill will mean at least a pause in the improvement of our standard of living. I normally believe that a Finance Bill should work roughly on the principle enunciated by my hon. Friend the Member for Ebbw Vale (Mr. Michael Foot), that the economy should be organised to operate at a very high level of demand. I am vehemently and most strongly an anti-Paish man. He believes that there should be a margin of unused capacity which prevents the overheating of the economy by making sure that there are always machines to fulfil demand and, what is much worse, that there are always men to fulfil demand as it comes along. That is a principle to which I am emotionally completely hostile and, judging from the workings of the economy, I profoundly believe that it is wrong. I believe that it is when the capacity of the country is under pressure that one gets true increases of productivity. It is when the demand comes to the factory floor and the message goes out to produce the goods that new methods are devised, new machines are installed and new processes tend to be produced.

The one difficulty about the very high level of demand is that there is a concomitant increase in imports. But I believe that this can be cured by other means. Before devaluation I was in favour of import quotas, until it became obvious that they would be only a prelude to devaluation, and I considered that devaluation would do the job that much better.

I believe that productivity is crucial to the country's prosperity, that it is the result of demand and that it is through the very pressure for production that one gets increased production, which comes at job level. I do not think that one can ever legislate for productivity. I do not think that one can ever think in terms of having conferences and discussions on it. We cannot have increases in productivity in a vacuum. Productivity takes place at the factory floor when the demand is there and the pressure is on.

I do not deny that productivity agreements have a useful place, but most people would agree that the major productivity agreements since 1960 have been small in their effect compared with the regular improvements that go on day after day as the demand for different products takes place at job level. These daily improvements, each small, are massive in their cumulative total. They come as a result of demand, and the productivity on the job comes from that pressure of demand. The need for production that comes in this way has a greater effect than all the productivity conferences, discussions and whatever else may be thought up to deal with this problem.

Normally, I am in favour of this very high demand, and I was in favour of import quotas. I was in favour of a withdrawal from east of Suez and in favour of devaluation to sustain our balance of payments position faced with this higher level of demand. But now the situation is very special and, I believe, unique this year in the Finance Bill before us.

If it is to work, devaluation must lead to fundamental changes in industry. When the shift in resources has taken place I shall resume my demand for the kind of economy which makes people work flat out and keeps the factories and machines fully occupied. But there is at present a need for that shift, and so for a short while longer I shall be prepared to accept the Government's policy on this matter.

I have recently heard some voices from respectable quarters which said that we can solve the balance of payments problem but that it is likely that we shall have to endure a long period of very low growth rates. The argument is that growth economics" does not exist and that because of this the Government should opt out of control of the economy. These quarters say that when the theory of economic growth comes to be formulated the Government will naturally move in and put it into practice.

I am strongly against this. I believe that Government can never opt out of control of the economy. I consider that this issue was settled once and for all in 1959 in the "never had it so good" General Election. The Government at that time claimed credit for the economy, and after that all Governments will have to accept the blame when the economy turns down. If the Government are held responsible, as they are, for the closure of the A.E.I. factory at Woolwich, for example, and for the "Torrey Canyon" affair, matters which no one would have held Governments responsible 10 to 15 years ago, then Government equally will be held responsible for control of the economy, which affects the living standards of us all.

If the Government are to be responsible, they must be successful. I do not believe that the people of the country will accept low rates of growth by comparison with other countries. There is a dangerous air of disillusion in the country, part of which we saw yesterday in the Race Relations Bill. To a very large extent the country has lost power. It has lost prestige and it has lost its empire. Our natural feelings of self-confidence and self-assurance might be in jeopardy. Neither the country nor the House should accept so humble a view of our economic future.

If our balance of payments expectations are only marginally to be met, if the present high level of imports, particularly manufactured imports, prevents us from obtaining the full benefit of increased exports, then rather than see the continuation of deflation and low rates of growth for years to come, I should accept import quotas and even some parts of the siege economy suggested by some of my hon. Friends.

If the choice is deflation and low growth, or certain aspects of the siege economy, I know where I stand. But these things are not before us. I hope these things will never come before us, I believe the Chancellor has done what is right. I hope that exporters will make use of the massive opportunities they have to profit themselves, their companies and the country.

6.30 p.m.

Photo of Mr Donald Williams Mr Donald Williams , Dudley

I would ask the indulgence of the House on this occasion. I wish to take the opportunity to pay a tribute to my predecessor, who held the seat of Dudley for over 22 years as Mr. George Wigg, a man who was well known on both sides of the House. Now, as Lord Wigg, I hope that he is enjoying his life in another place, and is finding more time in which to indulge in his hobby. May his horse, or horses, run faster in the future than they have in the past.

I would suggest, with some diffidence, that I recently had the experience of finding out from the wonderful people of Dudley and Stourbridge exactly how they feel about the breaking of promises which they have accepted in good faith. I have reason to believe that their voices were very clearly heard by hon. Members on both sides of the House.

I regret that in this Finance Bill we again appear to be breaking faith with people who, acting within the law, had policies of insurance under the provisions of the Married Women's Property Act of 1925, only now to find that the benefit for Estate Duty purposes, if any, from their lawful action is to be taken away from them, but only if in aggregate the total of such policies is more than £25,000. So, apparently, some people are to be more equal than others since 19th March.

I confess that the Bill appears to confirm the worst fears of those who had hoped to see the tax system made less complicated. Here we have 111 pages, including 20 Schedules, many of which raise the problem of legislation by reference. At this stage, it would be reasonable to make a plea for the district and senior inspectors of taxes, a body of men for whom I am sure we all have the highest respect. One of their main tasks has been to review cases and to bring pressure to bear on any case where they have suspected evasion. Today they are almost overwhelmed with the additional work of Capital Gains Tax and Corporation Tax with which they are involved, to the advantage, I would say, of those who are evading their dues.

Even if appeals for the simplification of the tax law go unheeded, may I express the hope that the Postmaster-General will instruct the Department of Inland Revenue that its mail will go second-class. At least the harrowing assessments and demands may then be delayed for 24 hours or more.

We read in Clause 15 and Schedule 8 of the Bill how it is proposed to aggregate the investment income of infant children with that of their parents for Income Tax and Surtax purposes, but this aggregation is not to apply to earned income, or even to unearned income, if the infant is also regularly working or is married. Perhaps it is the intention to discourage full-time education and encourage earlier marriage. Schedule 8 also introduces further complications where parents are not living together or are not married. One can see further problems for the appeal commissioners in trying to resolve the settlement of matrimonial disputes.

Clause 29 is just, and only just, the shortest Clause in the Bill, but it merely introduces Schedule 12, a Schedule of 13 pages of amendment to earlier legislation. I would suggest that it would help the understanding of all of us if full details could be given re-enacting the legislation as amended.

I am sure that most people will regret that there is nothing in the Bill to encourage people to work harder, earn more and produce more. In fact, the only real encouragement is to gamble, with the State as the stake-holder, to try to win prizes free of all taxes. It is perhaps ironical that this comes in a Bill providing for a special charge which aims at defeating the purpose of those who have saved. I hope that someone at some time will explain the difference between this special charge and the once-for-all special contribution introduced by one of the Chancellor's predecessors.

I hope that the result of the Bill will not be to produce too great an element of the law of diminishing returns. It may do so as regards the sale of spirits, but I am afraid that the reaction of many people may well be to work and produce less for the rewards that they now secure.

I have one major regret, that there is no review and overhaul of the Corporation Tax provisions relating to close companies. There is a real case for the raising of the level of award and reward allowable to directors. I hope that one day such rewards can have a relationship to overall profitability and to the true capital employed in the business. Perhaps it is not too late to ask for some further thought to be given to this, and to the simplification of the short-fall provisions.

6.38 p.m.

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

I am sure that the whole House will join me in congratulating the hon. Member for having surmounted the obstacle of a maiden speech. He obviously gives great thought to his speeches, and when it comes to further debates I have no doubt that he will meet argument in regard to his propositions. In the meantime, we all sympathise with the purposes of his speech in trying to stimulate people to produce more to help the country in its need, and not do this entirely on the grounds of how much they can make out of it. We hope to have further guidance from the hon. Member in the conduct of the Budget debates and of the Finance Bill.

If I may turn to discussion of the Finance Bill itself, it is, as always, a necessity, to meet the conditions in which the country finds itself. Governments do not have money of their own. They do not spend money of their own. Every Government collect money from one section of the public and transfer it, on behalf of the public, to another section of the public. Therefore, when, as has happened today in this debate, we have a long dissertation about public expenditure, we get confusion. We are not talking about public expenditure. We are talking about Government expenditure, and it is very difficult to draw the distinction between Government expenditure and public or national expenditure. We can increase Government expenditure without increasing national expenditure.

For instance, if we transferred the Health Service back to private patients paying their doctors individually, we would reduce Government expenditure by more than £1,000 million quite easily, but that would not make the slightest reduction to national expenditure. Indeed, national expenditure might increase, because private patients might have to pay more both for drugs and for medical services than they pay through the agency of the State.

The same thing happens with local authorities. Water, gas and all kinds of other supplies provided by local authorities would have to be provided by the private individual perhaps at greatly increased costs if we did away with that expenditure, in that case by public bodies as distinct from the Government.

A great deal of confusion is caused by the continued discussion of an expansion of public expenditure. When the Government came into power in 1964 they came in with a programme which they knew would result in extra Government expenditure. They proposed to increase the development of factories and of education, the provision of more schools and universities, more houses, more industry in different parts of the country by the diversion of industry from the congested areas, the building of research establishments and, not least, they intended to provide a better Health Service in the way of building more hospitals. In addition, a number of developments were promised. Old-age pensions were to be increased and redundancy payments and wage-related benefit schemes were to be introduced.

That was a programme which had to be met by the Government collecting funds to pay for it. If that is what the Opposition criticise they should say so. In their own programme they made a great many promises in relation to education and hospitals and, therefore, they also proposed to increase Government expenditure to that extent. Both parties based their election promises on the optimistic estimate of an increased production of 6 per cent. per annum—[An HON. MEMBER: "No."] In fact, I think that the Conservatives worked on 5 per cent. However, if any such increase in production could have been secured, there need not have been any increase in taxation.

If the 1964 Government committed any fault, it was to go ahead with their programme of social reform and development without getting the increase in production which was necessary to pay for it. Failing that increase in production, the Government had to get it by transferring income from the rest of the population for the purpose of developing these services. That meant increasing taxation and contributions and imposing extra taxes on such items as petrol.

The public never likes giving up anything in the way of taxation, and it refused largely to co-operate in getting the necessary increase in production. Having failed to get an increase in production, there had to be restraint on the consumption of the rest of the people. If old-age pensioners were to get more, obviously there could not be the increases in wages which could have come from the normal increase in production.

I am sorry to say that, almost to a man, the trade unions refused to co-operate in any restraint. They came forward with the usual demands for increases. Wages and other incomes went on increasing, with the result that the country was spending more than it was earning. If any country does that, it can only result in inflation or in getting into deficit with other countries. The inflation took place, and one of the most stupid things in our financial understanding is to think that we can go on increasing money incomes unless we get increased production without causing inflation.

The 1964 Government met the snag of having a deficit in overseas payments of about £800 million. In addition, overseas confidence was shaken when that fact became known to the world just after the Election. Naturally enough, other countries doubted whether in all this increased social expenditure, the Government would not increase rather than reduce the deficit in our balance of payments. The Government took the necessary steps to try and correct the deficit, but they did not convince countries abroad.

This is where I disagree with my hon. Friend the Member for Ebbw Vale (Mr. Michael Foot), who talked about defying other countries and standing up to the financiers of the world. Other countries are not bound to send us goods if they suspect that we cannot pay for them. They are not bound to increase our standard of living at their expense. Whatever we may think about other countries, we have to deal with them on the basis of confidence in trade. That cannot be done on a cash-and-carry basis, because trade would come to a standstill if we could not deal with other countries in credit so that, when we bought goods, people knew that they would be paid for them and, when we sold goods, we knew that we should be paid for them. We have to live in a world of commerce and trade where confidence is vital.

Even the trade union movement cannot dispute that this country must pay for what it buys and must sell enough goods and services abroad to be able to do it. The Government have to try to bring our economy into such a state that we give confidence to people abroad and, at the same time, balance our books at home so that we do not consume more than we earn.

Voluntary restraint having failed, the Government had to try to get a prices and incomes policy and to impose other restraints. One of the tragedies of developing production is that it cannot be developed without increasing people's spending power. Even the larger incomes arising from overtime increase spending power. If the spending power of the people is increased, whether it is by industries buying goods from abroad, or whether it is by increased dividends and wages, once that spending power passes the point where we are able to produce the goods to meet it we tend to reach inflation.

Cutting down or restraining spending power may involve a slackening of de- velopment, because any increase in development itself increases spending power. To save the economy, development has to be restrained to the speed at which it can be achieved without inflation. That is a delicate operation, and any Government do their best to keep the car running at a level rate. If they push down the accelerator too violently, it causes a boom. If they apply the brake too violently, it causes a slump. The whole manipulation of Government finance is to keep the balance about right.

At one stage, it appeared that we were nearly achieving that balance. I think that the overseas deficit was down to about £33 million. Then we got involved in two major industrial disputes which not only threw us back in our exports, but also affected confidence abroad. Then, latterly, we have become involved in General de Gaulle's war on the Americans.

There is no question at all that devaluation was very largely a by-product of this controversy between General de Gaulle and the Americans, and the General's desire to return to what he calls the Gold Standard. The Americans are now suffering from the same problem that we had, and they have still to solve it. We may not be out of the woods if America does not settle its problem in a reasonable way. There are a great many complications which have nothing to do with the particular Government in power. This Government had no responsibility for their inheritance of the Rhodesian problem, which is causing the loss of a great deal of money, nor for the Arab-Israeli war, which has inflicted an additional burden. It is quite ridiculous to talk about this in the party terms so often used because it misleads the public as to the real nature of the problems.

The Government have the task of getting increased production and productivity. I am sure that not even the right hon. Member for Enfield, West (Mr. Iain Macleod) could point to any negligence in this Government's efforts to do so. We have established research and development organisations, we have given increased assistance to industry, which seems to be objected to by his hon. Friend the Member for Worthing (Mr. Higgins). Both previous Governments and this Government have given inducements to divert industries to development areas with a view not only to increasing production, but also with a view to balancing out development in the country, so that one does not have booms in the Midlands and slumps in Scotland, South Wales and the North-East Coast. There has never been any criticism of these measures, and the party opposite, when in power, did its best to stimulate development in these areas in the latter part of its reign.

The Opposition, in dealing with the problem of the Finance Bill, ought not to confuse themselves and others by irrelevant matters such as what they call the increase in public expenditure. Government expenditure is the result of decisions by this House. It is necessary to carry out programmes of improvement in the standards of our people, for example, in the standards of our old-age pensioners and in the development of industry, hospitals, schools and universities. If the Opposition are suggesting that these things should be curtailed or restrained, they should say so. More than half the Government expenditure is on defence, past and present, including interest on the War Loan, and, therefore, the area on which other reductions can be made is not so great that it could bear all the reductions implied in the suggestions of right hon. and hon. Gentlemen opposite.

The Government have to face the position as it is. The trade union movement is not entirely willing to accept the responsibility of a voluntary restraint on wages. The country is not willing to accept this. While 90 per cent. of the trade union movement has co-operated with the Government on both occasions in trying to establish this voluntary restraint, and has co-operated in the proposals for a prices and incomes policy, there are rogue elephants in the movement, as in other movements, who would break down this co-operation by running out on their own and selfishly using their own stronger position to improve their incomes at the expense of everyone else.

We have had examples today, when Members were suggesting that people would not develop industry or help the country because they cannot get more dividends and profits. If the taxation is not to come from these profits and high incomes, and from the people earn- ing money, it is up to the Opposition to suggest how the Chancellor is to get it. One cannot spend money on education, or old-age pensions, without first collecting it. If the Opposition do not intend collecting it by S.E.T. and similar taxes, it is up to them to produce the facts and figures for a reasonable alternative.

I gather that S.E.T. is one of the easiest taxes to collect in a way it is a kind of sales tax. It brings in a very large amount of money. What other tax will do this? Will cigarettes, beer, whisky—the usual recipients of a Chancellor's enthusiasm in the past? What expenditure is to be cut, and if none is what is the alternative to the S.E.T.? I would be interested to hear from the right hon. Gentleman what are the alternatives to the taxes being proposed.

Most people regard the Budget as fair. No one likes a Finance Bill that imposes taxes, and no one, I gather, likes taxation. That is part of the way in which we pay for services by the Government. We may think that the Government are extravagant and waste money on defence. It is our business to find out ways of making defence efficient and reducing the expenditure by efficiency. If we want to reduce other expenditure, then we ought to point out what it is. If there is any waste, it is our duty to cut it out, and the Government are entitled to be criticised if they waste money. If they do not, and this is the minimum required to carry out the services which Parliament wants people to have, and for the financing of the country, then we have to find the money in the fairest way possible.

The general public does not like direct taxation, which is the fairest and most equitable taxation in the world. It prefers to be taxed indirectly, which is the most unfair way of taxation. Chancellor's therefore comply with the general wish of the public that it should be taxed indirectly and not directly, according to an individual's income. We are told that this deprives people of incentive. The workers, we are told, will not work overtime because they have to nay extra tax. We are told that people will not develop their businesses because they will be taxed.

All right, if the suggestion is that there should be no income tax at all, where does the money come from to enable the Government to provide these services? This is what the Opposition must answer. They must put forward alternative suggestions if it objects to the present methods. My view of the Bill is that it has produced a very fair, well-balanced distribution of the sacrifices, if that is the right word, necessary to do the job. I would be very pleased to support it, with whatever Amendments may be made to meet certain cases. I would be only too willing to consider them if I had anything to do with it.

The hon. Gentleman the Member for Worthing quite clearly objected both to the previous Government and this Government spending money diverting industry to development areas. He practically said that industry should go where it was most profitable, that it should not be directed either by inducements or any other method from its most profitable centres. That means that we would go back to the pre-war position, where industry would gravitate from every outlying area, down to the Midlands, London and the South-East Coast.

Photo of Mr Michael Shaw Mr Michael Shaw , Scarborough and Whitby

The right hon. Gentleman is completely misrepresenting what my hon. Friend the Member for Worthing (Mr Higgins) said. My hon. Friend said nothing of the sort. He said that aid now given through the Regional Employment Premium and the Selective Employment Tax should be given in better ways.

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

The hon. Member for Scarborough and Whitby (Mr. Michael Shaw) did not listen properly to the hon. Member for Worthing, who said much more than that. He also said that it was quite wrong to divert the economic processes of industry and that people should be allowed to produce where it was most profitable and where it was most effective and that other industries should not be bolstered up.

The last Government sent the B.M.C. to Scotland with a very large subsidy to get started there. They also supplied a considerable amount of money to Colvilles to build a steel plate mill in Scotland and helped another firm to produce paper from pulp in the Highlands. They also sent another car firm to Renfrew-shire. They deserved every credit for their help, and to have them condemned now for doing what they did to relieve the terrible conditions for Scotland which arose during the 10 years of Tory rule is quite wrong.

The present Government have continued that policy. They have built a large number of advance factories and have induced American industry to go to Scotland, South Wales and the North-East of England. If the Opposition are now denouncing that policy, as the hon. Member for Worthing did, they should make it clear to the public that they are going back to the policy of every man for himself in industry and "devil take the hindmost". A return to such a policy would create a desert of Scotland, Cornwall, South Wales and the North-East of England. If the coal mines, shipyards and other industrial activities as they close down are not replaced by new injections of capital in those areas and the introduction of other industries, there will be disaster for the country from which it will never recover.

We must be clear that the Government are not going back on the policy of inducements for industry to be distributed throughout the country in order to balance up the level of employment, so that we do not have a situation in which the level of unemployment in Scotland is double what it is in the Midlands of England. We should be clear about this. I deplore the hon. Member's suggestion that this policy should be abandoned. I hope that the right hon. Member for Enfield, West will make his party's position clear, because we have plenty of trouble in Scotland now without its being made worse by a threat of this kind.

7.3 p.m.

Photo of Mr John Boyd-Carpenter Mr John Boyd-Carpenter , Kingston upon Thames

It is a significant sign of the times that maiden speeches nowadays are both always good and always made from this side of the House. This is a practice which will continue so long as by-elections continue in this Parliament. I would like to add my congratulations to those tendered to my hon. Friends the Members for Acton (Mr. Kenneth Baker) and Dudley (Mr. Donald Williams).

My hon. Friend the Member for Acton referred to the longevity which, with the unfortunate exception of his immediate predecessor, whom we all miss, has marked hon. Members for Acton—above all, that most senior of his predecessors, Sir Harry Brittain, now a gay personality of 94. I thought, too, that my hon. Friend the Member for Dudley steered with great skill over the somewhat delicate question of his reference to his immediate predecessor. I do not think that anyone could have more tastefully dealt with that rather difficult topic. I hope that both my hon. Friends will take part often in our debates. I believe that, already, the awful threat is hanging over them of their being sent to the Standing Committee on the Finance Bill.

The right hon. Member for East Stirlingshire (Mr. Woodburn) made what I would describe as his usual speech. First, he suggested that our economic troubles were nothing to do with the Government but were the fault of General de Gaulle and Mr. Ian Smith and the weather and all sorts of extraneous circumstances. He said that it was unfair to blame the Chancellor of the Exchequer for them. I hope that the right hon. Gentleman and his hon. Friends will live up to that statement. When the Labour Party puts out its next election manifesto, its future pledges will no doubt be hedged with the qualification, "President de Gaulle, Mr. Ian Smith and the weather permitting."

It was an astonishing observation of the right hon. Gentleman's that questions of public expenditure were largely irrelevant to the debate. Does not he realise that the Chancellor felt bound, in part at least, to impose this unprecedentedly heavy increase in taxation because he had to balance very large increases in public expenditure? So far from public expenditure being irrelevant to this debate, it is the explanation of most of the disagreeable features of the Bill.

Does the right hon. Member for East Stirlingshire, after his years in Government, ready think that any Chancellor would regard as irrelevant the increase in the Estimates, revealed in the Vote on Account, of £921 million, or 10 per cent.? Does not he understand the connection between that immense, uncontrolled and apparently uncontrollable increase and the Chancellor's increases in taxation by a sum only slightly in excess of it—something over £1,000 million?

As always, the Chancellor was very much more adroit than the right hon. Member for East Stirlingshire, and I thought that, in his agreeable speech, he, though rather more delicately, took the same point as the right hon. Gentleman. The Chancellor made a delicate speech. I hope that he will not mind my expressing the view, since he is a man of great literary distinction, that his longest quotation, as English, stood up very well against the surrounding context.

But the Chancellor said that, if hon. Members objected to his increases in taxation, they should suggest an alternative. I do not accept that. I have suggested an alternative. It is the alternative of not increasing public expenditure so much. What the hon. Member for Ebbw Vale (Mr. Michael Foot)—I am sorry that he is not in his place—said about us on this side of the House does not apply to me. He suggested that we were shy in putting forward positive suggestions for reductions in public expenditure. I made a speech on the Vote on Account in which I spelt out a number of directions in which economies could be obtained and public expenditure substantially reduced. I do not think that even the Chancellor would dispute the fact that, had he reduced expenditure under these various heads, he would not now be asking for all these increases in taxation. I think that that is beyond dispute.

I was interested in the speech of the hon. Member for Ebbw Vale. I thought it had rather a pathetic, nostalgic ring. He was saying what right hon. Gentlemen on the Front Bench opposite used to say until they got on to the Front Bench opposite. They do not say it now. Their attitude is much more refined and restrained and sophisticated. But the hon. Member for Ebbw Vale still goes on saying things which right hon. Gentlemen opposite said in order to get into office until they got into office. His speech had a pathetic ring of the Socialist past about it. But I thought that the frankness with which he admitted that Socialism as he saw it would mean ever-increasing taxation compared favourably with the attitude of the Prime Minister in his pretence that the Socialist programme would not result in or involve increases in the general levels of taxation.

This Bill is in itself a reflection of the failure of the Government to control expenditure and it has a fatal defect in that it does nothing whatever positive to increase the economic efficiency of the country, whether by the giving of incentives or by the encouraging of savings or by anything else. The proof of the pudding is, to some extent, already in the eating. It is five weeks since Budget day. Is the Chancellor prepared to say that the effect of his Budget on the economy has been very encouraging? Is he preared to suggest that this grave and drastic Budget, at the end of the speech introducing which he sat down with hon. Members opposite wildly waving their Order Papers, has given any indication that it is remedying the fundamental evils which affect our economy?

Is not the indication that, as my hon. Friend the Member for Worthing (Mr. Higgins) so well said, the economy is in a worse condition and is getting worse rather than better since a Budget in which the Chancellor of the Exchequer prided himself of having put in everything and of having perhaps over-killed in a determination to right the problems of the economy? The Chancellor would not be the intelligent man that he is if he were not desperately anxious to find that, having made this tremendous effort, as he thought, it does not seem to be having satisfactory results. Some of us told him so at the time. Some of us told him that further increases in direct taxation, which was already too high, would discourage rather than encourage the development of the economy in the way that he wants to see.

