Orders of the Day — Finance Bill

– in the House of Commons at 12:00 am on 28th April 1971.

Alert me about debates like this

Order for Second Reading read.

4.6 p.m.

Photo of Mr Anthony Barber Mr Anthony Barber , Altrincham and Sale

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

When the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) moved the Second Reading of the 1968 Finance Bill, his opening words were: 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."—[OFFICIAL REPORT, 24th April, 1968; Vol. 763, c. 250.] Having myself taken part in four Finance Bills as Economic Secretary and then as Financial Secretary to the Treasury, I respectfully agree with the right hon. Gentleman, and I propose to follow his example.

The Bill, together with the short Act which we passed last autumn, provides for reductions in taxation amounting to some £1,000 million a year. The Bill is also the first legislative step in a programme of radical reform of the taxation system. In the course of what I have to say, I want to deal with both these aspects. The House will also expect me to say something about the economy, to which many of the provisions of the Bill are directed.

If we are realistic, any consideration of our present situation must start with an acceptance of the fact that, for many years, our national economic performance compared with that of our principal competitors has been, to put it mildly, an inadequate one. In the years which followed the war, there was perhaps some credible excuse. We had won the war, but the cost to our country was great. As a nation, we sacrificed much in the cause of freedom, and we were proud to do so.

In more recent years, we can look to no convincing reason beyond ourselves and our performance. But that very fact should give us heart and confidence, because it follows that it lies within our own power to put matters right.

There is still much in Britain today of which we are all rightly proud. But I believe that what Britain has been starved of in recent years is achievement and success. It is my belief that it is as important to encourage achievement as it is to help those who do not succeed. It is as important to create wealth as it is to seek to divide it. I certainly have no wish, any more than most right hon. and hon. Members, to create a brash materialistic society. But we need to create a nation which combines in full measure both fairness and success.

Photo of Mr Jeremy Thorpe Mr Jeremy Thorpe , North Devon

With full employment.

Photo of Mr Anthony Barber Mr Anthony Barber , Altrincham and Sale

Of course, taxation is only one factor in our social structure. But these are the underlying reasons why I felt it right, at the beginning of a new Parliament, not just to tinker with the system that we inherited, but to set one's sights high and try to design a tax structure best suited for Britain in the last part of this century.

So these were my aims in the Budget, now to be given effect in the Bill. First, to reduce the burden of taxation so as to increase incentive and initiative; secondly, to simplify the system so as to reduce its unnecessary enervating effects on individuals and on companies; thirdly, to encourage a widespread increase in personal savings so as to promote the accumulation of wealth for our nation; fourthly, to create a steady expansion in economic activity—neither boom nor slump, but sustainable growth, and, fifthly, to ameliorate the inflation which causes so much social injustice.

Although on 30th March I described in some detail the circumstances in which I had to reach my Budget judgment and the reasons which led me to frame the proposals which I then put before the House, many of which are now embodied in the Bill, it might be helpful if I recapitulated them in broad outline to relate them to developments which have taken place in the past month between the Budget and this Second Reading debate.

The situation with which I was confronted almost a month ago, at the time of the Budget, was dominated by two main features—inflation and unemployment—combined in intensity and scale as never before in our recent history.

The inflationary problem had been with us since the second half of 1969 when the present surge of large wage claims began. That is common ground. From the outset of our term of office the Government recognised that this was the most important economic and social problem facing the country. For this reason—I shall not go into the details today—we have given the highest priority to our policy of achieving a reduction in the level of pay settlements. The second, and related, problem is that of unemployment, which the House is to debate tomorrow.

In these circumstances, a number of courses were open to me, and I chose a series of measures—many of which are reflected in the Bill—designed to make an addition to demand such that output would grow roughly in line with production potential.

I realise that there are those who, since the Budget debate, during this past month have urged that the stimulus to demand should be greater. It is right that I should leave the House in no doubt about my own view, which is that to attempt by expansionary fiscal measures to bring about a substantial reduction in unemployment in present circumstances, would do irreparable harm to our longer-term prospects. While our costs and prices are rising so fast—at a rate well in excess of that of many of our competitors—any further boost in demand would be likely both to lead to a disproportionate increase in the demand for imports and to undermine our efforts to introduce some moderation in to wage settlements.

My assessment today, a month after the Budget, has not changed. The conclusion which I reached was that I should give a modest simulus to demand, and to do so in a way which would stimulate investment and assist the fight against inflation.

The Bill contains the main taxation provisions for the further cut in corporation tax, for the reductions in income tax and for the halving of S.E.T. These measures in the Bill, together with the other proposals in the Budget Statement, are designed to have the effect of raising the growth in output to about 3 per cent. in the year ahead and, therefore, of allowing the economy to grow in line with its underlying potential.

Moreover, the particular taxation measures which I selected, which we are to debate in the coming weeks, should make a contribution both to the job of restoring business confidence and raising investment and to the attack on cost inflation. Business confidence should be helped both by the addition to aggregate demand and by the further cut in corporation tax which will improve the post-tax return on investments and strengthen company liquidity.

Clause 52 makes provision for the 50 per cent. reduction in the rates of S.E.T. This is the first step in implementing our commitment to abolish the tax altogether. Not all hon. Gentlemen opposite will need convincing of the demerits of S.E.T. Indeed, I recall that the hon. Member for Willesden, West (Mr. Pavitt), who, alas, is not with us this afternoon, supported by some colleagues, even went so far as to vote against their own Government on this particular issue. I am sure that my hon. Friends are looking forward as much as I am to having their support when we come to Clause 52.

It is interesting to pose the question: Why is it that a tax, S.E.T., to which only employers are directly liable, should have achieved such wide and, indeed, universal unpopularity? I believe that one reason is the artificial distinction between manufacturing and services. This distinction fails to take account of the basic point that the marketing of goods is no less vital a part of getting them to the ultimate user or consumer than is their production. The emphasis on manufacturing ignores the fact that in recent years it has been a feature of all advanced economies, not just our own, that the proportion of the working population engaged in the services and commerce has increased.

Again, the assertion that S.E.T. has improved the fiscal balance of the tax system, which is said by some hon. Gentlemen opposite, betrays, as Professor Reddaway pointed out, some confusion of thought, because what matters is the sum total of tax on a commodity. There is no inherent virtue in imposing tax at each stage of the distribution process without reference to the level of other indirect taxes.

I think that one should look at the practical results of the tax as it has operated over the years since it was first introduced. The building and construction industry ranks as services, and those who contribute to our invisible exports through international finance and commerce are liable to the tax.

Photo of Mr Eric Heffer Mr Eric Heffer , Liverpool, Walton

The right hon. Gentleman will be aware that I oppose S.E.T. being applied to the building industry. I felt that it should never have applied because I did not agree that it was a service industry. Will he indicate whether the Government are prepared to go further in their proposals and actually abolish S.E.T. for the building industry as a whole in July?

Photo of Mr Anthony Barber Mr Anthony Barber , Altrincham and Sale

I give the hon. Gentleman due credit. He has throughout been entirely consistent about the building industry. I considered, as a result of representations made to me on behalf of the building industry and wholesalers and other categories of people or companies liable to S.E.T., whether it might be worthwhile and sensible to abolish the tax altogether for particular categories of taxpayers liable to S.E.T. But I came to the conclusion that, in all the circumstances, because of the obvious problems which would arise, it would be better to make a substantial cut in S.E.T. right across the board. I assure the hon. Gentleman that I particularly considered industries such as the construction industry because of the effect of S.E.T. upon them.

With a tax designed to discriminate in favour of manufacturing industry, as S.E.T. is, one might expect to find that it has some supporters among indusirialists. But, as one goes round the country and reads what they say, one finds that industrialists have no more affection for S.E.T. than anybody else. The C.B.I. has repeatedly called for its abolition.

When one considers the reasoning, it is obvious—because the tax has also added significantly to the costs of United Kingdom manufacturing industry, both through the "forced loan" effect arising from the inevitable delay in repayment, and because those who provide services for industry are liable to be taxed. What sense does it make to discriminate against the builder of a factory, or the firm whose trade is the maintenance of industrial machinery? Yet these people are liable to S.E.T.

Again, all manufacturers must have some clerical and sales staff. Because of the establishment basis of S.E.T., the liability of such staff to S.E.T. will often depend on where they happen to be situated. One knows from one's own experience of companies having had to incur considerable expenditure to try to alter the establishment basis in a way which is not sensible from a business point of view, simply to deal with the problem of S.E.T. The cheapest way of running a business may no longer be the most efficient.

The reduction in S.E.T. will help the company sector as well as having a direct influence on prices. I am sure that today the Opposition Front Bench will wish to join me in congratulating those companies which since the Budget have either made, or have announced, price reductions in anticipation of the cut in S.E.T., even though for administrative reasons it will not be possible until July for the cuts to become operative. I have no doubt that when the full effect of the tax is felt, price reductions will follow.

I turn now to the reform of the personal income tax system, which is dealt with in Clauses 16, 22 to 29, and Schedules 5 and 6.

Photo of Mr Jeremy Thorpe Mr Jeremy Thorpe , North Devon

In a significant passage in the earlier part of the right hon. Gentleman's speech he talked about the level of unemployment. What the right hon. Gentleman says today will be of great relevance to the debate tomorrow. He said that in his present economic thinking he did not feel that a further measure of reflation to cure unemployment would be possible or desirable. Can the right hon. Gentleman tell the House a little more about his thinking? Does he think that the level of unemployment will persist at the present level for the foreseeable future? That is a significant question to which many people would like an answer.

Photo of Mr Anthony Barber Mr Anthony Barber , Altrincham and Sale

I have dealt at a little longer length than is normal on the Second Reading of the Finance Bill with the general economic situation. There is to be a debate tomorrow on unemployment, but I thought that it was right, as almost a month had passed since we had a four-day debate on the Budget, to give my views on the Budget judgment in the light of all that has happened during the past four weeks.

Photo of Mr Jeremy Thorpe Mr Jeremy Thorpe , North Devon

I am grateful to the right hon. Gentleman, but, because of the level of unemployment and the fact that it is higher now than at any time during the last 40 years, it is not surprising that the House is interested in this subject and would like to hear more about it. I hope that the right hon. Gentleman will not feel unduly flattered that the Opposition are asking for more information about his thinking.

Photo of Mr Anthony Barber Mr Anthony Barber , Altrincham and Sale

That is why I thought it was a right, proper and sensible move on the part of the Opposition to choose tomorrow as a day to debate unemployment, a subject which merits a day's debate of its own.

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

The right hon. Gentleman is not participating in tomorrow's debate, and that is understandable, but he is the principal economics Minister, and therefore his views are of special importance. A certain impression was gained from the right hon. Gentleman's speech last Friday night. He was rather more restrictive then in his attitude to what he might do in the future than he was in his Budget speech, when he said specifically that he was taking measures to restrain the growth in unemployment. Since then the April figures, showing unemployment at a record level, have been published. The right hon. Gentleman also said in his Budget speech that if the measures then proposed did not prove sufficient he could go further in the autumn to deal with the problem. On Friday the right hon. Gentleman said something more restrictive, and he has struck broadly the same note this afternoon. Has the right hon. Gentleman's attitude to this vital issue changed during the last month?

Photo of Mr Anthony Barber Mr Anthony Barber , Altrincham and Sale

I stand by the words that I have used, both last Friday and this afternoon. If the right hon. Gentleman has any points to make on this question of unemployment, no doubt he will seek to take part in tomorrow's debate, but I understand that he has decided not to do so. I thought it right to state quite clearly where I stood on these matters, because more than a month has passed since the debate on the Budget, and I do not propose to add anything to what I have said this afternoon.

Photo of Mr Anthony Barber Mr Anthony Barber , Altrincham and Sale

No. I have a lot to say about the Bill.

I turn to the reform of the personal income tax system.

Photo of Mr Anthony Barber Mr Anthony Barber , Altrincham and Sale

No, I must get on. I have quite a lot more to say, and there are many right hon. and hon. Members who wish to take part in the debate. I have already given way a good deal.

The reform of the personal income tax system and the provisions in the Bill were the subject of an explanatory White Paper published last week simultaneously with the Bill, and I am sure, from what has been said on both sides of the House, that hon. Members have found the White Paper useful. I should like, therefore, to concentrate this afternoon on a number of major points which are concerned with this issue.

Photo of Mr Anthony Barber Mr Anthony Barber , Altrincham and Sale

No.

I think that the whole House will agree that these far-reaching reforms of our tax structure were long over-due, and certainly during the Budget debates they were welcomed genuinely on both sides of the House.

Coming to the details of the reforms, the first and most important change is that the tax system will be based on the rate applicable to a broad first band of earned income—the rate which the vast majority of taxpayers pay. In this way we leave no room for the real doubt that now exists about the tax paid on extra earnings.

For all but a small minority of taxpayers the tax on extra earnings from overtime or extra effort will be, and will be known to be, the basic rate of tax—provisionally fixed at 30 per cent. This is higher than I would wish, but it is certainly much less than the level of tax which many people think they pay. In recent years we have been used to a standard rate of 8s. 3d. in the £, and certainly many people have rounded this up in a rough and ready way to a belief that taxation took almost half their extra earnings. All that will become a myth of the past.

After this first broad band, the rate for which is provisionally fixed at 30 per cent. by Clause 29, there will be higher rates charged on successive slices of income. Although these rates will not be fixed until 1973, it is the intention, as I have already stated, to ensure that the top rate on earnings will be 75 per cent., reached at about £20,000. The intermediate steps will be fixed so as to ensure that the graduation between the basic rate and the top rate is smoother and more regular than at present.

The second major point of the new tax system is this. Modest amounts of investment income will be treated on the same basis as earned income, because the surcharge that is proposed will apply only to investment income exceeding a certain level. I think it is fair to say that since the Budget Statement informed commentators almost everywhere have welcomed this change; and many share the conviction of my hon. Friends and myself that this will lead to a revival of savings.

I would, of course, very much have liked to have been able to say now what the surcharge will be and how much investment income will be exempt from it. I must explain why I did not feel able to do that. It seemed to me that clearly it would be wrong to make such a commitment now concerning the rates of tax to apply in two years' time. That was the sole and, I believe, the compelling reason why I reached that conclusion.

The third point which I want to make about those changes in personal taxation is this. It is clearly absurd that we should have in effect two income taxes—one assessed in local tax offices, and the other on the same income but assessed by the surtax office. This is to a large extent a duplication of effort, and by getting rid of this duplication, we shall in due course be able to close down the Surtax Office.

Photo of Sir John Hall Sir John Hall , Wycombe

I can understand that my right hon. Friend cannot refer to the rate which may be applicable in two years' time, but would it not be possible for him to suggest the slice of unearned income above which the rate will apply?

Photo of Mr Anthony Barber Mr Anthony Barber , Altrincham and Sale

I gave considerable thought to this. In the proposals which I put forward for dealing with personal direct taxation, it is true that, apart from this one aspect about the first slice of investment income, nothing which I have done or said involves a commitment for the Chancellor of the day in two years, who I believe should have complete freedom of action to do whatever he thinks appropriate in the circumstances of the time. The only exception to this is that I have made the commitment for myself and my successor in two years—it is firmly on the record—that there shall be the same treatment for the investment income as for earned income, for the first slice. But I did not feel that I could go further than that. It was after considerable thought that I reached that conclusion, and I hope that my hon. Friend will, on reflection, agree.

I was saying that the present system involves a considerable duplication of effort. The normal practice in future will be that surtax-payers will have to deal with only one tax office responsible for their tax affairs as a whole, and not with at least two, as at present. Another feature of the new scheme which I think is generally welcomed as a benefit to taxpayers is that pay-as-you-earn deductions will be able to cover the full span of tax rates and not merely the standard rate of tax.

I recognise that this may cause difficulties to some of those affected in the first year of operation of the new system, because in that year they will also have to pay their surtax for 1972–73, and no doubt this matter will be considered when we reach Clause 16. That Clause makes provision for a measure of spreading of some of the surtax on earnings in certain circumstances.

The one aspect of this reform about which I have seen some criticism is that it has been said by some that it does not go far enough and that further changes should have been made at the same time. For example, it has been suggested that the whole basis of giving relief for savings in the form of assurance premiums or for interest paid to building societies should have been altered.

I should therefore say that, when we set out to change from the present dual tax structure to a single structure, we deliberately decided to make as few changes as possible in the way in which particular items were treated for tax purposes. I gather that this was the right course. After all, preparing the way for the new system and getting it into operation will be yet another very large task for the Inland Revenue. It would only have made the immediate task more difficult or even impossible if, in addition to the changes that are being made, there had been other major alterations in the personal tax system.

Consequently, I am sure that it is equally important that taxpayers and their advisers should not have to digest too much at once. It is for this reason also, incidentally, that we have taken no steps for the time being to introduce self-assessment into the new system. This will be considered at the same time as the proposal for a non-cumulative system of pay-as-you-earn.

Another major reform is the change in the taxation treatment of the earnings of married couples. I have always thought it strange that while a special income tax allowance—the wife's earned income allowance—is given to married couples where the wife is at work, the tax system so operates that in some circumstances the working couple are penalised. The result is that at some levels of income there is a positive incentive for a wife to go out to work and at other levels the tax system raises a barrier. I can see no sense at all in this. We were pledged to do away with this absurdity and this is what we are doing.

So in Clause 16 and Schedule 3 we are making a fresh start. If the wife is earning—or if she is retired and receives a pension by virtue of her former job—husband and wife can choose jointly that the wife should be taxed on her earnings as if she were in all respects a separate individual. This change will operate from next year, 1972–73.

I am somewhat disappointed that it could not have been made operative in this year and become operative immediately, but on top of everything else which the Revenue have to cope with as a result of these major changes, I was completely satisfied that it was right that it should wait a year. If such an election is made, the husband will be entitled only to the single man's allowance and not to the married man's allowance. This is fair enough, because, in practice, the couple will be treated on their earnings as if they were not married.

Some hon. Members opposite, in our four-day debate on the Budget, seemed to disapprove of this proposal. I cannot think that all hon. Members opposite will disapprove of what is, after all, only a matter of elementary justice; and certainly not those, for example, who are in receipt of fairly substantial income from writing, and whose wives are also successful writers—or even poets.

There is no conceivable reason why a couple who are both earning should be worse off than if they were not married. Moreover, the present situation, as hon. Members on both sides of the House will know from their correspondence, has discouraged many married women with the skills the country needs from using those skills in the service of the community—like teachers, physiotherapists, doctors and many others. I know a good deal about this, so far as the medical profession goes, from my experience as Minister of Health, when I was told this a number of times.

I come next to the reduction to 40 per cent. in the rate of corporation tax for the financial year 1970. This is provided for in Clause 8 of the Bill. There are two contexts in which this reduction is significant.

First, it will provide a relatively quick acting support to companies' liquidity. In this way it will help companies to maintain, and I hope increase, their productive investment; and this will in turn provide the basis for future employment and for economic growth. Taken together, the two reductions in corporation tax which I have now made, and the substitution of capital allowances for the old system of investment grants will provide companies with an additional stimulus of some £135 million in this financial year. On top of this there is the help resulting from the cut in S.E.T., to which I have already referred.

The second significance of the reduction in the rate of corporation tax to 40 per cent. is that it represents a necessary and important first step on the way to the structural reform of corporation tax for which we hope to legislate next year. The reductions which have been made, together with the reform of personal taxation and the new basic rate of income tax which flows from it, will ease the introduction of a reformed corporation tax.

Taken together, the reduction in the rate of corporation tax and the reform in the structure of the tax will form part of a consistent and integrated policy to reduce the total weight of taxation on profits and to redistribute its burden so as to fall more equitably between companies, and in a manner more conductive to healthy economic growth. They will also enable the reform of company taxation to go forward consistently in substance and in timing with the reform of personal taxation, which is the main subject of this year's Finance Bill.

I think that it is fair to claim that there has been a general welcome for the decision to publish a Green Paper on the Reform of Corporation Tax and to invite those affected by the tax changes to discuss their implications with us. I am sure that this is the right way to set about tax changes of this complexity and importance whenever we can, and that the discussions which will be taking place this summer will be helpful not only to industry and those who must pay the tax but to the Inland Revenue.

It would be wrong for me to anticipate at this stage the outcome of these consultations. However, if no unexpected difficulty arises, I hope that by the end of the year I shall be in a position to take the firm decisions which will be needed to complete the detailed preparations for the 1972 Finance Bill.

There are a number of provisions in the Bill which will be of real help to the small businessman and the small capitalist. One such provision is in Clause 49 which provides for the abolition of the capital gains tax charge at death. The original concept of the tax was to tax the man who built up capital gains which he could turn into cash at will. But there is simply no scope for selling off part of the great majority of family businesses when a man dies and wishes to hand on the business to his family. In these circumstances the capital gains tax can often become a penal charge on the productive assets of the business and a major threat to future investment plans.

I have no doubt that, with the experience which we now have of capital gains tax, this is the right thing to do. I am not suggesting that those who introduced the tax in 1965 should necessarily have foreseen this, but now, with the benefit of experience, this is the right move and I hope that when we come to consider this on reflection, we will have the support of hon. Gentlemen opposite.

There are also the helpful changes in estate duty. These will, as I said in my Budget Statement, take out of tax a quarter of all estates and will give relief worth- £625 to all estates above the new starting-point of £12,500. We are also giving reasonable time to pay for virtually all assets which are hard to sell quickly, and this, too, will be a great benefit to family businesses.

There are many other reliefs and changes which will no doubt be considered in Committee. In particular, a considerable welcome has been given to the proposals in Clause 17, which deal with the shortfall provisions. I referred to this in some detail in my Budget Statement, so I need not go over it again this afternoon.

In our manifesto we promised to simplify the tax system and reduce the burden of taxation. It will be agreed on both sides of the House that the reaction throughout the country has been one of approval that these two aims are being achieved.

Photo of Mr Anthony Barber Mr Anthony Barber , Altrincham and Sale

The purpose of the Bill is to start the process of simplifying our tax system by cutting away the undergrowth of 100 years of tax proliferation. It is an earnest of our resolve that the British people will no longer continue to be borne down by an apparently ever-increasing weight and complexity of taxation. I therefore commend the Bill to the House.

4.43 p.m.

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

I must begin by apologising for my presence, or rather, for the absence of my hon. and learned Friend the Member for Lincoln (Mr. Taverne), who was due to speak following the Chancellor of the Exchequer. Because of his total loss of voice, he has asked to be excused from performing this duty.

It is rare that one need apologise in this place for the loss of voice of a colleague. Generally it is the reverse. I do not know whether my hon. and learned Friend has become speechless through indignation, having had to give considerable attention to this Measure.

I only know that, in my case, I was hoping to enjoy the satisfaction of winding up the debate for the Opposition, thereby having the relatively easy task of shooting folly as it flies, rather than having to require more indulgence than is usually the case in opening the debate for the Opposition in reply to the Chancellor.

I wish early on in my remarks to join in the general congratulations that have been offered to the right hon. Gentleman, and I do not want to seem mean-spirited about this, particularly as later it will be necessary, in the interests of candour, to subject his policy and proposals to rather close criticism.