I wish to direct my remarks to one or two aspects of direction taxation which I have particularly in mind. The Chancellor will know better than us something of the direct cost of this increasing elaboration and load of taxation and the increasing cost of collection. He may recall—he will be aware of the figures—the Answer which the Financial Secretary gave me the other day to the effect that the Inland Revenue staff increased by 2,304 in the last year to the astonishing total of 63,228 and, that, despite that, they were working 1¾ million hours overtime.

These figures in manpower and finance are not negligible. They are part of the cost of seeking to operate a level of taxation which is so high that people are given every incentive to find loopholes in it. The right hon. Gentleman used a very agreeable expression in his Budget speech. He said that his disposition was towards lower levels and fewer loopholes. He has undoubtedly done his best to close the loopholes, but has done nothing whatever to produce the lower levels. He has, in two significant respects, raised the levels. May I deal with those two respects?

I deal, first, with the provision in Clause 15 for the aggregation of the income of children with that of their parents. I referred to this during the Budget debate. When I did so, the hon. Member for Lewisham, West (Mr. Dickens) shouted, "A Committee point". I am inclined to agree with him. But he did not understand why it is that Committee points must now be raised on the Floor of the House. The great majority of Members, and, indeed, all of us who have responsibilities for Select Committees, will be denied the opportunity of participating in the Committee stage of this Bill. If we are to put any points at the formative stage of our discussions, we have to do so in the Budget debate or during the Second Reading. The hon. Gentleman did not appreciate that.

I want to put one or two points about this provision. First, can the Chancellor clarify what he means by "an infant"? At the moment, this is a person of under 21. We were told the other day that it is the Government's intention to reduce the age to 18. Do I take it, therefore, that the Inland Revenue will be instructed to take no preparatory steps to aggregate the income of children between the ages of 18 and 21 with that of their parents? I should be grateful if the Financial Secretary would deal with that point.

Then there is this very curious provision that there is no aggregation if the child is in regular work but there is aggregation if the child is undergoing full-time education. This is a very odd fiscal device. It reverses previous fiscal policy, which was to give financial encouragement to parents to keep their children in education for as long as possible.

But what about the children who constitute the biggest difficulty in the way of this provision, the children who will never work? The Chancellor of the Exchequer will know that one reason why a child sometimes has unearned income is that it results from damages paid to the child for very serious injuries. The classical case is that of the thalidomide babies. I understand that the claims of some of them have been settled—and none of us would think it too high a figure—at £40,000. At the present level of interest, that would produce an income of perhaps £3,500. Is it the right hon. Gentleman's intention that that income should be aggregated with that of the parents, thus involving the parent in Surtax and indeed, if he has any unearned income, in the special surcharge?

Every day the courts deal with cases concerning children who have been knocked down on the road and so maimed that they will never work. I was talking to a solicitor friend the other day who is handling such a case. He may well settle the case for £40,000. The parent is a warrant officer in the Armed Forces with an income of £1,500. The question of proper provision for the child will be made enormously difficult if aggregation is to take place in this case. I wonder whether, without prejudice to the general issue, the right hon. Gentleman would accept an Amendment to the effect that when the source of the child's income is capital derived either from damages given by a court or from the settlement of an action the income shall not be aggregated with that of the parent.

There will be the greatest difficulty about defining what is meant by "regular work". This morning I had a letter from a gentleman whose daughter is a novice in a nunnery. She has a small unearned income. Is an unpaid novice in a nunnery to be treated as being in regular work, or is her investment income to be aggregated with that of her parents? There are real and difficult problems about this matter, and I hope that the Financial Secretary will be able to clear them up.

I take the other cause of difficulty, the special surcharge. This is a very bad proposal. It is a very unfair proposal. It is in form a charge on income producing the unprecedented rate of 27s., 3s. in the £ on certain tranches of certain incomes, unprecedented even in Socialist fiscal legislation. Of course, it is intended to be, as the Chancellor said, a tax on capital. But as such it is a very unfair tax. The very rich man who is more interested in capital appreciation than income and who will take perhaps 2 or 3 per cent. on his large investment comes off a great deal better under this provision than the less well-off man with heavy commitments who is concerned to get income from his investments and to invest his money in a way which will bring him 7 or 8 per cent. Two people with the same capital will, under the Chancellor's capital levy, pay wildly different amounts. That is unfair.

There there is the question of a life interest and property in trust. I understand that, as in the case of Sir Stafford Cripps' capital levy, the trustees will be authorised to realise capital to pay the tax, otherwise the life tenant could not live. Would the right hon. Gentleman reflect on how unfair this is? The life tenant, say a widow, may have a substantial income from the trust of £4,000 or £5,000 and, on the Chancellor's argument, be liable. When she dies, the estate may be divided among 10 or 12 children and grandchildren. None of them will get very much, particularly after Estate Duty has been paid. Is it not very unfair to evolve a tax which, in practice, will be paid by children and grandchildren who, as a matter of definition, have very modest means?

What about the man who buys an annuity? I appreciate that under the first subsection an annuity bought under a will is not treated as investment income; it is outwith the calculation. As I understand, if a man buys an annuity to provide for his old age it is treated as investment income. Take the case of a man who sells his small business when he wants to retire and invests the lot in an annuity. This is his sole means. How will he pay this levy? He has no capital. The insurance company will not find it for him. As I see it, his only recourse is to go bankrupt and let the Revenue claim in the bankruptcy. I suggest that apart from the foolish general concept of this charge, there are real difficulties which have not been thought out.

Taxes of this kind on capital are very easy to suggest. I thought that there was a curious change in the tone of the Chancellor's Budget speech when he came to this part of it. The smooth suaveness changed to a certain vindictiveness of tone. It was rather curious in the idol of café society. It is an unsound tax. The right hon. Gentleman admitted that he could not repeat it. If he were to give an incentive to people to invest their money to get less income rather than more, he would disrupt the whole capitalist system.

But he went out of his way to say that he was contemplating other means of taxing capital. Does the right hon. Gentleman feel able to reconcile that approach with encouragement to people to save? Does he not appreciate that he has given to ordinary citizens an incentive to spend their money and get some fun out of it rather than to save it, as in the public interest they should, and so increase their tax liability for the next ingenious device for taxing capital which the Chancellor and his advisers might evolve?

There was an incident the other day on the reading of a will. The family solicitor, reading the will to the assembled relatives, read out the words, "And so, being of sound mind and disposition, I spent every damn penny before I died". The right hon. Gentleman does not really want to encourage that attitude, but this is what he is doing. I suggest that if he is serious in wishing to encourage saving and if the rather platitudinous tributes in his Budget speech to the National Savings Committee really mean anything, he must restrain himself from a tax on capital of this nature.

This brings one to the central dilemma of a Socialist Chancellor. He does not like accumulation of capital, he does not like profit, he does not like the capitalist system. Yet he has to operate it. He has to operate a system which is still predominantly free enterprise and capitalist. I suggest that we are here close to the explanation of the failure of every one of the right hon. Gentleman's predecessor Socialist incumbents of that office. We are close to the point that they do not like the system that they have to operate. They are not prepared to operate it in the way in which we know it can be successfully operated with a reasonable opportunity for profit, with incentives to increased effort, and with incentives to investment and saving.

If the right hon. Gentleman, who is a historian and understands these matters as well as anybody, is not strong enough to resist the pressures, such as those applied by the hon. Member for Ebbw Vale, he will fail as Chancellor just as irretrievably as his Socialist predecessors have all failed.

7.24 p.m.

Photo of Mr Alistair Macdonald Mr Alistair Macdonald , Chislehurst

I am glad to be called immediately after the right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) because until he spoke I had begun to fear that in some mysterious way under our procedure it was out of order to talk about the Bill. I should like to offer a few thoughts about the Bill, but before doing so I want to comment on the thundering denunciations that we heard from the right hon. Gentleman and also from the hon. Member for Worthing (Mr. Higgins) about the level of public expenditure.

There are few economic matters on which I agree with my hon. Friend the Member for Ebbw Vale (Mr. Michael Foot), but I agree with him that we ought not to be ashamed of public expenditure, nor should we be ashamed of stating that it has to be paid for and, therefore, revenue has to be raised for this purpose. The denunciations which we have heard today come with something of an ill grace from a party that on many occasions during the year has called for increases in expenditure in particular while at the same time demanding reductions in expenditure in general.

I recall that during the debate on last year's Finance Bill there were innumerable Amendments from right hon. and hon. Gentlemen opposite calling for particular reductions in taxation, all no doubt worthy in themselves but a little difficult to reconcile coming from a party which has expressly said that it wishes to increase particular areas of public expenditure. I recall that more particularly, because among the Amendments calling for reductions in taxation in particular there was one—my one—that called for an increase in a particular sphere of taxation. I may mention that it had the support of the hon. Member for Worcestershire, South (Sir G. Nabarro). I am not sure whether that was beneficial to my Amendment. In any event, it was not called. But I am delighted to say now that in substance my Amendment has been accepted and appears in the Bill.

Turning to the Bill, Clause 4(1) does almost exactly what I suggested to the Government last year ought to be done, namely, that they should increase the betting taxes. I am also in support of subsection (2) which effects a similar increase in taxation on gambling. I am delighted to see these two proposals.

I see something of a decline when we turn to subsection (3) which refers to taxation of casinos. However, I have never understood why we go about it in the way that we do. Relating it to rateable value seems to have very little to be said in its favour. I suppose it is a simple tax to administer when it is constructed on that basis, but I cannot think of any other argument. In particular, a tax based on rateable value of casinos bears no necessary relationship to the ability of casinos to pay. Furthermore, I suspect that in practice it may stimulate casinos to adopt certain devices—for example, to move into inferior premises or part only of the premises that they occupy—to avoid paying part of the tax. But this cannot assist the satisfactory running of a casino which, in the Gaming Bill, we are anxious to ensure.

I acknowledge that the proposal in the Finance Bill for the taxation of casinos introduces something more of a graduated scale than was there before. However, I cannot welcome it on that ground, because it seems to me that what was there before was essentially bad. By making this relatively trivial improvement in something that I regard as essentially bad, I fear that we reduce the stimulus to toss it aside altogether and replace it by a more reasonable and equitable way of raising money from casinos.

I hope that at some time my right hon. Friend will consider introducing a more equitable way of raising money from casinos, because in his Budget speech he said: It would be premature to undertake any fundamental revision or sweeping increase of this duty while the House is still considering the major changes proposed by the Gaming Bill."—[OFFICIAL REPORT, 19th March 1968; Vol. 761, c. 278.] I infer from that that he feels that changes should be proposed at some future time. That much I welcome, but I cannot follow his reasoning, because I think that when we are introducing a more equitable and more effective method of control over the running of casinos, that is the very moment at which to introduce an effective and equitable way of raising revenue from them. I see no reason why one needs to wait until the other has been completed, and indeed every reason why the two should march happily together. I hope that in Committee opportunities will arise to press this matter more strongly on my right hon. Friend.

I have welcomed Clause 4, at any rate in principle, despite my criticisms in detail of subsection (3), and I should like now to refer to something which is quite different, although it touches on the same aspect. I refer, of course, to Clause 50 which proposes to introduce a national lottery. I do not want to argue against the Clause from a hostility to gambling, although I confess that I have some hostility to it. I do not think that it would be proper for us to proceed on the basis that we want to forbid something which we dislike, because gambling is clearly a matter for private judgment and people should be allowed to exercise their private judgment whether to gamble or no. If they gamble, clearly taxes should be levied, because there is no good reason why productive enterprises should be taxed while unproductive gambling is not.

I am all in favour of taxing gambling, but it seems to me that there is all the difference in the world between raising revenue from taxes on gambling, and running a lottery, just as I see a difference between raising revenue by taxing smoking on the one hand, and on the other making a cigarette. To tax people's vices is one thing. To encourage the practice of those vices is another, and I regret that we are now at the beginning of a course which will cause the social services, the amenities, and indeed the defence of this country to depend on the proceeds of a lottery. I think that if we wish to have these things we should pay for them. If we do not want to pay for them, we should do without them.

On that topic perhaps I might refer to a quotation from HANSARD of 18th April, 1956, where it says: …what a commentary it is on the financial stewardship of the party…Now Britain's strength, freedom and solvency apparently depend on the proceeds of a squalid raffle… They will be fighting the next election on 'Honest Charlie always pays'.I say this in all seriousness to the Chancellor. There are hundreds of thousands of people in this country who will be outraged by this proposal…it is one thing to support the legislation of these small charitable lotteries. It is quite another to erect a great State machine—with goodness knows how many bureaucrats—to use the resources, power and prestige of the State for such a purpose…".—[OFFICIAL REPORT, 18th April, 1956; Vol. 551, c. 1026.] That is a quotation from remarks offered to the House during the Budget debate of that year by my right hon. Friend the Prime Minister. I thought that they were wise words, and I am sorry that the Government's policy has apparently changed. I read the reports of that Budget speech with interest to see whether my right hon. Friend the Chancellor of the Exchequer had had anything to say on this subject. He spoke during the debate, but I am sorry to say that he was silent on this subject.

I hope that when my hon. Friend replies to the debate he will tell us more about when the free vote which we have been promised on the subject of a national lottery will take place, because though I shall be glad to go into the Lobby in support of the other proposals in the Bill, I shall be sorry if it is taken from that that I support this proposal. I had understood, mistakenly I now gather, that there was to be a separate vote on this Clause tonight. If this is not to be, I should like to know when a separate vote will be taken. I presume that it can only be when the Bill comes back to the House for its Third Reading. The proposals will then have become cut and dried. It seems a little late to allow a free vote at that stage on a fundamental matter of principle, and I hope that we shall have a clear and unambiguous statement that a free vote will be allowed at an early date.

I am willing to support the S.E.T. proposals. I had better say that because few other hon. Members will support something that is conventionally disagreeable. I think that the S.E.T. is a cheap and effective way of raising revenue, but I am a wee bit regretful that no closer attention has been paid to the question of our invisible exports. Houses in the City of London have to bear the S.E.T. A great deal of cogent and forceful argument on this subject is to be found in the Report on the Kleinwort Committee on invisible exports, which I understood Ministers on the Treasury Bench had studied with close attention and interest. That report argued cogently in favour of some relief from the payment of the S.E.T. by firms engaged in invisible exports, and I had hoped that something more forthcoming would appear on this subject.

The taxes which I have mentioned so far I suppose count as indirect taxes, and those are the only indirect taxes which I should like to approve. In his Budget Statement my right hon. Friend advanced certain arguments in favour of indirect taxation, saying that it was a tax on spending, that it offered the taxpayer a measure of choice, and that it did not involve too much disincentive. I suppose that in a sense that is true, that faced with indirect taxes on articles which a taxpayer wishes to purchase he has the choice of not buying them and saving his money, but I think that this is rather a clumsy way of encouraging saving, simply by encouraging to save what is left after he has spent, because if we increase the price of articles, there is a real danger that there will be less left rather than more.

I should like the Government to encourage saving, but I cannot feel that embarking on a policy of increasing indirect taxation is the most effective method of doing that. Surely the only real way in which to encourage saving is to check the process of inflation? The only way in which we can effectively check the process of inflation is to make sure that the Government do not embark on public expenditure before they have acquired the money for it. I am in favour of high public expenditure, but I am clear that it has to be paid for at the time and not in the future. Encouraging savings when interest rates are high means an increased burden on the Government because of the higher rates which they will have to pay. I am not in favour of running the country as "Great Britain Ltd", but there might be something to be said for the Treasury operating as a business, and most businesses would be reluctant to borrow more than they needed when interest rates were high.

Since the Chancellor has embarked on raising money by indirect taxes, I would express some regret that he has also widened the bands. I am a little suspicious of this, because he is imposing his own judgment on the public, encouraging them to buy what he thinks they should buy and deterring them from buying what he thinks they should not. I question whether the Treasury has any business doing this. They define luxuries and also open the way for comic queries of the sort which the hon. Member for Worcestershire, South was so distinguished in putting.

On page 56 of the Bill, we see that a toothbrush will be exempt, whereas a toothpick will bear a Purchase Tax of 33⅓ per cent. and that "other requisites", which are unspecified, will bear 50 per cent. "Requisites" is an odd word, because I thought that that meant something which one was required to have, and not a luxury. Once the bands are widened, one is trying to draw lines where none can or should be drawn.

Once again, I express my annual regret at the Bill's proposals to plug loopholes. Every year, there are proposals to rectify anomalies and admirable arguments are always advanced. No one can dispute the proposals m this Bill, but it would be worth while to accept anomalies and loopholes for the sake of stability. I would like a tax structure as stable as possible, with people allowed a clear run, and with a big, bumper Finance Bill every four of five years, plugging many loopholes. I make this plea every year, but no Chancellor ever pays any attention.

Can I hope for an explanation, perhaps in Committee, of Clause 21, subsection (2)? Subsection (1) refers to the buying of know-how, a phrase which has crept in, rather to my regret, and about it being written down. Subsection (3) refers to the know-how being sold and the business ceasing to trade, and about trading receipts as payment for good will. But subsection (2) refers to the sale of know-how and to the business continuing, in which case that sale would be treated as a trading receipt. I am not sure that that is consistent with the proposals in subsections (1) and (3). Perhaps the Chief Secretary will favour me, to use his favourite phrase, with a litle "accountancy exercise" in private to explain that.

Clause 22 deals with taxation where there is an option to take a scrip issue or payment in cash. After having thought a great deal and with some reluctance, feeling that I am going against my principles, I can see no merit in this Clause. I cannot feel that the proposal is proper, because I do not see that distribution of shares should be taxed in this way. The shareholders who receive additional shares will not be better off as a result of any action of theirs. If all the shareholders exercise the option to receive shares and none receives cash, none will be any richer. Therefore, if some exercise the choice and receive cash, the shareholders who preferred to receive shares are to that extent better off, because they own more of the company, but only through the action of those who decided on cash. I do not see how it is equitable, therefore, to tax them because of someone else's action. Perhaps I am missing something in the Clause; I should be grateful if my hon. and more expert Friends can explain it.

7.48 p.m.

Photo of Mr Nigel Birch Mr Nigel Birch , Flintshire West

The hon. Member for Chislehurst (Mr. Macdonald) began with casinos, of which I know nothing, so I cannot argue with him. Where I profoundly agreed with him was, first, about Purchase Tax and the number of bands and second, on his great blinding glimpse of the obvious that, if one spends money which one has not earned, one quickly gets into Queer Street. I hope that he will give some special instruction in these matters to the hon. Member for Ebbw Vale (Mr. Michael Foot).

I believe that it is unheard of for a Chancellor to move the Second Reading of the Finance Bill. Normally, if they speak in the debate at all, Chancellors wind up, mostly about the economy. I thought that, when the Chancellor elected to open, he would talk about the economy. But he did all the lavatory work normally done by the Financial Secretary in explaining the Bill and had nothing new to say.

It would have pleased the hon. Member for Ebbw Vale if he had said something about economics. The hon. Member attacked his right hon. Friend strongly, but I do not want to intervene. When Lytton Strachey was had up before a conscientious objectors' tribunal during the First World War, he was asked the usual question, "What would you do if you saw a German trying to rape your sister?" He replied, "I would try to get between them." I have no wish to get between those two rather unappetising types on the benches opposite.

We should consider where we have got to now. Many financial journalists, though by no means all, favoured devaluation and, when it came, felt that they could celebrate something to which they might have contributed. Therefore, there was much talk about the "economic miracle" and what-not, but very little about some of the other consequences. I want to say something about these now.

First, the confidence of the sterling area has been very badly, perhaps mortally, shaken. We promised them so often that we would not devalue, but then we did it. There are now signs of the disintegration of the system. This is dangerous, because all the money is quick money; in other words, it can be drawn at sight and already it is being withdrawn. The Australians are already diversifying, buying dollars and gold, and I understand that the New Zealanders are doing the same. The position is shifting in Hong Kong and Malaysia and, from the financial point of view, the sheikhs are on the move. Burma is already out of the sterling area.

There is no question but that during the gold crisis the heavy sales of sterling against the dollar arose, in part, from sales by members of the sterling area in an effort on their part to change their pounds for dollars and then to change their dollars into gold. The sterling area, having in some ways been surprisingly stable, is now on the move. It is rather like living near a coal tip which has just started moving; a disaster has not yet occurred but one is living in an awkward spot.

The next important consequence is the general increase in the loss of faith in money—in the stability and value of money—and this is proved in many ways. It happened in the spending spree just before the Budget, and that spree is still to a large extent going on. It can be seen in the present rush into unit trusts—indeed, into anything that is a real asset. It is at the back of the problem facing the building society movement.

The other day the chairman of the Building Societies Association said that one reason why building societies were losing so many deposits was because depositors were putting their money into houses. It appears that they have realised that the real mugs are not those who borrow from the building societies but those who lend to the societies. Once that view gets across to the country the consequences will be serious. There has been a further blow to the market in Government securities, but I will return to that later.

In addition to all this, another consequence arises out of the incredible ineptitude, both before and after devaluation, on the part of the Government, and the immense debts which we have piled up as a result. First, there is the sterling area, which must still represent several thousand million pounds. But in addition to that we have built up enormous debts. The Government do not say precisely to what they amount, but I would not be surprised—taking into account the sterling balances, which are quick balances, the I.M.F. credits, loans from the central banks, the Swiss, and so on—if they amounted to something like £6,000 million. We must constantly bear this in mind because our reserves are only about £1,100 million, so that when the hon. Member for Ebbw Vale talks about our being a creditor nation, he should be careful.

Let us consider what will happen if two years' hard slog succeed and all the Chancellor's expectations are fulfilled. We will still have solved only a tiny part of the problem, because much of this money has already gone and will never return. Indeed, much of it cannot return. After all, the £531 million deficit on our balance of payments last year cannot come back. That money must be earned.

Photo of Mr Michael Foot Mr Michael Foot , Ebbw Vale

As the right hon. Gentleman is obviously an expert on the subject, would he say whether or not Britain is a creditor nation? I claimed, on all the figures presented to us, that if a final balance were made we would be a creditor nation. If the right hon. Gentleman has figures to disprove my argument he should present them—otherwise he should not make grave charges which could be extremely damaging and which, I suggest, do not bear any relation to the facts.

Photo of Mr Nigel Birch Mr Nigel Birch , Flintshire West

I assure the hon. Gentle man that they do. I was talking about our liabilities for five years and less. The Chancellor has produced various figures making up our balance sheet to show a long-term surplus, although not a big one. If we are in a mess we will not get far by trying to flog a tea garden in Assam. A great many of our foreign assets are not easily realisable, particularly in the short term. This is disabling to us. It is no good saying, "But we have a tea garden", because to make that sort of remark does not make sense in that context.

Whatever the Chancellor may say about his predecessor, I have considerable respect for the present Home Secretary. He is a good politician and his heart is in the right place, although he is a bad guesser. He was sunk through the creation of the Department of Economic Affairs. We said at the time of its inception—we said it from the outside with foresight—that it would be fatal. I was interested to read an article by the right hon. Gentleman the Member for Battersea, North (Mr. Jay) in the Financial Times the other day in which, writing from the inside and with hindsight, he confirmed our fears and what we predicted—that this division of control had meant that no firm grip on the situation had been taken and that things had drifted on and on.

We still have the Department of Economic Affairs. We are told that it has been strengthened and certainly we have another Minister, as has the Treasury. It is a comment on inflation that now that the Treasury is split eight Ministers are doing what two Ministers used to do when we were solvent. The only thing to do with the Department of Economic Affairs is to do away with it completely and have the building scrubbed and fumigated. For greater certainty, a team of rodent operators should be instructed to go through it to ensure that nothing is left, for it has been a total disaster.

What are the prospects of success for the present Chancellor? He will almost certainly get an increase in exports. Indeed, he must. We must have a substantial increase to make up for the change in the terms of trade against us. We must do more to start repaying our debts and rebuilding our reserves, although that task is a long way off. However, I believe that he will get this increase, certainly in the medium term.

The right hon. Gentleman's real failure lies in the fact that although he made a genuine effort in January to control expenditure, that effort did not come off. In fact, the reductions in expenditure, in so far as they were genuine—and a lot of them were not—were overtaken by the extra expenditure caused by, for example, the Transport Bill, the Transport Holding Commission Bill, and the Industrial Expansion Bill. As the Governor of the Bank of England, Sir Leslie O'Brien—who is not very popular on the benches opposite below the Gangway—pointed out, if Government expenditure soars inexorably upwards, and we get into difficulties, the whole of our adjustments, monetary and fiscal, must be made in the private sector. The Government's efforts are self-defeating simply because the prospects for growth lie in the private and not in the public sector, a fact which they have failed to recognise.

The Chancellor therefore failed in what really mattered. One thing which he has done is to make an enormous increase in indirect taxation. There is a school of thought, to which I belong, which holds that it is a good thing to shift taxation to a certain extent from direct to indirect taxation. What we mean by that is that direct taxation should go down in parallel with the rise in indirect taxation so that savings and investment are encouraged. Here, however, we have had a colossal increase in indirect taxation combined with an increase in direct taxation—which will reduce savings. For this reason I do not believe that the right hon. Gentleman's theory can work.

We are, in effect, talking about Boyle's Law. Hon. Members who were in the House in the 'fifties will recall that when we increased indirect taxes at one period the right hon. Gentleman the present Prime Minister was extraordinarily scornful and dubbed our action "Boyle's Law." It was a favourite joke of his. He used it for four or five years. People tend to say that the Prime Minister is unreliable, but in some respects he is not. Birch's second law about the Prime Minister is that if the right hon. Gentleman says that something is wrong, and he will not do it, and if he says thirty times or more that it is wrong and he will not do it, one can be certain that he will do it. This is Boyle's Law cubed. It is designed to reduce consumption, but it is very difficult to reduce consumption.

A distinguished pamphlet was produced by Professor Hicks last year. It was called "After the Boom", and in it he traced this matter with a wealth of statistics. It is very difficult indeed to get people to reduce consumption. One can inflict some sufferings on the old and the poor, but most people who can protect themselves do so. They go in for more wages and, if that is stopped by legislation, they run down past savings or reduce their current savings in order not to cut their standard of living which they have come to accept as being their due and to be normal. In a year when the Government have calculated on the cost of living going up 7½ per cent., and it is almost certain to go up by at least 9 per cent. according to Professor Alan Day, this will not work.

The last theme I have is on the inflation caused by this high expenditure and what can be done about it. Lord Cromer, speaking in 1966, pointed out that as a result of this very high expenditure we always have a borrowing requirement or overall deficit. In so far as one cannot finance the borrowing requirement or the overall deficit by genuine savings and genuine borrowing, inflation results, "quasi-automatic", as he put it. He illustrated this by the example of 1965 when the money supply increased by 7½ per cent. whereas the national product increased by only 2 per cent. This went on last year according to figures given by the Financial Secretary when the money supply went up by 8 per cent., whereas the national product went up by only 1·6 per cent. We get this inflationary element all the time because we cannot borrow.

During the last three years the overall deficit has not been financed in any way by genuine borrowing. It has been financed by printing notes, minting coins, borrowing money overseas and running down reserves, and by recourse to the banking system. This produced devaluation, rising prices, debts and the rest. It is no wonder that Pierre-Paul Schweitzer was so insistent that we should control our overall deficit. I am glad that the Chancellor has reduced it, although I am a little sceptical about the figures which have been given. We were told that the estimates last year were very tightly drawn and I strongly suspect that they are more tightly drawn today. There are other things, such as the financing of the steel industry, where I rather mistrust the figures.

We have the difficulty that we have not been able to finance overall deficit by genuine borrowing. Why not? There are two reasons. One is the slaughter of the market in Government securities. The other is the large sums borne on the Budget for capital expenditure of local authorities and nationalised industries. On the gilt-edged market, it is not unnatural that the difficulties are so great. Take what happened to the Treasury's 2½ per cent.s, commonly known as "Daltons". Lord Dalton introduced them in 1946 at 2½ per cent. at 100 and now they are just over one-third of that price. Meanwhile, the value of the £ has decreased by more than 10s. in the £. A man who saved £100 in 1946 now has, in 1946 money, just over £16. He has been getting interest meanwhile at 2½ per cent. less tax.

We cannot wonder that people are losing their nerve. The rate of interest is not attractive if the cost of living is going up by 9 per cent. What can we do? In local government borrowing there have been a number of changes since the middle 'fifties. Then the policy, which I think was correct, was that local authorities could go only to the Public Works Loan Board as a lender of last resort and they had to pay the full rate. Now the policy has gradually shifted and local authorities can go more and more to the Public Works Loan Board and get a privileged rate. This puts a large amount of money on the Budget. If we make local authorities borrow on their own credit and fish around for the money, as many successfully do, we ensure that the capital expenditure by local authorities is matched by genuine savings, whereas, if it comes from the Budget, or is raised as much, as scandalously, as it has been by the supply of seven-day money lent by the gnomes at up to 10 per cent. interest or whatever it may be, this is not matching expenditure to savings.

As to nationalised industries, the thing is not to nationalise things but to de-nationalise where we can. Incidentally, the nationalisation of steel has put an appalling burden on the country. The steel industry is not likely to earn the interest, or anything like it. It has been financed entirely on the money market. The whole industry has been monetised with three-year borrowings. Some is in the issue department of the Bank of England, the rest is in the money market, and this has to be coped with in two years' time. We have these nationalised industries and the Government have to finance them as best they can. It is no good saying we shall issue gas stock or electricity stock unless we can sell those stocks. They are harder to sell than straight Government securities.

It all comes back to the point that if we are ever to get taxation down and savings up and be able to finance our overall deficit, we must get people to buy in the gilt-edged market again. This is a very difficult thing to do. The only way I can suggest of getting it started is by the Government giving some degree of fiscal privilege to those who invest in Government securities. This exists in many countries, and to some extent here. The first suggestion I make is that gilt-edged securities should not be subject to Capital Gains Tax.

I raised this question as a matter of equity some years ago and I was partially successful, but a quite incredible result was produced—no doubt by Professor Kaldor—that some stocks were totally free of tax, some were partially free, and some were wholly subject to tax. That was not a logical situation. I suggest that we should go the whole hog. I cannot believe that the Government have been so foolish as to think that they would get any Capital Gains Tax to speak of out of the gilt-edged market.

The next point might cost more, but I think it would be far more effective. As a result of Professor Kaldor's introduction of Corporation Profits Tax—why is he not a Life Peer?—the holder of gilt-edged securities is worse placed than he used to be in the sense that the income from gilt-edged securities is not deemed to be franked investment income. If an institution bought a preference share it would be deemed to be franked investment income because the company of whose capital it was a part had already paid Corporation Tax. We get the ludicrous situation that preference shares yield less than war loan and Government securities. We could introduce a privilege either in whole or in part that the holder of gilt-edged securities would be held to be holding a franked investment income.

My last suggestion is this. There are a number of tax concessions on savings movement securities, such as savings certificates, Defence Bonds and Development Bonds. It is for this reason that the amount any one person can hold is, I think in all cases, restricted. Chancellors have often increased the amounts that can be held. I think that I am right in saying that the Chancellor did that in this Budget. I believe that one of the few ways in which people's appetite for gilt-edged securities could be increased is by providing that the holdings of these privileged securities in the National Savings Movement could be very much larger than is now permitted. These privileges would do something to reduce interest rates and—much more important—they would reduce inflation by getting the bonds sold, instead of having to print the money. This is the way in which we shall check inflation.

I have made a few suggestions. I think that our situation is dangerous. I do not think that it will blow up yet, but the sheer length of our financial crisis is what worries me. The sterling crisis started in November, 1964. Now, in April, 1968, it is still continuing and, in some ways, is rather worse. The Chancellor made a good speech, but that is not quite the same as actually succeeding. I do not think that he has broken out of the vicious circle. I do not think that he has got out of his strait-jacket. We shall have to wait with breathless attention to see what happens. I am afraid that my peroration about him will have to be the same as it was about his predecessor: I believe that the job can be done, but I very much doubt whether he can do it.

8.12 p.m.

Photo of Mr Clifford Kenyon Mr Clifford Kenyon , Chorley

The right hon. Member for Flint, West (Mr. Birch) always makes most interesting speeches on finance. It is always a pleasure to listen to him. I could not, if I wished, follow him into the ramifications of finance into which he went. My mind goes back a few years to when the present Lord Thorneycroft, the right hon. Gentleman, and his colleague, the right hon. Member for Wolverhampton, South-West (Mr. Powell), resigned from the Treasury. Lord Thorneycroft told the House that Britain was then on the slippery slope. It has been on the slippery slope ever since.

I cannot understand why men of that ability—we all know that the right hon. Gentleman has great financial ability—did not hold on to that position, even if they could not get their way. They could at least have done something in that position to stop the country from sliding down the slippery slope. Although every Chancellor since the war has had a very difficult time, it was up to those right hon. Members to stand and fight where they were rather to leave it to others.

Photo of Mr Clifford Kenyon Mr Clifford Kenyon , Chorley

I know that they resigned. They should not have resigned. They should have stood and fought.

In 1964 we reached the bottom of the slippery slope. The Government of the day failed in that, although they knew what the position was, with the country running at a deficit and with little prospect of pulling through, they acted in their legislation as though there were no deficit. What was required at that time was consolidation. They should have consolidated the country on a firm financial foundation without further expenditure; and only when they had got the money should they have ventured out into the procedure which they did. If they had consolidated the position then, we should have been in a far better position now.

It is not my intention to say anything more on those lines. I want to discuss the Selective Employment Tax, which I have always been against, and show the effect which it has had, and is having, on a service in my constituency. Two years before the tax was introduced the laundry in the Chorley constituency set out to modernise its factory. It modernised half of the factory at a very heavy cost. Two years later the Selective Employment Tax was introduced. The laundry had been able, as a result of modernisation and the consequent saving of labour, to reduce its labour force from 660 to 555.

The laundry must now pay £20,000 a year in S.E.T. This has prevented it from modernising the remaining half of the factory. When the tax was introduced, the laundry was able to reduce the labour force by very little, because it has already reduced considerably and it was making fair savings in wages. The laundry has been held in this position, with half the factory modernised. In September, the Chancellor proposes to add another 50 per cent. to the £20,000 the laundry already pays in the tax. The laundry will then pay £30,000 a year. It is at the moment considering whether it will be able to continue beyond September. If it has to close, 555 people will be out of employment.

It is not possible for the laundry to increase its charges. This was pointed out in Report No. 20 of the National Board for Prices and Incomes, when the Board examined laundry and dry-cleaning charges. In Chapter 8—page 19, paragraph 55—the Board states: We do not consider that there is scope in the domestic laundry industry for the absorption of increased costs through reduced profit margins in view of the need for further investment in modern labour-saving machinery. When the company increased its prices because of the Selective Employment Tax, it lost a certain amount of custom. It had to reduce the number of vans from 75 to 60. Any further reduction in trade will mean a further loss, and this at a time when it will have to pay an increase of 50 per cent. in the S.E.T.

It seems to me that the Government are making this tax a revenue raiser, though when it was introduced the Chancellor at that time put it forward as a tax which would cause the transfer of labour from services to manufacturing and exporting industries. I wonder whether figures can be produced to show that that has taken place? My examination of figures available in my constituency shows that the transfer has gone from services to the unemployment figures.

In my view, the unemployment benefits which have to be paid should be set against whatever revenue may be accruing to the Chancellor. Also, the tax which companies save as a result of putting down the Selective Employment Tax as a charge against profits should be set against any revenue accruing. Further, I believe that, if the effect of the S.E.T. is properly examined, it will be seen as detrimental to the economy and not helping us at all. I am glad, therefore, that the Chancellor has announced that he is arranging for someone to examine the whole effect of this tax on industry. We shall have the result later, and I believe that it will show that the tax has not had the effect which we were told it would have.

Now, another matter. Clause 8 of the Bill provides for the increase in the motor car licence fee from £17 10s. to £25. There are many motorists who find it a burden to pay for a full year's licence, and £25 will be quite an item for them to meet. They can pay it every four months, of course. When the licence fee was £17 10s., the charge for a four months' licence was £6 8s., an addition of £1 14s. over the full year. Now that the charge has risen to £25, motorists will have to pay £9 3s. each four months, an addition of £2 9s. over the full year. The first addition was 3½ per cent. The second is 6 per cent.

Why the difference? These are people who are hard hit, and they cannot find the full year's amount all at once. Why should they be penalised? After all, a girl at the post office takes less than five minutes to make out the licence when people go for a new one. Why should they have to pay £2 9s. extra because they go three times a year instead of once? I want the Chancellor to look into this. I could understand a fee of, say, 5s. extra being charged when the licence is taken out every four months instead of once a year, but I cannot understand why a heavy charge of £2 9s. should be imposed when one girl has to make out three licences instead of one.

I recognise that the Chancellor has had a difficult task. I wish him well in what he has done, though I cannot agree with all of it. I hope that he will be successful in the efforts he is making to bring solvency into our national finances. If he can do that, he will achieve something of which we can all be proud.

8.26 p.m.

Photo of Sir Fitzroy Maclean Sir Fitzroy Maclean , Bute and North Ayrshire

The hon. Gentleman the Member for Chorley (Mr. Kenyon) began his speech by enunciating the startling proposition that by 1964 the country's economy had reached the bottom of the slippery slope. I do not know what he was doing before 1964, but he cannot have paid much attention to what has been happening since. Neither can he have a very realistic idea of what is coming to us next.

However, when the hon. Gentleman got on to the subject of the Selective Employment Tax, I found myself much more in sympathy with him and I hope that eventually we shall have an answer to the very pertinent questions which he posed about its operation.

For my own part, I want to touch briefly, as I often have before, on the impact of taxation, and especially of the Selective Employment Tax, on Scotland in general and on the Scottish tourist industry in particular.

We on this side of the House have made our attitude towards S.E.T. quite clear ever since it was first imposed. We regard it as a thoroughly bad tax. We shall repeal it as soon as we get the chance, and I hope that that chance will come soon. The Under-Secretary of State for Scotland, the hon. Member for Renfrew, West (Mr. Buchan), aptly described it as a blunt instrument when it was first introduced, and it has certainly been used by the Government to bludgeon Scotland ever since. Incidentally, it is a pity that the hon. Gentleman, or at any rate some Minister from the Scottish Office, has not been present today. The Treasury has a big say in the fate of Scotland, and when it is having a field day, as it is today, it is quite useful to have a Scottish Minister here to keep an eye on it.

At present, £20,000 is being paid by Scotland in Selective Employment Tax exery hour of every day, day and night. There is nothing surprising about that, because half the men and women in Scotland are employed in the service industries, which the tax so deliberately and so unfairly penalises. If the Government had only one object in view, namely, to harm Scotland, they could scarcely have devised a more ingenious or more effective method of doing it than by S.E.T.

The Times—that is, the London Times—once spoke of the Government's "slow retreat" from their original proposals on the tax. "Slow" has been the operative word. But it is true that over the years, by relentless pressure inside and outside the House, we have managed to wring from them a few concessions to common sense. The tax's application to agricultural workers, for example, was one folly from which we helped to save them, at the expense of the ridiculous rigmarole which has been going on ever since by which farmers pay the tax and then get it refunded at considerable expense to the taxpayer, and at the expense of giving a free loan to the Government at a time when they can least afford it.

The latest of these grudging concessions is that contained in Clause 47 of the Finance Bill, which provides for the exemption of hotels in certain parts of Scotland from the effect of the tax. But when we look at it more closely—and this particular gift horse can do with a very hard look in the mouth—its application turns out only to make confusion worse confounded. Just what sort of a gift it is, is well illustrated by the Chief Secretary's Answer to recent Questions by my hon. Friend the Member for Ayr (Mr. Younger), from which it appears that while the estimated amount of the refund in one year will be £300,000, the estimated increase in the yield of the tax from the hotel industry in Scotland will be about £750,000. In other words, the Scottish tourist industry is to be punished to the extent of almost another £500,000 by this "gift". It is a question of giving a little with one hand and taking a great deal away with the other.

But what has caused the greatest indignation in Scotland—and the Chief Secretary should have no illusions about the violent feelings that the Clause and the relevant Schedule have aroused—has been the geographical application of the exemptions, the arbitrary choice of areas, the invisible line drawn as it were between two hotels lying physically cheek by jowl and operating under similar circumstances. And yet one has been exempted altogether and the other, its neighbour, has been struck by a swingeing 50 per cent. increase in S.E.T. Whatever the Chancellor may say, and I know that there is supposed to be some kind of theory behind this, it does not seem to most people to make any sense at all. No wonder the Scotsman headed its leading article "Incompetent or mad", and proceeded to puzzle out in 1,000 words which it was. My hon. Friends say both, and I think that they probably have the correct answer.

Naturally, I welcome the exemption from this monstrous tax of hotels in the areas which are exempted. I happen, incidentally, to benefit from it myself. It is, of course, quite right that the Highlands and Islands, the Borders and the South-West should be exempted. This is something for which we have been pressing for many years. I also welcome the belated recognition by the Government that Arran, Bute and Cumbrae are islands and should be treated as such. Again, better late than never.

What enrages people is that hotels in a whole range of areas constituting major tourist centres, facing most if not all the same problems as their neighbours, should not only not be exempted but should have the tax that they already pay increased by 50 per cent. In my own constituency, Rothesay, Brodick and Mill-port are quite rightly exempted. I am very glad that they have been exempted. It makes one feel that one is occasionally able to achieve something here. But, just across the water, a few miles away in North Ayrshire, Skelmorlie, Large, Fairlie, West Kilbride, Seamill Ardrossan, Saltcoats and Stevenston, all important tourist centres, are hit by an additional burden. On the other hand, in South Ayrshire the area of the Girvan employment exchange, is exempted.

The same sort of thing has happened elsewhere in Scotland. In the North-East, as my hon. Friend the Member for East Aberdeen (Mr. Wolrige-Gordon) knows full well, and in the constituency of my hon. Friend the member for Dumfries (Mr. Monro), the same sort of anomalies exist. In fact, the whole Schedule bristles with contradictions and anomalies.

And then there is another thing. Even in the exempted areas, teashops and restaurants are not exempted. In Scotland, especially in the areas frequented by day visitors and by motorists—and that applies to most places—hotels and restaurants have an essential part to play. They deserve every encouragement and not just more bludgeoning with a blunt instrument. How otherwise are they to provide the improved service that visitors to Scotland now demand?

I took a few soundings among the caterers and hoteliers in my constituency last weekend, and I found them literally seething with indignation. I know that it has become the fashion nowadays to quote in one's speeches some of the more pungent remarks made by one's constituents on topics of public interest. But if I were to emulate my right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) in this respect and quote verbatim to the House what some of my constituents said to me about the Chancellor last Saturday morning, I am afraid that I should at once be ruled out of order, if not worse.

Does not the Chancellor realise that the Scottish hotel industry, which is one of our biggest dollar earners, is as a whole, seriously short of staff? That it is in fact about 20 per cent. short and that interferes very seriously with the very important job it is doing? That labour should be channelled into it and not out of it? And will the Chancellor, therefore, not take a bold, imaginative step and exempt the whole of the Scottish Development Area, with Edinburgh and Leith thrown in for good measure? That would be a thoroughly sensible thing to do, and it would be even more sensible if he would exempt teashops and restaurants and other catering establishments as well. Even fiscally it would bring a rich return, which I am sure is what he is principally interested in.

Might I, while I am on my feet, suggest to the Chancellor one other bold and simple stroke by which he could do a great deal to solve many of Scotland's problems? That is, by simply taking half a crown off the standard rate of Income Tax for Scotland. I believe that this would quickly stop depopulation and the brain drain southwards. It would bring prosperity and a steady flow of new industry to Scotland. It might even start a brain drain northwards, if that is possible.

I ask the Chief Secretary to take this idea away with him and think it over carefully. He will find, I think, that, apart from its boldness and simplicity, it has a lot to commend it. Wherever they have been used—and I do not think that they have been used anything like enough—fiscal inducements have worked very well. They help to prime the pump, and that is what is needed in Scotland. A fiscal inducement such as this on a nationwide scale would give Scotland the added financial and economic impetus which she has so badly lacked ever since this Government came to power. It would also have the advantage of encouraging and reinforcing success, which is something we do not do anything like enough. Finally, it could be applied without the employment of one additional civil servant.

For all those reasons, I hope that the Chancellor will consider it very seriously indeed.

8.43 p.m.

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

To judge from the debate so far, Selective Employment Tax has very few friends. I do not pretend to be one myself, and I was glad to hear the Chancellor say that he would set on foot an examination of the effect of the tax, its incidence and, I hope, its anomalies and injustices so that we can have a complete account of the way in which it has worked and what its economic and other effects have been.

I was in the Government when Selective Employment Tax was introduced. There was a plausible case for it at the time. In its favour, it must be said that manufacturing industries were bearing a fairly heavy load of taxation, with Purchase Tax on a wide range of goods, whereas the service industries were not bearing a similar kind of taxation. The alternative to heaping up the level of Purchase Tax or increasing the rate of direct taxation was to find a new base for taxation and this was the one chosen.

It was not my choice. I may as well say frankly that I advocated a simple payroll tax of 1 per cent. right across the board. It would have been much more acceptable. I doubt whether it would have had any harmful consequences and it would have produced the revenue. But the case made for the S.E.T. was that it might have some economic advantage in compelling the service industries to economise on labour and so release people for employment in manufacturing industries. That was the theory of the likely effect of the tax.

I do not think that we have had any convincing evidence that the tax has brought about this switch from employment in the service industries into the manufacturing industries, and certainly the tax has caused a great deal of hardship to many people who have been struggling in business and have been economising on staff and devoting a great deal of their own energies to building up their affairs.

So I think that the S.E.T. now needs very thorough re-examination to see what it is all about and what its effect has been. I do not think that we should take any political stance on this. It was a new tax introduced in circumstances in which it was felt to be justified, and the whole House and the country want to know whether it has justified its introduction and should continue.

I am glad that one or two right hon. and hon. Members have spoken about some of the Clauses in the Bill. I thought at one stage that those who had spoken were divided into two groups—those who assumed that they would serve on the Standing Committee and, therefore, could talk about the economy on Second Reading, and those of us who were doubtful as to whether we would serve on the Committee and, therefore, might talk about the Bill on Second Reading because this might be our only chance to do so. I am in the latter group, so I am going to talk about Clause 14 and only about Clause 14, which contains three proposals.

The first proposal has a very strong bearing on our sentiment and the desire we all have to encourage young married couples to start life on a firm financial foundation. My right hon. Friend the Chancellor of the Exchequer proposes to withdraw the existing concession of granting the full married allowance to the husband and a double set of allowances and reduced rate reliefs to the wife for the whole tax year, irrespective of the date in that tax year on which they got married.

We have from time to time read accounts of the wedding boom just before the end of the tax year, and some of us have looked for the more sophisticated people who have chosen the early part of October to get married—this from the tax point of view, being more attractive than getting married towards the end of the tax year. I think that the concession has to go and that it is right that it should. It was becoming a little unseemly that clergymen had to complain that it would have been more appropriate if the tax collector had been the witness to many marriage ceremonies instead of relatives.

It would have been more appropriate still if the tax bounty had been paid out there and then. I have heard this step described as mean but I do not think it right that this arrangement should be continued. When I was in the Inland Revenue one had to be qualified at the beginning of a year of assessment. Unless one was married at the beginning of the year of assessment, there was no marriage allowance at all. I have not looked up which Chancellor it was who made the change from one extreme to the other—probably some sentimental, bachelor Chancellor, who thought that he ought to see the younger people off with a bit of tax, something in their pocket.

Now we are reaching the right solution, because had the Chancellor in those days gone from one extreme to a proportionate basis, everyone would have said that it was fair. Instead he went to the other extreme and it is quite obviously unfair to the Revenue, apart from anything else. Now we are getting it straight, right in the middle. The marriage allowance will be in proportion to the period of the tax year in which the marriage takes place.

The other two proposals have a fiscal and social significance going rather wider than the appearance of the Clause would suggest. The Chancellor referred, I thought to murmurs of approval, to the proposed increase in age exemptions. He is proposing to put it up for a single person from £401 to £415, an increase of £14 and from £643 to £665 for a married couple, an increase of £22. Marginal reliefs beyond those limits will go to £230, instead of £180.

The age exemption was increased only last year. The new Clause to increase it was, very unusually, introduced on Report. This was because the Government's announcement of further increases in retirement pensions was made last summer, and it was necessary to increase the age exemption limits in sympathy with the increase in the level of pension, otherwise pensioners would complain of the high marginal rate of tax on a modest increase in their retirement pension. We find that age exemption has been increased in every year except one since 1961–62.

It rather looks as if every time the pension is increased the age exemption will have to be increased as well, in order to avoid this complaint about the high marginal rate of tax which would otherwise be borne by the increased pension. If this process is to continue without any corresponding tax concession to younger persons, the gap between the fiscal advantage of the elderly and the tax burden of the young will widen.

At present a married couple under 65 years of age pay £43 tax on a total income of £665, whereas a couple, one of whom only need be over 65 will be completely exempt on a total income of that figure. If one considers the concession given by the marginal relief above the absolute limits of age exemption it means that a retired couple, or a couple one of whom is over the age of 65, can reach a total income of £895 a year before they pay the same amount of tax as a younger couple on the same income.

This raises the question of equity, and it has a social significance, because this is the measure of what has been described as fiscal welfare for the retired or older people on modest incomes. Yet we read in the newspapers that many old people are not satisfied with complete tax exemption if their total income is below these limits. They want tax exemption on the first £665 of their joint income. That would be a very big and quite unjustified tax concession, and it would widen still further the discrepancy between the burden of taxation on the young and that on the elderly.