I hope the Chancellor will believe me when I say that I was sympathetic to the difficulties inherent in the economic situation, to the tragic circumstances in which he had to take office and, not least, to the fact that he was following my right hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins), who was one of the most gifted minds ever to have been at the Treasury, not to mention the fact that the right hon. Gentleman was to be subjected to the criticism of that same mind from the Opposition benches. I therefore welcome the success which the Chancellor achieved. Whether, on mature consideration, it will be held to have been entirely deserved, we will see.

When we consider the tax reforms which the right hon. Gentleman has outlined—the disaggregation of the wife's income, the single-tier corporation tax, some adjustments in capital gains tax, surtax reliefs on earned income, the merger of income tax and surtax and so on—we must agree that none of these is new. I am sure that both the Chancellor and his colleagues have been furnished with an adequate record of my pronouncements on these subjects. I only wish to add that in the right context I would have supported uncritically every one of these reforms, and I have made that plain in previous statements.

A great many people have claimed to be the first to press these reforms on the Chancellor. Nevertheless, the right hon. Gentleman has done it, and he must have the credit for doing it. I can say about this what I have said in another connection—I am sure the House will forgive the repetition—that when a man steals one's clothes, one may question his virtue but one is unwise to challenge his sartorial taste. In the light of my recorded comments on these tax reforms, I shall confine my remarks briefly to admiring the right hon. Gentleman's sartorial taste.

Having said that, I would not have the Chancellor mislead the House or the country about this being more than a tidying-up operation, a marginal tinkering with mechanics rather than a substantive reform of the essential basis of our taxation system.

The real things that are wrong with our taxation system are not mechanical, marginal questions. They result from a basic failure to fulfil the purposes of the system in a modern mixed economy by giving effect to the accepted ideas of social justice and what is required by social justice, with the movement forward of these necessary purposes to provide economic progress in a mixed economy.

All these things have not been dealt with in any of the changes proposed by the right hon. Gentleman. [Interruption.] I gather that at least one hon. Gentleman opposite is puzzled by what I say. I mean that we have a tax system which purports to do what it does not do. It is true that there are some spectacular rates, but by them some rich people are taxed while others have easy rides.

What impresses the generality of people when they look at our tax system, without going into its inwardness, is that it is a system which gives effect in an egalitarian way to what is required in a mixed economy, but they gain this impression to far too great an extent, and some fundamental reforms in this sphere, at the centre, would impress the country a great deal more than the right hon. Gentleman's proposed reforms at the margin.

Even the reforms which the Chancellor has proposed are by no means comprehensive and will not remove all the anomalies. I will not weary the House at this stage by detailing the anomalies that will remain—hon. Members may be pleased to learn that I shall probably not be allowed to take part in the Committee proceedings—and I could list at least five times as many extraordinary anomalies in our tax system that will remain after the right hon. Gentleman's proposals have been implemented.

I hope that I shall not be thought mean-sipirited in making these criticisms of the Chancellor. As I said, he is entitled to the credit for doing what he has done, and I am not withholding any of that credit from him. However, it is a reflection on the state of our fiscal machinery that these simple reforms—which, as I have explained, are not new, and which have been advocated from both sides for a considerable time—should have produced a hallelujah chorus of praise from the newspapers, radio and television, with the right hon. Gentleman being called the greatest Chancellor since Gladstone in his reforming zeal. [HON. MEMBERS: "Hear, hear."] It may reflect immense credit on him, and I welcome any credit that is due to him, but it reflects extraordinary discredit on our way of handling our fiscal affairs.

For this reason a Select Committee of the House should be set up to assist Chancellors in doing the preparatory work. Such a body, comprised of both parties, could, because of the spirit which prevails in our Select Committees, be of great assistance in doing this preparatory work. We should not have had to wait until now for these reforms if such a Committee had been in existence.

The objection raised by the hon. Gentleman the Chief Secretary to this procedure was that it involves political controversy, which is best left to take place across the Floor of the House. These matters might get a very much more thorough and impartial consideration in a Select Committee than they do on the Floor of the House. It is precisely because we debate them in the House that marginal matters, secondary and puny issues of differential on dividends and the like, masquerade as matters of high ideological principle, because the only time they are ever considered is in heated debates across the Floor of the House. We could sit round a table, holding our different party political views, and make a lot of progress in improving the tax system by general agreement, saving some of the bogus excitements that take place in the Finance Bill debates, when we dutifully, in the end, traipse into our respective lobbies on matters which purport to be of deep philosophic difference but which are merely matters of practical economic advantage which should rightly be resolved in a proper discussion.

In his mini-Budget and in the Budget, the right hon. Gentleman is very proud of the fact that he has reduced tax by £1,000 million, but in his speech this afternoon he evaded any discussion—although I am grateful that he said that he would not go into relentless detail; but this is not detail—that out of this huge sum very little has gone to the poorer people of our society. There has been a redistribution of this £1,000 million of a significant kind. It has not been from the very poorest to the rich but at the expense of those immediately above the poorest, who have in many cases been made actually worse off in real income terms, taking the mini-Budget and the Budget together, through higher charges on Government services, the higher social contributions and the entry into tax of many people, wholly or mainly, not because of a rise in their real income but because of a rise in their money income. The Chancellor has done nothing for this last class except for the child allowance concession. He has done nothing for the man who will not get increased child allowances and who has had his real income stationary but his monetary income rising to match inflation. That man now pays tax or more tax than he would otherwise have done.

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

The right hon. Gentleman has obviously left out of account the cut in the standard rate.

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

That is of little benefit to the man who has been brought into the tax system for the first time, not because of a rise in real earnings but because of a rise in monetary wages, which merely leaves his real earnings largely as they were but now brings him into the tax system. It is no good the Financial Secretary shaking his head. He ought to have read what the C.B.I. has said. The C.B.I. is not a notorius fount of original and revolutionary notions. Even the C.B.I. believes that the Chancellor ought to have done something for this class of people, and it regards that as of high priority. But nothing has been done for them if they do not possess children qualifying for allowance.

On the question of surtax reduction on earned income, I hope that no one will believe that I am expressing the unanimous view of the Labour Party, although I speak from the Front Bench, when I say that, given the right context, I could see a very strong case for a readjustment of the burdens of surtax on high earnings, provided that that readjustment was not made at the expense of reliefs which belong to the worse off people in our society, provided that that relief had been financed by people as well off as, or better off than, the people who were the subject of these very high rates of surtax. What makes it impossible for me—

Photo of Mr Anthony Barber Mr Anthony Barber , Altrincham and Sale

Would the right hon. Gentleman repeat that? I think we all misunderstood it.

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

I should have welcomed a reduction of surtax on high rates of income, in the interests of fairness between one well-to-do man and another not so heavily taxed because his income or capital situation may make him less afflicted by the tax system. On those grounds, and on the grounds of economic incentive and the like, had the cost of providing this concession of £35 million in a full year been provided by an appropriate source—namely, people better off or, at least as well off—I should have welcomed this. There are such people. There are high earners who are paying 90 per cent. rates of surtax and other people who, for one reason or another, deriving from the ownership of assets, property and businesses, enjoy a higher effective income, after tax—

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

—and are far better off and pay a lower rate on their effective earnings. If the Chancellor is so unfamiliar in this area, I give him a simple example. If a man owns a business which is making £200,000 a year and is an advancing business, he may receive, after tax, an income of over £100,000 a year, most of which is ploughed back into the company, so his assets increase at £100,000 a year. That increase in assets is his disposable income at some later time when he realises it, on pain of a capital gains tax. It is never subjected to this progressive tax of 90 per cent.

On the other hand, for surgeons, company directors and the like, who own no property and whose income is subjected to a marginal rate of 90 per cent., if one seeks to relieve, as one ought, some of those high earners from the 90 per cent. rate, one owes an obligation not to finance that relief by denying reliefs to people much worse off who have a far higher prior claim for that money.

If the Chancellor does not understand that, I can help him no more. I am in no muddle about it, and there is not much excuse for anyone else being in a muddle.

Photo of Sir Peter Emery Sir Peter Emery , Honiton

Is not the right hon. Gentleman saying that to provide the money that he wishes to assist the surtax payer, this has to be taken from some other greater wealth and that the only way to do that is by a capital levy?

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

I can save the hon. Gentleman from straining his ingenuity to exhaustion by reminding him that we have an estate duty system but no gifts tax system. In his Budget speech the Chancellor looked as though he was about to adjust the estate duty rules so as to bring in a gifts tax, which would make the system coherent and comprehensive.

A multi-millionaire who dies possessed of his estates pays at a high rate of estate duty. A multi-millionaire wisely or unwisely—but perfectly legitimately; I am not preaching humbug about this matter—having been given the option by our tax system to assign the multi-millions to his heirs more than seven years before his death pays no estate duty at all. A modest gifts tax would have more than financed the surtax reliefs which the right hon. Gentleman has introduced. That is the kind of source which the right hon. Gentleman has to look to if he wants to finance it.

It is no good coming to this side of the House and pleading the cause of the marginal disincentive to a man earning £20,000 a year who ought to have some reduction. It is socially neutral if it is properly financed. Nor must the Labour Party be indifferent to the intelligent apportionment of tax, even among the very rich. What we want is one which has the merits of fair play and economic advantage but which properly apportions the burden.

It is no good the Chancellor expecting me or anybody else on this side to applaud surtax reductions on the ground that they increase incentives while there are people earning £23 a week who, because of the operation of the tax system and because of the operation of our system of financing social welfare, are often paying a 90 per cent. marginal rate, even though they have families, at income levels of £20 to £25 a week and certainly paying marginal rates of 30 per cent. to 50 per cent. at £17 and £18 a week. It is no good the Chancellor saying that these are social contributions and not tax. If the Chancellor is trying to foster some receptiveness on this side of the House for the concept of incentives, let him not be so selective and feel compassion exclusively in those areas where there is least urgency; namely, in the higher areas of surtax.

Photo of Mr Eric Heffer Mr Eric Heffer , Liverpool, Walton

I entirely endorse my right hon. Friend's last comments, but will he indicate clearly that some of his earlier interesting statements were very much a personal opinion and were not the collective wisdom or unwisdom of the Labour Party? Some of us on this side would be bitterly opposed, and are bitterly opposed, to giving any surtax relief. We are of the opinion that we should go further and introduce a wealth tax.

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

I allowed my hon. Friend to interrupt but not for the purpose of making his own speech. I made it quite clear that I was expressing a personal view, though it happens to be a view along the lines of a view expressed by my right hon. Friend the former Chancellor—my right hon. Friend the Member for Stechford.

Photo of Mr Eric Heffer Mr Eric Heffer , Liverpool, Walton

My right hon. Friend was wrong on it as well.

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

At any rate, I have carried my hon. Friend with me in not supporting the Chancellor's selective compassion and selective desire for incentives. The Chancellor has a very peculiar selective vision on this question. He can see the rich man who is over-taxed. He does not see the rich man who is under-taxed. He can see the disincentive of a high rate of marginal tax on someone earning £20,000 a year, but he does not appear to have seen the greater disincentive on people earning £16 and £17 a week who are subjected de facto to a high rate of marginal tax: the Chancellor has done nothing about that.

The Chancellor, with his selective vision, is rather like the Character in Dickens of whom the author said that he had got one eye and the popular prejudice ran in favour of two. The Chancellor has one eye—one eye for the rich, high earner. I am not unsympathetic to him having fair play. [Laughter.] Not at all. I vigorously object to the selective vision which centres on incentives for those on £20,000 a year and does nothing for those on high marginal rates of tax at the lower end of the scale.

Apart from the increase in the child allowance, the only concession in this £1,000 million which has been made to the lower income groups is supposed to accrue through the reduction in S.E.T. What the Chancellor has not said about S.E.T. is how much of the reduction will accrue to those at the lower end of the scale. The right hon. Gentleman asked us to join in a chorus of congratulations to those companies which would relieve the consumer of the amount of S.E.T. of which they themselves were to be relieved. What the Chancellor has not committed himself to telling the House at any point is how much of the £290 million relief will come to the consumer and how much he expects will remain in increased profits.

What effect the reduction in S.E.T. will have on employment depends vitally on the amount given back. The extent to which this will play its part in the reflationary movement will depend on the consumption effect that ensues from the S.E.T. reduction.

I ask the Financial Secretary to tell the House how much of the £290 million concession he estimates will have its effect in terms of consumption. In any event, in a Budget of £540 million it was wrong to have given £290 million in relief on selective employment tax, uncertain in its consumption effect and uncertain in its advantage for the generality of citizens. The Chancellor should have used his £290 million to make a contribution to the incomes of those victimised by inflation.

I turn to the general propositions lying behind the Budget and to the general problems which they are supposed to contribute to solving; namely, inflation and unemployment. The successful tackling of inflation means that the Government must encourage the self-discipline and sense of community obligation of the work people, and the Budget must not be divisive. Out of £1,000 million, to have done so little for ordinary working people immediately disqualifies the Budget from claiming to play anything like the part in reducing inflation that a massive tax reduction opportunity such as this offered the Chancellor.

The Budget should have contributed to the lowering of prices. The net effect of the mini-Budget and the Budget, taken together, is to increase prices, not to reduce them. The Budget should protect the victims of inflation who have been brought into the tax system because of inflation and for no other reason. The Chancellor has not done that, with the exception of those who enjoy enough progeny—I think that the word is "off-spring" in other connections—in the relieving category to offset the inflationary increase in their tax not brought about by an increase in real earnings.

The Budget should have contributed effectively to dealing with the unemployment problem. This has a relationship to inflation, as the Chancellor recognises, but I see it somewhat differently from the Chancellor. The kind of self-discipline and co-operation that are required in our inflationary situation can be obtained only if there is a message in the Budget for the massive number of present unemployed rather different from the message the Chancellor has given. It is all right the Chancellor saying that he cannot improve the unemployment situation until the inflation cools off. He will get little or no co-operation from working people as long as he openly and avowedly sends them the message, as he does in the Budget, that the 800,000 unemployed must expect to remain unemployed throughout the whole of the year.

That is what is planned at best, because the Chancellor showed a marked reluctance to answer those of my hon. Friends, including my right hon. Friend the former Chancellor, who asked him how he stood on the question of the unemployed, what he predicted the unemployment situation would be in the light of his Budget, and what he was hoping to achieve. If the Chancellor is to win the assent of the workers to any sensible policies on inflation he must give a very different message to the unemployed from that which he gives in the Budget; namely, that they must stay out of work in at least their present numbers, and possibly in higher numbers, over the course of the next 12 months.

The Chancellor is either confused or is seeking to bring confusion to this crucial point. Even when he discusses monetary policy the Chancellor seems to face two ways at the same time. My right hon. Friend the former Chancellor asked the right hon. Gentleman in plain terms to tell us whether he still stands by his Budget position that he wanted to arrest the increase in unemployment by his Budget and that that was the objective of the Budget. Does the Chancellor stand by that; and, if so, does he stand by the other statements he has made in relation to monetary policy, which seemed to be of a different nature?

The Chancellor said, on the one hand, "I will arrest the rise in unemployment. I will not bring the level of unemployment down, but I will not allow it to go higher, because I shall expand the economy to the full extent of its productive potential—that is, 3 per cent." That is what the Budget is supposed to achieve. These things cannot be calculated with any exactness, especially in an inflationary situation like the present. He said "If for any reason unemployment continues to rise or I am not achieving my 3 per cent. target, I will not hesitate to add further reflation".

But the Chancellor seems to have moved since then, because, although he kept insisting at first that he would get his 3 per cent., he added when talking of monetary supply, "I am not going to pursue a passive monetary policy and finance the inflation if inflation continues at a certain point". He even denied that the 3 per cent. increase in the money supply for the quarter could be assumed to be something that would continue throughout the whole year. That is as if to say that if inflation remains at its present rate throughout the year he will not be prepared to finance it. But he told us what his intentions are. Does he stick by his proposition that he will reflate if he finds that we are off course on the 3 per cent. growth, or will he say that, if necessary, he will enforce a monetary and fiscal policy which will not even allow us the 3 per cent. growth?

I am not claiming for my party unique anxiety and concern about the monstrous unemployment figures. I know that every hon. Member on both sides would like to see the figures come down. But the Chancellor's Budget Statement art best projects as the policy the present level of unemployment or something slightly higher. At least we should be assured by him that it will not be worse than that. If he is not to stand ready to reflate to achieve the 3 per cent. growth on which his Budget is based, then we shall get unemployment during the year of well over 1 million in number.

What will the right hon. Gentleman tell us about that? He started off in not a particularly progressive position, but one that was not as bad as the one to which he is now being pushed, by saying, "I will arrest unemployment and get a 3 per cent. growth. That is, I will use the full productive potential increase without reducing unemployment in this year." Now he is pushed off that to a rather tougher policy, as we see when we read his latest statements, when he says that he will not finance inflation and the like. It becomes obvious that his priority target is not the 3 per cent. growth necessary merely to maintain the present level of unemployment, or something slightly above it, but a monetary target which will allow an increase in unemployment. Since the Chancellor refused to answer my right hon. Friend the former Chancellor on this matter, I hope that the Financial Secretary will tell the House and the people something about what the Government's real policy is.

The Chancellor started off not unpromisingly, though not very excitingly, about maintaining the present huge level of unemployment, practically guaranteeing that he would not allow it to go higher. Since then he has moved to a tougher position. I know that the right hon. Gentleman is a man of compassion who understands modern conditions and who would resist the pressure from powerful quarters to take this tougher line. If he moves to it, as he has been indicating in his recent speeches, he will end up saying, in the words of the old popular song, I try to be good, but the boys won't let me. There are very heavy pressures on him to move from the at least tolerable line that he would use the existing potential of the economy without reducing unemployment.

Photo of Mr David Mitchell Mr David Mitchell , Basingstoke

The right hon. Gentleman said just now that my right hon. Friend the Chancellor, by controlling the liquidity rate, was having an effect on the growth rate. He went on to suggest that a 3 per cent. a quarter—12 per cent. a year—increase in the money supply would barely keep pace with a 3 per cent. growth in the economy. Will he explain exactly how he correlates those figures?

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

It is fairly easy, but I beg the hon. Gentleman to attend in private seminar if he is curious, rather than force me to inflict on the great audience here a lecture on monetary policy, what it means and how it works. It is the principle of how it works out that I was stating. It does not matter about the details. [Interruption.] I am happy to detain the House with a lecture on the subject if hon. Members wish. All they need to know for their purpose is that if, whether by monetary or fiscal policy, or a combination of the two, the Chancellor sticks to his 3 per cent. growth rate, it is probable that we shall have slightly more but certainly not fewer unemployed than we have now. However, if we do not achieve a 3 per cent. growth rate, because of either the fiscal policy or the monetary policy, unemployment will rise and continue to rise so long as that is the position. I do not think that we need enter into the intricacies of the 3 per cent. a quarter in order to get a simple answer to the question.

What I want to hear from the Financial Secretary is whether there is to be a priority for the 3 per cent. growth projection given in the Budget Statement, followed by further reflation if necessary to achieve it, which will at any rate maintain unemployment at its present repulsively high level and not increase it, or is he going to take the risk of an even further increase in unemployment?

There has been a great deal of talk in recent times about the horrors and injustices of inflation. I do not like inflation. There are, indeed, injustices and great dangers in it, but we must not talk as if when there is a trade-off between inflation and unemployment we are trading-off between the horrors, inequities and injustices of inflation on the one hand and the complete, scrupulous fairness and impartiality and pain-free character of unemployment on the other. If there are injustices in inflation, in my lifetime I have never seen any as horrifying, as repulsive and as damaging to the fabric of our society as I have seen in unemployment. There is something peculiarly repulsive to me in the kind of doctrine that we should take for granted that any inflation trade-off with unemployment must be a justifiable policy.

The Chancellor is moving desperately near that position, even on his Budget projections, and he has moved in a reactionary way since then. He has announced that in the fight against inflation the shock troops are to be our 800,000 unemployed. [Interruption.] Yes, he has. I am not saying that he wills it, but the bankruptcy of Government policy which leads to the Chancellor saying in terms "I cannot reduce unemployment until the inflationary problem has improved" is tantamount to saying that there will be 800,000 unemployed until someone, somehow, solves the problem of inflation. I will go into more detail on who is to solve it in a moment. The Chancellor is showing a most alarming propensity to think that there is a healthy trade-off in the battle of inflation, and he starts by using 800,000 as the shock troops to bear the miseries of unemployment and all that follows from it in human terms for them and their families, and not merely in terms of reduction in the standard of life. But we are warned now that there may be other reserves of our fellow citizens to be thrown into the battle against inflation.

Banker-Leninists are always lecturing us that societies collapse because of inflation. Which societies collapse because of inflation is not usually specified, and when a society is specified it always proves to be in no relation to the facts. Weimar is a popular example of this. Unhappily for the people who use that argument, Hitler came in not because of inflation but because of the deflation with a currency that was steadily buying more. The German people survived the horrors of the massive inflation following the First World War and moved into a democratic republic. What democracy cannot survive, however, is the massive consequences in terms of unemployment, misery and contempt for the system that brings it about that results when there is high unemployment. I warn the Chancellor not to follow those gentlemen who, whether they are thinking of ancient Rome or other earlier societies, tell us that society goes to pieces because of inflation.

I do not like inflation. It commits injustices. But what ruins a society is when people accept it as just as moral and as feasible to allow a million of their fellow citizens to be out of work because that is the only way they know to avoid the inconveniences or disruptive effects of inflation. I warn the Chancellor that what that is saying is that the system is bankrupt, if it has no other means of preserving itself from raging inflation than committing such mayhem and misery upon so many of our fellow citizens.

Before the war, the challenge to private enterprise was, "How do you create the demand which will fully employ our society?" The challenge today is, "How do you control and manage the demand without having the heavy unemployment that used to occur before we learnt how to create the demand?" The answer from the Government is, apparently, "We do not know how, except on the basis of massive unemployment." I found that level of unemployment horrifying 40 years ago, and it is a level which people 40 years later will not stomach.

It is, I must say, a rather gloomy outlook. What is particularly open to criticism is that members of the Government, when challenged, say "We have played out part, and any unemployment now results because of wild claims by workers on the one hand and by profligate employers paying out claims on the other. It is not the fault of the Chancellor or the Prime Minister—they are only the Government. It is all the fault of the workers or employers, who have brought about this massive unemployment, and if it gets worse it will not be the Government's fault either."

I hope that some of my hon. Friends will not resent it or be upset if I make a little defence of the Government and their attitude towards their responsibilities as a Government. The Government say, "We cannot help it; we have played our part." I want to take a few minutes, if my hon. Friends do not find it too tedious, to try to get the House to see things as the Government see them so that, whatever the Government's objective misdeeds, we might have sympathy for their subjective condition. I do not think that some of my hon. Friends realise the state of mind of the Government.

The Government say, "After all, we have cut S.E.T. in half, yet people are still demanding more wages. We have enacted that no surtax payer should pay more than 75 per cent, of his income in tax, yet people still ask for higher wages. It is astounding! We have made working class children pay for their milk and more for their school meals, yet workers are still asking for higher wages. It is incredible! What else have we done? We have reduced corporation tax and merged income tax and surtax, yet still there are workers who have the effrontery to carry on asking for more wages. Who would have thought it? Who could have conceived that inflation would not immediately have abated?"