Photo of Mr Frederick Bellenger Mr Frederick Bellenger , Bassetlaw

Has my right hon. Friend overlooked the fact that the young couple are earning and are in a position to earn, but the retired couple have no chance to do that?

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

It is not as simple as that. I concede that most people who have retired are living on a smaller income than they had when they were at work and that many of them are living on fixed incomes. Nevertheless, there are quite a lot of retired people who are getting the benefit of the improved value of equities, of pension increases and, in a number of cases, of some form of employment.

But we must be satisfied that any gap in the level of taxation between one group and another on the same income is fully justified. We have to wonder about two things in this situation. The first is how far increases in pensions can continue to be given across the board irrespective of total income with a continuing extension of tax exemption. We should consider some tapering arrangement of future pensions increases so that we can use the tax system to withhold some of the uncovenanted benefit from those in the higher income groups. In principle, this is no different from the proposal in Clause 14 in relation to family allowances. I am rather surprised that we have not paid more attention to the effect of Clause 14 on the system of family allowances.

A few weeks ago, we debated the Second Reading of the Family Allowances and National Insurance Bill which proposes to increase family allowances by a further amount in October this year. But we knew that at the same time there would be provision in the Finance Bill to offset part or the whole of the increased family allowances for those in the higher income groups. We know what family allowances are. We know that they are given across the board, that they are given irrespective of means and that they are non-contributory; they are paid for wholly out of taxation.

There is a legend that taxation takes care of the differences of income and that family allowances are thereby suitably adjusted to the means of the recipients. But the figures do not show that, and that is why the Chancellor of the Exchequer is having to do something more about it. A taxpayer in the top bracket, paying at the standard rate, still keeps 11s. 9d. in the £ of the family allowance in addition to the tax relief which he gets for Income Tax purposes.

A married man earning £1,200 a year, with two children under 11, will get £59 net gain from Income Tax child allowance this year and if no adjustments were made he would get on top nearly £25 net family allowance. Family support in his case amounts to £84 net a year. A married man earning £14 a week, with two children under 11, paying no tax will get no benefit from Income Tax child relief, but he will get the full benefit of the family allowances, so he will get in total family support £42 net—exactly half the net amount of family support given to the man earning £1,200 a year.

The question is whether a parent paying tax at the top rate needs the extra 7s. in family allowances which began a fortnight ago and the additional 3s. which is due to come in at the beginning of October. The Chancellor says "No". I agree with him. The Chancellor has become a civilised selectivist, because civilised selectivity was the description which he gave to this operation. He said before the Budget that he proposed, by means of tax adjustments, to ensure that the extra 7s. a week went only to those in need.

I was an advocate of a scheme, which the Government are now introducing, which would have given a 10s. increase in the family allowance with scaling down by reduction in the Income Tax child relief. That was not accepted at the time. Instead the Government introduced a proposal to increase family allowances by 7s.—not 10s.—right across the board without any accompanying tapering arrangement for Income Tax child relief. The Government are now able to do precisely what I said they could do. It can be 10s., and it is to be 10s., accompanied by the adjustments in the tax allowances which are contained in Clause 14. The Chancellor achieves this by the simple device of reducing the Income Tax child relief by £36 for each child for whom family allowance is payable. When hon. Members in different parts of the House were saying on Second Reading of the Family Allowances and National Insurance Bill that this would create an administrative nightmare, I pointed out that it would be almost as simple as A.B.C. and would work like a charm. So it will.

Photo of Mr Michael Shaw Mr Michael Shaw , Scarborough and Whitby

Would the right hon. Gentleman carry his argument still further to the extent that there comes a range of income when it pays a Surtax payer to dispossess himself of the family allowance?

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

The hon. Gentleman will not expect me to weep about that. I think that he might, with some justice in society dispossess himself of a little more than the child relief that he does not really need. However, I will reserve a soft spot in my heart for these people.

As I get older I develop more compassion for the deprived members of the community—and I am sure that they are part of it.

Photo of Peter Tapsell Peter Tapsell , Horncastle

Mr. Peter Tapsell (Horncastle) rose——

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

I must get on. I have just given way to the hon. Member for Scarborough and Whitby (Mr. Michael Shaw).

The purpose here is to withhold the benefit of the increases from those liable at the standard rate while those paying at a reduced rate are to benefit only proportionately. Here is the important fiscal significance of what the Chancellor is proposing in Clause 14. The principle of selectivity is achieved by employing the tax system to do more than impose a tax on income. This is what the Chancellor called the break-through, because he uses it to withhold social benefits paid on a universal basis.

I think that the social significance of the Chancellor's proposal is that family allowance can now be 3s. more for the poorer families than it would have been but for the proposals in Clause 14. I approve of that. The first proposal was for 7s., without any claw back. It is now 10s. with the arrangements in Clause 14.

Photo of Peter Tapsell Peter Tapsell , Horncastle

The right hon. Gentleman speaks with more authority on this subject than anybody else in the House. Our criticism is that after both the 7s. and 3s. arrangements have been completed, with all the complications, 250,000 children will still be left below the poverty line, and this seems to be a fundamental flaw in all these arrangements.

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

I thank the hon. Gentleman for mentioning that, because I was coming to it. The social significance is that by this method we can increase the family allowance for poorer people beyond the point that we would otherwise do it, and at the same time we can save £60 million in the cost of family allowance increases proposed under the other Bill. Socially, fiscally and financially we have a benefit from this arrangement.

From the point of view of equity as between one parent and another, Clause 14 will have the effect of narrowing the difference between the family support given to the better-off family and the poorer family by the combination of tax relief and family allowances. Instead of a £1,200 a year man with two children under 11 getting £84 net family support this year, he will get £69. Of the net gain of £25 which he would otherwise get from the family allowance, £15 will be taken away by the restriction of the Income Tax child relief of £36.

The Chancellor has said that the scaling down process will apply this year only to the increase in family allowance, not to the basic allowance of 8s. for the second child and 10s. for the third child onwards. There is no attempt to scale down the benefit of the family allowance below the increases, but my right hon. Friend has said that for 1969–70 he is hoping to make a more drastic attack on these allowances being paid to better off people, and that he hopes to introduce what he calls full selectivity for family allowances and to do it in such a way that the people who are not in real need of them will not draw them.

The objects to the scheme are perhaps threefold, and the hon Member for Horn-castle (Mr. Tapsell) referred to one of them. He said that it does not meet fully the needs of very poor families, that there will still be 160,000 families, where the man is in full-time work, whose total resources will be below those prescribed by the Supplementary Benefits Commission. That is true.

My first observation on that is that social benefits cannot do everything which a wage system lacks. If social benefits are to underpin low wages and inadequate earnings, then we shall all be on social benefits. Wages must carry a minimum of personal domestic responsibility. But even if that were not so we could make the 10s. family allowance 15s. It can be 20s., accompanied by a similar exercise to that outlined in Clause 14. The restriction of the Income Tax child relief, instead of being £36, would have to be much greater, but it could be done. The paring process could meet any increase in family allowances.

I believe that, on Second Reading of the Family Allowances and National Insurance Bill, I gave the extreme example that, if one abolished Income Tax child reliefs altogether and used the proceeds to improve family allowances, one could give a family allowance of 30s. for each child, including the first. That would make a real attack on the problem of poorer families and we would hear no criticism of that. But the Chancellor has to make a modest start so, for the moment, the combined proposal of family allowance and Income Tax will leave these families in their present unfortunate position——

Photo of Peter Tapsell Peter Tapsell , Horncastle

I doubt whether Miss Ellen Wilkinson, when she campaigned for family allowances, would have agreed that they could not meet the problem of the low-paid worker, because that was exactly what she had in mind. Would not the right hon. Gentleman agree that this method of tying it to Income Tax combined with universal increases in family allowances is a clumsy and roundabout one, and that these 250,000 children in the 160,000 poorest families could be helped more directly and immediately by a means test?

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

That brings me to my very next point, that, if the hon. Gentleman or any other hon. Member suggests that the solution of the problem is to go directly to the target with a means test of the working man with a family, my reply is that that is totally unacceptable. It would be quite objectionable to create a totally new means test for 250,000 men on low wages with family responsibilities. I need not dwell on the consequences of such a step. We know that it can be done through the direct method, and comparatively cheaply, probably at a cost of £14 million or £15 million a year, but what about men who are not interested in overtime or productivity or promotion on the shop floor, where other skilled workers are probably drawing less money, and who say, "The skill you want is the skill of reproduction, because that is how you get your money."? We would see undesirable influences in the attitude of employers who could take on a low-paid man and say that the Supplementary Benefits Commission would make up the difference.

I hope that hon. Members will understand that it does not matter how many times we go around in circles trying to deal with this matter. We want it to be acceptable and not objectionable. The hon. Gentleman asks, "Why give it out with one hand and take it back with the other?". The answer is that this is how it can be done acceptably. Indeed, taxation itself is largely taking back something which has been given out. In a society which has a strong objection, through our unhappy social history, to individual means testing, we have to accept that there must be alternatives which avoid all that humiliation and indignity——

Photo of Mr Martin Maddan Mr Martin Maddan , Hove

The right hon. Gentleman is a great authority and has enormous experience and I should not like him to dwell on this point. He said that a minimum wage would be a great contribution to this topic and, ideally, it would, but how would that help the man with a very large family? How could the minimum wage be set high enough to ensure that his children had the minimum standard of life to which we all think that they are entitled?

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

I appreciate the question. If all the families who are below the supplementary benefit level were the larger families, the hon. Gentleman would have a good case, but they are not. In looking at the composition of these families we find that a large proportion of them are two-children and some even one-child families. Although many of them are large families, they are by no means the greater proportion of the total number of families living below the supplementary benefit level. One must, therefore, ask the wage system to at least satisfy the reasonable requirements of a man and wife and one or two children, supplemented, as it will be, by family allowances.

The third objection to this proposal which I have heard is that it will create difficulties and friction between man and wife. The Chancellor said in his Budget speech that 350,000 men would be brought into the P.A.Y.E. system for the first time, because they would have to pay more in tax so that their wives could get still more in higher family allowances. I have been treated at different times to a dramatic presentation of John coming home from work and saying, "Mary, they have taken 9s. from my pay packet in P.A.Y.E." I have heard how Mary will reply, "That is all right John. I have another 15s. in the family allowance", to which he will reply, "If I am to suffer from P.A.Y.E. and if you are to have more in the family allowance, we must make an adjustment in the housekeeping budget." Then I have been told that the trouble will start, with Mary saying, "You are a mean man. I knew you were like that when I married you and now you have proved it"—and the rolling pin will come out and the Marriage Guidance Council will be on the premises before one can say Jack Robinson.

That is a fantasy. As the Minister of Social Security pointed out, most of the parents of young children these days are themselves young. They belong to a different generation. With respect to those who wish to preserve the harmony of married life, I suggest that they need not fear that the Chancellor's proposals in Clause 14 will upset it all that much.

I make my next suggestion with some hesitation because it may not be fully acceptable to my hon. Friends. I believe that it is time to consider a new method of approaching uncovenanted pension increases. The National Insurance Scheme is a gigantic system of transfer payments financed on a pay-as-you-go basis from joint contributions of employers and employees and from Exchequer contributions. The benefits have no relation to the contributions paid and the contributions are becoming an exaction on the lower-paid workers, who have the uncovenanted benefits of the pensions of better-off workers slung round their necks.

Total expenditure on pensions is much higher than it need be and I believe that higher benefits for those who need them could be paid for far less expenditure, on precisely the same principle as that adopted for family allowances. For a lower net cost, hundreds of thousands of pensioners could be taken off supplementary benefits and given an adequate pension as of right, with a scaling down of benefits for those with higher incomes. This could be done by an adjustment of the personal tax allowances for married and single persons and those receiving retirement pensions.

This presents some administrative problems, but they are no more insuperable than the problems connected with family allowances. I am, of course, talking about pension increases and I would like this matter considered in relation to the next pension increase so that we could see if we could make it bigger for poorer people and scale it down for the better-off, instead of giving it, as we do at present, equally across the board, inadequate at one end and a surplus at the other.

Of course, with a contributory scheme one has to maintain the fundamental basis of benefits as of right by reference to contributions. Therefore, a minimum claim to a pension must be clearly established, but when it comes to uncovenanted increases every two years right across the board at the cost of £300 million a year and still have nearly 2 million having to go to the Supplementary Benefits Scheme, there is something radically wrong with the whole system. Therefore, with some diffidence but with profound conviction, I believe that now is the time to begin to consider what the breakthrough of the interlocking scheme of family allowances and Income Tax allowances can do in other branches of the social services.

9.21 p.m.

Photo of Mr Anthony Grant Mr Anthony Grant , Harrow Central

I am very pleased to follow the right hon. Member for Sowerby (Mr. Houghton) because he is one of the vice-presidents of the Wider Share Ownership Movement of which I am a founder-member. I shall not follow him into the intricacies of Clause 14, which he developed in detail and at considerable length, but some of the things I say may strike a chord with him in his capacity as a vice-president of the Wider Share Ownership Movement. Many hon. Members have made a case for a two-day debate on the Second Reading of the Finance Bill but that is not to be and, as many hon. Members still wish to speak, I shall be brief.

I regard this as a completely negative Bill enacting a completely negative Budget. It is a Bill which increases taxation by an unprecedented £900 million-odd in a full year. When one recalls the proud boast of the Prime Minister and others in 1964 that they could fulfil their programme without any increases in taxation, the spectacle of hon. Members opposite actually cheering the highest increases in taxation in peace time can only be described as astounding They have become like the lunatic who, when asked why he was banging his head against the wall, said that it was because it was so nice when he stopped. If we had not been so mesmerised in recent years, they would be clamouring for reductions in taxation, not cheering increases.

The cat was let out of the bag concerning the economic mess we are in by the Answer which the Chief Secretary gave to a Question by me on 2nd April when I asked for details of expenditure over the period 1964–67 and the right hon. Gentleman revealed in stark terms that in that period there had been an increase in fixed capital formation in the public sector of no less than 26 per cent. and in the private sector of minus 1 per cent. I thought that revealed the whole reason for our mess and inflation in one single stark sentence which brought the facts into the light of day.

Devaluation followed as sure as night follows day, but, given the fact that devaluation was a major economic defeat or a giant stride toward Socialism—as my hon. Friend the Member for South Angus (Mr. Bruce-Gardyne) said, the terms are entirely synonymous—I suppose it was inevitable that it was necessary to take a substantial amount of purchasing power away from domestic consumer spending. Indeed, many people thought the Chancellor astonishingly weak not to have acted sooner in face of that situation.

We are faced with an oppressive and negative Finance Bill. In the words of my hon. Friend the Member for Acton (Mr. Kenneth Baker), in a remarkably confident and sprightly maiden speech, it is a gloomy monument to three years of hopeless mismanagement of our economy. It is the last depressing squeak from the punctured Labour Party hot-air balloon. In this Finance Bill the Chancellor, by his negative approach, has missed a great opportunity to encourage the only alternative to increased taxation. I refer of course to savings.

The Chancellor's predecessor, the present Home Secretary, said in fine ringing tones, either last year or the year before, "More savings mean less taxation". Whenever I have urged the cause of savings on Treasury Ministers, they have fallen over themselves to say what a splendid thing savings are and how good they are for the community. Alas, that lip-service has never been translated into action.

There are three reasons why savings are important in our economy and to our whole way of life. First, by savings a reduction in private consumption can be achieved without extra taxation. Secondly, savings, especially if they are in productive industry, can promote growth in the economy, whereas increased taxation cannot encourage growth in the economy; in fact, all too often it has exactly the opposite effect through being a disincentive. Thirdly, on a more philosophical note, increased savings give people a stake and an interest in their country which they cannot otherwise have through nationalisation and they encourage personal responsibility. Increased savings are a bulwark against the ever-encroaching powers of the State in our society. At present our whole tax system works against savings and thrift, particularly against the small saver.

I believe that in a number of relatively simple and not too expensive ways small savings in particular could be helped by the Bill. I regret that they are not. First, why not exempt from Income Tax the first £25 or £50 of investment income? This is done in Post Office savings; an investment in the Post Office gets the first £15 of interest tax-free. What is so wonderful about the Post Office? Why not do the same for savings invested in productive industry?

I believe that the whole of our system of repayment claims for tax deducted from dividends before they are paid is cumbersome and a complete disincentive to people, particularly small investors, to save. All the mumbo-jumbo of having tax deducted at the standard rate and then having to fill up very complicated forms is, to the small investor, a great impediment. My hon. Friend the Member for Scarborough and Whitby (Mr. Michael Shaw) will not agree with me, because he may render that useful service.

I appreciate that to abolish Stamp Duty totally might be a considerable expense. However, in many ways Stamp Duty, particularly on share transactions, is a disincentive and, I have always thought, an absurd and unnecessary tax. I was glad that my hon. Friend the Member for Acton referred to the ludicrous artificial distinction which is drawn between earned income and so-called unearned income. He spelled this out very clearly. This absurd anomaly goes back to heaven knows what time. The sooner we get rid of it the better it will be.

If a reduction in taxation is an incentive for people to work for so-called earned income, even more so is it an incentive to people to invest. People work for reasons other than sheer cash, though that is the main consideration. They work because they like where the job is or they like what they are doing. The only criteria for people to invest is the net money return they will receive. Therefore, if it is wished to encourage savings, regard must be paid solely to the taxation effect.

The Capital Gains Tax in itself, through the damage it has done to so many small savings, notably to the Investment Club Movement, whose cause I have so often advocated in the House, has been a menace and a drag upon the whole of savings. Clause 26 contains one small grudging concession, in that the first £50 of gain is to be exempt from taxation. I have been advocating this ever since Capital Gains Tax was introduced in 1965. Other organisations in the City—the Wider Share Ownership Movement, the Investment Club Movement—have been pressing the Chancellor to grant this small relief. I moved Amendments in 1965 and 1966, but I was always met with the argument that, although it might benefit a few small savers, it would also benefit many rich people, and therefore it must be wicked. I was told, also, that it was virtually impossible administratively.

What has changed since then? Why do those arguments no longer apply, and why has the Treasury at last grudgingly changed its mind? Perhaps the reason is the advent of the Financial Secretary to his present office. He is on record in some of the earlier debates, when he sat on one of the benches behind, as sharing my view. Perhaps we have gained something from his elevation to the Treasury Bench.

Another measure to encourage savings could have been taken in this Bill. I refer to the savings option scheme which my hon. Friends and I have put forward, a sort of "Save-as-you-earn" scheme, which merits careful consideration. If the Government had any desire and intention to encourage savings, something along those lines could have been incorporated in the Bill.

The Government might have applied their minds, also, to giving a concession to company thrift plans. There are such schemes in many countries, for example, Germany, the United States and France. I regard the schemes in the United States as the best. Briefly, they involve a 6 per cent. deduction from the payroll which is invested by the company in Government bonds or company stock, though not more than 50 per cent. in the company's stock. For every dollar saved, the company itself adds 50 cents. This has to continue for five years in order that the employee may have the full benefit.

We could do the same here, but the difference in Britain is that payments and bonuses made by the employer would be liable to tax as income in the hands of the worker or investor, whereas under the tax concessions in the United States they would attract the capital gains tax which operates there. Again, this is something positive which the Government could do to encourage savings, and I hope that the Financial Secretary will give their views about it.

Photo of Sir Albert Costain Sir Albert Costain , Folkestone and Hythe

Does my hon. Friend appreciate that in Australia, in order to encourage people to buy their own homes, the Government supplement the savings of young people—a savings-for-housing, scheme?

Photo of Mr Anthony Grant Mr Anthony Grant , Harrow Central

I am grateful to my hon. Friend. I did not know that, and I am interested to hear it. It is an example showing where Australia is further ahead than we are.

Now, another scheme to encourage savings which could be adopted within the framework of the present law. I refer to investment sharing schemes which are not stock options. This idea is the brainchild of Dr. George Copeman, of the Wider Share Ownership Movement, details of which have been sent to the Chancellor through the Financial Secretary. Briefly, the idea is that employees are given shares of relatively low yield and with few rights to begin with. After a period, these are converted, as the profit- ability of the company increases, so that the workers have a direct interest in the profitability of the company. In due course, the shares become full ordinary shares. This scheme gives employees a stake in the country and associates them with the success of their company. I should like the Financial Secretary to confirm, first, that there is nothing in the Bill, so far as he knows, which would work to the detriment of that idea, and second, that he and the Chancellor are wholly sympathetic to that concept, which would be in the interests of the community as a whole.

The Chancellor is missing a great opportunity in not doing something to promote savings in the Finance Bill. I cannot do better than quote the words of my right hon. Friend the Leader of the Opposition: The country desperately needs a savings policy. …If half the resources devoted to a compulsory wage freeze were transferred to looking for effective ways of encouraging personal savings, I am sure that some practical scheme could be devised. Of course it can. It can be devised if the will is there. But will on the part of the Government is lacking, not only on the savings front but in every sector of the economy. The Chancellor is, one might say, the leading escapologist in the House, a greater escapologist than Houdini. He dodged out of the Ministry of Aviation just before it got too hot for him. He ducked out of the Home Office just before all the immigration problems arose. He will find it very difficult and beyond his ingenuity to get out of the dilemma which the mishandling of the economy by the present Government has caused and which has led us to face this wretched and wholly negative Bill. I believe that it represents the complete barrenness of thought of the Government, and for that reason I shall vote against it.

9.35 p.m.

Photo of Mr James Dickens Mr James Dickens , Lewisham West

In the course of our debate today we have had an almost endless recital of appeals by hon. Members opposite to the Government to cut the level of public expenditure and the level of taxation. After listening to them I feel that it is about time that hon. Members opposite faced up to some of the stark realities of the economic position that faces the country.

I begin by reminding the House that we in Britain spend less on public consumption than, for example, does the United States. We have one of the highest rates of private consumption of any advanced industrial country. Our spending on the social services per head of population, as recent I.L.O. and O.E.D.C. surveys estimated, is lower than that in capitalist America.

In the context of this debate we must see taxation policy as part of the Governmen's endeavours to reappraise Britain's world financial rôle. I want to try to measure the Bill against those terms of reference.

In his interesting speech this evening, which unfortunately contained some unworthy passages, the right hon. Member for Flint, West (Mr. Birch) discussed with my hon. Friend the Member for Ebbw Vale (Mr. Michael Foot) whether the country is now a creditor nation. Mr. A. R. Conan, in a recent broadcast on the Third Programme and in a variety of articles in learned financial periodicals, has drawn our attention to the fact that we in Britain today can pay for a much higher percentage of our imports from the revenue from our exports than we have ever done. Moreover, British investments overseas before the war totalled about £4,000 million of direct and portfolio holdings. Despite all the effects of the Second World War, despite all the demands the war made on investments abroad, British investments abroad today total over £11,000 million.

In its admirable Economic Review, the T.U.C. draws attention to the fact that the United Kingdom balance sheet at the end of 1966, the last year for which official information is available, showed our short-term assets as totalling £7,215 million and our short-term liabilities at just over £9,500 million. Therefore, we had a deficiency on short-term account, but a substantial surplus on long-term account, with assets totalling £10,580 million against liabilities of £6,735 million. The overall total, therefore, is that at the end of 1966 this country had assets, short- and long-term, of £17,795 million and liabilities of £16,345 million. That is a position of grave short-term weakness, and none of us should overlook this.

Taking up points which I and other hon. Members have advocated in the House and in the journal Tribune and in The Guardian newspaper, the T.U.C. argue: While our short-term liabilities as a whole exceeded our short-term assets by nearly £2,500 million at the end of 1966, on the long-term account our assets exceeded our liabilities by £4,700 million. It is obviously dangerous—and not obviously necessary—to remain exposed in a way that no private banker would tolerate for a moment. The right course for Britain is so to arrange her balance sheet as to avoid crises of confidence and their effects on the economic growth on which Britain's real wealth and her real standing in the world depend. Significantly, the T.U.C. go on to urge: It would be particularly helpful to the United Kingdom reserve position if more of the private portfolio which constitutes about half the total of £3,200 million at the end of 1966 was acquired by the Government over a period of time and built into Britain's frontline reserves. I remember when a number of us in this Chamber advocated this view how much it was ridiculed at the time. Now, we have one of the strongest bodies of opinion in the country moving in our direction and advocating this view. The T.U.C. has also, not merely in its economic review but in its Press comment on the Budget, made some very pertinent observations on the Chancellor's overall strategy. The T.U.C. said this on Budget day: The Chancellor has deliberately and, in the T.U.C.'s view wrongly, set the sights of economic growth well below what Britain could and should achieve. The Budget is not based on an examination of the productive potential of the British economy, which, as the Government has itself recognised, is considerably more than 3 per cent. over the next few years. The Government has obviously been unduly influenced by considerations of foreign opinion—and indeed by the opinions of the most short-sighted of foreign observers—at the expense of developing and exploiting Britain's industrial capacity.The Chancellor has as a consequence not only been led to cut personal consumption, but has chosen to do it in ways which bear little relation to people's ability to pay. At a time when speculators have twice in recent months made vast profits out of the country's difficulties, it was time that the Chancellor made a real move in the direction of redistributing Britain's wealth. Now the most attractive aspect of the Budget is set out in Part IV of the Bill, dealing with the special levy. One has to look at the special levy against the enormous social inequality that still exists in Britain today, In 1938 the top 5 per cent. of our population owned 79 per cent. of all private property in Britain. Professor J. A. Meade has calculated that in 1960, after 22 years of war taxation and welfare economics, the top 5 per cent. still own 74 per cent. of all private property, a modest enough reduction.