One measure after another of this kind has been carried into effect. The right hon. Gentleman and his right hon. and hon. Friends have been living in a daydream during their six wasted years in Opposition. They have been a coterie of meritocrats isolated from the real world and honestly believing that they have performed in nine months a radical transformation of our society. They believe that all these economic and social aspects of our society have been changed from top to bottom and that the entire country should be accepting it and should be responding, only we are suffering from a malign propensity by employers and workers to be delinquent. The Prime Minister and the Chancellor are astounded because they have done everything in their power, everything they pledged thmselves to do. They were going to transform society, and if it is not transformed, that is not their fault. It is only that they happen to be cursed by working people and employers who, in particularly malign conjunction, are defeating the best efforts that the Government were able to produce in their six years of radical thinking. The Government are genuinely astounded that after their radical transformation of society, inflation has not gone down but up and that unemployment has not gone down but up.

Now, of course, the Government say, "We have done everything we could. It is up to the employers and the workers." It is as if King Canute had said, "I have done everything I could; I ordered the waves back." We have not one Canute but a whole Front Bench of Canutes, who believe that they have done everything for the best and that it is all the fault and folly of the rest of society that the thing does not work.

The Government appear to be living in a nebulous daze about their responsibilities in modern society. They have been dealing all the time in meaningless aggregates like "workers and employers," They are out of touch with life as it is—which is a dynamic complex of individuals with competing interests. The people of this country cannot be supposed to have engendered in them, by the mere presence of the Chancellor of the Exchequer, a telepathic reflex which will co-ordinate workers and employers in one happy, harmonious arrangement which will stop raging inflation. Even if people wanted to do that, they could not do it. My secretary has not come to me, having read the Chancellor's speeches with some avidity—and even with some conviction, to my surprise—and said, "Please cut my salary so as to make a contribution to creating a job for someone else." Life really is not like that.

The fact is that the only centre of co-ordination is the Government. Unfortunately, the Government abdicate their responsibilities for co-ordination and leave the whole thing somehow or other to the employers, who are supposed to bankrupt themselves or be regarded as out of line with sensible employers, while working people are supposed to sit back and have no wage claims because the Chancellor has pointed out the aggregate effects of these claims on the aggregate class of workers and the aggregate class of employers.

There has been an abdication of responsibility by the Government. They are not merely revealed as impotent. Latterly, when their impotence could no longer be concealed, they have taken to boasting about it. One can only assume that they wish in due course to be able to deny the paternity of the policies they are now breeding. The Government are in a state of confusion on the question of how far they stand by their 3 per cent. growth target. Perhaps the Financial Secretary will give the lie to this by coming out loud and clear about which has the priority—the growth target or the inflation level. Perhaps we can get at least that confusion out of our minds.

This is not the only area of economic confusion in the Government. They are also confused about the nationalised industries. They keep talking about sound business principles, but they operate a selective labour policy on the nationalised industries which is calculated to deny to them a normal flow of high quality labour. They are doing so by making an impact upon the wage structures of those industries which is far more effective and far more severe than they are able to achieve anywhere else. That is not following sound business principles. They arbitrarily forbid price increases without saying where investment funds are to come from in the steel industry and elsewhere. That is not following sound business principles. If the Government had done to private industry what they have done to the steel industry, no one would have any serious expectation that it could prosper.

I see no kind of coherence in the policy of the Government. We are told that we must adopt sound business principles and not help lame ducks—so we get the Mersey Docks scandal. The Government say in that case, "There is not sufficient public interest to warrant the handing-out of public money, and this lame duck must stand on its own feet"—if "lame duck" is the appropriate term for a stationary dock. But when the dock is about to go bust and when the essential services that it provides would have to be, immediately suspended, what do this Government of sound business principles do? They retrospectively confiscate the legal rights of the creditors and debenture holders. They endanger confidence not only in the Government—which does not matter particularly—but in all public bodies which have to raise funds in the market. I do not want to rub salt in an open wound by referring to the Rolls-Royce fiasco.

I am afraid that I am not persuaded that all this constitutes sound business management on sound business principles.

The Chancellor got a rapturous welcome for his Budget. I have said that he deserved some of it. By and large, what he has done has been irrelevant or even adverse to the prospects of tackling the central problems which he had to face in his Budget, of inflation and unemployment. As time goes on people will see that this is so. It is not only the unemployed. All this talk about business confidence being restored is so much "my eye" as long as the Chancellor pursues his unemployment policy.

It must be understood that in a modern world there can be no business confidence at a time when we have 800,000 unemployed, and rising. People must realise that this is 1971. These are consumers as well as employees who are being laid off. The Chancellor gets more and more pleased with his Budget as time goes on, but I believe that people will move in the reverse direction and become less and less pleased.

Before the Chancellor gets too complacent about it, too pleased, I warn him that he might find himself in the position to which Bernard Shaw referred with relation to his unsuccessful attempts at love-making. He said: I was never able to carry the lady in question into the state of ecstacy in which I found myself. I warn the right hon. Gentleman. He had better start taking a more critical and realistic view about the effects of his Budget not only on ordinary people but on the business community, otherwise he will share a rather similar experience with the late Bernard Shaw.

What ought to be done? The first thing when we are dealing with an intractable problem such as inflation is to remember, here if anywhere, the Talmudic injunction "Teach thy tongue to say 'I do not know'." I do not claim that I have the perfect solution to inflation. I do not claim that anyone in any country has found the perfect solution, and I would be very compassionate with the Chancellor if it were not for the fact that although we do not know the total answer, we do know what not to do. We do know that to try to solve the problem of inflation through underemployment of resources, through unemployment on a large scale of our people, is the wrong way. I do not believe in strength through self-mutilation, as the Chancellor and his advisers appear to. I believe that if we are to tackle inflation we have to use all the resources in our society, not only in human terms but in resource terms.

No one is urging the Chancellor to go into a wild frenzy of reflation. All I am saying is: let him commit himself, if he will, to 3 per cent. growth. Secondly he ought to have gone further, if he hopes to win assent in society for dealing with inflation, and started on a policy which was intended, however, cautiously—and I would have supported him in caution—to bring down the rate of unemployment. At least he would be sending a message of hope to our unfortunate fellow citizens out of work. He would be saying "I do not intend that you should stay out of work, unhelped, over the next 12 months". This policy of unemployment as a means of dealing with inflation manages to combine immorality with economic and social folly.

I would put in its place a coherent and hopeful policy for which over many months now many of us on this side have been arguing. The Chancellor ought to start to get the economy moving. He ought to start to reduce unemployment, however cautiously, so that a least there is a constructive message of hope coming from the House and the Government to those out of work. Then he will start to create business confidence because he will be committing himself to growth. At the moment even the growth he has pledged himself to in the Budget he has begun to hedge around with all kinds of qualifications. Until he commits himself to growth—[Interruption.] I did not hear the hon. Gentleman.

Photo of Mr Kenneth Baker Mr Kenneth Baker , St Marylebone

I was remarking that we have now got down to the positive proposals of the right hon. Gentleman. I would remind him that in the six years for which he and his party were responsible for the affairs of this country they never achieved the rates of growth about which he is speaking and they never achieved the sustained improvement in the standard of living of our people.

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

I do not intend to extend this debate by making a defence, nor would I want to make a defence, in every detail, of the success of the previous Government's policies.

Hon. Members:

Hear, hear.

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

They may not have achieved the growth required but they were never put in the position of the right hon. Gentleman, with a large overseas surplus and a situation in which, unless he gets 3 per cent. growth, unemployment will rise above 800,000. Whether that is to our credit or not is beside the point; all I am saying is that in that concrete situation—I am not trying to score false points—in which the Chancellor finds himself, unless he gets the 3 per cent. growth, unemployment will rise substantially above 800,000.

At least the Chancellor should pledge himself to this. My advice to him is to pledge himself to something more hopeful and to pledge himself to bring down that level of unemployment. Only if this is done will he get increased investment, increased productivity and lower unit costs. Only if he does so and offers an improved standard of life for our people will he get co-operation in dealing with problems of production, international competitiveness and inflation.

What the Chancellor has tried has been tried for two years in the United States. Even Mr. Nixon has abandoned it; Mr. Nixon has seen the folly of an attempt to solve the problem of inflation by massive unemployment. He had far more massive unemployment than even the right hon. Gentleman would dare tolerate in this country without curing inflation but he has seen the folly of it and has started to try to reflate the economy and bring down unemployment. He is seeking to get the economy going again, and I hope he is successful.

The right hon. Gentleman has a balance of payments surplus but he may not have it for too long. If he does not use it, and the breathing space he has, to get our affairs into some proper order while we are surplus, we may find ourselves with high inflation, high unemployment and no balance of payments surplus. It is urgent that the right hon. Gentleman should at least clear his own mind and then tell us what his mind is about the rate of growth and the rate of unemployment that he foresees.

I do not say that this is the intention of the right hon. Gentleman or of any of his supporters—I do not believe it to be the case—but the fact is that the division between the parties is that the Tory Government have deluded themselves with the belief that the modern problem of inflation, combined with high unemployment, is soluble by going backwards.

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

Yes. I am not saying that hon. and right hon. Gentlemen have no feelings, but the fact is that they have taken a tougher line on school meals and intend to take a tougher line with rent relief and things of that kind, involving a sense of community obligation. Their solution is to turn backwards. They say, "The Labour Government moved too far too fast; they were well intentioned but they softened up society. What our society needs now is a little bit of toughening at these points." I am not saying that these are hard-hearted or callous gentlemen. This is their policy and its central delusion is—"We need to turn the clock back"—not terribly and not without some compassion. I agree that they have helped some of the poorest people in an understanding way, but basically their solution lies in trying to turn the clock back on all the concepts of social advance and justice in which we believe.

The remedy for the ills and evils in our society is not to move backwards but to move forward, widening our social vision, widening our sense of community obligation. Try to get any reasonably progressive youngster to listen to the proposition that it is possible to solve the problem of inflation through the misery of a million of our fellow citizens and their families and see how much support that proposition receives.

I am not accustomed to imputing evil motives to people merely because they have a difference of political opinion with myself. I do not believe that anybody on the Government benches is any less anxious and concerned than I am about the grievous misfortune which has overcome our country in that it has this present level of unemployment and is threatened with an even greater and disastrous level. But as long as the Chancellor of the Exchequer says that he is not prepared to take measures to reduce the number of unemployed, and is not even prepared to guarantee that the number will not increase until the inflation problem is solved, then we on this side of the House are driven to fight him every inch of the way. He may see the solution in going back, but we never will. We and the people of this country and of our movement will oppose him bitterly as long as he pursues these disastrous and reactionary policies in relation to the weakest members of our society.

5.41 p.m.

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

For those of us who have a touch of sadism in our make-up one of the pleasures of this place is to listen to a brilliant Parliamentarian brilliantly arguing the unarguable. We have had this pleasure today for a very considerable time. The right hon. Member for Manchester, Cheetham (Mr. Harold Lever) explained that he was asked at the last moment to step into the gap caused by the unfortunate indisposition of his hon. and learned Friend the Member for Lincoln (Mr. Taverne). At the right hon. Gentleman quoted Bernard Shaw, perhaps I can quote Bernard Shaw back to him. Bernard Shaw once said, "I had not time to prepare a short speech, so I will give you a long one".

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

May I take the opportunity of saying that, with the interventions and the lack of preparation, I was carried away in my speech and regret that I detained the House for so long, with other hon. Members wishing to speak. I must say touché to the right hon. Gentleman.

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

That was said with the right hon. Gentleman's habitual graciousness. I was trying to express sympathy with him.

I sympathise with the right hon. Gentleman on an even more substantial point. Having been a responsible Minister in the last Administration for six years, mostly on the economic side, it must be extraordinarily difficult to stand at the Opposition Dispatch Box and purport to tell my right hon. Friend the Chancellor and the country what should be done about the economy. As a distinguished and undoubtedly one of the ablest members of the last Administration, the right hon. Gentleman knows that the Labour Government bequeathed to my hon. Friend and his colleagues—

Photo of Mr William Hamling Mr William Hamling , Woolwich West

A massive balance of payments surplus.

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

Yes, and heavy international debts to offset it—stagnation and, for the first time in our history, rising prices and inflation coupled with rising unemployment. For a right hon. Member so placed to lecture us on how the economy should be conducted is a remarkable feat of most agreeable effrontery. It is as if a doctor, most of whose patients have been treated magnificently but who unhappily have died, was lecturing a number of medical students on the values of his methods of curative medicine.

The difficulty of the right hon. Member for Cheetham was illustrated by the extraordinary way in which he tied himself up—and he has a gift for tying himself up, as well as everybody else, which is unequalled in the House—on the question of the provisions in the Bill for reductions in surtax. As I understand it, he says—and he must say it because his right hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins) said it two years ago—that it is important to reduce the top rates of taxation on high earnings, but that he would contemplate it only if it were—and here I use his own word "financed" by some undisclosed method of other taxation on rich people.

The fallacy of that argument is that the right hon. Member for Cheetham seems to assume that the totality of taxation is fixed and, therefore, if we reduce the taxation on one section of society we must increase it on others. No doubt that was so under the Labour Government. Indeed, at that time the country could only wish that the totality of taxation was fixed. Under the Labour Government it rose on practically every possible occasion. The right hon. Gentleman overlooks the fact that my right hon. Friend the Chancellor, by his statement in October and in this Bill and Budget, has reduced the total of taxation by £1,000 million a year.

Is the right hon. Gentleman saying that when there is a case, not only on grounds, as he said, of fairness but on grounds of incentive, for a reduction in the very high rates of tax, unequalled, I think, at the margin anywhere else in the world, on high earnings and my right hon. Friend the Chancellor is in a position to reduce taxation by £1,000 million, he may not reduce it by a penny unless he imposes additional offsetting taxation? Is that the doctrine?

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

I did not say that. I said that in the context in which the Chancellor of the Exchequer operated he should have financed it by taxation on people as well off or better off and in the context of his lack of assistance to people who had a much greater prior claim; if he had not the money to help these people he had to find the money elsewhere.

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

The right hon. Gentleman is saying that when my right hon. Friend the Chancellor has £1,000 million in revenue to forgo he should not forgo any of it for what he accepts to be a good reason unless he evolves some new and additional tax on wealthy people.

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

If the right hon. Gentleman did not mean that, his references to some other tax were utterly meaningless.

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

I said that if the Chancellor felt that he could give no relief to other victims of inflation I could not welcome, as I should have liked to do, the surtax reduction unless he financed it from other wealthy people. If the great bulk of the £1,000 million had gone to the poorer sections of the community and the victims of inflation and a handful of millions went to relieve surtax payers—for example, to reduce the rate to 75 per cent. at a cost of £5 million—I would have had no objection.

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

As I suspected, the right hon. Gentleman is on a false hypothesis; namely, that my right hon. Friend the Chancellor was not also giving very considerable relief to a wide variety of people throughout the scale. For example, there is the child allowance. However, one can look at this matter fairly only in the context of the variety of social improvements and changes made at or about the same time, for the obvious reason that no one can help people who are below the tax level by making taxation changes. Surely that is elementary. Therefore, in order to look at the whole complex we must take into account the special reliefs for the poorest sections of the community which were made at the same time and out of public funds.

I rarely resent anything that the right hon. Member for Cheetham says because he says it so nicely, but when he accused my right hon. Friends of lack of compassion I found myself feeling rather differently towards him. Does he realise that the present Government—not the one of which he was a member—have made special provision for the disabled with the disability pension and an attendance allowance?

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

Does the right hon. Gentleman recall that the Government have made special provision for the over-eighties? Does he recall that they have made special provision, unprecedented in our social history, for the poorer families? Is he aware that a Bill is going through the House to make the biggest increases ever in National Insurance benefits?

Photo of Mr William Hamling Mr William Hamling , Woolwich West

Who is paying for them?

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

If the right hon. Gentleman is aware of those things, he must regret charging us with lack of compassion. The amount of compassion, if it can be measured by the sordid measure of cash, is probably the greatest that any Government has shown, and it is helped by the fact that it is being applied, through the wisdom of my right hon. Friend the Secretary of State for Social Services, with a greater precision in the direction of human needs than was the case with any social changes in our history. Whatever the right hon. Gentleman may charge us with, whatever comparison he may wish to make between the present Government and the Labour Government, compassion is not a basis on which I would advise him to challenge comparisons.

The right hon. Gentleman treated the dangers of inflation very lightly. His ingenious attempt to suggest that inflation as a matter of history had nothing to do with the rise of Hitler throws little credit on his historical knowledge. Of course when Hitler came into power there was deflation, but why was there deflation? It was the inevitable consequence of the enormous inflation which had destroyed the German middle-class and its savings and eroded the whole fabric of German society. That is why the German has a horror of inflation which is equalled only by the horror, which I share with the right hon. Gentleman, that the Englishman has of unemployment. In both cases this is the result of historical memories and past experience. I have seen unemployment before the war, and I have seen it in areas I know. I like it as little as the right hon. Gentleman does. It is a waste of human effort, and has social consequences which, despite all our social security measures, are severe. Nobody wishes to see it.

It is equally true—and the right hon. Gentleman must face this—that nothing my right hon. Friend or the Government can do will prevent some measure of unemployment at a time when demands are being made and met for increases in earnings quite out of line with increases in production. If labour in certain directions prices itself out of the market—and this is what has been happening in certain parts of our economy—there is nothing which my right hon. Friend can do except to exercise his good sense and influence in seeking to bring that situation to an end. I hope the right hon. Gentleman will not adopt an attitude of moral superiority over us on the question of unemployment. We wish to see it tackled, and my right hon. Friend is going the right way about it. To urge him to push us back into further inflation would be dangerous.

Here I pick up one thing which the right hon. Gentleman said which was significant. He said that my right hon. Friend has a good balance of payments position, and he went on to say that he may not have it for long. Out of the right hon. Gentleman's mouth that is an indication that an excessive reflation could endanger one of the achievements of the Government of which he was a member. As he knows, because he has said so, a good balance of payments position is not to be taken for granted; it has to be earned and worked for. It is irresponsible to suggest that because my right hon. Friend has a good balance of payments position at the moment he must be prepared to endanger it.

I come now to the Bill. My right hon. Friend in the last few months has received many congratulations on his achievements, and they are deserved. I want to add another word of congratulation to him on the Bill itself. It is fashionable in the House to refer to legislation as badly drafted, and I must admit that some is, but this Finance Bill with great concision includes in 56 Clauses enormous changes and improvements in our system of taxation with the minimum of verbiage. In addition, I warmly congatulate those who have assisted my right hon. Friend in drafting the Bill.

It is also unusual to find a Finance Bill implementing so many of the pledges of the party that brings it forward. My right hon. Friend has put forward a great many of the things that were promised, and, while I thank him for it, I do so in accordance with the classical definition of gratitude, with A lively anticipation of favours to come. I now want to make one or two critical observations on particular points, but I stress that I am in general a great enthusiast for the Bill. It is the best of the 25 Finance Bills I have seen in the House, and I become critical now merely because it may be more helpful for me to confine myself to a couple of points of criticism than to waste the time of the House in saying that I agree with my right hon. Friend on the other points.

Estate duty is a bad tax in many ways, certainly when it goes to high levels. It catches people at the moment of misfortune. It reminds me of the verse: And first of all we fall upon the weak Largely because they do not squeak So loudly as they die. It is a tax which can cause real and severe hardship. Like all taxes, whether on capital or on income, in an inflationary era it rises in intensity and effect every year unless drastic action is taken to curtail it. It is as if my right hon. Friend were on a moving staircase. Unless he moves to reduce these taxes every year, they rise, as money incomes rise in an inflationary situation.

I am sorry that my right hon. Friend has not gone further on estate duty than he has. The increase of exemption to £12,500 is welcome, but it does not go far enough. I would like to have seen the matrimonial home excluded when the home is left to the widow. I do not want to repeat what I said in the Budget debate, because my right hon. Friend replied very sympathetically, but I hope he will do something more to help widows in this situation. Some countries have a lower rate of tax when money is left to a widow or child. Others defer the payment of duty until the death of the widow. Whichever method is used, I hope my right hon. Friend will realise that there is illogicality in the Inland Revenue treating a man and wife as one during their lifetime and then when one of them dies charging estate duty at the full rate on the passage of the goods of one to the other.

A widow sometimes has to leave the home in which she has lived all her life with her husband and sell her treasures. This is not a great revenue-raising tax, and I hope that my right hon. Friend, who has shown himself so sympathetic and flexible in many directions, will be able to move on the question of widows.

I welcome enormously the unification of personal taxation, both the unification of earned and investment income and the unification of income tax and surtax. As the right hon. Member for Cheetham said, this has been under consideration for some time. But it is my right hon. Friend who has actually brought it forward.

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

I hope my right hon. Friend will fix the surcharge on investment income fairly high up the scale. The present distinction between earned and unearned income is wholly unrealistic. To give an example, a man who works for an employer and is in the employer's pension scheme has his pen- lion treated by the Inland Revenue when he retires as earned. Another man who builds up a small business and on retirement sells it and lives on the capital and the interest on the capital for the rest of his life has that treated as unearned income. Both those men have made provision as a result of a life's work for their old age, and the differential tax treatments seems very harsh. If my right hon. Friend were to put the point of entry to surcharge too low, he would diminish the value of his reform.

When it comes to the merging of income tax and surtax my right hon. Friend himself referred to a point where he will be in considerable difficulty. It is a difficulty which my right hon. Friend the Home Secretary and I when we were at the Treasury saw and foresaw when we looked at this issue. My right hon. Friend will be in a very difficult situation in the year 1974. The difficulty arises from the fact that the tax experts and the Inland Revenue look at surtax in a totally different way from the way in which it is looked at by the taxpayer.

To the Inland Revenue and also to my right hon. Friend, who himself is a distinguished tax expert, surtax for the year 1972–73 is tax for that year. To the taxpayer it is a tax that he must find in the year beginning 1st January, 1974. The layman's view is supported by the fact that if one looks at the Bill now before us we are in the financial year 1971–72 fixing the surtax rate for 1970–71. This supports the view that in reality surtax is a tax paid in the year after 1st January following the financial year to which it relates. When we get to 1973–74, my right hon. Friend has said that he will be collecting his replacement of surtax—his higher rate of income tax—through P.A.Y.E., but at the same time, as the Bill stands, the Inland Revenue will come down on 1st January, 1974, with surtax demands in respect of the tax year 1972–73.

To take my right hon. Friend's specimen figures, 30 per cent. standard rate of tax plus up to 45 per cent. more on the top rates of earnings, a taxpayer theoretically for that year might be faced with a total of 30, plus 45, plus 45 per cent., or 120 per cent. on the higher tranches of his earnings. This makes the idea of the negative tax put forward by my hon. Friend the Member for Kensington, South (Sir B. Rhys Williams) very small beer in comparison. In view of what has been said from both Front Benches about incentives and the need to cut these high rates of tax, there will be a difficult situation created in relation to 1974.