It is true that there has been a more significant decline in private property ownership by the top 1 per cent. In 1938 the figure was 56 per cent. and in 1960 it had fallen to 42 per cent. These figures should be compared with the position in free-enterprise America, where the top 1 per cent. controlled but 24 per cent. of all private property in 1954, the last year for which information is officially available. Thus, Great Britain has a much higher degree of social inequality than America. It has also one of the highest levels of social inequality in Europe.

It is very doubtful whether the fiscal policies so far pursued by the Government have made much impact on this problem. We have Capital Gains Tax which is yielding useful results. We have ensured that business entertainment is no longer tax-free, except for overseas buyers. The consumption of wines and spirits for business purposes has fallen significantly since that time. But these reforms merely scratch the surface.

Death duties, for example, are almost a voluntary tax. They could, until the publication of this Finance Bill, be avoided by a gift made five years beforehand. Professor Titmuss has shown how loopholes like discretionary trusts further weaken the effect of death duties, to the point where the available evidence in 1962 suggested that the inequality of incomes had increased from 1949, when the post-war trend towards equality had largely petered out. The return on death duties in 1967–68 was £330 million, only £20 million more than it had been five years before.

It is true that Income Tax and Surtax do something to reduce the inequality of incomes, especially for the very top 5 per cent. of taxpayers. However, our present tax structure increases the degree of inequality for the great majority of the remainder, because the progressive effect of Income Tax is largely offset by the regressive effect of indirect taxation. The proposals contained in the Finance Bill to increase Purchase Tax and other forms of indirect taxation are bound to exacerbate the position.

In the Treasury journal "Economic Trends" for February, 1968, we had a most interesting examination of the position of families in 1966 at various levels of income and taxation. The journal shows that, in 1966, families in the income range £816 to £988 per annum—that is to say, below average earnings—were paying 38 per cent. of their income in tax, direct and indirect, compared with 35 per cent. paid out by families with incomes of £2,100 per annum and above.

Social service benefits do not even matters out. It is true that they have a marked effect on raising incomes below about £12 a week and that the position has improved considerably since 1964. But the only families in the income group between £600 and £2,120 per annum to gain substantial net benefits were those on average earnings and families with four or more children. So the redistributive effects of taxes and benefits are thus much greater between families of different sizes than between families of the same size in different income brackets. In other words, it is a horizontal rather than a vertical income redistribution.

It is the case that the incidence of indirect taxation paid by people with incomes between £600 and £2,100 per annum also has an increasingly regressive effect. In Table D of the February issue of "Economic Trends", it is brought out that indirect taxes, as a proportion of income after the payment of all direct taxation and all benefits, worked out for people below average earnings in 1966 at 20 per cent. of their original income. At £1,750 a year, the figure falls to 18 per cent. At £2,500 and above, it falls to 16 per cent.

Therefore, the existing tax structure for the great majority of people earning between £600 and £2,500 per annum is currently, before we consider the proposals in the Finance Bill, one in which we have the progressiveness of Income Tax totally overtaken by the regressiveness of indirect taxation.

Unless my speech tonight gives the Whips cause for further consideration, I understand that I am to serve on the Standing Committee which is to consider the Finance Bill. I give notice that I shall oppose the increases in indirect taxation both in the Selective Employment Tax and in the higher rates of Purchase Tax, because they are bound to fall most heavily on those who are least able to bear them.

I want now to draw attention to the overlying position which the country faces on the central question of the incomes policy. It does not form part of the Finance Bill, but it has been widely discussed in the debate today. I am not one of those who argue for the intrinsic merits of free collective bargaining. I believe that it was and is a massive advance for the British working people against the old master-servant relationship, but I do not believe that free collective bargaining by itself can defend the living standards of the working people. Over the past 10 years, the proportion of personal income going to wages and salaries has fallen, whereas the proportion derived from rent, interest and profit has fractionally increased.

I want to see the Government, in our consideration of the Bill, looking towards fiscal means to assist the incomes policy. I want to see them considering, as a matter of urgent importance, the introduction of an excess payments tax as a substitute for the present incomes policy. I do not believe in meddling with free collective bargaining or issuing White Papers like the one we are currently considering on the subject. But the Government have a right and a duty to establish a norm for incomes in the sense that they have the right to set out the proportions of increases in the gross domestic product which should go to increases in wages and salaries in any given year. But having set the norm and laid down the social criteria for wage negotiations, the Government should then use fiscal means to ensure that those whose money incomes from any source—earned or unearned—exceed the norm or go beyond the social criteria, should be subject to an excess payments tax at a penal rate. This is, I think, the only fair way to achieve a balanced increase in incomes in the years ahead.

Seen overall, one cannot regard the Budget as being in any sense radical. It has one distinct radical overtone in the special levy, though this is no substitute for a wealth tax, but the whole effect is to carry out in the domestic economy the sort of fiscal provisions that would influence the most reactionary of our foreign creditors. The Government are taking out of the economy not just the sum mentioned by the Chancellor on Budget day and not just the £500 million the Treasury estimates will be taken out to reduce the pressure of internal demand this year. They are taking this out in addition to the proposals, made immediately after devaluation, which were designed to take £750 million to £800 million out of the economy next year, and in addition to the cuts of £325 million announced by my right hon. Friend the Prime Minister in public expenditure. The total effect of the post-devaluation measures will be in the region of £1,500 million in the current fiscal year. This is far too severe.

The Government's overall strategy is designed not to make the best of the tremendous change we could bring about as a consequence of devaluation—which, by any objective examination of Britain's economic problems, was right and desirable. What the Government should be doing is to take the steps that some of us have argued for for about two years—to protect the British economy against the worst ravages of the international financial system by bringing in exchange controls and, as the T.U.C. is arguing, by mobilising the dollar portfolio and taking other measures designed to use the techniques of Socialist economic management to protect our country when the currency and the economy are being unduly put at risk.

If the Government are not prepared to take these steps, they will face an almost certain clash with organised labour this summer and I make it plain to them that this clash is not of the Labour movement's choosing. It is a clash that this Government seem determined to have, because the only effect of their strategy, at least in the short term, can be to force down money incomes. The trade union movement has given ample evidence that it is not prepared to wear this. I take this opportunity of urging my right hon. and hon. Friends on the Treasury Bench urgently to reconsider their attitude in this respect.

The Chancellor's declared strategy to achieve a balance of payments surplus in 1968–69 of £500 million is one with a chance of success, but the odds are overwhelmingly stacked against this. The condition of the American economy, the extremely precarious two-tier system for the present dollar price of gold, in addition to the long-term endemic weakness of the British economy, plus the fact that we no longer have the resources to support an international trading currency and an international reserve currency, urgently demand a reappraisal of our total world financial rôle.

This Bill unfortunately takes no steps in that direction. It will have our critical support, but I say to the Government that time is short and we must set about much more ambitiously achieving the goals which I and my hon. Friends have outlined in this debate and on earlier occasions.

9.58 p.m.

Photo of Mr Michael Shaw Mr Michael Shaw , Scarborough and Whitby

I have listened with great interest, as one always does, to the hon. Member for Lewisham, West (Mr. Dickens), in his contributions to finance debates. I listened particularly carefully to what he had to say about the union attitude towards this Budget and general financial policy of the Government. I say frankly to him that over these last two years I have been amazed that the trade union movement has continued to work as it has done with the Government in view of the way in which the Government have managed the economy.

It is all very well for the Government to come along and paint a picture of difficulty and problems facing us all, and then painting a picture of further privation in the near future in the interests of long-term solvency and benefits to come at a later date. One can accept that for the first year; one might accept it for the second year. Then in the third year, when we are told that the worst is over and it is "steady as she goes", halfway through that we have the biggest crisis of all. When, in the fourth year, we get the same old story about the difficulties over the next two years, more hardship and more forgoing of the hopes that we all had for a better future, then one can understand how people can get tired of forgoing their legitimate hopes and aspirations for the betterment of society. This is the effect in the country. People are tired of promises. They want to see some results.

I was also interested in what the hon. Gentleman had to say about the position of property here and the United States. One will not get a redress of this position unless there is a much greater incentive and a capacity to earn greater incomes in this country. In America, one is not subject to the top tax figure until one reaches £150,000, and that top rate of tax is far less than the figure in this country of over 90 per cent.

Because people can earn large incomes and can save and invest those incomes to a much greater degree than we can in this country, there is the creation of new wealth and the revolvement of capital and the creation of new capital for the benefit of everybody in the country. This is the sort of society and economy which we want to create for this country.

Apart from the fact that this is the fourth Budget running which has raised additional taxes, the great criticism of it is that again there is not the slightest incentive in it for greater effort and saving. This is the only country, certainly in the Western world—and I would say in the whole world, because behind the Iron Curtain there are other incentives—which has almost a complete ceiling on the amount of income which one can receive in a year. Above a certain figure, over 90 per cent. is taken away in a normal year, and whenever there is a "once-for-all-tax" it is almost 100 per cent.

The time is overdue for a complete review of our taxation system, and particularly of the relationship between direct taxation on incomes and indirect taxation. I hope that new taxes or the relationship of old taxes with one another will be considered, not in the secrecy of the Treasury, but in public and fully discussed, so that the nation can lend its opinions to the discussions.

The way in which Corporation Tax and Capital Gains Tax were introduced was a great disservice to this country. They have created needless harm and anomalies in the economy. Dealing with one tax initiated in a hurry in 1966, I am sorry that the Chancellor of the Exchequer has so greatly increased Selective Employment Tax. I do not believe that a bad tax is made better by merely making it bigger. I agree with the right hon. Member for Sowerby (Mr. Houghton) that, had such a tax been necessary, it would have been much better to introduce a payroll tax rather than a Selective Employment Tax. Had I felt that such a tax was necessary, I should have believed it right to make it an across-the-board tax rather than have this arbitrary distinction between the service and manufacturing industries.

Dealing with the specific failures of the Bill, the biggest disincentive lies in the lack of change in the close company legislation. The limits of remuneration allowed for Corporation Tax purposes on close companies are unrealistic, as they were when Corporation Tax was introduced to pay market salaries to directors, other than whole-time service directors in close companies, means today that a substantial portion of their remuneration must bear the additional burden of Corporation Tax at 42½ per cent. In the past, it has been argued that these types of remuneration were the limits that were imposed for Profits Tax purposes. But there is no comparison between Corporation Tax and Profits Tax. If the old system of Income Tax and Profits Tax were enforced today a director's remuneration of any kind would be allowed for Schedule D; in other words, it would have relief against tax of 41¼ per cent.

However, much of the top end of a director's remuneration now gets no relief from tax when the company is subject to Corporation Tax. Furthermore, there is no allowance for part time directors. A public company can take directors on to its board to assist in various aspects, or even to give general advice, and the remuneration paid to those directors is allowed as a charge against profits. In the case of a private company usually no such allowance can be made.

In many cases when choosing managers close companies have not only to consider the best man for the job, but how many shares he or his family hold in the company. The difference between paying the man with no shares and the man with shares is that Corporation Tax has additionally to be paid on the salary of the man with shares. His salary will not be allowed for Corporation Tax purposes. What an utter distortion of the needs of industry.

It is not only in the sphere of Income Tax and Corporation Tax that these dis- tortions are so apparent. It is high time that we looked into the question of Estate Duty and the anomalies that arise therein. Each year more loopholes are blocked up. But the matter is being tackled from the wrong end. Estate duty itself should be altered rather than the plugging up of loopholes in the present system. I was glad to hear my hon. Friend the Member for Acton (Mr. Kenneth Baker)—and I congratulate him on his maiden speech—making such useful and positive suggestions about the type of tax that we should encourage in future.

One typical anomaly that has been mentioned to me recently—and I expect it has been mentioned to other hon. Members—is the case of the farmer. We are told that agriculture shows a low return on the value of land. Where gifts are made to young farmers to set them up in the farming industry, the moneys given to them, particularly in the early years, show a low return. Yet when gifts are made to young farmers by their relatives, for a period of seven years those young farmers cannot be certain that the money they have ploughed into their farms in various forms of investment will be free from duty under the Estate Duty regulations.

Surely it would be far better if there were some form of gift tax or legacy duty combined at a moderate rate so that people knew where they stood in this matter. It would be certain and the rates would not be unrealistic. Therefore, people could invest with certainty without having the threat of a sudden death hanging over them resulting in the payment of substantial death duty.

Perhaps I might take up the point raised by my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) about the provision in Clause 15 for the aggregation of a child's income with that of his parents from 1969–70 onwards. I dislike this Clause, and if I am privileged—it has been called a privilege—to serve on the Committee I shall vote against it.

Some things about the Clause are particularly obnoxious. One implication is that when a child leaves school and has to make a choice between going into industry and going on to further education, his need for further education or further vocational training may not be the paramount consideration in working out his future career. If, for example, he wanted to become a chartered accountant, he could go to a university and then take his articles, or he could go direct to a firm and take his articles and be paid a salary without going to university. If he went to university, any private income that he enjoyed would continue to be assessed for Surtax purposes with his father's income. If he went straight into a firm and took his articles and was paid a salary, his private investment income would remain his, and would not be assessed for Surtax with his parents' income. I believe that such a consideration should not arise when a child's future is being considered.

If we must have a Clause like this, it should be limited to the compulsory limit for leaving school, namely, 15. After that age it should be optional, and after that age considerations of whether investment income should rank with the income of the parents should be left aside, because such considerations could cloud and make more difficult a judgment about a child's future career.

Once a child marries, any investment income that he enjoys becomes his own and is not aggregated with that of his parents. I believe that this will be a bad piece of legislation if it is left like that. Let us suppose that a child has an income of £3,000 a year. If his parent is wealthy, and pays Surtax at the top rate, it will mean that the child's income will be worth 1s. 9d. in the £. It may be said that if he has that much money it will not matter, but it will mean that a child will not see any of his income until he is 21 unless he gets married before then. There will be a great temptation for a child to marry at a considerably earlier age than he would otherwise do, because as soon as he gets married he will be able to enjoy that income in his own right. I believe that it will be ludicrous for the law to place a child in that position. It may mean his marrying in haste and repenting at leisure. I do not believe that the Clause should be worded in that way.

I hope that the Chancellor will look again at Clause 33, particularly the last three lines, and at the matter of aggregation.

10.15 p.m.

Photo of Mr James Tinn Mr James Tinn , Cleveland

Unlike my hon. Friend the Member for Lewisham, West (Mr. Dickens), I expect to be definitely a non-candidate for the Committee on the Bill, but, even at the risk of being asked to replace him if his worst suspicions should be justified, I should like to express, as the sponsor of the National Lotteries Bill, my appreciation to the Chancellor for the novel and, I think, unprecedented way in which he has taken up the proposal and given the House the opportunity to decide finally on the principle.

I welcome the opportunity for the House to have another free vote on this, but I would not accept that the free vote taken originally on the Second Reading of my Bill was any less representative of the opinion of the House than similar votes on Fridays on even more controversial Bills in the recent past. I would ask the Chancellor and the Financial Secretary, who have promised to keep an open mind on the principle and to judge by the opinion of the House, to try to keep an equally open mind on two other points on which they have expressed disagreement with my Bill.

The first is the matter of "hypothecation", an awful word which simply means the pre-emption of some of the proceeds of such a lottery. This is very important and I would ask the Financial Secretary to attend the coming debate with an open mind on this. If the House should decide in favour of my line of thought and the desirability of at least some of the funds being pre-empted for desirable purposes like medical research, I hope that he will reconsider the other feature of my Bill which he found undesirable—the creation of an independent board. Apart from any revenues which would, quite properly, accrue to the Exchequer, it is desirable that the lottery itself and the allocation of the preempted funds should be in the hands of an independent board.

I again express my appreciation to the Chancellor for the way in which he has taken the matter up and enabled the House to decide again on a project which can provide substantial, though limited, benefits.

10.18 p.m.

Photo of Sir Albert Costain Sir Albert Costain , Folkestone and Hythe

We have had an illuminating debate. The hon. Member for Lewisham, West (Mr. Dickens), who has now left, made the most remarkable speech which I have ever heard. It was Communism in a new form. If he believes that, by taking away wealth, he will improve the economy, he has shown conclusively why we are in our present economic situation. My hon. Friend the Member for Bute and North Ayrshire (Sir F. Maclean) said that the Bill affected his own constituency very badly and thought that it was designed to do so. I spoke in my constituency the day after the Budget and made exactly the same remark, probably for exactly the same reason——

Photo of Sir Albert Costain Sir Albert Costain , Folkestone and Hythe

I meant the same remark as my hon. Friend the Member for Bute and not the same as was made by the hon. Member for Lewisham, West. This is probably because we were both speaking in constituencies which depend on the tourist trade, which has been so badly hit by S.E.T. Time is short and I will not delay the House by going into great detail on this matter, but much could be said about the way in which taxation changes will affect those living on fixed incomes.

The right hon. Member for Sowerby (Mr. Houghton) made what one might call a Chancellor's mini-speech, because he went at length into the question of family allowances in an effort to explain how they could be directed to help those in need. I have received many letters from my constituents and they prove that people who are not even paying the standard rate of Income Tax lose as a result of the family allowance changes if they have two children, taking into account the increased cost of school meals, the abolition of free milk, and so on.

Virtually everybody has spoken against S.E.T. It is the most dreadful tax of all. The right hon. Member for Sowerby was frank when he admitted that when he was at the Treasury he was against the S.E.T. idea and, instead, put forward the payroll tax suggestion. The Financial Secretary, who has great knowledge of these matters, will appreciate the effect that S.E.T. is having on the building industry. It is robbing capital to pay revenue. In its increased form, S.E.T. will be adding about £150 million to the cost of building in Britain. The trouble is that the money, when taken out, is called revenue. The Treasury must accept that it is being added to capital and, as it is being passed on to the Government, so it is being passed on to the client. The Government are therefore really cheating. If any private company ran its accounts in this way it would be called to book. The Government are leaving posterity to pay the debt.

It is regrettable that we do not have more time for this debate. I do not wish to delay you, Mr. Speaker, hon. Members and the staff of the House, and I regret that the Leader of the House has not provided two days for this discussion. This is a dreadful Finance Bill and it affects my constituency very badly.

10.23 p.m.

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

The right hon. Member for Sowerby (Mr. Houghton) complimented the Chancellor on being what he called a civilised selectivist. I wish to refer to two aspects of the Budget's proposals which seem to represent selectivism run amok and precisely the reverse of civilised.

The first is the proposal for what the Chancellor called dividend restraint. My hon. Friend the Member for Worthing (Mr. Higgins) referred to the Financial Secretary's remarkable letter in the Business News section of The Times last week. As far as I am aware, it was the only guidance the House has received about how this dividend restraint is supposed to be applied. However, even in the context of that letter it does not seem that the adjudications of the Treasury are easily reconcilable with the terms of the letter.

We have had the astonishing spectacle of the Treasury knights, with their slide rules and scissors, lopping 0·005 per cent. off the dividend of Gratton Warehouses and, in their wisdom, deciding, no doubt after giving the matter due consideration, that Berni Inns may distribute luncheon vouchers, even though that may be over and above the 3½ per cent. limit. Then we have the admirable decision of Sir Halford Reddish, of Rugby Portland Cement, to drive a coach and horses through the whole proposal. What does the Chancellor say to that? He said in answer to me yesterday that he was examining the position very carefully.

There are two decisions which strike me as particularly in flagrant conflict with each other. I hope that when he winds up the debate, the Financial Secretary will deal with these. In the case of Pergamon Press and Rio Tinto Zinc the companies were allowed to exceed the 3½ per cent. maximum because they announced to shareholders before the Budget that they proposed to do so. In the case of Rio Tinto Zinc it was announced when making a take-over bid, but Lex Garages, which made precisely the same announcement at the time of making a distribution of shares last October, was not allowed to carry out the undertaking given when the shares were issued.

There is a clear case of inequity. It is intolerable that there should be such a case of inequity, not in a Statute nor in an Order accepted by this House, but in a day-to-day ruling by the Treasury. The Financial Secretary has an obligation to spell out more clearly the way in which the system of dividend restraint is to be applied. It is not good enough for the Government to get the Financial Secretary to write letters to the Business News section of The Times referring to Treasury Press hand-outs. This House has a right to know how those proposals are to be applied and on what system of equity they are to be applied.

That was the first aspect of civilised selectivism I wished to mention. The second is the astonishing business referred to earlier by my right hon. Friend the Member for Bute and North Ayrshire (Sir F. Maclean) of the selection of hotels to receive repayment of S.E.T. The Chancellor, in his Budget Statement, said that the repayment was to go to hotels in rural parts of development areas. I hope that he will go to the City of Perth, or the City of Stirling, and inquire where in those cities he can indulge in pony-trekking, fishing, caravanning, or any other of the activities one normally associates with a rural area. Yet those cities are to receive a repayment of S.E.T. in respect of their hotels.

In a genuinely rural area such as the glens in my constituency, Glen Clova or Glen Isla, where hotels are receiving foreign tourists bringing revenue to assist our balance of payments, they are excluded. They apparently are in the definition of cities or industrial areas. I gather that we are expected to understand that the choice made by the Treasury in Schedule 17 of the Finance Bill is areas where the receipt of R.E.P. is lowest, in other words, where the proportion of employees in manufacturing industry is lowest. Yet I received an Answer yesterday from the Ministry of Labour which showed that the St. Andrews employment exchange area, to take an example, has a lower proportion of the total population employed in manufacturing than in many areas which are to receive the repayment. It has a high proportion in the catering industry, one of the highest in Scotland, and is not to get the repayment.

This selection seems to be totally haphazard. The Government might as well have been blindfolded and taken a pin to use on the map of Scotland to make the selection. This has been treated with amazement, total incredulity and deep resentment throughout Scotland. For this will create the most grotesque anomalies. An hotel at the top a glen in my constituency has to pay 37s. 6d. per man per week; an hotel of a wholly similar sort 10 miles away in another glen just in Perthshire will have the amount refunded. It is hard to imagine a greater anomaly than this.

Of course, it is perfectly true that, however one devises a selection, there are likely to be anomalies. The answer is that we should not devise the selection. The best answer of all is to get rid of the tax as a whole. If that cannot be done, at least it should be taken off hotels in the development areas, and I would say from all hotels generally, in view of the foreign exchange income they bring in.

There is a particular objection, as I see it, to Schedule 17, the tax procedures devised for this Bill by the former Leader of the House. The Government apparently intend to take this Bill in Committee upstairs. Now, of course, we are not supposed to know which hon. Members will be on the Committee, but we can expect that there will not be more than one Member from Scotland and from this side of the House. How is he to represent the interests and concerns of other constituencies which are either included or excluded by that Schedule? This is the sort of thing which has just not been thought out in determining to send the Bill to Committee upstairs.

I shall be delighted to join my hon. and right hon. Friends in voting against this Finance Bill, not merely because of the two particular grotesqueries to which I have tried to call attention briefly tonight, but because of all the other miseries which it imposes upon the people of this country. About the misery of the haphazard selection I have referred to we are entitled to a proper answer from the Financial Secretary before we leave the Bill.

10.33 p.m.

Photo of Mr Patrick Wolrige-Gordon Mr Patrick Wolrige-Gordon , Aberdeenshire East

This is a gloomy occasion, but the gloom has been a distinctive feature of this Government's financial policy all the time. The only moment of euphoria we have had was when the Chancellor sat down after announcing this huge increase in taxation and his hon. and right hon. Friends cheered him to the echo. That, however, was not an emotion which was shared by the country.

I have thought all along, from the Budget to the Finance Bill which followed, that the Chancellor has missed a great chance. I felt that our country was awaiting a bugle call to saving the nation action. All it got was a bludgeon. This is not the first time that sacrifice and discipline have been required of the British people, and they will suffer sacrifice and discipline willingly if they feel that they are for a worthy purpose; but if they feel that the request is made for inadequate purposes, to achieve which, moreover, they are to be bullied and pushed, they will do less than the minimum with extreme distaste: mediocrity has no popular appeal in Britain, as the Government's present standing demonstrates all too clearly.

To move very quickly from the generally absurd to the particularly ridiculous I want to deal with Clause 14 and Schedule 17. I can add little to the case which has already been made by hon. Members from Scotland about the Selective Employment Tax as it affects Scotland and particularly the tourist industry. The Tory Party, of course, will abolish the tax as soon as it gets the chance, but, unfortunately, that may not be for another year or two, and in that time still more damage may be done. A line has been drawn across Scotland. On one side of it hotels will escape this tax. I am glad for their sake that this is so. But I ask the Government to spare a thought for those hotels on the other side of the line. Their position is utterly unfair.