I appreciate that the Bill contains Clause 16, which is my right hon. Friend's own attempt to mitigate this situation, but, with respect, that provision does not effectively deal with this matter. First of all, it applies to only half the tax due. Secondly, it applies only to earned income, not unearned income. Thirdly, where the taxpayer takes advantage of Clause 16 he will be liable to interest on the tax payment of which he defers. In 1974 my right hon. Friend will get through P.A.Y.E., depending on the rate at which he fixes the tax, the surtax or equivalent revenue for that year. I wonder why it is necessary for him in that same year also to collect surtax which, theoretically from the Revenue point of view, is related to 1972–73, but from the point of view of the taxpayer is tax which falls for payment on 1st January, 1974.

I do not think that the modest mitigations of the total tax in one year are sufficient to prevent difficulty being caused, and caused for one year only. That would be a year in which high earners would be well advised to earn as little as they can because, since the tax on the top levels will be theoretically over 100 per cent., that is something of a disincentive. This was the difficulty which we foresaw years ago when we looked at this matter. I hope that my right hon. Friend and his advisers will find a solution that is less oppressive than it otherwise might have been.

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

Perhaps the right hon. Gentleman would also examine the problems that will arise from having two different levels of surtax rate for investment income and earned income. The right hon. Gentleman will recall that when the present Speaker was Chancellor of the Exchequer—I think the right hon. Gentleman was there at the time—the £5,000 limit was raised for earned income and £2,000 was the differential level for unearned income. The result was that the man with unearned income of £2,000 a year had to pay surtax on the first pound of his earnings. Would the right hon. Gentleman elaborate on the difficulties which arise with differential rates?

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

I roughly recall the situation, but so far as the Treasury is concerned I had an alibi since I never served at the Treasury with the present Speaker. Indeed, I was engaged in the more compassionate duties of the Ministry of Pensions and National Insurance and, therefore, I would forbear to accept the right hon. Gentleman's invitation.

I want to concentrate the attention of my right hon. Friend on the new situation which is created by his welcome decision to merge these two taxes. I would ask him to give further thought to better provision to get over the transitional difficulty which in a particular year might be serious.

In view of the time, I shall not press my right hon. Friend on the evils of long-term capital gains tax in an era of inflation and would merely invite his attention to what I said on this matter in the Budget debate. As the years go by from 1965 these evils become greater I hope that he will find some method of mitigating the effect of that tax after a number of years either by grading down, as the Americans do, or by a time limit. It is not a situation which he can afford to leave unreformed.

I conclude by congratulating my right hon. Friend on a massive achievement. It is a privilege to have taken part in a Second Reading debate on what will become one of the great historic Finance Bills on this century.

6.7 p.m.

Photo of Mr William Hamling Mr William Hamling , Woolwich West

I hope the House will forgive me if I do not intrude on this private war between two former Financial Secretaries to the Treasury. One of them later became Chief Secretary, and I will not comment on the battle which has taken place between them. I would merely observe that at times the Conservative Party does not have the courage of its convictions.

I would remind the right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) that he held office in the days of what is sometimes called Butskellism and one of the boasts of the Government is that they have now left those days behind them and that the situation is quite different. I would remind the House that in opening this debate today the Chancellor of the Exchequer said that his proposals involved a radical change of policy, and I will come to that statement in greater detail later in my speech.

This Finance Bill, which is the product of the Government's second Budget, takes place against the background of both Budgets being Tory Budgets. The significance of the word "Tory" must not be lost on the House or the country. In our view, the first Budget, the mini-Budget, took us back to the 1930s, to the means test, because it involved a proliferation of new means tests being brought in. The second Budget, however, has taken us back even further, namely back to the situation before 1906, back to the days of Samuel Smiles, back to the days of self-help and to the days of rewarding achievement. The Chancellor used the word "achievement" in his opening speech today. We are now changing the policy of Government in this country. The Chancellor then drew a false analogy between regarding achievement and the creation and redistribution of wealth.

The new philosophy presented by this Government is based on the view that it is impossible to create wealth and at the same time redistribute wealth. Certainly it has always been the view of my party both in and out of office that one of the pre-requisites of a just society is that wealth should be more fairly distributed and that it is only in that condition that it is possible to unlock the creative capacity not just of one very small and wealthy section of the community but of the whole community. That is the philosophy of this side of the House.

In the two Budgets that we have had and in this Finance Bill, which the right hon. Member for Kingston-upon-Thames characterises as the finest that he has seen in 25 years, we see a new philosophy. The Government have turned their backs on the policy that the right hon. Gentleman accepted when he was in office. They have gone right back to the idea that we must stop the process of redistributing wealth and, instead, go in for massive rewards to the very wealthy. That is the new philosophy of this Government, and in my view they will live to regret it.

How do they intend to halt the move towards redistribution? How do they intend to turn back the clock? In the mini-Budget and in this Budget, only a corner of the curtain has been lifted. As yet, we know only a little of the Government's real policies. The House will remember the euphoria with which the Conservative Party welcomed this new Toryism, which is only the old Toryism writ large. The consensus on Welfare State policies was over. That is what the cheers of right hon. and hon. Gentlemen opposite signalled when the Chancellor of the Exchequer sat down after his Budget speech. The old days of the Welfare State were over. They were to be replaced by the opportunity State. That was the reason for the euphoria of the party opposite. However, that euphoria has taken on a sour look in recent weeks as we have seen the results of that policy coming home in the increasing figures of unemployment, which, apparently the present Government seem happy to accept.

We hear constant complaints from the Government about inflation. They have no right to complain. They have brought about massive tax reductions for the wealthy. They cannot complain that less well off people say "If it is all right for the very wealthy to have incentives, what about us?" Surely there is justice in that.

Photo of Mr Hugh Dykes Mr Hugh Dykes , Harrow East

Does not the hon. Gentleman agree that it is virtually impossible, technically and mechanistically, to redistribute wealth in any massive sense beyond the redistributive effects of the income from that wealth or the gains of people's newly-created wealth? Even a wealth tax at a rate which has commonly been discussed would not achieve the desired effect. Therefore, it is right for any Government obsession to be with the creation of new wealth irrespective of the taxes to be levied on that wealth.

Photo of Mr William Hamling Mr William Hamling , Woolwich West

The philosophy of my party is that the massive creation of new wealth can be achieved only if there is a fair distribution of existing wealth. As for limitations on the redistribution of wealth, the hon. Gentleman has only to look at the position some 50 years ago and compare it with the position four years ago in the Inland Revenue's statistics to discover that there have been massive changes in the last 50 years.

I was talking about the Government's attacks on trade unionists in an attempt to reduce inflation. The Government must accept a large share of the blame for inflation, by their massive tax reductions for the wealthy and their acceptance of the view that the wealthy will work only if they are given incentives. At the same time, the Government have set out as a deliberate act of policy to increase prices, which are the basis of a great many of the wage claims about which they complain. Quite deliberately, they have set out to increase prices in order to make people understand the real cost of the commodities that they buy. That is an act of deliberate policy, and they cannot complain when poorer people say, "If prices are going up and the wealthy are to get massive tax reductions, why should not we be in on the act?"

There is a free-for-all in wages, and it is the Government's fault. They preached a free-for-all in wages when they were in opposition. They said that there was no need for wage restraint and for a wages policy and that the market should be allowed to decide. They said that the trade unions should be allowed to get the wages that they could by bargaining. They cannot complain now when the trade unions take them at their word.

We have heard a lot about reducing taxation. But whose taxation has been reduced? The reduction has not been pro rata right across the board. The greatest reductions in tax have been at the top level. What we have seen is a shift in the incidence of taxation. I said just now that the curtain had been lifted only slightly. No doubt over the next two years—I cannot see right hon. and hon. Gentlemen opposite lasting longer than the limit of their present term of office—we shall see an even greater swing in shifting the incidence of taxation.

I want to draw attention to the changes which have taken place outside the Budget. Over the years, Conservatives have said that, when they were in power between 1951 and 1964, successive Governments reduced taxation. What they never talk about is the massive changes in taxation and welfare policies outside the Budget. Even in the last 10 months we have seen some very significant changes, with increased charges for welfare foods and for this and that. It may not strike right hon. and hon. Members opposite as taxation, but lower-paid people who have to pay these increased charges certainly regard them as forms of tax. I have heard it suggested that the lower-paid do not pay them. I do not know who right hon. and hon. Gentlemen opposite think lower-paid people are. A family with three children on £23 a week is not highly-paid, whatever may be thought. Certainly such families are lower-paid than anyone in this House.

We have had other changes in the welfare service. What is the future of social services under this Government? In Opposition and in Government right hon. and hon. Gentlemen opposite have talked about massive reductions in public expenditure. Where are these massive changes to come?

I said earlier that only a corner of the curtain had been lifted on their policies. We have not yet been told about their policy, for example, on local Government finance—grants from the Government to local authorities over a long period. We have not yet been told about their real long term policy for public investment, education, and so on. They are still living on the credit of the Civil Estimates which they inherited from us when we were in power. They have not yet unfolded their real plans.

Where are the massive reductions in public expenditure to come, if they are not to come from massive reductions in expenditure on the social services? The full story of Government policy has yet to be told.

Talking about taxation outside the Budget, the Chancellor of the Exchequer boasted about what the Government have done regarding pensions. Who will pay for them? About £500 million more will come in contributions from employers and workers. The Government talk about reducing taxation. What are these contributions if they are not a tax? The pretence has at last been dropped. I am glad for this, anyway. The contributions which people pay for social security are a tax. I have always maintained that they are a tax. I have said so in this House in every Budget debate since I became a Member. I am glad that that pretence has been dropped. But let not the Government also say that they are reducing taxation by £1,000 million when at the same time they are increasing taxation on the middle income ranges to the tune of £500 million. The two things do not add up.

These contributions are not intended to provide pensions for those paying the contributions. They are not insurance contributions at all; they are a social security tax. This is a taxation outside the Budget.

The grave danger is that this tax is very regressive. When my right hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) was talking about marginal rates of taxation for working people in the middle income ranges of £25, £26 and £27 a week, he entirely overlooked and omitted to add into his calculation these significant increased contributions.

I said that we had had only a glimpse of Tory taxation policy so far. That glimpse indicates that the Government have moved a great distance away from their former position.

I now turn to prices and incomes policy. I said earlier that the Government are their own victim; that the troubles about which they complain are of their own creation. I distinctly remember—I am sure that the Financial Secretary will remember, too—the attacks on the National Board for Prices and Incomes by the party opposite when in Opposition. I am sure that the hon. Gentleman will remember the speeches made by leading Conservative spokesmen about the trade unions' free bargaining position being restored only when the Labour Government's prices and incomes policies were overthrown and a Conservative Government were elected.

I wonder what the power workers, the postmen and the other groups of workers who have been attacked and abused by right hon. and hon. Gentlemen opposite would say about that today? Their election propaganda was. "Vote Conservative and we will free the trade unions to use their bargaining power to get what they want." Right hon. and hon. Gentlemen opposite said that the market would be the arbiter—but not for the workers. The market is the arbiter for industry.

We know what has happened in practice. There has been fundamental interference with the rights of trade unions to bargain for their members. We are constantly told by the Government that the workers must have regard for the national interest. Did they have regard for the national interest when they gave massive tax concessions to the wealthy and abolished school milk? Is that their idea of having regard to the national interest? But trade unionists must have regard to the national interest.

The interference so far has been almost entirely in the public service sphere. Everyone recognises that this is totally unfair. The Government cannot interfere with the public services and yet allow the kind of wage settlements which go on in private industry. They cannot lay down the law for postmen, giving them 8½ per cent., whilst at the same time the Ford workers get 17 per cent. That is an unfairness which nobody will accept. How long will the Government persist in the illusion that they can evade their responsibilities for an incomes policy?

The Government have allowed a free-for-all for everyone but the workers. The £17 a week man must restrain himself, but not apparently the £35 or £40 a week man. That is the message which is coming from the Government. Their incomes policy is in ruins. They cannot control the inflationary settlements which go on in private industry. All that they are storing up for themselves in the public services is resentment and contempt.

The Government must at some stage accept the need for an incomes policy which will have some consideration for the lowly paid, for those who are not prepared to use their strong right arms to get what they can in the gutter. They must at some stage produce an incomes policy which will have some regard for the selfish wage claims which will undoubtedly go on. They must produce an incomes policy which will have some regard for people on fixed incomes. They must produce an incomes policy which does not penalise public service employees. They must at some stage produce a prices and incomes policy which has some respect for the consumer who cannot compete in the same way as many industrial workers. They must at some stage produce a policy for the control of prices. I find very little sight of that at the moment. Certainly the Bill and the Budgets which have been presented by the Government do not indicate that any kind of incomes policy which they are ever likely to produce will carry conviction or will have behind it very much public support.

The colours which the Government have nailed to the mast are those of self-reliance. Their colours are rewarding the strong, and perhaps a little hand out for the weak. That is not an economic philosophy which will be any guarantee that they will ever have a credible or creditable incomes policy.

The Clerk at the Table informed the House of the unavoidable absence of Mr. SPEAKER.

Whereupon Sir ROBERT GRANT-FERRIS, The CHAIRMAN OF WAYS AND MEANS, took the Chair as DEPUTY-SPEAKER, pursuant to the Standing Order.

6.30 p.m.

Photo of Mr Kenneth Baker Mr Kenneth Baker , St Marylebone

There was a striking difference between the two speeches from the other side, not only in their manner, which one would expect, but also in their content. The hon. Member for Woolwich, West (Mr. Hamling) at least had the integrity and consistency to advocate what he advocated during the last Parliament, when he supported his Government, and indeed was, I think, a member of it. I am referring to his attitude to a prices and incomes policy. On the other hand, the right hon. Member for Manchester, Cheetham (Mr. Harold Lever), critical as he was of the Government's policy, did not at any time during his speech advocate an alternative policy at all. I welcome the right hon. Gentleman's return to finance and economic debates. I welcome the return of the prodigal. There was rejoicing in the land, once in a while, but there was not rejoicing on all the benches behind the right hon. Gentleman.

As a Minister in the Treasury in the last Government, the right hon. Member for Cheetham was one of the few Members of the Government who earned the respect of the Opposition as having a real understanding of the tax system and of some of our problems. I do not believe that anyone would accuse the right hon. Gentleman of being mean spirited in his welcome of the tax reforms being put through by the Government, but he was a member of the Treasury team for, I think, three years, and certainly for two and a half years. These reforms could have been put through then, and it does not become the right hon. Gentleman very well to say, "These are not original ideas. Look at the memorandum which I put to the Treasury when I was a Treasury Minister". The fact is that the right hon. Gentleman was a Treasury Minister, that the reforms did not happen, and that they are happening now.

I think that the right hon. Gentleman was a little unfair when he said that some of the reforms that we are introducing are at the margin. That is by no means the case. This is the most thorough-going programme of reform for many years. In fact, one has to go back probably to Lloyd-George's Budget to find a Budget which marks such a substantial parting of the ways.

Before turning to the reform proposals, I should like to touch on something which both Opposition speakers mentioned. They referred to it as a rich man's Budget and said that it was designed to satisfy constituents such as those who live in my constituency. If I were to dwell upon certain parts of the Finance Bill it may be that I should make a constituency speech, but that is by no means the case.

There is a great deal of social fairness in the Budget and in the social security package that goes with it. I remind hon. Gentlemen opposite that the Budget reduces tax for about seven million families with children.

Photo of Mr Kenneth Baker Mr Kenneth Baker , St Marylebone

I shall tell the hon. Gentleman in a moment. He talked about the low paid worker. The man earning £15 a week—less than the £23 a week man to whom the hon. Gentleman referred—is better off as a result of the Budget and all the other measures, such as social security charges and national insurance contributions. The figures were given at column 90 of HANSARD on 6th April in a Written Answer to the hon. Member for Exeter (Mr. John Hannam). A married man earning £15 a week, with one child, is better off by £89 a year. That is allowing for everything. A man with two children is better off by £104 a year. For a married man with three children the figure is £130, and for a man with four children it is £156. The family with a low paid wage earner benefits considerably from the total package that we have presented so far.

Photo of Mr William Hamling Mr William Hamling , Woolwich West

Will the hon. Gentleman take into account all the increased prices, and also the increased amount which will have to be paid by a man on his insurance stamp, which is not for his pension?

Photo of Mr Kenneth Baker Mr Kenneth Baker , St Marylebone

With respect, I gave a specific reference because that was specifically included in the figures that I gave.

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

In order to clear up any misconception, the hon. Gentleman ought to realise that a man earning £15 a week is not being asked to pay any increased contribution at all.

Photo of Sir Peter Emery Sir Peter Emery , Honiton

That applies to anyone earning up to £18 a week.

Photo of Mr Kenneth Baker Mr Kenneth Baker , St Marylebone

May I be allowed to continue my speech?

The net result, taking our two Budgets together, is that a married man, with two children, earning an average wage of £28 a week is 34p a week better off. The same man, as a result of six years of Socialist rule, was 62p a week worse off. These figures are to be found in HANSARD. [Interruption.] Hon. Gentlemen opposite are a little resentful of these figures because Labour Budgets varied from giving a little to a few to giving nothing to anyone and taking a lot from everybody. Indeed, it is three years ago almost to the day that a Labour Budget was introduced, in 1968, to increase taxtion by £929 million. Three years ago seems like another world. There was a sterling crisis, there was an emergency Budget, and there were two extra Bank holidays. That was only three years ago. But of course it is not another world, it is just another Government in charge.

The hon. Member for Woolwich, West and his right hon. Friend the Member for Cheetham criticised the Government for, they said, being complacent about rising unemployment. The Budget which my right hon. Friend introduced a month ago is one of the most reflationary Budgets that this country has ever had. There is an injection into total purchasing power—although I accept that it is not all going to affect consumer demand—of about £1,000 million this year, taking the two Budgets together. There is a monetary policy which many of my hon. Friends think is too generous—an increase of 2½ per cent. to 3 per cent. per quarter. That is very reflationary, indeed, and I hope that when the hon. Member for Heywood and Royton (Mr. Barnett) sums up the debate for the Opposition he will be more specific about the Labour Party's proposals in this respect. How would hon. Gentlemen opposite combat inflation and unemployment?

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

The Chancellor did not say that he was going to increase the money supply by 3 per cent. per quarter. He said 3 per cent. for one quarter, but he went further today than in his speech the other day, and said that he might not be prepared to go that far at all.

Photo of Mr Kenneth Baker Mr Kenneth Baker , St Marylebone

I accept the correction, but if there is not a substantial reduction in the money supplied it is likely to go up by between 2½ per cent. and 3 per cent. under the present policy. That is my interpretation of it.

I now turn to the reforming elements of the Bill and the Budget. I welcome the scale, scope and method of the reforms. To those who take an interest in tax reforms, writing about them has become something of a growth industry over the last two years. I have made two maiden speeches in the House, both on tax reforms, with an interval of two and a half years between them. The proposals in my second speech were similar to those in my first, because nothing had been done in the interval. Writing about tax reforms has become the outdoor relief of ex-Ministers. As soon as they leave the Treasury they start to become the most passionate advocates of tax reform, and all the arguments put up by them when they were Ministers about it not being possible for there to be simplicity because of the equity involved, and about not being able to do various other things, are all forgotten.

When hon. Gentlemen on the Opposition Front Bench advocate tax reforms, they are in the position of arriving at the station to find the train steaming out, when they could have steamed out with the train. They had plenty of opportunities to carry out reforms, and I was staggered when the previous Labour Government did not take the advice of the hon. Member for Heywood and Royton, and the hon. Member for Ashton-under-Lyne (Mr. Sheldon), and introduce many of them. It is to the credit of the Chancellor and the Treasury Ministers that they have got on with it.

I also greatly welcome the method. The consultation before changes is novel. The Financial Secretary made a speech about 18 months ago which I have carefully preserved, in which he described exactly this procedure. I thought that I would have to quote it back to him line by line, but I have put it away in my files because he has stuck to what he said. It is because there is this willingness to consult that we may be able to avoid some of the mistakes of the last few years.

I believe that there have been 61 changes in capital gains tax since it was introduced in 1965. I am not saying that they could all have been avoided if there had been some consultation on the form of the tax, but probably 30 or 40 could have been anticipated if various interested and professional bodies had been consulted.

Photo of Mr Anthony Barber Mr Anthony Barber , Altrincham and Sale

My hon. Friend will appreciate that, in the light of that speech by the Financial Secretary, I had no alternative but to proceed in this particular way.

Photo of Mr Kenneth Baker Mr Kenneth Baker , St Marylebone

I am glad that there is such harmony among the Treasury team.

I also welcome their willingness to consult on corporation tax and the Select Committee. I hope that the Select Committee will be set up soon and will meet before we rise in July. I should have liked to see a little more consultation on V.A.T. The Government have produced on that about the whitest Green Paper I have ever seen. It is a very definite statement of the Government's intention. I hope that the Financial Secretary will this evening press the various interested bodies and trade associations to make representations as a matter of urgency. This aspect has not had sufficient publicity.

The running together of surtax and income tax has been an obvious one for some time over Schedule E. Since we are going for a basic rate of 30 per cent., there will inevitably be quite a large jump at the bottom, and of course jumps at the top. I hope that, having established the principle of a 30 per cent. rate, in future Budgets we may smooth out some of these bumps.

A married man earning £20 a week pays no tax at the moment. From £1,000 to £2,000, the average rate of tax goes up from nothing to 16 per cent., and from £2,000 to £4,000, it goes up from 16 per cent. to 23 per cent. Above £4,000 it rises very steeply. If we can iron out some of these bumps over the next few years, so much the better.

I have some regret that a greater opportunity was not made of simplifying some of the allowances even more. I should have thought that one standard child allowance instead of different allowances for children of different ages and things like this would have been sensible small improvements.

But I look on this as a beginning on tax reform of income tax and surtax. I hope that some time—it will obviously be the tax reform of the 'eighties rather than the 'seventies—the social security and tax systems will come together in a much more integrated system than at present. As a result of pressurising the Treasury team, in this Parliament and the last, we are on the path of tax reform, but what we are getting is a slightly simpler tax system at the price of an infinitely more complicated social security system. I have often argued that we should bring them more closely together and simplify the cash transaction between the citizen and the State.

Turning to the investment changes in the Bill, I greatly welcome the abandonment of investment grants. I have believed for some time that they were wasteful. Their supporters have never been able to explain why, when they were operating, investment in service industries, which did not get grants, rose consistently and investment in manufacturing industry, which did get grants, fell. Until they could resolve that basic dilemma, it was clear that the system was suspect.

Although I welcome this change, I should have preferred to go further. I would have allowed free depreciation. But this may be one of the shots in the Chancellor's locker if he feels that a further reflation or boost to investment is needed. Certain countries, like Sweden, have free depreciation, and it has stimulated business investment considerably.

But investment ultimately depends upon the confidence of business men, their confidence that if they put down new plant this year or buy a new factory or go ahead with their programmes, there will be bigger sales and better profits next year. Without that, there will be no investment. I would remind the hon. Member for Heywood and Royton that there are signs that investment is beginning to pick up and that business confidence is returning. The first and, I believe, the only survey published in the Financial Times since the Budget optimistically—I hope that the hon. Gentleman will welcome it—showed some renewal of confidence. Being a business man, he knows as well as anyone that without that renewal of confidence we will not get the growth we need.

There are other indications. The building industry has estimated that starts in the private sector in the first three months of the year have increased by 48 per cent. over the first three months of last year. This is the sort of encouragement which our country and our economy need.