Far be it from me to raise the temperature in any way, but there has not been a more outlandish example of Government discrimination in this country since Hadrian's Wall. Why has that line been drawn? On what basis has it been drawn? Is not the whole of Scotland's tourist trade in need of large and rapid development? Why this absurd distinction in the Bill? I trust that the Government will speedily remove it in Committee.

10.35 p.m.

Photo of Mr Julian Ridsdale Mr Julian Ridsdale , Harwich

After the Prime Minister had addressed the Scottish T.U.C. last week, he pulled out his pipe, although there was a "No Smoking" notice on the wall. One Scottish delegate was heard to say to another, "Och, well—maybe he canna' read". When I listen to the Chancellor of the Exchequer and consider his attacks on savings, and when I see the numbers of people who are leaving this country now, I sometimes think that he cannot read the economic portents for Britain. What principle moves the right hon. Gentleman in allowing a poster to be exhibited throughout the country exhorting people to "Put more power into the pound" and, at the same time, to attack so viciously the savings of so many of our best savers? I hope that the Chancellor will tell the country what principles can possibly be behind his attacks on saving.

I have only two other points to make, and I shall be as brief as I can. I am greatly disappointed that we have not had more time to debate the Bill in the House instead of having this hurried debate now.

I endorse all that has been said about the unfairness of the Selective Employment Tax, particularly as it affects places like Scotland, East Anglia and my own constituency. In February, our unemployment rate was 6·5 per cent., far higher than in some of the development areas. I notice that there have been Labour Party resolutions calling attention to the position of the lower-paid workers in East Anglia.

Will the Chancellor look at the position of hotels and boarding houses, especially the smaller boarding houses, and understand the burden which he is putting on people with small fixed incomes, particularly those over 60, who look for employment in hotels and boarding houses? The rebate should apply to seasonal resorts like mine, like Folkestone and the Scottish resorts of which the Chancellor spoke.

Finally, I emphasise how mean the Chancellor has been to people with small fixed incomes. I know that the Minister of Social Security has said time and again in the House that the pensioner is 18 per cent. better off than he was in 1964. But when I say that in my constituency, old-age pensioners just laugh at the idea. They know that people with incomes over a certain limit, with between £600 and £800 a year, are the ones who are really having to pay the price of devaluation. They have had only measly relief from the Chancellor in this Budget. I realise that he could not have given very much, because of the follies of Socialism, but he should have done more. If he is considering further relief, will he look particularly closely at this section of people who are just above the old-age pensioner level and who live on small fixed incomes?

That is all I say at this hour. I apologise for detaining the House.

10.38 p.m.

Photo of Mr Iain Macleod Mr Iain Macleod , Enfield West

Clearly, we should have had two days for this debate. Many hon. Members, out of deference to the House, have not spoken, and many others have cut short admirable speeches. I can only apologise to the Chair and to the House for this last sad legacy of the reign of the Lord President of the Council as Leader of the House of Commons.

In many ways, the Finance Bill is different from all other Bills in that the key stages are the Budget debate and the Committee stage. The Second and Third Reading debates are—I do not say less valuable—on a different level from those two major events. I was somewhat surprised and disappointed when first I heard that the Chancellor of the Exchequer was not to speak in this debate. To show my complete impartiality, I was disappointed after his speech in opening the debate today.

He said that there was widespread agreement outside the House that the Budget was fair. It is very dangerous to make remarks of that nature. Two very substantial flesh and blood citizens, new Members of the House, made excellent maiden speeches to contradict him —my hon. Friends the Members for Acton (Mr. Kenneth Baker) and Dudley (Mr. Donald Williams). Wherever the Budget may be thought to be fair, it was not thought fair in Acton, Dudley or Meriden. As the Chancellor knows, because as Home Secretary he succeeded in delaying the elections for a year, it will not be thought fair on 9th May in London when the time comes.

I had hoped that the Chancellor would deal with two matters that I think the House regards as of great importance in the economic field. I am not talking about the detail of the Budget for the moment, although I shall come to some points about that.

The first is that one hears too often now, and too freely, I think, on both sides of the Atlantic, words like "1931" being used again. We understand that they are used in America for internal consumption, that they are part of a process of pressure on a reluctant Congress. But words like that rouse echoes and very unhappy memories in this country. The Chancellor himself has, so we are told, used figures of 1 million or 1½ million unemployed if the Government's policies do not succeed.

That is why I want to spend a moment taking up the points my hon. Friend the Member far Acton made and in particular the points made by the hon. Member for Ebbw Vale (Mr. Michael Foot), who described this issue as one of paramount importance. I fully agree with that. Yesterday I put a question to the Prime Minister on unemployment, and after the usual introduction I got the following answer: The right hon. Gentleman will be glad to know that unemployment this winter turned out to be less than it was when he was Minister of Labour, eight years after his party took office."—[OFFICIAL REPORT, 23rd April 1968; Vol. 763, c. 33.] I suppose that one should no longer put serious questions to the Prime Minister. In the four years in which I was Minister of Labour the figures in January were between 200,000 and 300,000 less than at the peak this year, and even in 1959, which I suppose the Prime Minister was referring to, the peak figure in January was about 10,000 less than in January this year. It was my fault. One should no longer put questions of this nature to the Prime Minister and expect a serious answer. Nobody in the House will deny that it is a serious problem.

I put the question in the Budget debate, and my hon. Friend the Member for Worthing (Mr. Higgins) put it again today, because if one takes the forecasts and the arithmetic of the Government seriously, as one must, and if one translates them through the accepted formula into economic terms, then one would expect unemployment to rise. Winding up the Budget debate, the Chancellor said in response to me after I pressed him throughout the debate that he expected unemployment—and he must have meant seasonally-adjusted—to be falling.

When the March figures came out one looked at them with some surprise because they reflected a deterioration—not a great deterioration, but an important deterioration—in the trend, rather a checking of the trend. The March figures were not necessarily significant. But the April figures, unless there is a statistical aberration in them, are rather worrying and I should be surprised if the Chancellor does not share my view.

In the four weeks between March and April, it is true that the number of wholly unemployed, which is the figure to look at, decreased by 11,295, but the seasonally-adjusted figure—which, again, is what matters to us in this House—increased by about 26,300, and that is a very severe jump indeed. Moreover, when one looks at the Ministry of Labour figures for the various regions of England, Scotland and Wales, one finds this increase, adjusted for normal seasonal variations, in every one of them without exception.

On both sides of the House, these figures are bound to cause a certain amount of concern. As the House knows, I study these figures very closely indeed, partly because of the length of time I was Minister of Labour. We have now completed a year, from the May figures of 1967 to the April figures of 1968 inclusive, in which, in every single month of the 12, the seasonally adjusted figure was over 500,000 wholly unemployed, and the House must treat a situation like that with the utmost gravity.

As the House knows—I have reminded it before and do so again now—in all those 13 years there were only eight months in which it could be said that the figure of 500,000 was exceeded. Now we have had one solid year, without a break, of such figures, and if the evidence of the last two months is true, the position is deteriorating. I do not know whether it is true or not and I am not being the least alarmist about this. I have given the facts to the House. They are consistent and they are remarkable when one considers how much the pre-Budget spending spree was expected favourably to bolster the employment figures so much.

The other main question on the economics side is whether the Government are once more being too optimistic. We know what the Chancellor said in his Budget speech. He said, with certain qualifications, …I…hope and expect that we shall be in surplus in the second half"— of this year. For the future we need, as I have said, to achieve a continuing balance of payments surplus of the order of £500 million a year as soon as we can…."—[OFFICIAL REPORT, 19th March, 1968; Vol. 761, c. 258.] That statement has been translated in some quarters as a hope that we shall reach £500 million in 1969. Even taking all the qualifications that the Chancellor made, I still fear that he may be considerably too optimistic, and if that is so it will be the fourth consecutive year in which this has happened.

We had to warn the Government in 1965 and again in 1966 and again in 1967 that their Budget estimates were far too optimistic. Every time, without exception, we have been told not that we were being alarmist but that we were being too pessimistic. The House knows the record of what happened as we came to the month of July and eventually the autumn in each of those years.

I take now the question of whether the exports are going to run as well as the Chancellor hopes. I hope very much they do. I hope that we shall get the big leap in exports upon which everything depends. But I must draw to the attention of the House the performance of exports in recent years and show briefly how our fortunes have been linked with a great surge in world trade and how abruptly they were checked when factors, many of them outside our control, were less favourable.

There is no question that from 1964 to 1966 conditions of world trade were excellent, and we benefited accordingly. Let me give from the National Institute Economic Review the value of exports in billion dollars for each of the quarters in 1965 and 1966. For the four quarters of 1965, the figures were 19·6, 20·5, 20·9 and 21·7. There was a steady, unbroken increase, and we are delighted. For the four quarters of 1966, the figures were: 22·4, 22·7, 23·3 and 24·2—again, an excellent, steady increase, and we are delighted. But in 1967 the picture changed. For the first quarter, the figure was 24·9, which was excellent. Then it was 25·0, practically no change. Then the figures were 24·4 and 24·7.

On those figures, one is bound to question whether the surge in exports, which I am sure will come—it will not come yet, but it will come, perhaps between the third and fourth quarters of this year—will be as big as we need. Therefore, I say again, not in any alarmist sense, that I believe that the Government and Ministers are being too optimistic. Partly because they carry news management to such a point that they feed these thoughts to the Press, a good deal of that optimism, which I believe is not very well founded, appears in the Press.

What we are seeing is the ruin of a policy which has been pursued from 1964 to 1968. Nobody on either side of the House doubts this. The only argument left which the Government comfort themselves with is that, Phoenix-like out of the ashes of successive disasters, a new situation will emerge. This is natural enough. All politicians are Micawbers. They go on thinking and hoping that something will turn up. We need not take it to the lengths of the lunatic optimism of the Lord President of the Council, who sees every disaster as a giant stride towards Socialism. But it is natural for the Government to hope that things will improve.

Let me make briefly the main points which we hammered away at in the Budget debate and which we will resume in Committee. The first failure, which has been so well covered that I need barely touch on it, is the question of public expenditure. The Chief Secretary argued in the Budget debate—and it was incredible that a man could do it—that they were on target, and by "on target" he meant that public expenditure was running at the rate foreseen in the National Plan. But the National Plan is dead, and the only thing which lives on is the rate of public expenditure, based on growth rates which are no longer available to this country.

Since then, when the National Plan gave figures for 1969–70 at 1965 survey prices, I think, there have been cuts announced—some "phoney", but probably most real—amounting to £1,166 million, and when all these are taken off the figure for 1969–70 is not less, as one would expect, by over £1,100 million, or more than that because of the failure of growth, but higher. There is no other explanation for that except that public expenditure has got completely out of control.

Much of the trouble has been caused by the fact that the Chancellor of the Exchequer allowed a spending spree to develop, particularly from December until his Budget, and indeed for some weeks after his Budget, while stocks lasted on which Purchase Tax had been paid. He was warned from this Box and by every independent responsible commentator that he was making a very grave mistake. We have to pay the price, in part, of that in the level of taxation taken from us.

My right hon. Friend the Member for Flint, West (Mr. Birch) was absolutely right when he pointed to the disastrous effect that this has had upon building societies, because a great deal of the money which has gone from building societies has been in small amounts to finance the spending spree. Now, we have mortgages at 7⅝ per cent., and not only new borrowers, but also millions of existing borrowers, will have to pay that rate for very many years, purely because of the misjudgment of the Chancellor of the Exchequer in his first big test on this.

I say one word briefly on our other main criticism, in relation to savings. I know that the Chancellor is to some extent sympathetic in this. I have developed the idea of what I call a S.A.Y.E.—save-as-you-earn—approach. I should like to spend two minutes putting to the Chancellor exactly what is in mind, because this is something which both sides would like to achieve. I am sorry if this sounds like a "commercial"—it is not meant to—for a well-known finance house of which I am a director and in which I declare my interest.

What has convinced me is my study of the behaviour of very small depositors over these few years. I think that Chancellors, of all parties, naturally enough, have been rather too obsessed with the behaviour of the individual big saver. That is why the National Savings proposals that the Chancellor has put forward, valuable though they are in this direction, will not create genuine new savings, because they are switch savings as people take the benefit of a small additional amount.

What startles me is to look at the figures of the company which I know best over the years when we have been offering considerably lower rates than could be obtained in many other directions, because we follow a policy of rate stability and do not chase Bank Rate up and down although, of course, in general, we follow the trends.

My conviction from that is that the real small saver whom we want in bulk does not flick about from investment to investment because he can attract another one-eighth or one-quarter of 1 per cent. He saves either with the Post Office, a building society, a finance house or whatever it may be because that is his chosen method of saving. If we could get those people to forgo money which would otherwise go into their wage packet—by which I mean, in my system, voluntarily agreeing to have their P.A.Y.E. coding altered so that moneys could be taken from them with their agreement, and increased by the full amount of the best level, say, of National Savings interest—we might revolutionise the approach to small savings. That is a very brief outline. I will in due course find ways of elaborating what I think we should do.

I leave those two main points and I come to only one, because of the time, of the collection of points which together make what I can only describe as a policy of envy part of the attack on savings launched by the Chancellor of the Exchequer.

I wish to comment on the question of the aggregation of minors' incomes. This is the sort of idea which sounds extremely convincing at, perhaps a Labour Party summer school or the like. One does not begin to realise until one studies it exactly what difficulties lie behind what appears to be a fairly straightforward proposal. But nobody who listened to the excellent speech of my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) could doubt the real problems that will be created.

Incidentally, I am glad that the Attorney-General is here. Let me take two illustrations. First, disaster. Death can strike an individual and in many ways it is appropriate that compensation should be offered to the family, and, in particular, to small children. I will not read the whole of a letter which I have here, but this is one of many and brings out the key point that I wish to put before the House. I was widowed two years ago when my husband, aged 35 years, was killed in the Tokyo air disaster of March 5th, 1966. I was left…with three small children, 1½, 3 and 5 years. My husband's firm generously paid compensation to the value of £12,000, which they set up in trust for the upbringing and education of the three children. This money is invested and the interest, and later the capital, is to be used entirely for the children's welfare. It seems absolutely intolerable that a case like that should fall within the proposals made by the Chancellor of the Exchequer. I really believe, when this point is drummed home in Committee, that everybody will unite—and I hope that they will—in telling the right hon. Gentleman that he must alter the law concerning that kind of case.

My right hon. Friend illustrated the even more tragic case of the thalidomide babes. But there are other disasters. There are disasters—and this is my second illustration—which can strike a marriage. A marriage may have to be broken up and it is necessary for judges in many cases to decide what the right amount of settlement should be upon the children. The Attorney-General will know, but I think I am right in saying that there have been, or there are being made, protests from the judges to the Government on this point. It seems inevitable that that is so, because judges up and down this country have decided, on the basis of the law as it stands, the provision that they think is appropriate for small children. It is unthinkable that this House should upset those carefully planned arrangements which have been made in recognition of the fact that a marriage has broken down. I say again that the Chancellor of the Exchequer cannot—indeed, he dare not—leave this Clause as it is.

Quite frankly, there are a lot of party points which we will make in Committee, but I do not want to make this a party point. My own solution as it stands now—I may be able to think of a better one—is that where there has been a settlement—either in recognition of compensation, perhaps because of the death of the breadwinner, or one that has been drawn up and agreed by the courts—the income shall be treated as earned income, in which case it would escape the Clause. The obvious analogy is that a pension is treated in that way, and that is exactly what this kind of compensation is in the illustration that I gave of somebody widowed in the Tokyo air disaster. It is compensation because the breadwinner has gone and all the possibilities of his earnings over a long time have gone. I say, with all the earnestness that I can command, that this Clause must not stay as it is.

I could take other examples, but I will not. However, this I make clear. We must have an entirely new policy in relation to wealth in this country. I do not believe that it is the business of a Chancellor of the Exchequer to destroy wealth. It is his business to create wealth. It is not his business to try to level down; it is his business to try to level up in this country. We must have a system of taxation which implies important reductions in personal direction taxation which enables a man by using his opportunities and his ability to earn and keep a reasonable amount of his earnings.

I said earlier that we were studying, as of course we are, the ruins of a policy, and one may ask why. As I am certain they would not accept an answer from me, I shall give a quotation from a lecture given to the Economic Research Council by the Professor of Law at the London School of Economics, Professor Wheat-croft. Discussing the National Plan and its errors, he said: Any competent businessman would have proceeded cautiously and waited to see how first estimates of this kind measured up to reality before committing himself to expenditures which would bring him to the verge of bankruptcy if the estimates turned out to be wildly wrong. But, unfortunately, the present Government contains few, if any, com- petent businessmen and administrative civil servants have not been trained in business practices. One of the saddest features of the last four years has been the belief of Ministers and civil servants that they knew how businessmen should run their business better than the businessmen themselves, and their vast proliferation of advice and exhortation to business, unsupported by practical experience, is somewhat nauseating when one sees how badly they have run the country's business". That is a first-class contribution from what is often regarded as an impeccable source.

We will, of course, move otherwise at the conclusion of the debate, but if the Government have their way the Bill will be considered upstairs in Committee. It is disgraceful that a Budget of this kind, the first post-devaluation Budget, levying in a full year sums of £923 million, should be discussed in the line by line detail that it needs by about one-twelfth of the Members of the House. There is no doubt that this Measure should be taken where in by view Finance Bills belong, on the Floor of the House.

The Financial Secretary is to follow me. He is a very enduring character, even in his new rôle. I remember that three or four years ago in the middle of the night he made one of the most remarkable comments ever made on a Finance Bill when he said that he represented tens of thousands of constituents who were poor and humble, which he was neither—a somewhat patrician observation which would have been widely commented upon if it had been made from this side of the House.

We will work hard in Committee to improve what we regard as a bad Bill, but I must make it clear now that we do not regard ourselves bound by anything that the Government do. We hold ourselves free to alter, to amend, or to repeal any part of the Bill which we will oppose in Committee. I say in conclusion, without any anger, but simply as a comment of fact—and I believe that on both sides of the House we know this to be true—that this is a Government without authority, without competence, and without purpose, and that it will be a pleasure to divide against them on the Bill.

11.9 p.m.

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

As this is the first time that I have had the privilege of winding up the Second Reading of a Finance Bill I approach the task with not a little apprehension, but I am fortified by the Chancellor's statement in the House the other day that when a Minister enters the doors of the Treasury he should not leave behind him the views that he held before his appointment.

I fully accept the spirit of my right hon. Friend's injunction, and although membership of the Government may inhibit the more stimulating irrelevancies formerly enjoyed, I certainly do not intend that it should compel either action or voice contrary to my own deep convictions. So I assure the House that whatever I say will be my opinion on the matter which I am discussing.

It is true that, some years ago, I humorously expressed the opinion that I was neither poor nor humble, but if I were to believe the criticisms of my right hon. Friend's intentions and if I were a member of the Government which brought them into effect, I should be able to contradict that statement and be both poor and humiliated if I were impressed by the logic of the argument of the Opposition spokesmen.

The Second Reading of the Finance Bill is always a difficult debate, because it is in. Committee that we get to grips with the details, and a Finance Bill or Budget, more than anything else, qualifies for the platonic platitude that excellence lies in the whole rather than in the parts. But the necessities compel me to deal with some of the details of the Bill itself.

I would, first, point to the value and reasonableness of a measure which has not been received with unanimous acclaim, namely, the special charge, which has been attacked from both sides. The Opposition have said that it is a spiteful tax expressing class venom, as one of their Front Bench spokesmen in the Budget debate allowed himself to say. The chief argument against it was that it had no economic relevance, in the sense that it did not achieve any significant consumption effect but was merely an act of spite in trying to soak the rich.

The case for this tax is that a Government who are asking for restraint and self-discipline from the rest of the community can hardly fail to invite some contribution and sacrifice from the richest sections of the community. If that claim is to be answered by the charge that it is spiteful class venom because the tax is economically irrelevant, even if I were to accept the charge that it was economically irrelevant, what would follow produces a somewhat interesting situation.

If the Government were not to tax a man because to tax a really rich man will not significantly affect his standard of life and hence his consumption, and hence the tax would be economically irrelevant, it would follow that, when a man had achieved a certain statutory degree of affluence, we should issue him with a licence exempting him from all taxation, on the ground that any taxation could not have the smallest effect upon his consumption and would be economically irrelevant and spiteful.

I suspect that this argument, which has a degree of logic from an economist's point of view, would not find universal support among other members of the community not enjoying this particular licence. It is untenable that a very modest charge upon investment income—[HON. MEMBERS: "Modest?"] It is indeed a modest charge and I shall be very happy in Committee to demonstrate in the greatest detail that the weight of this charge is by no means unfair or burdensome in the context of a Budget which exacts so much sacrifice from so many other members of the community. I do not doubt that most well-to-do people have come to accept that this charge is not unreasonable. I do not expect them vociferously to express enjoyment at the prospect of paying it, but no such vociferous enjoyment has been manifested by other persons in a less satisfactory financial position who are called upon to bear burdens imposed by the Bill.

To dispel any illusions that anybody may have created in his mind or in anybody else's mind that this is a class-motivated and spiteful tax, I remind the House of what the Chancellor said in introducing it. He said that it could not be an annual tax and that it was in the nature of a tax for this special occasion.

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

I agree that Cripps said it, but that was 20 years ago. By ordinary political standards, once-for-all does not mean once throughout the aeons of history and I suggest that once in a generation is a quite satisfactory fulfilment of that pledge. Speaking for myself, if other Chancellors, of either party, assure me that there will not be a similar charge for another 20 years, I will feel that a pledge has been made.

Photo of Mr Iain Macleod Mr Iain Macleod , Enfield West

The hon. Gentleman made the interesting comment that in his view once in a generation would be reasonable. May we take that as a firm pledge; that as long as the Labour Party remains in office there will be no form of wealth tax beyond what is contained in the Bill?

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

No. I did not say that. [HON. MEMBERS: "Oh."] The lesson to be gained from interventions made in the debate is that if only hon. Members would have patience and would not intervene impetuously, a course which Mr. Speaker is at pains to urge hon. Members to follow, we could save a great deal of time. [HON. MEMBERS: "Answer."] The Chancellor has pledged himself that this cannot be an annual tax. He thinks, for various reasons, that this is not a suitable tax to be introduced annually. He made it clear in explicit terms that he intended to examine the possibility of taking into account the possession of wealth for tax purposes more comprehensively than has been the case in the past. He made it clear that such taxation might …might make it both possible and desirable to reduce the highest rates of tax on incomes".—[OFFICIAL REPORT, 19th March, 1968; Vol. 761, c. 300.] Those were hardly the words of a class-envenomed, spiteful Chancellor. They give the complete lie to any such ignoble and wholly unjustified suggestion.

Thus, this is a once-for-all tax. Another wealth tax, if it is introduced, or some variant of it—[HON. MEMBERS: "Oh."]—that comes in will emerge, as my right hon. Friend indicated, as part of a more sensible and equitable distribution of the burden of taxation among the rich themselves, and not by any means as part of some envenomed and spiteful move on the part of my right hon. Friend. It would be unthinkable that the Chan- cellor could have introduced this Budget without inviting some contribution of this kind from the best off sections of the community, and any criticism of it is wholly unjustified.

Indeed, however unpalatable this may be to some, the fact remains that the Budget is conceived, as is the Finance Bill, in terms of a mixed economy in which it is sought to bring about a successful private enterprise sector in combination with advancing social services. A Labour Government running a mixed economy must make available to private enterprise all the incentives that are likely to make for successful private enterprise. [Interruption.] Hon. Gentlemen opposite live in a special world of their own in which they think that the Labour Government are responsible for new and savage taxation on business, in contrast with the famous levelling process that occurred under the Tories.

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

Considering the burden of tax that must be placed on business, we believe that S.E.T. is a fair and reasonable tax, one which broadens the tax base and which contributes to the Revenue.

The right hon. Member for Enfield, West (Mr. Iain Macleod) talked about the need to have a different sort of tax policy, one which was not like ours, with high rates of Income Tax and Surtax, but one which presumably levels up and not down. He denied the right of the Chancellor to level anyone's income down. It was with some surprise that I recalled that Income Tax on the highest level of income was 17s. 9d. in the pound when the Tories left office and a mere 6d. different now. That is hardly a statistic which confirms the right hon. Gentleman's claim that no Chancellor has the right to level down incomes. I do not know where so advanced and progressive a member of the Opposition Front Bench gets this extraordinary concept.

What the Chancellor has to take into account is that he is running a mixed economy and the Finance Bill undoubtedly takes that fully into account. It is a Finance Bill designed not to divide the nation, but to unify the nation with the sense of urgency of effort and sacrifice required at the present time. Any hon. Member who suggested that all the taxation should be loaded on the rich exclusively in these circumstances would be rightly stigmatised as one seeking to divide the nation at this crucial time, but the even more preposterous suggestion that the load of taxation should be borne exclusively by the worse-off members of the community is argued as if it were a proposition for unifying the nation. This seems to betray an extraordinary lack of logic or devotion to party doctrine.