The Budget judgment of stimulating the growth of the gross national product from 2 per cent. to 3 per cent. I completely support, as does every hon. Member. It is unfair of hon. Members opposite to say that the Government are using unemployment as an instrument of economic policy. Of course they are not doing that. They have introduced a Budget which is expansionist and are trying to meet the demands which we must have of economic growth.

Without this growth from 2 per cent. to 3 per cent., hon. Members know that the plans for the nationalised industries and for the improvement of the basic infrastructure of the social services will have to be reduced and to some extent cut or abandoned. I therefore congratulate my right hon. Friend upon this historic Budget. It will be remembered not only fiscally, but economically, because I believe that it will bring about the improvement in the rate of growth which we want.

6.47 p.m.

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

Hon. Members opposite have been very enthusiastic about the Budget and the Finance Bill, and their enthusiasm is well founded because it is quite clear that they will give substantial benefits to the wealthy among their own supporters. Before I deal with the measures which are designed to swell the fortunes of the rich and to assist many of the constituents of the hon. Member for St. Marylebone (Mr. Kenneth Baker) I want to say how disappointing it is that the Chancellor has largely failed to make good in the Bill his bold promises of a major reform in direct personal taxation.

When I left the Chamber on Budget day, in common with other hon. Members, I could not but feel a certain admiration for the Chancellor and for these proposals for reform. After all, here was a Chancellor who had taken his high office in very tragic circumstances. He had been Chancellor for only about six months and now, in his own words, he was embarking upon a major reform of direct personal taxation.

He told us that, hitherto, this reform had been considered well-nigh impossible, but now, he said, a Chancellor had appeared on the scene who would finish the job which Sir Winston Churchill, apparently, had started but failed to finish. The hon. Member for St. Marylebone went back even further and compared the right hon. Gentleman, in some strange way, to my illustrious countryman, Mr. Lloyd George.

When I received my slim copy of the Finance Bill my admiration for the Chancellor of the Exchequer knew no bounds. It seemed that the whole programme—this massive programme of reform—was to be carried out in a matter of nine Clauses and a couple of, as Finance Bill Schedules go, uncomplicated Schedules.

Here, I thought, was a Chancellor who would not only effect a root and branch reform, but would do it with a brevity and elegance of language unusual in our taxation legislation. But alas, all good things must come to an end, and when I sat down to study the Bill in greater detail it was clear that a major reform was not to be and that the essential structure of the system was to remain the same.

Surtax would be abolished in name only to be replaced by an excess rates tax and an investment surcharge. The surtax office would be done away with amid a fanfare of trumpets only to be replaced by an excess rates tax and investment surcharge department. Nothing much in the world of taxation had changed apart from the name.

My fears were confirmed when I read the White Paper, because the true story came out in paragraph 9, which said: The abolition of surtax and the creation of a unified tax structure requires a large number of mainly technical amendments. In general, the changes made are of form rather than of substance. Where, in the past, particular items have been treated differently under the income tax and surtax rules, the practical effect of these differences, with a few exceptions, have been preserved inside the new tax structure. What was announced a month ago as a major reform in direct personal taxation apparently deteriorated a month later into a mere change of form. Obviously the White Paper was written by a different civil servant from the one who wrote the Budget Statement. Or was it the same civil servant writing to a completely different brief?

The bold statements made in the Budget are now seen to be what they really are—a clever public relations exercise designed to engineer for the Chancellor a much-needed parliamentary success, not to mention some of the massive hand-outs to the rich which the Bill contains.

The Measure of course contains major changes. Nobody denies this. However, they are changes which can hardly be graced with the name "reforms" because their primary purpose is to enable the rich to add to their wealth. I will mention, without becoming too technical, a few of these changes and leave it to my hon. Friends to develop some of the others.

The short-term gains tax has been abolished. This will, no doubt, be welcomed with delight in the constituency of the hon. Member for St. Marylebone and in many other parts of the land because large speculative profits can now be made on the Stock Exchange and be taxed at the rate of only 30 per cent., re- gardless of the fact that they may be large amounts and may not be capital profits. Indeed, most of them will be trading profits. Despite this, they will be taxed at 30 per cent.

Photo of Mr John Nott Mr John Nott , St Ives

If they are trading profits they will not be taxed as capital gains.

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

The hon. Gentleman will know that the Inland Revenue has been extremely reluctant to try to pursue the taxation of profits made on stocks and shares which are sold over a short period of time. In reality, these are trading profits, but the Revenue has not in the past, and will not in future, tax them as such. As I said, these large gains will be taxed at only 30 per cent.

This step has been welcomed by stockbrokers because it will increase the turnover on the Stock Exchange, thereby increasing their commission. Whatever else may be said for the Budget, unemployment among stockbrokers this winter will be very low.

Without announcing it—at any rate, having given it very scant attention in his Budget Statement—the Chancellor has proposed a change in the definition of "earned income". It is now proposed to include profits made by financial partnerships—the sale of shares and other investments by merchant banks and stockbrokers—among the exemptions from the investment surcharge, a change which is being proposed, no doubt, as a result of some high powered lobbying on the part of the merchant banks.

Not only does the City benefit. The public schools are not left out. Any income paid ostensibly for the benefit of a grandchild under a settlement made by his grandfather will not now be aggregated with the income of the child's father. Whatever hon. Gentlemen opposite say when they are in opposition about equality of opportunity, when they are in office and have a chance to legislate they are anxious to preserve the existing inequalities of opportunity.

The most substantial and, in my view, extraordinary concession made to the very rich arises in consequence of the provisions of Clause 21, as a result of which it seems that the accumulated and undistributed income of trustees will be taxed as earned income, at the lowest possible rate of 30 per cent., and such income may be as high as £100,000 a year. On my reading of this legislation, such income will be taxed at 30 per cent. even if it is investment income.

It will not be subjected to the excess rates tax and investment surcharge. Not for those with this favoured income the burden of the excess rates tax or the impost of the investment surcharge. Whatever its size and source, it will be taxed at the lowest possible rate.

Will the Financial Secretary tell me I am wrong? If I am not wrong, will he explain why such a massive hand-out is being given to the rich at a time when other sections of the community are being asked to exercise restraint in their wage demands?

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

Would the hon. Gentleman explain to which Clause he is referring?

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

I apologise. I referred to Clause 21 when I meant Clause 22. In any case, the Financial Secretary will no doubt wish to clear up this difficulty when he replies to the debate.

If he confirms what I have said, I trust that he will not shelter behind any specious arguments about the administrative inconvenience of taxing the cumulative income of trustees at more than 30 per cent. After all, he is a member of a supposedly reforming Treasury team. One reason why surtax is being abolished and a uniform rate of tax established is, we are told, to iron out these anomalies and allow all income to be taxed under one taxation system.

My hon. Friends are deeply suspicious and cynical of this Government's motives in relation to the cumulative income of trustees. This is income which they do not distribute but retain, sometimes for more than 21 years. Even if he were minded, and we doubt very much that he would be, so to do, we believe that the Chancellor could not possibly tax the cumulative income of trustees in the same manner and at the same rates as the incomes of everybody else because, by seeking so to do, he would be acting in direct and violent conflict with the paymasters of his party. After all, prior to the election those who invested £2 million in the party opposite did so to secure a good rate of return on their investment. They would hardly sit idly by now while that investment was being jeopardised and their rate of return was being depreciated by a proposal to tax at anything but the lowest possible rates the cumulative wealth of their family fortunes.

Other measures in the Bill are designed to assist the wealthy supporters of the Conservative Party. I shall not go into those measures now as we shall, perhaps, have an opportunity later. The Tory party never tires of asserting—driven, perhaps, by a feeling of guilt—that it is a party of one nation, that it is not a sectarian party and that it serves all the people all the time. The contents of the Finance Bill once again amply and eloquently demonstrate the hollowness and the dishonesty of that assertion.

7.1 p.m.

Photo of Mr Robert Redmond Mr Robert Redmond , Bolton West

I take it that the hon. Member for Llanelly (Mr. Denzil Davies) has said three things in effect. First, he said that the Chancellor has failed in his reform of taxation. Second, he said that the Chancellor has given massive hand-outs for the rich. He kept on saying that. Apparently the hon. Gentleman cannot stand anyone showing a profit without having the whole lot snaffled from him. Hon. Members opposite should realise that the merchant banks perform a great service for the country.

The hon. Member for Woolwich, West (Mr. Hamling) wants an incomes policy, price restraint, and so on. We had that from the Chancellor in the post-war Socialist Government. Sir Stafford Cripps, and from the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins), and they seemed to work on the basis that the more often they did the wrong thing the more likely it would be to come right in the end. I have never been able to follow that kind of argument.

It seems that when we have a Conservative Government the Opposition always pay them a very warm tribute in Budget and Finance Bill debates. It is the great tribute of recognising that a Conservative Chancellor has the ability to reduce taxes, whereas a Socialist Chancellor never seems to have much option but to increase them like mad. That point was taken by the right hon. Member for Manchester, Cheetham (Mr. Harold Lever). He was backed by the hon. Member for Liverpool, Walton (Mr. Heller), who interrupted the Chancellor to ask if we could not have the abolition of S.E.T. on the building sites; in other words, saying that this was another tax which should have been reduced. This is the sort of tribute which we have at Conservative Budget time. From the debate so far, it seems a pity that the right hon. Member for Cheetham and the hon. Member for Walton are not in the same party.

The main complaint throughout the debate, which I have no doubt will continue until the closure, is that to reduce taxation is to make great largesse for the rich. I am not rich. I do not pay surtax. But I welcome the proposals in the Bill. I was cheered by the reference of the right hon. Member for Cheetham to the record of the previous Conservative Government. But I always have the impression that the Opposition is more or less united in a conviction that I and my hon. and right hon. Friends represent big business. I do not represent big business I represent the people of Bolton, West in this Chamber and I come from the ranks of small business—small in size, but not in activity.

Throughout my time in industry, which is not inconsiderable. I have been connected with small firms and it is those that provide the majority of jobs in this country. For several years I have been connected with the firm of Ashley Associates Ltd., which is a firm of management consultants, whose clients tend to be the smaller-sized companies spread across the country.

I was glad that my right hon. Friend the Chancellor had a word to say about small firms. I can speak with some experience and authority of the effect of six years of increasing taxation on the affairs of small and private companies which employ the majority of the British people. I welcome the changes in capital gains tax, estate duty and so on, because of the effect they have on small business.

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

The hon. Gentleman says that he welcomes the changes. Has he noticed that under the new system of corporation tax the majority of close companies will pay considerably more tax?

Photo of Mr Robert Redmond Mr Robert Redmond , Bolton West

I shall come later to corporation tax. I do not want to waste the time of the House.

I was about to ask whether hon. and right hon. Members opposite understand—and whether we cannot make them understand—the effects of company taxation on the prosperity of those employed in the smaller companies.

Photo of Mr John Nott Mr John Nott , St Ives

Does my hon. Friend agree that that was rather a silly interjection from the Opposition Front Bench, as the hon. Gentleman opposite has been asking for years that we should publish a Green Paper on corporation tax so that everybody could have an opportunity of discussing an issue before it becomes law?

Photo of Mr Robert Redmond Mr Robert Redmond , Bolton West

I was saying that we should not waste the time of the House. I give two examples of my own experience of the effects of socialist taxation levels. A company in Lancashire—not a hundred miles from the constituency of the hon. Member for Heywood and Royton (Mr. Barnett)—has a remarkable new product. It put it on the market about six years ago and immediately found demand for it in Europe, the United States and the Far East. With those markets the expansion which the firm found was very rapid. It became so rapid that capital for expansion became the main problem.

The managing director put his view of the problem like this. He said that every time he doubled his turnover, which he did each year for several years running, he doubled his book debts, doubled the value of stocks and the value of work in progress. He also increased the company's profit substantially, but because of the rate of expansion the profits never appeared as cash in the bank and were never represented by cash in the balance sheet, but that his overdraft was rising. The assets were fixed assets or assets in stocks and work in progress. They were not money in the bank. [Interruption.] Perhaps the hon. Member for Sheffield, Attercliffe (Mr. Duffy) might like to have a chartered accountant to explain this to him if it is a little difficult. The right hon. Member for Cheetham would have understood it, but it is a bit above the heads of some hon. Members opposite.

The crunch came on 1st January every year. Although the company had profits on one side of the balance sheet, represented by goods and debts, the money was not in the bank. But the tax man wanted 45 per cent. of those profits in cash on 1st January, on the nail, with no argument.

Photo of Mr Robert Redmond Mr Robert Redmond , Bolton West

Of course he does. He is going to want 40 per cent. That is the point I am making too.

What was this chap to do? He found a very happy and ingenious solution. He had to avoid an increase in turnover. It is terribly difficult for hon. Members opposite to understand this typical businessman's problem. He had to find a way out of this and he had to restrict his turnover. In other words, if he did not do that he would run first into over trading and then into bankruptcy. Over trading is the way into bankruptcy for the small company short of capital. The hon. Member for Attercliffe again may like a chartered accountant to explain it to him.

The company made an arrangement with a German firm to manufacture this product in Germany under licence in return for which the company would get a royalty on the Product made. This gave the company cash in the bank at the end of the year and enabled it to avoid a rapid increase in turnover. That was an arrangement caused entirely by Socialist tax levels, especially corporation tax at 45 per cent. But it also meant that work was being done in Germany which should have been done in Lancashire by men and women of Lancashire.

Another client of mine could be described as an entrepreneur. He is the type of person whom I regard as rather vital to the economy. [Laughter.] Hon. Members opposite seem to think that "entrepreneur" is a rather comic term. However, an entrepreneur is the tyre of person I want to encourage, not to penalise. He is the person who provides jobs and prosperity. I am not under any illusions. He does not regard himself as running a one-man social service. He is in business for the rewards of the business—and good luck to him.

This entrepreneur began business about 20 years ago in a shed in a back garden. When I saw him about 12 months ago he had a factory in an area of above-average unemployment in a development area and was providing good, well-paid jobs for about 500 people.

In the course of my business discussions with this man he showed me the plans he had laid for further expansion. They made good sense. I could see that he was right, if he could put the plans into operation, in getting a growth in his business over the next few years to the point where he would be employing instead of 500 probably 750 to 800. The man said to me, "With corporation tax at 45 per cent., the high levels of personal tax, not only on me but on those I have to employ, and the rates of increases in salaries to keep differentials and provide some reward to the men to whom I pay these salaries, I cannot afford to have the expansion". This was yet another case where the Labour Government's fiscal policies were holding down the number of jobs and preventing the expansion of industry.

My right hon. Friend the Chancellor referred to the number of people who thought that they were paying tax at 8s. 3d. in the pound but who were not doing so. Another businessman whom I met not long ago said to me, "Can you appreciate what happens to the top end of the profits in my company?" He was not a client of mine. He was speaking to me privately. He said, "On every pound of profits my company earns 45 per cent., or 9s. in the pound, goes in corporation tax. On top of that I have to pay 8s. 3d. in the pound income tax on all the dividends that I distribute. I must distribute 60 per cent. of my profits, anyway. Most of the profits that are distributed come either to me or to my wife because we own the business and we think that we should own it as we built it up and started it. I am paying surtax at 10s. in the pound. Add it up. What happens to the profits of my company—9s. corporation tax, 8s. 3d. income tax on dividends, and 10s. surtax. That is £1 7s. 3d. in every pound at the top end of the profits of my company".

We were with his auditor and tax adviser at the time. Together we were unable to convince the man that he was not paying taxes at those rates. I doubt if even hon. Members opposite would be able to convince him. That was the impression the man had about tax.

I wish that it were possible to convince hon. Members opposite that at least one of the contributory factors in the unemployment figures has been the tax policies pursued during the last few years. I want to reduce the level of unemployment, but I want to do it through the expansion of industry.

When I heard the Chancellor's Budget proposals, I took an Easter Recess opportunity of ringing up the two clients about whom I have spoken to get their reactions to the Budget. I asked them how they felt about their expansion plans now. The answers were just as I thought. They agreed with me that a reduction of 5 per cent. in corporation tax was a help but did not go as far as they wanted it to go. They said that the encouraging thing was that we now had a Government set on reversing the trend of high and complicated taxation. Although the first firm could not undo the overseas licensing agreement, it would not enter into another one. The other firm, the firm which employs 500 but which could expand to 750 to 800, had started on that expansion in the belief that by the time the plans were beginning to bear fruit it would be able to get the finance required.

This is indicative of the healthy fresh breeze which is blowing through the country as a result of the Chancellor's proposals. Decisions which are made in board rooms today do not put order on the order books of industry tonight, but they get industry on the move. It is not just a case of welcoming the Bill. It is a case of getting it on the Statute Book as soon as possible and getting the cobwebs blown away.

7.15 p.m.

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

The hon. Member for Bolton, West (Mr. Redmond) is dealing with some very peculiar companies. I have no objection to entrepreneurs if they are successful and understand their business. However, it would seem from the short account given by the hon. Gentleman that they do not fully understand their business and certainly do not understand that a reduction in corporation tax from 45 per cent. to 40 per cent. does not make that much difference to their problems.

Photo of Mr Robert Redmond Mr Robert Redmond , Bolton West

It does not, but it is an indication of a movement in the right direction. That was the theme on which I finished my speech. It has given fresh hope whereas before they had no hope.

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

I do not know what further help was required for a company which was doubling its turnover and profits every year and which had to send its work to Germany because it was so successful. That is the type of company, which, unhappily, I do not meet all that often. I seem to meet companies which are rather better advised than the companies the hon. Gentleman has spoken of.

I agree with the hon. Member for St. Marylebone (Mr. Kenneth Baker), who raised the question of a Select Committee on Economic Affairs, that the ways in which we have our discussions on taxation are not the best that can be devised. This problem will arise in Committee: we shall not be able to discuss the advantages of taxing in this way rather than in that. All that we shall be able to do is to table Amendments designed to reduce taxation at all levels. That is not the right way to proceed.

As a result of our method of proceeding, the Inland Revenue, at least on this aspect, has a rather easier time than it should have. There needs to be a closer questioning of the Inland Revenue and of the Treasury judgment. The only way in which we could have such closer questioning would be by vigorous questioning until the Treasury justification became clear to those who were on a Select Committee and to those who read the reports of such inquiries.

In our method of proceeding we are not able to question the people who made the judgments as to how they arrived at the judgments, what alternatives were available, whether certain alternatives were considered rather than the one chosen, what would the difference have been, and so on.

In Standing Committee there will be a large number of hon. Members opposite sitting silently, waiting for us to finish our speeches, which to them will always appear to be too long and which, so that we can sometimes gain a concession, will sometimes be rather longer than even we ourselves might wish. This is hardly the best way to conduct an examination of the country's economic affairs and taxation system.

I welcome the rather tentative steps which the Lord President of the Council has announced, and I think that these will be accepted by the House as the harbinger of further benefits to come.

The big aspect of the Bill is the background to it, namely, the levels of inflation and unemployment. It is difficult for anybody to speak on the Bill without mentioning these matters which, although they are not directly mentioned in the Bill, obviously form the background to it and have dictated its shape almost Clause by Clause.

One of the things which need to be taken into account is the way in which attempts are being made to present to the country as a whole the unjustifiable and unwarranted myth that the level of wage demands is the direct cause of unemployment. This is a point which it is very difficult to put and which it is very difficult to refute except in debate and in the columns of periodicals interested in these matters.

It is scandalous that the Conservative Party can get away with this point, which I accept is not taken by all hon. Members opposite but which is being put assiduously by economics Ministers. They cannot believe this 19th-century pre-Keynesian nonsense that the cause of unemployment is the high level of wage demands. There are many other factors, factors that were fully taken into account in the forming of the postwar economic strategy, which we thought had been finally settled and would not need to be reopened.

What is required is an understanding of what is the real industrial potential of the country. We know that it is growing at the rate of perhaps 3 per cent. a year. It is felt that there will be an increase of unemployment arising from this increased industrial potential as productivity increases year by year, and that we should adopt a passive attitude to increasing it. That means that if we let industrial productivity go ahead by itself, as unemployment increases as machines take over the jobs of men so we expand the economy to mop up that unemployment. That is the policy under which the country is run by the present Government and was run by the previous Government.

I think that the policy is highly questionable. Certainly an economy can be run in this way, but it need not be run in this way alone. We can actively intervene to push up the rates of growth higher than the potential. We can use an active policy in the matter, and not wait for the unemployment to arise from increased productivity and then mop it up by increases in demand. We can actively stimulate demand to have its own effect on productivity, and thereby promote in industry a policy of expansion without having to wait for that unemployment.

The point of this is that it has considerable repercussions. Instead of manufacturers having the option to invest or take on labour freely available from a large unemployed pool, they would be faced with a shortage of labour and a greater desire to invest. They could then make that investment earlier. Even though this may be small in its extent, its cumulative effect can be considerable. This is what has happened for only a very brief period since the war. It is what has happened in Germany and one or two other countries, notably Japan. We have been in the position of having to start this. The best example was the boom started by the present Home Secretary in 1964, which I believe might have succeeded if he had not had the constraint of the balance of payments. The difficulty has been that when any Chancellor has had this grand approach to break out of the constraints, he has always had the balance of payments problem to contend with.

The advantage of the present situation was that for the first time in 30 or 40 years that constraint was not there. The Government had the opportunity to succeed where the present Home Secretary failed. They had this supreme opportunity, and they did not use it. The only justification there ever was for creating that balance of payments surplus, which was bought—I was going to say by the blood and tears of the people, but we need not get so emotional—by the massive efforts and under-consumption of the people, was to make use of it. Instead we see it being frittered slowly while we argue and quarrel among ourselves. This is an appalling approach to what should have been a supreme advantage, which I certainly hope the late Iain Macleod had it in mind to take. That is why I was by no means critical of him in my speech when we spoke on these matters last July. Whether he would have taken it is another matter.

The sad thing is that this year's Finance Bill is being praised when it missed the whole point. We find ourselves dealing with tax matters which could have been dealt with in any year. What needed to be done this year, and could only have been done this year, was to break out of the spiral I have described. This was the time, and in these matters, as in so many others, timing is of the essence. In this we lost our way.

The Government are working on the basis of de-escalating wages, and are using unemployment as a means of doing so. I do not think that it is unfair to say that. I agree with my right hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) that Conservative hon. Members are not callous. But I do not think they have their priorities right. In a situation like the present, the legacy of human misery can be much greater than any temporary advantage, even if they were successful.

I do not think that the men of the 1950s admired by many Tories—Macmillan, Lord Butler and so on—could have brought themselves readily to accept a level of unemployment such as we have today in order to carry out an economic policy of, at best, doubtful value. Faced with the uncertainty of its economic implications, they would not have accepted the certainty of human misery. That is the kind of trade-off which would not have been possible for a number of such men, who represented the Tory Party and felt themselves in some way guilty of the Tory past in the 1930s, who really believed in the idea of one nation and did not mouth it when they acted in ways having the result of dividing the nation.

Photo of Sir Harmar Nicholls Sir Harmar Nicholls , Peterborough

The hon. Gentleman is perpetuating a myth.

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

There was no myth in this. The deeply embittered generation that experienced the troubles of the 1920s and 1930s was not a myth but a reality.

Photo of Sir Harmar Nicholls Sir Harmar Nicholls , Peterborough

The myth the hon. Gentleman is perpetuating is the unemployment under the Tories in the 1930s. The facts are that the Labour Party took over a million unemployed in 1929 and left three million when they left office in 1932. The Tories had brought it down to a million. again in 1939.

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

If it was a myth, it was a myth accepted by a number of very honourable Tories, and it created the policies that were possible for an incoming Government in 1951. But I do not want to be distracted. I was just giving that as background, and did not want to deal with it at great length.

I turn to the policy of de-escalation. This was a part of the original package last November, when it was first formulated, when there were fears of the increase in inflation. Following this, there was the Trades Union Congress attempt to get a working dialogue with the Government on these matters. We saw what many of us deeply regretted—the rejection of the T.U.C.'s initiative. I will quote what The Times said, and there were many similar reactions. On 12th February, The Times leader said: When the T.U.C. come forward with suggestions for moderating wage inflation, it is quite irresponsible for the Chancellor first to misrepresent them and then dismiss them out of hand. This is no way to conduct economic policy, and certainly no way to conduct a difficult and precarious policy with success. That comment put it admirably. Here was an opportunity to form some sort of accord. That accord might have been limited and might not have produced the final answer. But it would have opened up relationships between the Government and the trade union movement. The Conservative Governments of the 1950s welcomed that relationship with open arms. In 1951 the Conservative Government regarded it as their duty in uniting the country to reach this kind of understanding with the trade unions—not to defer to them or to give way to them but to come to some accommodation with them. It is a pity that that lesson of the post-war Tory Government has not been learnt by the present Tory Government.

The Government are assiduously peddling their claim of a relationship between the escalation of wage demands and unemployment. That claim is without foundation. In the 1930s there was no inflation but unemployment was monstrously high. Latin America has the highest inflation anywhere in the world but unemployment can be extremely low there. All the work of the Keynesians and others makes it clear that there is no connection. Yet the Government are attempting to defraud the people into believing that responsibility for unemployment does not rest with the Government. But all who understand these matters—including hon. Members opposite—know full well that it does. Having claimed that inflation is the cause of unemployment, the Government have now tried to convince themselves that the deescalation of wage demands is working.

On 16th March the Prime Minister said: The escalation of wage demands has been brought to a halt. But that is only the beginning of the battle: having halted the escalation, we now have to reverse it. That was before the Ford and British Leyland settlements, before some of the biggest increases—which not all of us welcome unless they can be related to productivity—yet the Chancellor, in the knowledge of some of those increases, also said in his Budget Statement that the policy of de-escalation was succeeding.

But if the Government are right in claiming that high levels of wage demands lead to unemployment, and they have stopped those high levels, then they should have stopped unemployment from rising. But unemployment is still rising. If the Government are right in their view, then at least the rise in unemployment should have been brought to a halt.

What we are seeing is a policy of wish-fulfilment. Many Governments fall for that. When they find themselves in an impossible situation in which their policies are obviously not working and cannot be seen to be working by any uncommitted or even only partly uncommitted person, they fall into an attitude of wish-fulfilment. The Government are guilty of that when they should at least be making some move towards trying to reach an accommodation with the trade unions or looking to some alternative, possibly through increasing demand. If the Government are to take a risk at any time in this Parliament, one would think that they should take the risk at the present time.

There is a hopeless decline in investment. It is expected that in the first half of next year, up to June, 1972, the increase in investment will be only ½ per cent. That is deplorable. It is useless for the Government to shrug it off and say that it is a question of time lag, a two-year time lag after coming into office. If we get time lags like that, we shall have to change the way in which we have elections every five years, because it means that any election boom can only be achieved in the lifetime of any succeeding Government. These things do take longer than we sometimes think but not that long.

There is the question of long-term confidence. It is very difficult to convince manufacturers that they should put in plant that will come into operation probably in a year's time. It is not easy to persuade them to produce the extra goods, because they do not feel confident in the future. That is the problem of the Government. Manufacturers have not shown confidence. I wish they had, because we need that confidence. It is the sort of change towards confidence in the future that the National Plan hoped to make. Jokes are made about the National Plan of 1965 but the great merit of it—and it was a noble aim—was that it sought to lift people's expectations. The disaster of the present time is that people's expectations are being depressed lower than reality. We tried to lift people's sights above reality in order to get the cycle of confidence going.

In order to create the kind of demand required, the Chancellor might have done something about purchase tax, which at present is at a ridiculously high level on a number of goods which cannot be classed as luxuries, such as diamonds and mink. Instead, he was determined to go for selective employment tax, and it was an enormous pity. Thus, the level of demand next year is likely to be very much higher than many hon. Members opposite may like to see, whereas at present the level is too low. The S.E.T. measures will take a long time to come into effect. The consequential effects will be very much delayed. Thus, the Chancellor does not want to inject more demand now into the economy because he is already worried that there may be too much demand next year. He has gone for a further time lag by dealing with S.E.T. instead of going for purchase tax or for some other measure which could have had a quicker impact.

The Finance Bill comes at a time when we have the highest level of unemployment since the war, which is seen as almost a permanent feature of the current scene. It is impossible to accept any policy based on maintaining that level without any assurances that the economic success which the Government keep predicting is likely to come about. Once this is fully understood, the people will reject the Bill as they will reject the other policies of the Government.

7.40 p.m.

Photo of Sir Peter Emery Sir Peter Emery , Honiton

It is always a pleasure to follow the hon. Member for Ashton-under-Lyne (Mr. Sheldon). No one on the other side of the House pays more attention to financial matters, certainly from the back benches, than he does. He always presents the House with a thoughtful speech, if not always one with which we can all agree. May I begin by agreeing with the remarks he made about setting up a Select Committee on economic affairs. I know that this is not accepted by some people with great experience, but in my view the sooner it is established the better. It is something the House needs and wants.

May I deal with two points in the hon. Members speech. He talked about breaking out of the spiral and being able to use this Budget as an opportunity. £1,000 million in tax reduction!—what is this but the type of break-out many of us want to see? With a monetary policy many think is too slack, providing fairly easy cash borrowing for investment, this is hardly the credit squeeze factor hon. Member seems to suggest.

The hon. Member says that the Government are using unemployment as a cure to inflation. That is completely untrue. The concept that by increasing unemployment we will cure inflation does not stand up to economic examination. It is not a factor which Keynes would accept. Therefore, why should the Government want to do it when it is not an acceptable cure for inflation? Unemployment and inflation are related only in that greater tax reductions to assist in curing unemployment might increase inflation.

If that argument is being used that the Government have not done enough to cure inflation in this way, it is an argument I could accept. But when the Government have taken the decision to reduce taxation by £1,000 million I do not believe that that accusation holds water.

Photo of Mr William Molloy Mr William Molloy , Ealing North

Is the hon. Gentleman really telling the House that it is some sort of comfort to the unemployed to know that there are very wealthy people who are obtaining tax reductions? These are the facts in people's minds today.

Photo of Sir Peter Emery Sir Peter Emery , Honiton

I thought I made a mistake in giving way to the hon. Gentleman. That is entirely irrelevant to my argument. The hon. Gentleman knows, and I know, that the effect on surtax is £35 million, and that is all. Let us not say that this is a level which is so scandalously high that everyone in the country is up in arms. This is a section of the community which received no major benefit when the Socialists were in power. One of the effects of this Budget is that it deals with some of the massive wrongs that Socialist taxation policy allowed. This is why I congratulate the Chancellor upon the Budget and the Finance Bill.

The reform of taxation legislation embodied here is much greater than anyone might have expected the Chancellor to introduce in his first Budget in the first year of the Government. This is often forgotten. In the short time that my right hon. Friend has been in office he has been willing to draw opinions together and go forward with this massive and revolutionary Finance Bill.

Certain sections of the community have suffered because of the previous Government's taxation policy. This Government have set out to assist these people. The raising of allowances for the family man, the assistance given to the retired, who usually live on fixed incomes, are both things which ought to have been done a long time ago. I welcome the acceptance that taxation on much earned income is taxation on the savings of those who have worked all their lives. There ought not to be a double structure of taxation which the people we are attempting to encourage to save should have to bear as against the rest of the community. The concept that savings income should be at a different level of taxation so that we actually discourage savings is something which even the wild men of the Socialist Party should not want.

The real judgment of the Budget can be seen in a parliamentary reply dealing with the effect of the changes in taxation introduced in the ten months since June, 1970. The Government have reduced total taxation by about 6 per cent. or nearly 2 per cent. of the gross national product at factor costs. By contrast, the effect of the changes in 1965–66 was to increase taxation by 6 per cent. or about an extra 1 per cent. of the gross national product. These facts make it clear that the Conservative Party does set out to decrease taxation while the Labour Party, whether or not it wishes to, usually achieves the exact opposite effect.

Photo of Mr Robert Maclennan Mr Robert Maclennan Shadow Spokesperson (Scotland)

The hon. Member has criticised my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) for his views of the purpose of the Finance Bill, but he has not dealt with the problems of inflation or employment. If he is making the simple point that a certain amount of taxation has been relieved, it hardly needs to be laboured at such length. At least, in fairness, he ought to point out the adverse effects on investment and the industrial climate of the withdrawal of investment grants, which tends to dry up investment in employment-offering activities.

Photo of Sir Peter Emery Sir Peter Emery , Honiton

I do not intend to deal with that comment now, not because I cannot but because it has already been dealt with by my hon. Friend the Member for St. Marylebone (Mr. Baker). I want to deal mainly with employment and inflation.

One point about which the Chancellor must be a little careful has to do with the increased cash flow that the decrease in corporation tax will bring about for business corporations. He must realise that the point he made in the statement he made to the House does not apply until the tax payment becomes due next year. Therefore, although there is an extra 2½ per cent. in this Budget, its effect on cash flow will not occur until the payment at 1st January next year.

I am massively concerned about the increase of inflationary pressure. Will the Budget cure this problem? Do we see any major increase in expansion of industry? Are we not faced with a worrying increase in export prices which, if it continues, will create a financial balance of payments problem? The situation presents a considerable enigma to anyone who attempts to study it. Sterling is strong, standing at 2·41·31/32 to the dollar. It cannot get much stronger. The balance of payments is favourable enough and much of the short-term borrowing which the Socialist Government made is being repaid—and I do not make that as a party point. Taxes are being reduced. Yet we have an unemployment level of 814,000 and prices have gone up by nearly 9 per cent. in the last year.

The Government's view about inflation has been that price increases could not be reduced if wage settlements—one of the major factors in production costs—continued at the fantastic and unrealistic levels triggered off by the Government of the right hon. Member for Huyton (Mr. Harold Wilson). Blame for this situation must be squarely placed on the Socialist Administration because when their prices and incomes policy finished at the end of December, 1969—and I had been saying this for years beforehand—the wage demand built up by the ban on ordinary negotiated wage settlements was let loose. The then Prime Minister was quite willing to let wages rip. The effect economically was to put more money in men's pockets but the inflationary effect was not to be felt until after the time of the election. What was not considered was that this "letting loose" of the wage demands created a climate which could not be easily corrected and which still has not been corrected.

Conservative policy has been clear. Physical and legal controls as the basis of an income policy completely failed under the Socialists. I am committed to support free and open bargaining in wage agreements, but we have urged everyone to ensure that wage bargains were reduced to reasonable levels. The Government have taken a lead in this matter, and some parts of private industry have followed suit. There are, however, notable exceptions. Fords, British Leyland and Vauxhalls have all granted wage awards of approximately 16 per cent.—much higher than the percentage advised by the Government.

Two further problems arise from these settlements. First, certain agreements have built in a 16 per cent. wage award for the next year and therefore have built in a 16 per cent. inflationary pressure for 12 months' time. The wage claims which are exceptions to the policy pursued by the Government receive much more publicity than those which are settled within the scope of the policy. This creates a climate of high wage demands which is a major reversal of what the Government wish.

It seems evident to me—and it is not often accepted—that the Socialists' incomes policy was undermined by the very strong trade unions—the T.G.W.U., the E.T.U. and the A.E.U. These giants were able to negotiate settlements above the norm or contrary to the N.B.P.I. advice, often under the guise of productivity or other deals. The Socialist Government had neither the strength nor the inclination to bring these "friends and supporters" to heel.

The Conservative Government cannot allow certain very large employers or manufacturers to undermine the present economic policy of the nation. All of our efforts will be useless if inflation continues and the value of money continues to be eroded. Increases in pensions and cuts in income tax or selective employment tax are meaningless if the benefits continue to be eaten up by inflation.

I therefore urge the Chancellor of the Exchequer to be ready to act to ensure the working of the Government's policy, even if it means ensuring compliance from the big industries or the major corporations. If a voluntary request will not work, then stronger action is necessary. What action is possible if I reject physical controls? I believe that other steps are possible, and I shall deal briefly with only four of them.

What is required first is an exact indication by the Government of what level of wage award should be the maximum for any one year. If industry or trade unions agree to settle above these limits certain restraints should come into operation. These restraints affecting industries could be the removal of tariff barriers which are protecting certain aspects of industry. The cold blast of competition in certain fields would not necessarily do any harm; it would probably do some remarkable good. Another restraint could be the removal of special Govern- ment support, whether it be investment allowances or anything else, which could be claimed by industries which make wage settlements above the projected norm. There should be the freezing of further borrowing powers of nationalised industries, because it is the borrowing powers which, on the whole, finance the wage increases. In local government there should be a cutting of rate support grants so that increased costs had to be met, and were seen to be met, entirely by the ratepayers.

Also there are financial levies which could and should be considered. The economists's favourite—and I reject it, but I believe that since I am trying to present a case it must be mentioned—is a charge as an extra payment on the employees' contribution to the National Insurance stamp of all moneys above the norm so that no benefit would accrue to the employee. I do not believe that that is a possibility, but it needs to be mentioned.

Alternatively, an excess wages tax could be introduced. This would levy an increase of corporation tax on the company making an excess wage award. Suppose that we set the norm for this year at 9 per cent. If the increase in corporation tax were decided by the House at 2½ per cent. for each 1 per cent. above the norm, with its 16 per cent. award, Fords would have to pay an increased corporation tax of 57½ per cent. instead of the projected 40 per cent. It would even be possible to scale it up after 2 per cent. above the norm to 5 per cent. on corporation tax.

Such a scheme is pretty rough justice. There would be major objections from the C.B.I. and from many industries. But such a system would apply only to those firms and industries whose actions were against the interest of the general public and who undermined the Government's economic policy. I have said many times that no section of the community has the right to hold the rest of the country to ransom. Anyone, whether trade unions or industrialists, who attempts to do so should be held to account.

I believe that the taxes I have suggested would prove to be such a disincentive that they would probably never have to be levied. The whole climate of wage negotiations would alter appreciably, which would be to everybody's interest, and inflation would be brought down to comply with the Conservative Government's objective. The scheme would continue to allow freely negotiated wage bargaining. Anyone who felt able to meet high awards above the norm would be able to do so, but I do not believe they would.

Such a tax would be difficult to administer, because it is new. There would have to be a structure within the Board of Inland Revenue to assess whether productivity or expansion had been required which necessitated a larger number of employees. However, where people are breaking the Government's intended policy I should be quite happy for rough justice to be applied. A settlement could be made by the taxing authority with a right of appeal. The proof that an assessment was unfair should, however, be left to the industry. It should not be left to the Treasury to prove that it was fair. I can well understand that the taxing authorities might not like such a system but, if inflation continues as it has done during the next six months, the Government cannot continue to stand by and do nothing. If the Government's pleading with industry and their policy of attempting to give the lead by restraint in the public sector do not succeed, so that there are more settlements of the same nature as the Ford and Vauxhall settlements, the Government will have to take action. I cannot accept that the Government should go back to the physical controls and to the incomes policy of the Socialists. We must therefore look at other means, and Treasury Ministers should consider the type of action I have outlined.

There is not much time. The worst possible action for the Government would be to wait until we are in crisis. We must act before crisis arises and not be forced by events into doing something. For these reasons I hope that the Treasury Bench will be willing to consider fully what I hope may be helpful suggestions for dealing with the inflationary pressure.

8.4 p.m.

Photo of Mr Patrick Duffy Mr Patrick Duffy , Sheffield, Attercliffe

That the hon. Member for Honiton (Mr. Emery) should make the speech which he has just delivered suggests to me that the euphoric reception accorded to the Budget only three weeks ago has already been dissipated. That the hon. Member for Honiton—and other Members of the Conservative Party—should have argued so persuasively for an incomes policy and that he should have foreshadowed a possible crisis calls into question the underlying strategy of the Budget. I hope the hon. Member for Honiton realises that the 9 per cent. norm he was prepared to consider, given our experience of incomes policy making in the 1960s, would mean in practice increases in the region of 12 to 14 per cent. I was interested to hear him say that he thought his right hon. Friend should nevertheless be congratulated on the extent of the reform that he has undertaken in his first Budget. That was the only complimentary thing he had to say about the strategy of the Budget.

I agree with what the hon. Member for Honiton said about the tax reform content of the Budget, and I was glad to hear the hon. Member for St. Marylebone (Mr. Kenneth Baker) acknowledge the indebtedness of the House to my hon. Friends the Members for Ashton-under-Lyne (Mr. Sheldon) and Heywood and Royton (Mr. Barnett), who year after year argued the case for such far-reaching reforms. They recognised years ago that our tax system was archaic and called for a root and branch reform. In so far as I welcomed this feature in the debate on the Budget Statement three weeks ago, I owe it to their persuasiveness. I was glad that this was a major theme of the Chancellor's Budget speech.

I am most interested in the Finance Bill and the White Paper on the Reform of Personal Direct Taxation, which lay down this new structure of personal taxation, although in one sense they are disappointing. They leave us in the air on the rates which will apply to different incomes of the two classes, investment and earned, after 1972–73. I was interested to hear the Chancellor say a word about their relationship. We know what the new basic rate will be against the present effective rate after earned income relief. We know what the top rate will be, and the effect on earned incomes of about £20,000 and above. But we have had no detail about the rates below that level, the income bands to which they will apply, the surcharge which will apply to investment incomes and the floor of investment income above which it will operate. I understand the objections to giving this information; yet, given the call from both sides of the House for a Select Committee on Taxation, how can such a Committee work unless it has more information, if only by way of illustration, if only of a provisional nature, to assist the hon. Members who would staff that Committee? The White Paper is none the less welcome because of the way in which it deals with the technical aspects of the change-over to the new system.

The Chancellor's general intention seems to be to preserve the total personal tax rate through the change-over period. Will the Financial Secretary tell us whether the opportunity will be taken in 1973–74 to shift some of the personal tax burden on to the new indirect V.A.T. foreshadowed in the Budget Statement? No doubt he and his colleagues are well aware of the many problems that will arise at that time, not least because of the difficulties of the transition and the timing. I will raise no more questions about that matter now since there will be opportunities to do so later in Committee.

I have already expressed concern in the debate on the Budget Statement that the present incidence of personal taxation should not be altered too much during the period and process of tax reform. I am anxious that the two should be kept apart so far as possible and that one should be seen as a thoroughly deserving administrative exercise but the other as an important political exercise. I feel that one should not be prejudicial to the other. I can quite see how easily the second could suffer on account of the first.

I also acknowledge that the Chancellor has produced a radical and complex Budget. It is radical because it proposes to simplify an archaic tax structure, but complex because it tries to achieve a variety of ends and also provide something for everybody. This in part explains its reception in the country, which, on the whole, has been favourable. Despite the apparent enthusiasm of industry and the City, there is a growing disposition on the part of many people to question its underlying strategy and to ask how far the Budget will help in overcoming the major problems that confront us.

The central problem remains that of inflation. On this matter there is no differentiation between one side of the House and the other, or between different categories of people outside the House, or indeed between one country and another. This is a one-world phenomenon so far as the Western world is concerned. It affects the board room and the bedroom; it affects the kitchen and the executive suite. It is a cancerous disease to which this country has never been so virulently exposed as it is today.

We have the right to ask, and to go on asking, the Chancellor of the Exchequer what cure or easement this Finance Bill seeks to prescribe. At this stage it is difficult to point with certainty to any part of the Finance Bill which offers any such cure. The private sector seemingly does as it likes. It goes ahead in the free market because that is the only way in which industrialists, including the Ford management, can stay in business. At the same time, those who are in the public sector—including those who are too young, or too old, or disabled—face increasing prices for their everyday requirements. Nothing that has happened since the Chancellor presented his Budget Statement to the House has made us doubt his policies quite so sharply as has the Ford settlement, which came shortly afterwards. The Chancellor must be grateful for the existence of a considerable public sector, for its restraint and for its strong sense of social obligation.

We all recognise that a Budget not only seeks to raise necessary revenue but, through the skilful employment of fiscal and monetary polices, tries to provide an appropriate equilibrium for the economy on a rising curve of growth and a high degree of social justice for society.

It may fairly be asked what this Bill will do to ease rising prices at a time when savings and incomes are being eroded on a weekly basis. What prospect does it offer for future economic growth given that the Chancellor of the Exchequer's growth target, as he stressed again and again in his speech today, is in line with productive capacity? What he might have said is that the growth target is indeed well within productive capacity. I would ask whether reduction in corporation tax, the halving of S.E.T. and the reduction in the Bank Rate will be sufficient to stimulate investment.

This does not mean that I do not welcome what is being done in respect of investment. I very much hope that some of us on this side of the House will be confounded in our gloomy prophecies about the future level of investment. I would even be prepared to risk being at odds with my hon. Friends on this matter, for perhaps I am slightly less pessimistic than they are. It is on this sort of psychological basis that investment decisions are made, and this is the kind of thinking that goes on in board rooms, as will be recognised by hon. Members opposite.

I want to see a rising level of confidence in board rooms, and whatever can be done to encourage confidence is to be welcomed on both sides of the House. I am even prepared to grant that there may be more ample grounds for this confidence than some of my hon. Friends believe. This does not mean that we should not watch the productive capacity of our economy and ask ourselves whether there is not too great a waste potential. We might see how far we can take this up since we know the costs we are paying month by month in respect of the gap between the Chancellor's growth target and what the economy can do.

This leads me to raise questions about the right kind of reflation. Is consumer spending high enough? I hope I shall be forgiven for chiding the hon. Members for Honiton and St. Marylebone for the extravagant use of the concept of a £1,000 million injection. They will appreciate that that is a global sum and that consumer injection is considerably less. [Interruption.] If I misunderstood the hon. Member for Honiton, I am sorry. I am prepared to err a little on the side of optimism in regard to investment, but I go the other way in regard to consumer injection. I believe that this injection is much less than we have been led to believe, and that the situation will need to be watched.

Who will lead this consumer boom? Are they only the poor, the low-paid and the sick—perhaps they ought to be—or are the people who are really being encouraged those who ride the waves, like the Prime Minister? Will this assist directly the unfortunate and growing imbalance in the import-export relationship? These and similar questions also arise.

I do not deny that the Finance Bill provides some investment for industry in the ways I have already mentioned. I am hopeful that it will help to restore confidence. But I am wondering how this confidence can be consolidated and translated into rising investment, with the spectre of 1 million unemployed haunting the nation? Some tax concessions may help here, because they are incorporated in the Finance Bill, but, on the best evidence available, they are unlikely to have much effect on either the economy or the beneficiaries. For that reason, I wonder how far those who have been especially encouraged by the Budget and who will be encouraged by the Finance Bill will be further encouraged to the point of helping investment, or whether they will not merely interpret this as a reward for their voting Tory.