I want to refer to the question of dividends. This point was raised with some acrimony by the hon. Member for Worthing (Mr. Higgins) and others. It has been suggested that I have placed myself in the unusual rôle of purporting to exercise powers and the Chancellor and the Chief Secretary have been purporting to exercise powers which legally they have not got. The position on this is abundantly clear. I know that it is interesting amusement and makes a break from more serious consideration of the Finance Bill to pretend that there was the Financial Secretary writing to The Times Business News compelling notoriously unsophisticated gentlemen of Throgmorton Street to believe that Parliament enacted a power which gave him the right to curb dividends. My words were construed, examined and analysed to suggest that I was acting in a Bonapartist sort of way in relation to dividends with a legal power which Parliament had not conferred on the Government. Anything more fantastic is hardly possible to believe.

The public know perfectly well how the matter stands and the criticism that the public were not informed is absolutely wrong. They were informed in general terms in the Chancellor's statement, which was copiously reported, and by the Chief Secretary in the Budget debate, which was copiously reported. There have been newspaper briefings, the House has been told and the public has been told by the Press, the wireless and in every manner possible precisely what the position is, namely, that no power has been taken by the Government, but it is the Government's intention in the reasonably near future to take a reserve power. In the meantime we hope that industry will co-operate in exercising voluntary restraint.

I have not the slightest doubt, based on past experience, that industry knows what the position is, I have even less doubt that industry will co-operate, as it always has done, in helping to preserve voluntary dividend restraint. What the Treasury is doing in these circumstances, as it must, is to offer guidance to people who wish to conform to its request. That is all the Treasury has done. It has given guidance on the principles which conform to dividend restraint.

I will not go into the detail of the guidance, but I shall answer one point made by the hon. Member for South Angus (Mr. Bruce-Gardyne).

The hon. Member asked why we allow a dividend increase in some cases and not in others. He thought it proper and attractive to single out a company the chairman of which is a Member of this House, and of my party, as apparently being one which is receiving favourable treatment in having its dividend increase allowed, in contrast to another company in identical circumstances—he said—in respect of which such a dividend increase was not being allowed.

I must tell him—because I am sure that he is a very worthy Member of this House—that he will endear himself more not only to hon. Members on this side but to his colleagues if he will avoid actions of that kind. If he really wants to know about the operation of the dividend policy he will be much wiser—as he will see on reflection—if he will not couple that request with the unnecessary adjunction of a company controlled by an hon. Member.

I shall be happy to give him chapter and verse of the case of the Pergamon Press—since he referred to it—not today, but in detail at any appropriate time. He will have the common sense to realise that an action no one in the Treasury would be capable of is to make a distinction favourable to a Member of this House, of either party, in relation to one of his companies.

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

I am astonished by the nature of the Minister's attack, because he did not listen to what I said. I mentioned the names of two companies to which the Treasury had given clearance for a higher dividend. One happened to be Pergamon Press and the other Rio Tinto. In both cases the companies were treated in a particular way. Another company—Lex Garages—which had experienced precisely the same situation, was treated in a different way. That is the point that I was making, and I hope that the Minister will at once withdraw his disgraceful accusation.

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

The hon. Member is suffering from a short memory. [Interruption.] I wish that hon. Members who were not present at the time of the incident would wait a little. The hon. Member's first intervention on this subject was precisely in the manner I have indicated. He asked why the Treasury had allowed an increase in dividend in the case of Pergamon Press whereas, in identical circumstances in the case of another company—he made no mention of Rio Tinto in that intervention; he mentioned other companies in his later speech, long after the intervention—it had not been allowed.

His first intervention was a request to know why the Treasury had allowed a dividend increase for the Pergamon Press whereas, in identical circumstances, it had not allowed it for another company. [An HON. MEMBER: "What is the answer?"] The answer is that the cases were not identical. The details I shall be happy to provide in a letter to the hon. Member or in answer to a Question. As a somewhat older Member I was merely expressing my advice to the hon. Member for South Angus—and I shall be glad to accept his assurance that he intended nothing amiss—that he should be more careful not to encourage people to draw an inference of that kind.

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

I hope at least that the hon. Gentleman will study the record of what I said when it appears tomorrow in the OFFICIAL REPORT. If he finds, as I think he will, that I mentioned Rio Tinto as well as Pergamon Press, I hope that he will make an apology in the House.

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

I heard the hon. Gentleman's intervention, and whether or not he coupled at that point the name of one other company, I can only say that he ought at least to find out the facts before he makes an assertion in the form in which he made it. [An HON. MEMBER: "Oh."] The hon. Gentleman made an assertion particularly referring to Pergamon Press. I do not want to delay the debate by a discussion at this point. There are hundreds of companies available for examination. This matter has been debated in public and in the Press, including the letter that I wrote. It is unfortunate that the hon. Member made the interjection he did. If, when I read HANSARD tomorrow, I find anything in his interjection which makes me doubt my present view of the taste in which the question was put I shall be happy to apologise to him, but at present my recollection is clear. It would have been much better if his question had been put in a different way.

I want to deal with the question of the amount of dividend control. This control has been attacked from both sides of the House. The Opposition has said that it is an attack on business, and some of my hon. Friends have said that it is not adequate because its exemptions fritter its effect away, and because, in any case, money that is not paid out in dividend today can be paid out in two years' time. Dealing with the attack on the business aspect, most of the business community recognises that some restraint of dividends must occur in a situation in which one is asking for restraint on wages. It is really not possible otherwise. I can understand if hon. Members say that they are not in favour of an incomes policy, but the Government are. The Government are asking for wage restraint. How could a Government go to the working people asking for such restraint if no restraint was invited from dividend incomes? Most hon. Members and responsible businessmen realise that.

My hon. Friend said that the restraint is not effective because the exemptions whittle it away. My hon. Friend the Member for Poplar (Mr. Mikardo) said in a speech outside the House that this was so. There is no truth in that. There are no exceptions that whittle away the effect of the dividend restraint. In almost every case, however massive a rise of profit, the maximum permitted dividend must be 3½ per cent. over the previous year, with this exception only, that where the previous year is not a fair basis for comparison, then a previous dividend can be restored. In that case no increase in dividend is permitted. The maximum possible dividend is an increase on last year's by 3½ per cent., except when the previous year's did not adequately reflect normality for the company, in which case restoration of a previous dividend is allowed.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

The hon. Gentleman says that he is not seeking to give the impression that he has powers which have not been granted by the House, yet he has now referred to a dividend control and to the maximum possible amount which would be allowed. He does not have those powers, and yet he has again used this phraseology.

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

Forgive me if I insist on this, but this is bordering on the ludicrous—[HON. MEMBERS: "Oh."] Since I have expressly disavowed the possession of this power within the hearing of the House only five minutes ago, this is attempting to put an exaggerated gloss on the words that I have used. In the words of the lawyers, I shall have to "talk like a bloody pleading." [HON. MEMBERS: "Oh"] I use the expression only because the total expression is the words of the lawyers. I was not meaning it as my own epithet. It was part of the quotation. I cannot accept that the use of words like "allowed" and "ruling" can be misconstrued as a claim to the possession of statutory powers, when I have told the House, and the Government have told the House in unmistakable terms, that we possess no such powers. I cannot be plainer than that. If it does not sink in at this point I can never hope to make it clear to the hon. Gentleman.

I do not have the power, my right hon. Friend does not have the power, the Government do not have the power—no one has the power to enforce dividend restraint at this time. As I said, we intend to take this power in the not too distant future, as soon as it is convenient. In the meantime, we are entirely convinced that even when we take it, we are not taking it because we think that it is a matter of urgency. We are convinced that dividend restraint will be observed.

So much for the argument of those of my hon. Friends who believe that the concessions whittle restraint away. It is then argued that the dividend can be paid out in a later year, and this is true. It must be realised that wages are not on all fours with dividends in many respects. There are some points favour able to the argument and some unfavourable. The most important respect from my point of view in which wages are not on all fours with dividends is the magnitude. One must get this home. If there is anyone with the illusion that the incomes policy is unfair because it prevents the trade union movement from squeezing out of someone dividend buying power in favour of buying power which could be represented by wage increases he had better come into the later part of the 20th century and study some of the facts.

The wages and salaries bill last year was £21,342 million. The gross ordinary dividends before tax of all the quoted companies covered by our policy were £1,610 million in the last year. If we deduct payments to pension funds, unit trust funds, insurance policies, and other small shareholders, the relative insignificance of dividends as a claim on the annual production of wealth compared with wages is strikingly apparent.

It is quite obvious that if one man enjoyed the whole of the dividend income, he would have a strikingly better standard of life than anybody else, but as a source of wealth from which wage increases can be exacted hon. Members must face the fact that the wage bill is £21,000 million broadly, and that the total gross dividend paid out was £1,600 million. Seen dynamically, the picture becomes even clearer. Over the last five years, the increase in wages has been £5,331 million, three and a quarter times the total of the entire gross dividends paid last year.

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

Would the hon. Gentleman say whether dividends include interest?

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

No. I am talking about dividend on ordinary shares covered by this restraint. After tax, particularly this year, with the special charge, the difference would be even more striking. If one takes away small shareholders and pension funds and insurance policies one is faced with the fact, much as I would like to look at the consumption of dividend receivers rather than wage earners, that the money simply is not there.

Photo of Mr John Mendelson Mr John Mendelson , Penistone

Surely the hon. Member realises at least as well as any other hon. Member that if railwaymen, after the July, 1966, freeze, did not receive their increase for a period they will never get it back, and nor will members of the fire services, and nor will it count for their service pensions, but that if someone does not draw a dividend he will get his wealth enhanced later and will not lose over the 10 years?

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

I thought that I had made it clear with the greatest possible definition that when a worker gives up wages it is inevitable that he has lost them, and that when dividend restraint is maintained the shareholder can receive the money later. If that is what my hon. Friend has said, he is 100 per cent. correct. All I am saying is that it may be unfair, but that it is as fair as comparable circumstances can make it. [HON. MEMBERS: "No."] There is a reputable case to be made against an incomes policy, whether it is voluntary or compulsory, but it is not a reputable or arguable case that an incomes policy cannot be defended because dividends cannot be made to bear the brunt of wages——

I must ask those who accept that part of the argument: in which other way could we make dividend restraint more fair, more reasonable—[HON. MEMBERS: "Permanent. Compulsory."] Let me make it quite plain that we are not making it compulsory, because we have no doubt that the overwhelming majority of companies will voluntarily observe this restraint.

Photo of Mr Peter Hordern Mr Peter Hordern , Horsham

On this question of dividend restraint, will the Financial Secretary deal with the question of scrip issues, particularly when those scrip issues have no element of distribution in them whatever? What is the reason for not allowing those?

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

This is a pure Committee point. I do not intend to deal with it now.

The last point I want to make—[HON. MEMBERS: "Hear, hear."] I am perfectly content, if hon. Members do not want their points answered. The last point I want to make on this matter is this. It is true that the dividend owner has a prospect, if we succeed in our economic tasks, of getting increased dividends when the dividend restraint is over. It is equally true, however, that much more relevant considerations arise for the ordinary working people if the self-discipline for which the Government are asking results in economic success.

Let me put it this way. What is absolutely certain, if one compares wages and dividends, particularly under a Labour Government, is that what is in prospect, if we succeed in our economic tasks, is that there will be more crumbs for the poor man's table. The poor men and the workers will be sitting at the board and consuming the overwhelmingly greater part of the wealth which is produced in the country if the Government succeed in their economic and social tasks.

I want to deal now, briefly, with points from the Married Women's Property Act. The hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) said that it was a wicked piece of retrospection which would affect almost every widow insured under the Married Women's Property Act at the present time. Both those statements are not accurate. This provision affects a very small number of people. It is not retrospective. We have got not only the highest Conservative Party authority but even the higher authority of logic for believing that the proposal which is now made is a perfectly reasonable one, which I shall be very happy to defend in Committee when the details of this will be readily discussed.

Photo of Mr Robert Cooke Mr Robert Cooke , Bristol West

Mr. Robert Cooke (Bristol, West) rose——

Hon. Members:

Sit down.

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

Order. The Financial Secretary is obviously not giving way. The hon. Member for Bristol, West (Mr. Robert Cooke) must resume his seat.

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

Order. The Financial Secretary is obviously not giving way. Mr. Lever.

Photo of Mr Robert Cooke Mr Robert Cooke , Bristol West

On a point of order, with the greatest respect, Mr. Speaker. The Minister resumed his seat so as to allow me to ask a question on this matter—[HON. MEMBERS: "No."]—and it appeared to us that you prevented——

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

Obviously, the Minister was giving way out of deference to Mr. Speaker.

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

I shall try to deal briefly with a number of miscellaneous questions. I was asked by the right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) what is an infant. It is a person under 21. Next, he mentioned the case of damages received for personal injuries——

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

I give way to the right hon. Gentleman.

Hon. Members:


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

Order. If an hon. Member gives way, that is a matter for him, not for the House.

Photo of Mr John Boyd-Carpenter Mr John Boyd-Carpenter , Kingston upon Thames

The Financial Secretary has not taken the point. An infant is now a person under 21. The Government have announced their intention to reduce the age of majority to 18. I asked the specific question whether, in those circumstances, the Inland Revenue would be told not to take preparatory steps for aggregating the incomes of children between 18 and 21 at present with those of their parents. Will he now answer that?

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

The right hon. Gentleman is being his impetuous self, jumping the gun. An infant at present is a person under 21, and we shall act on that basis at present.

Next, the right hon. Gentleman mentioned in relation to aggregation the question of income from damages received for personal injury. It struck a sympathetic chord in my mind, and I have authority to tell the right hon. Gentleman that this and similar points will be looked at in Committee, with a sympathetic eye and with a view to meeting what would be the general wish. There is no question of dragging this out of the Chancellor or any Treasury Minister by some force of coercion. We are anxious to operate this new aggregation provision as humanely and reasonably as it can be. I give an assurance to that effect.

Now, a sentence or two about the Governor of the Bank of England, which ought to be said in reply to my hon. Friend the Member for Ebbw Vale (Mr. Michael Foot). I want to make absolutely clear that what the Governor of the Bank of England says needs neither confirmation nor repudiation by the Government. He speaks for himself. He is the Governor of the Bank of England, and he is entitled as such to speak for himself. It is entirely for him to judge what he things is appropriate for him to say so long as he is the Governor of the Bank of England.

I ask my hon. Friends not to use extravagant language in relation to the exercise of this right to speak. My hon. Friends themselves exercise the right of freedom of speech in the widest possible way and would rightly resent any form of execessive discipline being applied to their own freedom of speech. I hope that they will show a similar indulgence to a man who at the present time occupies a position as Governor of the Bank of England, which itself is under the control of the Government. The Governor is open to criticism, but my hon. Friends must bear in mind that the kind of criticisms which he cannot answer are individual comments by individual Members of Parliament in speeches here attacking his right to speak.

Photo of Mr Michael Foot Mr Michael Foot , Ebbw Vale

I am sorry to interrupt my hon. Friend at this late hour, but this is a matter of great importance. Many of us were outraged when the Governor of the Bank of England said that he was speaking with the authority of the Government when he said that he would favour a higher level of unemployment than we have had in recent years and a higher level of unused resources. What we want to know is whether the Government still hold by that policy which the Governor of the Bank said he was stating on behalf of the Government. This is extremely important. We hope that before the end of the debate my hon. Friend will answer the questions which we have asked about the level of unemployment.

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

What a night of misconceptions and of touching naivety in all quarters! My hon. Friend, for whom I have the greatest affection and respect—I say that, as usual, with sincerity—must know that Government policy is stated by the Government, not by the Governor of the Bank of England. I should be very surprised if that Governor used the words attributed to him, that he spoke on unemployment policy with the authority of the Government. I must ask my hon. Friends to examine what the Governor said before they enter into these criticisms.

I want briefly to answer the question of unemployment. The whole strategy of the Budget is to release labour for the export trade. There is no miraculous means whereby one can release labour for the export trade at one moment and ensure that at the very next it will be taken up in the export trade. One can only make reasonable assumptions. We are freeing labour for the export trade, and it follows that if it did not take up that labour there would be some increase in unemployment. We are confident that in the situation which has now been created not only will there be an export trade demand but that the labour will be free to take up employment to supply that demand.

I do not want to be guilty of detailed predictions which no man in his right mind would make. I shall say only that the best expectations we have are that the export trade will surge forward, will take up the labour which will be released as a result of this Budget strategy, and that we shall see a declining level of unemployment over the months ahead. I do not know what interpretation is to be put on the one single month's figure, but I should certainly not put on it the gloomy interpretation the right hon. Gentleman made.

I think that the moment has arrived when I should be wiser to reserve to the Committee stage the more detailed examination of the points which many hon. Members have made. The Budget and the Bill have been recognised by impartial observers everywhere, except by hon. Members opposite, as being entirely apart from the challenge of the present situation. I therefore have the honour to commend it to the House.

Question put, That the Bill be now read a Second time:—

The House divided: Ayes 286, Noes 232.