I do not deny that savings are on the increase, but I wonder how far the increase represents a growing propensity to save for the best motives or whether it reflects a growing insecurity amongst wage earners or perhaps the lack of creative investment outlets amongst the better off. There is a significant number of savings schemes and devices on the market indicating a growing urge to find a haven for savings outside the United Kingdom.

The reduction of selective employment tax projected in Clause introduces a new factor in the retailing of consumer goods in the more competitive and responsible areas of the market and in the service industries. However, too much store should not be set on its consequential impact on prices. I recall the Chancellor of the Exchequer saying today that he thought that those stores which had already begun to mark down their prices because of the announcement about S.E.T. should be congratulated. But how far are those congratulations deserved? Might not it be the other way round, and that the people who are now marking down prices are those who marked them up, contrary to the wishes of this House, when S.E.T. was introduced, and in the face of the widespread resentment of the consumer public? Surely the firms which should be congratulated are those which will not make any adjustment to their prices because they did not make them when S.E.T. was introduced. They acted in the best spirit of that Act and absorbed it through increased productivity and a slimming down of their labour forces.

When I knew that today's debate was to take place, I asked an accountant friend of mine what he thought now that S.E.T. was on its way out. He has considerable experience in handling tax problems and S.E.T., and it seemed to me that here was someone whose judgment I respected and who was well placed to offer his views on it. I did not doubt that there were arguments against it, and I thought that we ought to consider another view before S.E.T. passed into history.

The view of my accountant friend is that, S.E.T. is by far the best way of collecting revenue ever invented. Its failings are the huge exemptions given to all manufacturing industries, involving refunds and the consequent clerical staff required. This could be easily overcome by cancelling all refunds so that everyone paid S.E.T. Thus a huge revenue would be collected by way of a stamp on the National Insurance card at a negligible cost to the public Exchequer. The cost of S.E.T. to manufacturing industry could be offset by a further reduction in corporation tax. S.E.T., apart from the obvious advantages of cheap collection, also ensures that an employer will not carry unnecessary labour. He will also endeavour to keep his labour to a minimum by investment in modern plant and equipment. This may not be politically desirable from a labour point of view, but it is certainly an economic desirability from the country's standpoint. That is a view which is not unknown in this House. It has often been expressed by hon. Members of my own party. It is a view which needs to be set alongside the opinion expressed by the Chancellor today about S.E.T. One of the benefits of S.E.T. has been the large amounts of cash in hand that the Revenue has been able to hold. One wonders how far they will finance refunds of the large sums held in July and subsequently.

Finally, the Finance Bill details the Government's capital allowances system in Clauses 30 to 44. These repeat the proposals made in last October's White Paper on Investment Incentives. Higher rates of allowances now apply to plant and machinery acquired after 26th October of last year. Even so, they only partially compensate for the abolition of the investment grant system. This will undoubtedly deal a body blow to the regions. It knocks the sense out of not only regional development but develop- ment and planning by forward-looking concerns in both the private and the public sectors. As a result, unemployment must continue to rise everywhere and remain chronic in certain locations.

It is difficult, therefore, to avoid the conclusion that the Chancellor of the Exchequer, on the basis of his public statements, is using unemployment as a major weapon to combat inflation. In this connection, I want to refer to an article in The Times last Monday by its Economics Editor, Mr. Peter Jay, in which he says: A high level and a rising trend of unemployment and, it is emerging, an integral part of the Government's short-term economic plan rather than just a regretted side effect of past output trends. He goes on to develop his argument in a way which suggests that it is the well-thought-out view of The Times. No doubt it will be put forward by my right hon. and hon. Friends in tomorrow's debate on unemployment, and they will expect a reply from the Government.

Now that the first flush of enthusiasm for the Budget has died down, it is clear that some of the problems which beset us before its introduction are still very much with us and seem to be as dangerous as ever. Thus, the Chancellor of the Exchequer has failed to restore confidence at every level of the community. Deep concern remains the overriding factor of life in Britain today. There is concern about the value of money and the value of savings. There is concern about the value of endeavour. One day soon, perhaps, there will be concern about the right hon. Gentleman's Budget strategy and its relevance to these problems.

We know from the speech of the hon. Member for Honiton that an assortment of further remedies is being canvassed on all sides, among them a fresh tightening of the money supply, a price squeeze, a wage freeze, a special tax on companies yielding to inflationary claims, and so on. The Chancellor of the Exchequer has weapons to hand in the regulators. Can he be confident that it will not be necessary by the autumn to buttress the regulators with the kind of incomes policy for which his hon. Friend the Member for Honiton called, with some other kind of incomes policy or, in its absence, with an autumn Budget?

8.28 p.m.

Photo of Mr David Madel Mr David Madel , Bedfordshire South

I hope that the hon. Member for Sheffield, Attercliffe (Mr. Duffy) will forgive me if I do not follow him too closely in his remarks. I have only a few points to make and other hon. Members wish to speak.

Since the Budget was announced many commentators have drawn attention to that part of the Budget Statement where my right hon Friend the Chancellor of the Exchequer said: If, after the measures I am about to announce have been allowed a reasonable time to have their effect, a further stimulus is needed, the usual instruments are always available. Here I should mention that I propose to extend for a further year the power to vary revenue duties and purchase tax by means of the regulator."—[OFFICIAL REPORT, 30th March 1971; Vol. 814, c. 1370.] Since that statement we have had more information on unemployment and more pleas for further stimulus for the economy. That is not to say that people have not welcomed the tax changes and the simplification of the tax system.

I endorse the point made by my hon. Friend the Member for St. Marylebone (Mr. Kenneth Baker) when he urged industry to use the time between now and the autumn, when I think the White Paper on value-added tax is to be published, to go into consultations in depth with the Government on what effects this new tax will have on particular industries.

I make a plea to the Chancellor to consider using the regulator very soon. So much of the Budget strategy depends on some voluntary agreement with employers in the manufacturing industries not granting what the Government believe are excessive wage increases. But, before we rush to condemn employers who have recently given relatively large wage increases, we should remember the economic background in which they have been working for a number of years.

It has been estimated that the motor industry is working at 20 per cent. below capacity. That being the case, it is inevitable that prices rise, and we have certainly seen this in the past six months. This is bound to affect the competitiveness of British motor cars abroad—not only the finished products, but the engines and spare parts, of which we are large suppliers and from which the motor com- panies in this country derive considerable revenue.

That is one reason that Mr. Henry Ford is not best pleased with his company's performance in this country. Certainly he finds fault with our industrial relations system. But I suggest that what also causes him great concern is that he sees home demand in this country depressed by tax measures to a level below that of, say, Germany and France. With the depressed demand, employers are bound to look round hard and to reduce their labour forces as much as they can, not because they feel that the current rate of unemployment being pushed higher is going to be some brake on the increase in labour costs, but because they are not facing a domestic market showing enough signs of expansion.

We should remember that the unemployment and under-utilisation of labour is at present making no contribution to getting labour costs under control, and is having other specific social and economic disadvantages.

There can be quite a devastating effect on a family when a man returns home to say that he and many others in the factory where he works have lost their jobs. We must not assume that unemployment benefits can do all the short-term cushioning from hardship which is required. For those who remain at work a great edginess appears and improved industrial relations, which may have been built up in a factory, will start to slide backwards. It has taken years, and will take longer in many industries, to work out fully acceptable job apportionment and the consequent pay rates, but if unemployment goes on the progress which has been made will be undone and we shall get a return to the restrictive practices, particularly in manufacturing industries, which we have spent so long trying to remove.

The Chancellor is basing much of his Budget strategy on increase in investment, and the tax changes will certainly help; but tax changes can do only part of the job. If there is continued under-utilisation of resources, investment will not rise quickly enough. No one will really go in for labour saving investment with the current rate of unemployment. Equally, under-utilised economy provides no incentive to risk taking investment, as those who may take the risk will not take it if they do not see a faster growth economy.

I am certain, too, that the Budget was framed with some kind of incomes policy in mind. But we have surely learned since the war that a voluntary incomes policy can only be begun—I emphasise the word "beguns"—with a background of falling taxes and much greater utilisation of the economy.

Obviously the Government will want to have talks in depth with the T.U.C. on this matter. That is why I return to my earlier plea to the Chancellor to use the regulator soon and thereby strengthen his policy as laid down in the Bill. It will surely help the Government greatly if they can say to the T.U.C.: "In addition to the tax changes in the Budget, we have reduced purchase tax on a number of household essentials and cars, we have reduced the tax on oil to cushion the effects of higher prices being demanded by our suppliers, and by these measures we know that the economy will expand."

It is with this background that pay norms can be discussed, because the moderates in the T.U.C. will then have considerable economic ammunition to use in the necessary internal discussions in the trade union movement.

I beg the Chancellor to use the regulator as soon as possible because unless we can get extra spending power in the country we shall not get faster growth.

8.34 p.m.

Photo of Michael Meacher Michael Meacher , Oldham West

I want to return to a thread that ran through an earlier part of the debate by saying that it is one of the curiosities of this Finance Bill that while so much attention has been lavished on correcting long-standing alleged anomalies and inequities in the taxation of personal income, the taxation of capital that will be left by the Bill will be more fortuitous, more unsystematic and more unjust than it has ever been. With the abolition proposed under Clause 49 of the charge to capital gains tax on death, and with the ending of the associated capital gains tax levy on the increase in the value of assets held by discretionary trusts, the havens of tax avoidance have been deliberately thrown open, and we are left with the traditionally chaotic structure of wealth taxes.

The least discussed of these taxes, though the oldest, the stamp duty on legal documents, is also being reduced under Clause 53 by the abolition of this duty on bonds and mortgages.. However, as the summary of stamp duties contained in the 106th Report of the Commissioners of Inland Revenue ran to eight pages and covered 87 major headings of types of legal documents, many such duties are obviously going to survive, to all of which a different rate applies. Not only do the rates appear arbitrary, but as each tax payment has to receive separate calculation and accounting, the cost of collection must be enormous. Moreover, the system is particularly inequitable for the relatively poor in the acquisition of property, because there is no element of progression in the tax.

Second, death duties are even more inherently arbitrary than stamp duty, with no tax on the transfer of wealth by gifts inter vivos more than seven years before death. For the majority of wealthy taxpayers, this tax on the ignorant and prematurely dead is an option which they decline to accept. As one authority recently said, estate duty is now paid only by the misanthropic, the patriotic, the absent-minded or the downright unlucky. But even for those people, the maximum level of 80 per cent. on huge estates over ·1¼ million is far from being as crippling as has been made out, for example by the Chancellor in his Budget speech, to justify the abolition of the charge to capital gains tax on death. For given the rule-of-thumb secular rate of appreciation in equity values at about 100 per cent. per decade, the residual £200,000, given reasonable port folio advice to even a passive shareholder, would return to its original value within a mere twenty-five years.

The impost the 80 per cent. rate is a comparatively rare occurrence, chiefly because of the use of gifts and the manipulation of discretionary trusts, 95 per cent, of which are now taken out sheerly for the purposes of tax avoidance according to Professor Wheatcroft who, as the Financial Secretary knows, is a tax authority much esteemed and consulted by the Conservative Party.

One pointer to the massive transfer of wealth through gifts inter vivos is provided by the known fact that the age group in which the ownership of wealth is the most unequal is that of the youngest adults aged 20 to 24. Another pointer is provided by the wide and increasing discrepancy between gifts charged to estate duty during the 'sixties, and gifts valued for stamp duty during the same period. Indeed, it is because of this widespread avoidance that death duties are probably an extremely regressive tax in that the rate of tax paid often diminishes with the size of the estate.

The third form of wealth tax, long-term capital gains tax, which is a step in the right direction, has been handicapped by being introduced at the same time as corporation tax. For the substantial amount of wealth held in close companies with high retentions the shift to corporation tax provides tax savings which will largely offset the capital gains tax.

A more general weakness of the capital gains tax system is that it is a tax on realised capital gains. The rich can normally postpone realisation of their capital appreciation for a long time. Inevitably, therefore, the retention within families of such capital over long periods must reduce the real burden of the tax. Unless the rate of capital gains tax is closely geared to the length of the holding period, this inequity and inefficiency in the use of scarce capital resources can be avoided only by a tax on the capital itself.

In view of the arbitrary and capricious incidence of existing capital taxation, one returns to the fundamental question of what the Government regard as a proper system for the taxation of wealth. Yet all this Bill shows is a withdrawal of Government and an abrogation of responsibility in this sphere. One might have thought that even this Government, for all their feather-bedding of the rich, would have thought that a concentration of ownership in the hands of the richest 1 per cent.—almost twice as great in this country as in the United States—would have been worth some attention.

Even the Economist, which is not known for being particularly soft on Socialist causes, estimated in 1966, from a capitalisation of investment income statistics, that the wealthiest 21,000 people had fortunes averaging £334,000 each, while 88 per cent. of taxpayers had precisely £107 on average each. According to those calculations—they were using probably the most precise and accurate techniques available—1 per cent. of the population owned 40 per cent. of total wealth, which represents a considerably greater inequality than even that displayed by the official Inland Revenue data, and 7 per cent. owned a fantastic 84 per cent. of total wealth.

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

I have often been puzzled about this. I know the argument, and it is a valid one, that the estate duty figures are unrepresentative of the way in which wealth is distributed. I know the argument, and I think it is a valid one, that the incomes attributable to individuals by reasons of trusts, close companies and so on, are also unrepresentative. But what I cannot understand is why, on the basis of these figures which are unrepresentative, one should draw conclusions about the distribution of wealth which one would think to be unjustified on the argument that the figures from which these are derived are not representative of the ownership of income or capital. In short, can one, on the one hand, say that estate duty is utterly unrepresentative of the wealth of individuals, and that direct personal investment income is equally unrepresentative and, on the other, quote figures of the percentage distribution of wealth which are based wholly or mainly on precisely those unrepresentative estate duty and income figures?

Photo of Michael Meacher Michael Meacher , Oldham West

If I understand my right hon. Friend's argument, I would certainly take the view that one can adopt figures for the distribution of wealth provided by the Inland Revenue data which will provide a minimum floor for the degree of inequality. One can improve on this by using the capitalisation of investment income technique, which shows an even greater degree of inequality. While, for well-known reasons, regarding these as inadequate indicators of the inequality in the ownership of wealth, one can suggest that the taxes through which we achieve these figures are not achieving a proper purpose. There seems to be no logical inconsistency in this as a method. But whatever the exact figures—one can argue about this—there is clearly a staggering degree of inequality in the ownership of wealth in this country—even more than in the United States, which is saying something.

One must therefore ask whether the Government seriously believe that their policy, as represented by the Bill—one of masterly inactivity, one, indeed, of retreat—is the correct one. Do they really believe that a proper balance is achieved by the Bill as between taxation of income and taxation of capital? No party which was not so umbilically tied to the owners of property and wealth could possibly adopt such an utterly unreasonable policy. What is needed instead, if we are to retain the outmoded estate duty, is at least a supplementary gifts tax, but far better than that would be an outright substitution of an inheritance tax for estate duty.

Better still, this would open the way to a completely new approach to the taxation of capital gains, by which inheritances, gifts, realised capital gains, and accretions to spending power which at present fall outside the income tax net—I am thinking particularly of what are euphemistically called "fringe benefits"—could be brought within a single comprehensive system of capital taxation which would match the Chancellor's very proper intentions for the taxation of personal income.

The tax could then be levied by recording every gift and bequest on a register, and the rate of levy—which would be subect to, say, a minimum floor of £5,000, and to a disregard of capital receipts of, say, £200 a year—could be on a progressive scale, recording the total of gifts and bequests against his name during the whole of his lifetime.

In the absence of a unified structure of capital taxes of this kind, this Bill can only be described as an extremely unbalanced package. It is a deliberate and uncompensated reversal of the redistribution of wealth, displaying arbitrary indulgence to an unrepresentative minority; namely, those who happen to be born in the right bed.

8.46 p.m.

Photo of Mr Peter Rost Mr Peter Rost , Derbyshire South East

I hope that the hon. Member for Oldham, West (Mr. Meacher) will forgive me if I resist the temptation to pursue his interesting, if thoroughly misguided, argument, mainly because what this nation really needs is not the further taxation of wealth but the opportunity to allow more people to create more wealth, and this is the theme on which I shall concentrate.

We must achieve more incentives for personal saving. Today's savings are the seed corn of investment, about which much has been said in this debate. More than that, they provide the only means of gathering tomorrow's harvest of controlling inflation, reducing unemployment, allowing growth and prosperity and, above all, producing once again rising living standards in this country.

The Chancellor has introduced a number of important measures which will provide incentives to save. In recent months the level of personal savings has improved somewhat after several years of decline. However, the percentage of the gross national product saved in Britain in personal savings is still well below that of our competitor countries, and particularly Germany, America and Japan, where the bulk of savings is channelled directly back into industry.

The only way to provide incentives for personal savings, not just in the form of national savings, save-as-you-earn schemes, deposits in building societies and in other schemes of direct interest, is to encourage savings directly into equities—investment in industry—and unless this is done, we shall not provide the capital that is required for expansion and investment.

I do not wish to be difficult, and I accept that the Budget has been tremendously exciting and has provided a stimulus to the nation. However, I must express disappointment at my right hon. Friend not moving towards a save-as-you-earn scheme that is tied to equity investment, along the lines promoted for some years by organisations such as the Wider Share Ownership Council and proposed by the present occupants of the Treasury Bench when they were in opposition. I should like to have seen more incentive provision for contractual savings into equity investment.

We have at present a system whereby contractual savings in other forms of savings are given tax allowances. For example, if one saves through insurance contractually one has a tax advantage, as with pension schemes. Also, one has tax-free allowances if one saves through National Savings, through the Post Office or through building societies. But there is no contractual savings scheme allowing similar tax advantages and, therefore, similar incentives, which ties contractual savings to equity investment.

A particular sphere in which I would have hoped that we could have achieved a little more in the way of incentives through the smaller saver is that which has been growing rapidly in the last few years in this country as it has elsewhere in the world. It is the do-it-yourself or amateur unit trust movement; namely, the investment club movement. I must declare an interest, because I have spent many years helping to form investment clubs and talking to groups of factory savers, and have launched investment clubs myself. The House should appreciate that the growth of investment clubs mostly amongst people who have never saved or invested previously, and certainly have no capital, has reached the stage where it has stagnated. Between 1960 and 1965 the number of clubs in this country increased from about 500 to about 2,500. It has very much stagnated since then. We all know and appreciate that the reason for this stagnation was the 1965 Finance Act, which did nothing less than clobber investment clubs.

Ministers of the present Government, during the proceedings on the 1965 Finance Bill, attempted to remedy the serious situation by moving Amendments to the Bill. I have the details here, but I do not want to read out the names of those financial Ministers involved in the Amendments because it may embarrass them. But the Amendments would have allowed the investment club and savings movement of a lot of small people to have continued unrestricted. Unfortunately, those Amendments were not made, and the result is that the capital gains tax of the 1965 Finance Act has made life extremely difficult for these small savings groups.

Before returning to that point, I wish to contrast this situation with what has been happening abroad. In our competitor countries, where the level of personal savings has been rising rapidly recently, the investment club movement has been gaining momentum, especially in France. Two years ago the French Government introduced legislation to stimulate and encourage the clubs, which are growing rapidly. The investment club movement in America is very widespread, and every factory floor has its own investment group. The movement is making rapid headway in other countries, such as Belgium, West Germany, Australia and New Zealand. It is not only a pity that it is stagnating here, but a serious reflection and a danger to the personal savings movement, which could be encouraged and could, therefore, provide more capital for investment.

The average investment club has between 20 and 25 members. Most clubs are run on the factory floor and in offices. The average investment in the club is £4 to £5 a month. The average club invests about £100 per month. It spreads its portfolio over a wide range of shares and, therefore, avoids the sort of situation which happens when employees in Rolls-Royce, for example, invest all their savings in their own company, because investment club members get a spread of a portfolio over a period of months.

The main attraction of the investment club movement is that it allows the educational advantages of personal savings and investment to be brought forward. In addition to that and to its social advantages, it allows savers to spread their risks safely and to combine savings with investment. It allows them to become shareholders even though they do not have the capital which is generally required of capitalists.

The result of the Finance Act, 1965, was that all investment clubs had to declare the dividends received on behalf of all their investments, tot those up monthly gross and net, and then apportion each individual dividend to each member according to the number of units held by the member. That alone was a formidable task, as the average dividend for a club was only about £5 or about 20p per member, because the total dividend income for the average club is only about £200 a year. For an average club with, say, 20 members it entailed 250 calculations a year.

Apart from this being a formidable task, it is a senseless and useless task, because in any case all the dividends are ploughed back and they are already taxed when clubs receive them. Therefore, why is a schedule necessary? What is al] the work in aid of?

However, it is not the calculations and the preparation of the schedule of dividends to be returned to the tax inspector which is the main problem. The main problem since the 1965 Act has been the apportionment of capital gains. Hon. Members may be surprised to hear that this year's Budget and Bill, far from making life simpler for investment clubs, make it more complicated than ever. The amount of work involved now is even heavier. Correspondence I have received from a number of clubs has confirmed this.

Up to the present a club has had to split its short-term gains and its long-term gains between its members each time it has made a gain according to the holdings of each member. This has normally meant only one calculation per member for each loss or gain. It would appear that under the provisions of the Bill unless the minimum holding in a club is greatly above the level applying in the average club, a club will have to split each disposal and calculate as between the members not only the amount of the disposal to see whether the annual figure is below £500 but also the gain or loss.

I have evidence of another club with 100 members. We have calculated that it will require 3,600 calculations each year to comply with the present tax regulations. This is ridiculous, because investment clubs are amateur organisations and do not employ professional accountants.

The time has come for us to consider giving some concessional relief to the small saver through the contractual means of investment clubs. In our opposition to the 1965 Measure we said that we would do this, but since then nothing has been done. We should give relief to bona fide clubs. First, they should be exempted from having to make returns of dividends, since these are taxed before they receive them anyway, and it serves no useful purpose. They should also be exempted from capital gains tax provided that they comply with certain regulations on size—for example, that the average investment per member is not more than £10 a month; that they have a contractual method of saving; and that the total net gains do not exceed an average of £50 per member over the year.

Those are modest enough concessions which would embrace the average type of investment club. Control could be simply organised by an annual registration scheme for clubs to register with their annual report, a schedule of the total dividends received during the year, total members' subscriptions during the year, purchases and sales, and the names and addresses of the members. That should satisfy the Inland Revenue without the necessity for further complicated calculations to comply with the 1965 Finance Act, which has not been amended in regard to investment clubs.

To summarise, I have quoted one area in the small personal savings field where we should do more to provide sensible incentive. No doubt there are others, but it is an area of which I have particular knowledge. In the more general context, it is vital for us to promote more personal savings at the shop floor level, from where it needs to come if we are to make any impact on providing the capital needed urgently to expand our capital investment and modernisation, and to return to prosperity. Above all, unless we channel the small savings by providing greater incentives, we shall not achieve what I believe is a desirable aim for this country, a capital-owning democracy which can be seen to be working in practice.