Division No. 122.]AYES[11.54 p.m.
Abse, LeoCarmichael, NeilEnglish, Michael
Albu, AustenCarter-Jones, LewisEnnals, David
Allaun, Frank (Salford, E.)Chapman, DonaldEnsor, David
Alldritt, WalterCoe, DenisEvans, Albert (Islington, S.W.)
Archer, PeterColeman, DonaldFaulds, Andrew
Atkins, Ronald (Preston, N.)Concannon, J. D.Fernyhough, E.
Atkinson, Norman (Tottenham)Conlan, BernardFinch, Harold
Bacon, Rt. Hn. AliceCorbet, Mrs. FredaFitch, Alan (Wigan)
Barnes, MichaelCraddock, George (Bradford, S.)Fletcher, Raymond (Ilkeston)
Barnett, JoelCrawshaw, RichardFletcher, Ted (Darlington)
Baxter, WilliamCrosland, Rt. Hn. AnthonyFoley, Maurice
Bellenger, Rt. Hn. F. J.Crossman, Rt. Hn. RichardFoot, Rt. Hn. Sir Dingle (Ipswich)
Bence, CyrilCullen, Mrs. AliceFoot, Michael (Ebbw Vale)
Benn, Rt. Hn. Anthony WedgwoodDalyell, TamFord, Ben
Bennett, James (G'gow, Bridgeton)Darling, Rt. Hn. GeorgeForrester, John
Bidwell, SydneyDavidson, Arthur (Accrington)Fowler, Gerry
Binns, JohnDavies, Dr. Ernest (Stretford)Freeson, Reginald
Bishop, E. S.Davies, G. Elfed (Rhondda, E.)Galpern, Sir Myer
Gardner, Tony
Blackburn, F.Davies, Ednyfed Hudson (Conway)Garrett, W. E.
Blenkinsop, ArthurDavies, Harold (Leek)Ginsburg, David
Boardman, H. (Leigh)Davies, Ifor (Gower)Gordon Walker, Rt. Hn. P. C.
Booth, AlbertDelargy, HughGourlay, Harry
Boston, TerenceDell, EdmundGray, Dr. Hugh (Yarmouth)
Bottomley, Rt. Hn. ArthurDempsey, JamesGreenwood, Rt. Hn. Anthony
Boyden, JamesDewar, DonaldGregory, Arnold
Braddock, Mrs. E. M.Diamond, Rt. Hn. JohnGrey, Charles (Durham)
Bradley, TomDickens, JamesGriffiths, David (Rother Valley)
Bray, Dr. JeremyDobson, RayGriffiths, Rt. Hn. James (Llanelly)
Brooks, EdwinDoig, PeterGriffiths, Will (Exchange)
Broughton, Dr. A. D. D.Driberg, TomGunter, Rt. Hn. R. J.
Brown, Hugh D. (G'gow, Provan)Dunn, James A.Hamilton, James (Bothwell)
Brown, Bob (N'c'tle-upon-Tyne, W.)Dunnett, JackHamling, William
Brown, R. W. (Shoreditch & F'bury)Dunwoody, Mrs. Gwyneth (Exeter)Hannan, William
Buchan, NormanDunwoody, Dr. John (F'th & C'b'e)Harrison, Walter (Wakefield)
Buchanan, Richard (G'gow, Sp'burn)Eadie, AlexHart, Rt. Hn. Judith
Butler, Herbert (Hackney, C.)Edelman, MauriceHattersley, Roy
Butler, Mrs. Joyce (Wood Green)Edwards, William (Merioneth)Hazell, Bert
Cant, R. B.Ellis, JohnHealey, Rt. Hn. Denis
Heffer, Eric S.Mahon, Peter (Preston, S.)Robertson, John (Paisley)
Henig, StanleyMahon, Simon (Bootle)Robinson, Rt. Hn. Kenneth (St. P'c'as)
Hilton, W. S.Mallalieu, E. L. (Brigg)Robinson, W. O. J. (Walth'stow, E.)
Hobden, Dennis (Brighton, K'town)Mallalieu, J. P. W. (Huddersfield, E.)Rodgers, William (Stockton)
Horner, JohnManuel, ArchieRoebuck, Roy
Houghton, Rt. Hn. DouglasMapp, CharlesRose, Paul
Howarth, Harry (Wellingborough)Marks, KennethRoss, Rt. Hn. William
Howarth, Robert (Bolton, E.)Marquand, DavidRowlands, E. (Cardiff, N.)
Howell, Denis (Small Heath)Marsh, Rt. Hn. RichardShaw, Arnold (Ilford, S.)
Howie, W.Mason, Rt. Hn. RoySheldon, Robert
Hoy, JamesMayhew, ChristopherShore, Rt. Hn. Peter (Stepney)
Huckfield, LeslieMellish, Rt. Hn. RobertShort, Rt. Hn. Edward (N'c'tle-u-Tyne)
Hughes, Rt. Hn. Cledwyn (Anglesey)Mendelson, J. J.Silkin, Rt. Hn. John (Deptford)
Hughes, Emrys (Ayrshire, S.)Mikardo, IanSilverman, Julius (Aston)
Hughes, Hector (Aberdeen, N.)Millan, BruceSkeffington, Arthur
Hughes, Roy (Newport)Miller, Dr. M. S.Slater, Joseph
Hunter, AdamMorgan, Elystan (Cardiganshire)Small, William
Hynd, JohnMorris, Alfred (Wythenshawe)Spriggs, Leslie
Irvine, Sir ArthurMorris, Charles R. (Openshaw)Steele, Thomas (Dunbartonshire, W.)
Jackson, Colin (B'h'se & Spenb'gh)Morris, John (Aberavon)Stonehouse, John
Jackson, Peter M. (High Peak)Moyle, RolandStrauss, Rt. Hn. G. R.
Janner, Sir BarnettMurray, AlbertSummerskill, Hn. Dr. Shirley
Jay, Rt. Hn. DouglasNeal, HaroldSwingler, Stephen
Jeger, Mrs. Lena (H'b'n & St. P'cras, S.)Newens, StanTaverne, Dick
Jenkins, Hugh (Putney)Noel-Baker, Francis (Swindon)Thomas, Rt. Hn. George
Jenkins, Rt. Hn. Roy (Stechford)Norwood, ChristopherThornton, Ernest
Johnson, Carol (Lewisham, S.)Oakes, GordonTinn, James
Jones, Rt. Hn. Sir Elwyn(W. Ham, S.)O'Malley, BrianTomney, Frank
Jones, J. Idwal (Wrexham)Oram, Albert E.Tuck, Raphael
Jones, T. Alec (Rhondda, West)Orbach, MauriceUrwin, T. W.
Kelley, RichardOrme, StanleyVarley, Eric G.
Kenyon, CliffordOswald, ThomasWainwright, Edwin (Dearne Valley)
Kerr, Dr. David (W'worth, Central)Owen, Dr. David (Plymouth, S'tn)Walden, Brian (All Saints)
Kerr, Russell (Feltham)Owen, Will (Morpeth)Walker, Harold (Doncaster)
Lawson, GeorgePage, Derek (King's Lynn)Wallace, George
Ledger, RonPaget, R. T.Watkins, Tudor (Brecon & Radnor)
Lee, Rt. Hn. Frederick (Newton)Palmer, ArthurWeitzman, David
Lee, Rt. Hn. Jennie (Cannock)Pannell, Rt. Hn. CharlesWellbeloved, James
Lee, John (Reading)Park, TrevorWells, William (Walsall, N.)
Lever, Harold (Cheetham)Parker, John (Dagenham)Whitaker, Ben
Lewis, Ron (Carlisle)Parkin, Ben (Paddington, N.)White, Mrs. Eirene
Lipton, MarcusParkyn, Brian (Bedford)Whitlock, William
Lomas, KennethPavitt, LaurenceWilkins, W. A.
Lyon, Alexander W. (York)Pearson, Arthur (Pontypridd)Willey, Rt. Hn. Frederick
Lyons, Edward (Bradford, E.)Peart, Rt. Hn. FredWilliams, Alan Lee (Hornchurch)
Mabon, Dr. J. DicksonPentland, NormanWilliams, Clifford (Abertillery)
McBride, NeilPerry, Ernest G. (Battersea, S.)Williams, Mrs. Shirley (Hitchin)
McCann, JohnPerry, George H. (Nottingham, S.)Willis, Rt. Hn. George
MacColl, JamesPrentice, Rt. Hn. R. E.Wilson, Rt. Hn. Harold (Huyton)
MacDermot, NiallPrice, Christopher (Perry Barr)Wilson, William (Coventry, S.)
Macdonald, A. H.Price, Thomas (Westhoughton)Winnick, David
McGuire, MichaelProbert, ArthurWoodburn, Rt. Hn, A.
Mackenzie, Gregor (Rutherglen)Rankin, JohnWoof, Robert
Mackie, JohnRees, MerlynWyatt, Woodrow
Mackintosh, John P.Rhodes, GeoffreyYates, Victor
McMillan, Tom (Glasgow, C.)Richard, Ivor
McNamara, J. KevinRoberts, Albert (Normanton)TELLERS FOR THE AYES:
MacPherson, MalcolmRoberts, Gwilym (Bedfordshire, S.)Mr. Joseph Harper and
Mr. Ioan L. Evans.
Alison, Michael (Barkston Ash)Braine, BernardCraddock, Sir Beresford (Spelthorne)
Astor, JohnBrewis, JohnCrosthwaite-Eyre, Sir Oliver
Atkins, Humphrey (M't'n & M'd'n)Brinton, Sir TattonCrouch, David
Awdry, DanielBromley-Davenport, Lt.-Col. Sir WalterCrowder, F. P.
Baker, Kenneth (Acton)Brown, Sir Edward (Bath)Cunningham, Sir Knox
Balniel, LordBruce-Gardyne, J.Currie, G. B. H.
Barber, Rt. Hn. AnthonyBryan, PaulDalkeith, Earl of
Batsford, BrianBuchanan-Smith, Alick (Angus, N & M)d'Avigdor-Goldsmid, Sir Henry
Beamish, Col. Sir TuftonBuck, Antony (Colchester)Dean, Paul (Somerset, N.)
Bell, RonaldBullus, Sir EricDeedes, Rt. Hn. W. F. (Ashford)
Bennett, Sir Frederic (Torquay)Burden, F. A.Digby, Simon Wingfield
Bennett, Dr. Reginald (Gos. & Fhm)Campbell, GordonDodds-Parker, Douglas
Berry, Hn. AnthonyCarlisle, MarkDoughty, Charles
Bessell, PeterChannon, H. P. G.Douglas-Home, Rt. Hn. Sir Alec
Biggs-Davison, JohnChichester-Clark, R.Drayson, G. B.
Birch, Rt. Hn. NigelClark, HenryEden, Sir John
Black, Sir CyrilClegg, WalterElliot, Capt. Walter (Carshalton)
Boardman, TomCooke, RobertEmery, Peter
Body, RichardCooper-Key, Sir NeillErrington, Sir Eric
Bossom, Sir CliveCordle, JohnEyre, Reginald
Boyd-Carpenter, Rt. Hn. JohnCorfield, F. V.Farr, John
Boyle, Rt. Hn. Sir EdwardCostain, A. P.Fisher, Nigel
Fletcher-Cooke, Charles
Fortescue, TimLangford-Holt, Sir JohnRhys Williams, Sir Brandon
Foster, Sir JohnLegge-Bourke, Sir HarryRidley, Hn. Nicholas
Fraser, Rt. Hn. Hugh (St'fford & Stone)Lewis, Kenneth (Rutland)Ridsdale, Julian
Galbraith, Hon. T. G.Lloyd, Ian (P'tsm'th, Langstone)Rippon, Rt. Hn. Geoffrey
Gibson-Watt, DavidLloyd, Rt. Hn. Selwyn (Wirral)Rodgers, Sir John (Sevenoaks)
Giles, Rear-Adm. MorganLongden, GilbertRossi, Hugh (Hornsey)
Gilmour, Ian (Norfolk, C.)Loveys, W. H.Royle, Anthony
Gilmour, Sir John (Fife, E.)Lubbock, EricRussell, Sir Ronald
Glyn, Sir RichardMacArthur, IanSt. John-Stevas, Norman
Godber, Rt. Hn. J. B.Mackenzie, Alasdair (Ross & Crom'ty)Sandys, Rt. Hn. D.
Gower, RaymondMaclean, Sir FitzroyScott, Nicholas
Grant, AnthonyMacleod, Rt. Hn. IainScott-Hopkins, James
Grant-Ferris, R.McMaster, StanleySharples, Richard
Gresham Cooke, R.Macmillan, Maurice (Farnham)Shaw, Michael (Sc'b'gh & Whitby)
Grieve, PercyMadden, MartinSilvester, Frederick
Griffiths, Eldon (Bury St. Edmunds)
Gurden, HaroldMaginnis, John E.Sinclair, Sir George
Hall, John (Wycombe)Marples, Rt. Hn. ErnestSmith, Dudley (W'wick & L'mington)
Hall-Davis, A. G. F.Marten, NeilSpeed, Keith
Hamilton, Lord (Fermanagh)Maude, AngusStainton, Keith
Hamilton, Michael (Salisbury)Maudling, Rt. Hn. ReginaldStodart, Anthony
Harrison, Brian (Maldon)Mawby, RayStoddart-Scott, Col. Sir M. (Ripon)
Harrison, Col. Sir Harwood (Eye)Maxwell-Hyslop, R. J.Tapsell, Peter
Harvey, Sir Arthur VereMaydon, Lt.-Cmdr. S. L. C.Taylor, Sir Charles (Eastbourne)
Hastings, StephenMills, Peter (Torrington)Taylor, Edward M. (G'gow, Cathcart)
Hawkins, PaulMills, Stratton (Belfast, N.)Taylor, Frank (Moss Side)
Hay, JohnMiscampbell, NormanTeeling, Sir William
Heald, Rt. Hn. Sir LionelMontgomery, FergusTemple, John M.
Heath, Rt. Hn. EdwardMorgan, Geraint (Denbigh)Thatcher, Mrs. Margaret
Heseltine, MichaelMorrison, Charles (Devizes)Tilney, John
Higgins, Terence L.Munro-Lucas-Tooth, Sir HughTurton, Rt. Hn. R. H.
Hiley, JosephMurton, Oscarvan Straubenzee, W. R.
Hill, J. E. B.Nabarro, Sir GeraldVaughan-Morgan, Rt. Hn. Sir John
Hogg, Rt. Hn. QuintinNeave, AireyVickers, Dame Joan
Holland, PhilipNicholls, Sir HarmarWainwright, Richard (Colne Valley)
Hooson, EmlynNoble, Rt. Hn. MichaelWalker, Peter (Worcester)
Hordern, PeterNott, JohnWalker-Smith, Rt. Hn. Sir Derek
Hornby, RichardOnslow, CranleyWalters, Dennis
Howell, David (Guildford)Orr. Capt. L. P. S.Weatherill, Bernard
Hunt, JohnOsborn, John (Hallam)Webster, David
Hutchison, Michael ClarkOsborne, Sir Cyril (Louth)Wells, John (Maidstone)
Iremonger, T. L.Page, Graham (Crosby)Whitelaw, Rt. Hn. William
Irvine, Bryant Godman (Rye)Page, John (Harrow, W.)Wills, Sir Gerald (Bridgwater)
Jenkin, Patrick (Woodford)Pardoe, JohnWilliams, Donald (Dudley)
Jennings, J. C. (Burton)Pearson, Sir Frank (Clitheroe)Wilson, Geoffrey (Truro)
Johnson Smith, G. (E. Grinstead)Percival, IanWinstanley, Dr. M. P.
Jones, Arthur (Northants, S.)Peyton, JohnWolrige-Gordon, Patrick
Jopling, MichaelPike, Miss MervynWood, Rt. Hn. Richard
Kaberry, Sir DonaldPink, R. BonnerWoodnutt, Mark
Kerby, Capt. HenryPounder, RaftonWorsley, Marcus
Kershaw, AnthonyPowell, Rt. Hn. J. EnochWright, Esmond
King, Evelyn (Dorset, S.)Prior, J. M. L.Wylie, N. R.
Kitson, TimothyPym, FrancisYounger, Hn. George
Knight, Mrs. JillQuennell, Miss J. M.
Lambton, ViscountRamsden, Rt. Hn. JamesTELLERS FOR THE NOES:
Lancaster, Col. C. G.Rawlinson, Rt. Hn. Sir PeterMr. Jasper More and
Lane, DavidRenton, Rt. Hn. Sir DavidMr. Hector Monro.

Motion made, and Question put, That the Bill be committed to a Committee of the whole House.—[Mr. Whitelaw.]:—

The House divided: Ayes 223, Noes 291

Division No. 123.]AYES[12.5 a.m.
Alison, Michael (Barkston Ash)Boyd-Carpenter, Rt. Hn. JohnCooke, Robert
Astor, JohnBoyle, Rt. Hn. Sir EdwardCooper-Key, Sir Neill
Atkins, Humphrey (M't'n & M'd'n)Braine, BernardCordle, John
Awdry, DanielBrewis, JohnCorfield, F. V.
Baker, Kenneth (Acton)Brinton, Sir TattonCostain, A. P.
Balniel, LordBromley-Davenport, Lt.-Col. Sir WalterCraddock, Sir Beresford (Spelthorne)
Barber, Rt. Hn. AnthonyBrown, Sir Edward (Bath)Crosthwaite-Eyre, Sir Oliver
Batsford, BrianBruce-Gardyne, J.Crouch, David
Beamish, Col. Sir TuftonBryan, PaulCrowder, F. P.
Bell, RonaldBuchanan-Smith, Alick (Angus, N & M)Cunningham, Sir Knox
Bennett, Sir Frederic (Torquay)Buck, Antony (Colchester)Currie, G. B. H.
Bennett, Dr. Reginald (Gos. & Fhm)Bullus, Sir EricDalkeith, Earl of
Berry, Hn. AnthonyBurden, F. A.d'Avigdor-Goldsmid, Sir Henry
Biggs-Davison, JohnCampbell, GordonDean, Paul (Somerset, N.)
Birch, Rt. Hn. NigelCarlisle, MarkDeedes, Rt. Hn. W. F. (Ashford)
Black, Sir CyrilChannon, H. P. G.Digby, Simon Wingfield
Boardman, TomChichester-Clark, R.Dodds-Parker, Douglas
Body, RichardClark, HenryDoughty, Charles
Bossom, Sir CliveClegg, WalterDouglas-Home, Rt. Hn. Sir Alec
Drayson, G. B.Kerby, Capt. HenryRamsden, Rt. Hn. James
Eden, Sir JohnKershaw, AnthonyRawlinson, Rt. Hn. Sir Peter
Elliot, Capt. Walter (Carshalton)King, Evelyn (Dorset, S.)Renton, Rt. Hn. Sir David
Emery, PeterKnight, Mrs. JillRhys Williams, Sir Brandon
Errington, Sir EricLancaster, Col. C. G.Ridley, Hn. Nicholas
Eyre, ReginaldLane, DavidRidsdale, Julian
Farr, JohnLangford-Holt, Sir JohnRippon, Rt. Hn. Geoffrey
Fisher, NigelLegge-Bourke, Sir HarryRodgers, Sir John (Sevenoaks)
Fletcher-Cooke, CharlesLloyd, Ian (P'tsm'th, Langstone)Rossi, Hugh (Hornsey)
Fortescue, TimLloyd, Rt. Hn. Selwyn (Wirral)Royle, Anthony
Foster, Sir JohnLongden, GilbertRussell, Sir Ronald
Fraser, Rt. Hn. Hugh (St'fford & Stone)
Galbraith, Hon. T. G.Loveys, W. H.St. John-Stevas, Norman
Gibson-Watt, DavidMacArthur, IanSandys, Rt. Hn. D.
Giles, Rear-Adm. MorganMaclean, Sir FitzroyScott, Nicholas
Gilmour, Ian (Norfolk, C.)Macleod, Rt. Hn. IainScott-Hopkins, James
Gilmour, Sir John (Fife, E.)McMaster, StanleySharples, Richard
Glyn, Sir RichardMacmillan, Maurice (Farnham)Shaw, Michael (Sc'b'gh & Whitby)
Godber, Rt. Hn. J. B.Maddan, MartinSilvester, Frederick
Gower, RaymondMaginnis, John E.Sinclair, Sir George
Grant, AnthonyMarples, Rt. Hn. ErnestSmith, Dudley (W'wick & L'mington)
Grant-Ferris, R.Marten, NeilSpeed, Keith
Gresham Cooke, R.Maude, AngusStainton, Keith
Grieve, PercyMaudling, Rt. Hn. ReginaldStodart, Anthony
Griffiths, Eldon (Bury St. Edmunds)Mawby, RayStoddart-Scott, Col. Sir M. (Ripon)
Gurden, HaroldMaxwell-Hyslop, R. J.Tapsell, Peter
Hall, John (Wycombe)Maydon, Lt.-Cmdr. S. L. C.Taylor, Sir Charles (Eastbourne)
Hall-Davis, A. G. F.Mills, Peter (Torrington)Taylor, Edward M. (G'gow, Cathcart)
Hamilton, Lord (Fermanagh)Mills, Stratton (Belfast, N.)Taylor, Frank (Moss Side)
Hamilton, Michael (Salisbury)Miscampbetl, NormanTeeling, Sir William
Harrison, Brian (Maldon)Monro, HectorTemple, John M.
Harrison, Col. Sir Harwood (Eye)Montgomery, FergusThatcher, Mrs. Margaret
Harvey, Sir Arthur VereMorgan, Geraint (Denbigh)Tilney, John
Hastings, StephenMorrison, Charles (Devizes)Turton, Rt. Hn. R. H.
Hawkins, PaulMunro-Lucas-Tooth, Sir Hughvan Straubenzee, W. R.
Hay, JohnMurton, OscarVaughan-Morgan, Rt. Hn. Sir John
Heald, Rt. Hn. Sir LionelNabarro, Sir GeraldVickers, Dame Joan
Heath, Rt. Hn. EdwardNeave, AireyWalker, Peter (Worcester)
Heseltine, MichaelNicholls, Sir HarmarWalker-Smith, Rt. Hn. Sir Derek
Higgins, Terence L.Noble, Rt. Hn. MichaelWalters, Dennis
Hiley, JosephNott, JohnWeatherill, Bernard
Hill, J. E. B.Onslow, CranleyWebster, David
Hogg, Rt. Hn. QuintinOrr, Capt. L. P. S.Wells, John (Maidstone)
Holland, PhilipOsborn, John (Hallam)Whitelaw, Rt. Hn. William
Hordern, PeterOsborne, Sir Cyril (Louth)Wills, Sir Gerald (Bridgwater)
Hornby, RichardPage, Graham (Crosby)Wilson, Geoffrey (Truro)
Howell, David (Guildford)Page, John (Harrow, W.)Williams, Donald (Dudley)
Hunt, JohnPearson, Sir Frank (Clitheroe)Wolrige-Gordon, Patrick
Hutchison, Michael ClarkPercival, IanWood, Rt. Hn. Richard
Iremonger, T. L.Peyton, JohnWoodnutt, Mark
Irvine, Bryant Godman (Rye)Pike, Miss MervynWorsley, Marcus
Jenkin, Patrick (Woodford)Pink, R. BonnerWright, Esmond
Jennings, J. C. (Burton)Pounder, RaftonWylie, N. R.
Johnson Smith, G. (E. Grinstead)Powell, Rt. Hn. J. EnochYounger, Hn. George
Jones, Arthur (Northants, S.)Prior, J. M. L.
Jopling, MichaelPym, FrancisTELLERS FOR THE AYES:
Kaberry, Sir DonaldQuennell, Miss J. M.Mr. Jasper More and
Mr. Timothy Kitson.
Abse, LeoBottomley, Rt. Hn. ArthurCrawshaw, Richard
Albu, AustenBoyden, JamesCrosland, Rt. Hn. Anthony
Allaun, Frank (Salford, E.)Braddock, Mrs. E. M.Crossman, Rt. Hn. Richard
Alldritt, WalterBradley, TomCullen, Mrs. Alice
Archer, PeterBray, Dr. JeremyDalyell, Tam
Atkins, Ronald (Preston, N.)Brooks, EdwinDarling, Rt. Hn. George
Atkinson, Norman (Tottenham)Broughton, Dr. A. D. D.Davidson, Arthur (Accrington)
Bacon, Rt. Hn. AliceBrown, Hugh D. (G'gow, Provan)Davies, Dr. Ernest (Stretford)
Barnes, MichaelBrown, Bob (N'c'tle-upon-Tyne, W.)Davies, G. Elfed (Rhondda, E.)
Barnett, JoelBrown, R. W. (Shoreditch & F'bury)Davies, Ednyfed Hudson (Conway)
Baxter, WilliamBuchan, NormanDavies, Harold (Leek)
Bellenger, Rt. Hn. F. J.Buchanan, Richard (G'gow, Sp'burn)Davies, Ifor (Gower)
Bence, CyrilButler, Mrs. Joyce (Wood Green)Delargy, Hugh
Benn, Rt. Hn. Anthony WedgwoodCant, R. B.Dell, Edmund
Bennett, James (G'gow, Bridgeton)Carmichael, NeilDempsey, James
Bidwell, SydneyCarter-Jones, LewisDewar, Donald
Binns, JohnChapman, DonaldDiamond, Rt. Hn. John
Bishop, E. S.Coe, DenisDickens, James
Blackburn, F.Coleman, DonaldDobson, Ray
Blenkinsop, ArthurConcannon, J. D.Doig, Peter
Boardman, H. (Leigh)Conlan, BernardDriberg, Tom
Booth, AlbertCorbet, Mrs. FredaDunn, James A.
Boston, TerenceCraddock, George (Bradford, S.)Dunnett, Jack
Dunwoody, Mrs. Gwyneth (Exeter)
Dunwoody, Dr. John (F'th & C'b'e)Kerr, Dr. David (W 'worth, Central)Pentland, Norman
Eadie, AlexKerr, Russell (Feltham)Perry, Ernest G. (Battersea, S.)
Edelman, MauriceLawson, GeorgePerry, George H. (Nottingham, S.)
Edwards, William (Merioneth)Leadbitter, TedPrentice, Rt. Hn. R. E.
Ellis, JohnLedger, RonPrice, Christopher (Perry Barr)
English, MichaelLee, Rt. Hn. Frederick (Newton)Price, Thomas (Westhoughton)
Ennals, DavidLee, Rt. Hn. Jennie (Cannock)Probert, Arthur
Ensor, DavidLee, John (Reading)Rankin, John
Evans, Albert (Islington, S. W.)Lever, Harold (Cheetham)Rees, Merlyn
Faulds, AndrewLewis, Ron (Carlisle)Rhodes, Geoffrey
Fernyhough, E.Lipton, MarcusRichard, Ivor
Finch, HaroldLomas, KennethRoberts, Albert (Normanton)
Fitch, Alan (Wigan)Lubbock, EricRoberts, Gwilym (Bedfordshire, S.)
Fletcher, Raymond (Ilkeston)Lyon, Alexander W. (York)Robertson, John (Paisley)
Fletcher, Ted (Darlington)Lyons, Edward (Bradford, E.)Robinson, Rt. Hn. Kenneth (St. P'c'as)
Foley, MauriceMabon, Dr. J. DicksonRobinson, W. O. J. (Walth'stow, E.)
Foot, Rt. Hn. Sir Dingle (Ipswich)McBride, NeilRodgers, William (Stockton)
Foot, Michael (Ebbw Vale)McCann, JohnRoebuck, Roy
Ford, BenMacColl, JamesRose, Paul
Forrester, JohnMacDermot, NiallRoss, Rt. Hn. William
Fowler, GerryMacdonald, A. H.Rowlands, E. (Cardiff, N.)
Freeson, ReginaldMcGuire, MichaelShaw, Arnold (Ilford, S.)
Galpern, Sir MyerMackenzie, Alasdair(Ross & Crom'ty)Sheldon, Robert
Gardner, TonyMackenzie, Gregor (Rutherglen)Shore, Rt. Hn. Peter (Stepney)
Garrett, W. E.Mackie, JohnShort, Rt. Hn. Edward (N'c'tle-u-Tyne)
Ginsburg, DavidMackintosh, John P.Silkin, Rt. Hn. John (Deptford)
Gordon Walker, Rt. Hn. P. C.McMillan, Tom (Glasgow, C.)Silverman, Julius (Aston)
Gourlay, HarryMcNamara, J. KevinSkeffington, Arthur
Gray, Dr. Hugh (Yarmouth)MacPherson, MalcolmSlater, Joseph
Greenwood, Rt. Hn. AnthonyMahon, Peter (Preston, S.)Small, William
Gregory, ArnoldMahon, Simon (Bootle)Spriggs, Leslie
Grey, Charles (Durham)Mallalieu, E. L. (Brigg)Steele, Thomas (Dunbartonshire, W.)
Griffiths, David (Rother Valley)
Griffiths, Rt. Hn. James (Llanelly)Mallalieu, J. P. W. (Huddersfield, E.)Stonehouse, John
Griffiths, Will (Exchange)Manuel, ArchieStrauss, Rt. Hn. G. R.
Gunter, Rt. Hn. R. J.Mapp, CharlesSummerskill, Hn. Dr. Shirley
Hamilton, James (Bothwell)Marks, KennethSwingler, Stephen
Hamling, WilliamMarquand, DavidTaverne, Dick
Hannan, WilliamMarsh, Rt. Hn. RichardThomas, Rt. Hn. George
Harrison, Walter (Wakefield)Mason, Rt. Hn. RoyThornton, Ernest
Hart, Rt. Hn. JudithMayhew, ChristopherTinn, James
Hattersley, RoyMellish, Rt. Hn. RobertTomney, Frank
Hazell, BertMendelson, J. J.Tuck, Raphael
Healey, Rt. Hn. DenisMikardo, IanUrwin, T. W.
Heffer, Eric S.Millan, BruceVarley, Eric G.
Henig, StanleyMiller, Dr. M. S.Wainwright, Edwin (Dearne Valley)
Hilton, W. S.Morgan, Elystan (Cardiganshire)Wainwright, Richard (Colne Valley)
Hobden, Dennis (Brighton, K'town)Morris, Alfred (Wythenshawe)Walden, Brian (All Saints)
Horner, JohnMorris, Charles R. (Openshaw)Walker, Harold (Doncaster)
Houghton, Rt. Hn. DouglasMorris, John (Aberavon)Wallace, George
Howarth, Harry (Wellingborough)Moyle, RolandWatkins, Tudor (Brecon & Radnor)
Howarth, Robert (Bolton, E.)Murray, AlbertWeitzman, David
Howell, Denis (Small Heath)Neal, HaroldWellbeloved, James
Howie, W.Newens, StanWells, William (Walsall, N.)
Hoy, JamesNoel-Baker, Francis (Swindon)Whitaker, Ben
Huckfield, LeslieNorwood, ChristopherWhite, Mrs. Eirene
Hughes, Rt. Hn. Cledwyn (Anglesey)Oakes, GordonWhitlock, William
Hughes, Emrys (Ayrshire, S.)O'Malley, BrianWilkins, W. A.
Hughes, Hector (Aberdeen, N.)Oram, Albert E.Willey, Rt. Hn. Frederick
Hughes, Roy (Newport)Orbach, MauriceWilliams, Alan Lee (Hornchurch)
Hunter, AdamOrme, StanleyWilliams, Clifford (Abertillery)
Hynd, JohnOswald, ThomasWilliams, Mrs. Shirley (Hitchin)
Irvine, Sir ArthurOwen, Dr. David (Plymouth, S'tn)Willis, Rt. Hn. George
Jackson, Colin (B'h'se & Spenb'gh)Owen, Will (Morpeth)Wilson, Rt. Hn. Harold (Huyton)
Jackson, Peter M. (High Peak)Page, Derek (King's Lynn)Wilson, William (Coventry, S.)
Janner, Sir BarnettPaget, R. T.Winnick, David
Jay, Rt. Hn. DouglasPalmer, ArthurWinstanley, Dr. M. P.
Jeger, Mrs. Lena (H'b'n & St. P'cras, S.)Pannell, Rt. Hn. CharlesWoodburn, Rt. Hn. A.
Jenkins, Flugh[...] (Putney)Pardoe, JohnWoof, Robert
Jenkins, Rt. Hn. Roy (Stechford)Park, TrevorWyatt, Woodrow
Johnson, Carol (Lewisham, S.)Parker, John (Dagenham)Yates, Victor
Jones, Rt. Hn. Sir Elwyn (W. Ham, S.)Parkin, Ben (Paddington, N.)
Jones, J. Idwal (Wrexham)Parkyn, Brian (Bedford)TELLERS FOR THE NOES:
Jones, T. Alec (Rhondda, West)Pavitt, LaurenceMr. Joseph Harper and
Kelley, RichardPearson, Arthur (Pontypridd)Mr. Ioan L. Evans.
Kenyon, CliffordPeart, Rt. Hn. Fred
Bill committed to a Standing Committee pursuant to Standing Order No. 40 (Committal of Bills).>