9.02 p.m.

Photo of Mr Tam Dalyell Mr Tam Dalyell , West Lothian

First, I have a short question to the Treasury Ministers. Is it wise to cut back, with a view to bringing to an end, what is easily in modern times the cheapest tax to collect, namely, S.E.T., or is it pandering to a doctrine or popular clamour? Certainly in the light of the Budget a great deal of discussion is going on as to whether it is wise to make this change.

I say no more about that, because I want to address myself briefly to the Financial Secretary. He came to Scotland and made a number of very interesting speeches in which he praised the agreement reached there in that most difficult of all British industries, the motor industry. I say to him, in the spirit in which I hope he will take it, that some of us worked extremely hard with shop stewards and management to get what was almost a model agreement—the Leyland agreement at Bathgate—which the Financial Secretary himself praised. We feel that there is no hope of getting such an agreement again in the motor industry, and especially a rational relationship, if we are to have a Budget that from the point of view of shop stewards and others goes in the wrong direction. The introduction of a Budget of the kind we have had this year will make it extremely difficult to get that kind of agreement. I hope that the Financial Secretary understands this.

9.5 p.m.

Photo of Mr Ralph Howell Mr Ralph Howell , North Norfolk

While I recognise the Bill to be a great reforming Measure, I think that it is a pity that the reform of P.A.Y.E. has been left out. We have been promised that at a later date—after several years—it will be reformed, but grave damage will be done by the fact that we are still perpetuating the grave injustices which occur under the present P.A.Y.E. system. We are confronted by rising unemployment and rising inflation, and some people think that this is a phenomenon. But we fail to recognise that a wide range of wage earners are actually better off unemployed than at work. Therefore, it is obvious that increasing unemployment is in itself inflationary and we reach a situation where more unemployment breeds unemployment.

In a reply to a Written Question of mine on 22nd April, it was shown clearly that the new measures and new allowances have aggravated the situation which existed. Before the Budget there was an area around the £20 a week mark where a family consisting of a man, wife and two children could be as much as £2 a week better off out of work than at work. Since the Budget that area has been extended to cover the range between £22 and £32 a week. It covers the national average wage. This situation is discouraging people from working and encouraging people to take paid holidays on the State and to extend their period of unemployment. Gravest of all, it is discouraging regular workers, who see people who have been working in similar circumstances suddenly having more spending power than they themselves.

I give one or two examples. Let us take the case of a man earning £25 a week. His take-home pay is £22·47p. If he becomes unemployed and is in receipt of earnings-related benefit, and while he is receiving tax refunds, he has a take-home pay of £24·85p. This does not make much sense, especially when one considers that perhaps the fellow who is in work has certain expenses to meet. In my part of the country many people are spending £3 a week to get to work. So the pay difference between a person who is at work and a person who is not at work can be as much as £5. Add to that the fact that the person unemployed is also eligible for free school meals for his children and anyone can recognise how absurd the present system it.

I have been in correspondence with the Treasury for some time trying to tell it how this situation could be rectified, but it does not seem to take any notice. Either it cannot hear or it does not want to hear—I have not decided which. I am sure that it could be easily rectified. It could be done by eliminating two tax forms we have been using for a long time, and possibly with less expenditure than is used to collect tax. The P.9 tax deduction card could now be used as a leaving certificate and all benefits and payments made by the State should rank as income. If this were done a continuous payment would be recorded on the tax deduction card and this in itself would eliminate the necessity for a leaving certificate.

Despite my suggestions, the Treasury insist that this would be impossible. They say it would be too costly, that it would cost over £15 million according to their estimates to alter the system. They admit that by doing so there would be a saving of £150 million in tax repayments. Apparently the odd £135 million does not matter. They also say that it would mean 11,000 more civil servants. I am convinced that if the Treasury really accepted the necessity for this it could be done with no increased expenditure and with no further recruitment of civil servants. The benefits to the country would be enormous. Most important the will to work would be restored when we had removed these appalling anomalies.

9.11 p.m.

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

Today's debate was opened by the Chancellor when he said that there was in effect no change since last month's Budget. It is true that the economic background is the same. We still have high inflation, low economic growth, low industrial investment and rapidly rising unemployment. The only good economic indicator is the balance of payments, and I thought the Chancellor was a little churlish in not showing a greater appreciation to my right hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins) for the only decent statistic he has.

As was said by my right hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever), even that is already in grave danger of being frittered away, unfortunately, not through the Government going for a higher level of economic growth but through an achievement which hardly seems possible—the achievement of low growth, low investment, high inflation, high unemployment and, on the Chancellor's own forecasts, a declining balance of payments situation. By the time the Chancellor is ready to stimulate the economy it seems all too likely that the balance of payments situation will have forced him almost to a complete stop.

There are a variety of ways in which the problem could have been tackled. I hoped that the fine words delivered by hon. and right hon. Gentlemen opposite before the General Election about economic growth were honestly meant. As my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) said earlier, given a balance of payments situation which no Chancellor has ever inherited, the Chancellor still decided to put growth second and deal with the problem of inflation first.

I do not dispute that the problem of inflation is very serious. No one should under-estimate, and I do not, the seriousness of the inflationary problem facing this and many other countries. If this is the Chancellor's first priority it is only fair that he should be judged, in this Bill and through the other economic and financial measures that have been taken, by the way in which those measures deal with what he has described as his first priority. It is true that inflation is an insidious disease. It feeds itself, and in those circumstances it is not surprising that trade union leaders, seeing prices rising at the rate of 10 per cent. a year, should want wage settlements of 10 per cent. plus perhaps another 3 per cent. or 4 per cent. to give them the benefits of growing economic productivity. What they need and what they claim is something like 20 per cent. Taking off 30 per cent. income tax on the increase, it would just about give them the sort of increase for which they are asking and leave them in real terms better off to the extent of the increase in productivity. Firms, or at least those able to spot inflation quickly enough, increase their prices so that they do not lose out on the inflation with which the country is gripped.

We are, therefore, in a vicious circle. The Prime Minister was right when he said that one way of breaking out of it was to act directly on prices. The trouble about breaking out of the vicious circle of inflation is that in some ways it is more difficult than to break out of the magic circle about which the late Iain Macleod used to speak. Words are not enough to break out of this vicious circle. What is needed is action. Little has been done by the Government, although they said that they would break into the vicious circle in the way which we all know. Little has been done except to prevent some price increases taking place in the nationalised industries, and we have yet to see the true cost of that. But any small reduction which may have been made in the increase in prices of the nationalised industries has been more than balanced by increases elsewhere caused, not by wage inflation, but, as my hon. Friend the Member for Woolwich, West (Mr. Hamling) said, by deliberate Government action.

So the Government, having made their first priority tackling the problem of inflation, have failed in their original purpose of breaking into the vicious circle of inflation by acting directly on prices. They have decided that wage inflation is the real cause of the trouble and that their policy should be to act on wage inflation, despite all the evidence marshalled in an admirable speech by my hon. Friend the Member for Ashton-under-Lyne, which has not been refuted, and all the evidence from abroad and our own history to the effect that it is not the problem.

Incidentally, I do not recall right hon. and hon. Members opposite, in their speeches before 18th June, arguing that the way to deal with the problem of inflation was to break into the vicious circle by acting directly on wages.

Photo of Sir Frederick Burden Sir Frederick Burden , Gillingham

If high wage increases are not inflationary, why did the Labour Government fix wage increases at 3 per cent.?

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

The hon. Gentleman must not misquote me. I did not say that wage increases were not inflationary. I therefore hope he will forgive me if I do not reply to his point.

The Prime Minister said that the battle against wage inflation has been won. He said in the House last week that escalating wage demands had been halted.

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

My hon. Friend may well be right, but that is what the Prime Minister said last week. If escalating wage demands have been halted, one is bound to ask why the Chancellor of the Exchequer went further today than he did in his Budget speech. In his Budget speech and in other statements which he made before the last week or so, he gave the impression that if his Budget did not have the desired effect of reducing unemployment and achieving 3 per cent. growth he would be ready to take further action. What he said today was very different, and it will have caused concern in the country. He said in explicit terms that he was not prepared to take any further action. I should be delighted if that were not so, but I see from the right hon. Gentleman's silence that it is so. The Chancellor has failed to take the opportunity to remove from millions of people a fear which most of us never dreamt would return, a fear of unemployment, not just amongst ordinary workers but amongst executives, young, middle-aged and old. Those people can have received little hope from the Chancellor's speech today.

The right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) and others showed themselves to be compassionate people who were extremely concerned about the level of unemployment. They thought that it was unfair of my right hon. Friend the Member for Cheetham to accuse the Chancellor of deliberately allowing unemployment to rise, but what else can one deduce? The Chancellor knows what he is doing, if hon. and right hon. Gentlemen opposite do not. He knows that if he is not prepared to take action unemployment will rise, but he is not prepared to tell us that he will take action, so what else can one say? In spite of the compassion which right hon. and hon. Gentlemen feel, the Chancellor's policies, which they support, will bring about increasing unemployment, and the only conclusion we can reach is that if hon. Gentlemen are not deliberately doing this, the Chancellor is. I am surprised that, since the Chancellor said in his Budget speech, that he has the power to reduce the level of unemployment, he is still not prepared to say that he will act before unemployment reaches the tragic level of 1 million. If the Government are not disturbed by that, the people in the country will be.

If the Prime Minister is satisfied that the Government are halting the escalation of wage demands, as he said, will he give us an assurance that he will not be considering a statutory incomes policy, in view of the reports of disagreement in the Cabinet on the possible need for an incomes policy? Will he be prepared to give us that assurance? We must assume that the eloquent silence speaks for success in the halting of the escalation of wage demands. If so, he and his colleagues are the only people in the country who are satisfied. No serious commentators are satisfied with what is happening.

Another way was opened to the Chancellor by the T.U.C. In the face of intense provocation the T.U.C. has shown itself to be much more statesmanlike than the Government. The T.U.C. is more than ready to recognise that there is a problem here, and it has said that, given a Government prepared to go for economic growth, the T.U.C. in turn is prepared to consider what is in effect a voluntary prices and incomes policy. The Chancellor dismissed that out of hand.

The Bill and all the measures behind it have to be taken together. Hon. and right hon. Gentlemen opposite are fond of talking about the tax remissions in the Budget and ignoring all the other financial measures that have been taken since last June. Taking these matters together, the chance of co-operation with the T.U.C. has been made extremely difficult. As my hon. Friend the Member for West Lothian (Mr. Dalyell) said in a very brief intervention, what has happened in his area of the motor industry has shown all too clearly the difficulties of getting the co-operation of the trade union movement.

How can trade union leaders, who want to stay in office probably at least as much as do Ministers opposite, be expected to accept wage settlements when, because of Government policy, those settlements would leave their members worse off. One commentator recently said that the Ford settlement of 16 per cent. a year over two years was not enough.

Photo of Sir Frederick Burden Sir Frederick Burden , Gillingham

Who was the commentator?

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

The hon. Gentleman must read his own newspapers, but if he really wants to know, the article was in the Financial Times. If the 16 per cent. is to be taken as the figure and 30 per cent. tax is taken off it, that would bring the increase down to 11 per cent. If price inflation remains at its present level of about 10 per cent., then all that the Ford workers in due course will be getting is something less than the increase in the rate of industrial productivity. Consequently the Ford workers' settlement—which at one point the Government said was highly inflationary and at another point exceptional—would not be sufficient to meet the rate of past inflation.

How can one expect trade union leaders to accept restraint when the Finance Bill presents to the House and to the country a new corporation tax system which positively encourages a massive increase in dividends, no matter how much the Chancellor might be able to argue some economic advantage? It will be difficult to explain to the trade union leaders and to their members that on the one hand the Government are introducing a corporation tax system which will positively increase and encourage greater dividend distribution.

The inflationary spiral is disastrous. We have experienced nothing like it for a very long time. Against all the evidence which is available to the Government, they are still trying to beat the problem by allowing unemployment to rise. This could be insulting to their industrialist friends. It assumes that they have been ready to keep on additional workers at, say, £30 a week but are not prepared to do so at £33 a week. There is some truth in this. Some surplus labour would have been kept by some incompetent managements. Other managements would have kept surplus labour because they expected demand to rise and thought that the Government would keep their promise to increase demand and to go for a higher level of economic growth. The fault of management is that it believed the Conservative Party which before the election spoke of going for economic growth. Management, not unnaturally, assumed that this would mean an increase in demand which, in turn, would mean that extra skilled labour would be needed which previously was not readily available.

The Finance Bill and the other Government Measures have hardly helped the situation. We have seen that dismissals instead of being reversed are snowballing. Whatever hon. Members may feel about what the Chancellor is doing about the matter now, industrialists are satisfied that the Chancellor's actions are not in the end likely to result in increased demand and opportunities for them to sell their goods. Consequently, we see the rising level of unemployment. Why else would managements dispose of skilled labour which over the years they have found it extremely difficult to obtain?

If hon. Members are not prepared to believe what the Chancellor of the Exchequer has said in black and white that it will rise by only half of one per cent. within two years of this Government coming to office. It is interesting to note in that connection that one of our major machine tool companies, Alfred Herberts, said immediately after the Budget that it had received inquiries, not even firm orders, amounting to an increase of half of one per cent. So much for the argument that it will take some time for the right hon. Gentleman's policies to be turned into firm sales of machine tools.

The main worry is that if the serious commentators are right about the level of unemployment it will not be easy to reverse the trend. That is why the policies of this Government are so disastrous. They do nothing, and this Budget does nothing, about the really serious economic problems facing us.

The remaining great claim of the right hon. Gentleman is that he has made tremendous reforms and simplifications, in addition to creating incentives for the go-ahead, the young and the ambitious. That grandiose claim is utterly false in my view. Reform is not of itself simplification. The income tax and surtax amalgamation is a simplification which I have advocated for some time. However, the right hon. Gentleman should not overdo it, as he did in his White Paper, unless he is proposing a massive reduction in investment income relief. He said today that he is proposing only a modest relief. He might have been a little more forthcoming and told us whether he is proposing to relieve £50 or £5,000, or £100 or £2,000. He might have taken us into his confidence a little more about what is in his mind about the first slice.

If only a modest amount of investment income is to be exempt from the surcharge, the Inland Revenue will face a tremendous problem in dealing with it administratively before 5th July each year. Almost certainly it will mean that any saving that there is in the Surtax offices will be more than eaten up in the Inland' Revenue offices. Income tax assessments are not issued every year to every taxpayer before 5th July now. There will be a large number of taxpayers who will have to have their assessments in that time.

While the new proposal is worth having and is very good, the right hon. Gentleman should not overstate the simplification involved. Certainly when it comes to the system as a whole, he should not assume that the pay-as-you earn taxpayer is simple. He is not. It is my experience that the average factory worker able to do a complicated pools computation every week is more than able to understand, even under the new simple system, that his net wage at the end of the first week will be exactly the same as it was under the old system. The right hon. Gentleman should not overdo the advantages of the new proposals.

As for the other two measures of reform, if any hon. Member believes, for example, that a value-added tax is a simplification of any tax system, he is very much mistaken. We have yet to decide whether we are to have it. But no one should imagine that it is a simplification. Equally, the new corporation tax proposals, whichever of the two is eventually chosen, are certainly not simpler than the present system. Therefore, I hope that we shall have less of the simplification myth. In any case, simplification is not the best test of the fairness or effectiveness of a tax system.

The Conservative Party has long claimed, and the Chancellor has made it the centrepiece of his Finance Bill, that its policy is to reduce direct taxation as an incentive in such a way that it will almost transform our economic situation. If that is true, it is certainly worthy of consideration.

We all know that there are some people who say that they will not work and that they will not, and do not, want to earn more. Obviously, we have all met that kind of person amongst workers and management and, from time to time, especially amongst entrepreneurs. But there are nothing like so many cases as we are frequently led to believe. All the research which has been done in this sphere does not prove it. At best, that research is inconclusive.

The evidence from other countries where there are varying rates of direct taxation compared with our own, apart from the very highest level, to which I shall refer later, is quite clear. Where they have higher rates of direct taxation or equivalent rates to our own, there is no evidence that there is either a higher or a lower rate of economic growth. So it certainly cannot be proved by any evidence from abroad that reducing taxation will prove to be the transforming factor which the Chancellor would have us believe.

It is not surprising that research has not been able to prove this, because the Chancellor, in common with others, has always talked in generalisations in this sphere. It is very different when one looks at the detail. For up to £4,005 a year earned income, a reduction from 32 to 30 per cent. is not likely to prove a massive new incentive to workers to work enormously harder, and this applies to a large number of workers in this country.

As to the higher income groups, we are told that the ambitious, go-ahead young executive, who the Chancellor is so fond of telling us is his key worker will work enormously harder from cuts in direct taxation.

Immediately following the Budget The Times Business Diary did a little survey of its own. On 1st April it said: A view expressed yesterday that the changes to surtax and earned income regulations would help to cure the lack of ambition and the unwillingness to move, which recent surveys had noticed among younger executives and which was so damaging to Britain's economic efficiency, was challenged when we rang two of the companies which devote their energies to meeting businessmen. It then quoted Geoffrey Duffield—he should know something about these matters as he is director of personnel services for Personnel Administration, the management consultants—who said: it would not be our experience, and we do not know of any such recent surveys … I have detected no lessening in ambition among able executives. Eric Platt, the London manager for Management Selection, another well-known firm in the industry, said: as far as I am concerned, I have noted no reluctance whatsoever on the part of young executives to move to better jobs, and they are as ambitious as ever. This is the answer to the Chancellor's often quoted case.

Photo of Sir Brandon Rhys Williams Sir Brandon Rhys Williams , Kensington South

Perhaps I should declare an interest before asking the hon. Gentleman a question. I have for a number of years been employed by Management Selection Ltd. The selected quotation referred to young executives. Would it not be fairer to refer to the whole sphere of executive management selection?

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

I am coming to other executives. I was at that moment dealing with younger executives. I do not imagine that I have quoted them in any way incorrectly. So there is no evidence that a reduction of direct taxation would be a major incentive to young executives. As for older executives, I have met many who give taxation as the reason why they do not want to work harder and take on more responsibility. But this is very much a rationalisation. There are many other reasons. In many cases, they have not been offered such jobs but only say that they have.

Some young entrepreneurs have said that they are not prepared to go on because of the tax levels; but that also is overstated. It is still open to the ambitious young man in industry today to make his million. Industrial companies plough back their profits and can float their companies or sell and make that miraculous million. The reason why so many stop below that figure is very complex and has frequently nothing to do with the taxation level, although people who do not reach that general level rationalise the reason as being due to tax.

What it really is is a modest failure. It is no terrible thing to make slightly less than a million. They do not have the luck or the ability or frequently the desire to make the necessary sacrifices of leaving their wives and families. They rationalise it as due to the wicked tax levels, but all the evidence shows that this is not so.

Photo of Mr Robert Redmond Mr Robert Redmond , Bolton West

I feel on safer ground with the hon. Member, because he is a chartered accountant. Would he agree that it is possible for a firm, through shortage of liquidity, to run into over-trading and, therefore, into financial difficulty?

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

Yes, I heard the hon. Members remarkable speech this afternoon, when he said, with a blinding glimpse of the obvious, that an expanding company frequently finds itself illiquid and has large stocks, large debtors and a bank overdraft. I do not see how the Government's proposals will affect such a company, except that their corporation tax proposals would positively harm it by increasing from 40 per cent. to 50 per cent. the tax level of close companies.

So there is no evidence that reducing the level of direct taxation will achieve the Chancellor's purpose. There is no evidence, as the recent Prices and Incomes Board Report on levels of overtime showed, that people in this country are working shorter hours than people in Europe. Indeed, manual workers are working longer hours.

Even if the case for a massive switch from direct to indirect taxation had been made out, which it certainly has not, there are other factors. There is the price which would have to be paid for such a policy, and the price would be moving to a much less fair system. It is not readily appreciated that, in this Bill and in his other financial measures, the Chancellor is being very selective. He is not helping all his friends, only those at the very top, and the main losers are the middle income groups. This is inevitable by the way he has reduced the direct taxation at the top of the income scale. Equally, he has been helping those at the lower end of the scale.

Even if the Chancellor is not prepared to accept the excellent speeches made in this debate and in the Budget debates by my hon. Friends, showing that the middle income groups lose out, it is self-evident that if the rate of economic growth is not much more than 2 per cent. and one disproportionately helps the higher end and the lower end, those in the middle must lose out. This is precisely what has happened with the Chancellor's measures.

Those in the main tax group, between £1,000 and £5,000 a year, have lost out. In due course they will find that there is nothing in the right hon. Gentleman's measures for them. Why on earth hon. Gentlemen opposite should have cheered this Budget, which will help a few of their constituents but will make most of them worse off, and why they should have cheered its proposals to tax everything, is beyond me.

Consider the value-added tax. We have had no assurances whatever from the Chancellor that he does not intend to tax, for example, food, newspapers and housing [Interruption.] The Chief Secretary would not give us that assurance. We want to be told clearly not that there will be an exemption rate under V.A.T. but that there will be a zero rate which will really exempt food, housing and newspapers. Are we not being given that assurance simply because the Chancellor intends that these items shall be taxed? If we are not told, we are bound to draw that conclusion.

The Bill, combined with the rest of the Government's economic policies, is not only of no help to the middle income groups but is positively harmful to the prospects of even the Chancellor's first priority of dealing with wage inflation, let alone his pre-election priorities of going for higher growth, for industrial investment and for dealing with unemployment. For these reasons we condemn his Bill, his Budget and his other financial measures. I ask my hon. Friends to vote against the Bill.

9.47 p.m.

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

This has been a strange debate. Time and again I have had to pinch myself to remind me that it is the Second Reading of the Finance Bill.

Almost without exception—the hon. Member for Heywood and Royton (Mr. Barnett) being the exception—hon. Gentlemen opposite have scarcely spoken about the Bill. It is perhaps significant that my hon. Friends have had a great deal more to say about it, and I will therefore deal with some of the points they have raised.

I must, first, say how much we welcome back to our finance debates the right hon. Member for Manchester, Cheetham (Mr. Harold Lever), who has been his usual engaging self—never more so than when giving his celebrated, if somewhat unconvincing, imitation of a champion of the common man.

My right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) sought clarification of the astonishing doctrine which the right hon. Gentleman propounded—namely, that surtax cuts are O.K. if paid for by tax increases on people no less well off. The argument was somewhat convoluted and, I am bound to say, obscure. It was sad to recall those gay, care-free days when the right hon. Gentleman sat on this side of the House on the then Government back benches, expressing views in forthright language, as, for example, he did in June, 1966, when he said: If the hon. Member for Horsham (Mr. Hordern) seeks to convince me that tax on unearned income is excessively high in this country, he has a willing ear."—[OFFICIAL REPORT, 20th June, 1966; Vol. 730, c. 203.]

Photo of Mr Harold Lever Mr Harold Lever , Manchester Cheetham

I proved it by what I said today.

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

I was going on to say that it contrasted very markedly with the speech we have just heard from the hon. Member for Heywood and Royton, who seemed to be trying to convince himself that high taxation was in no sense a disincentive. He may succeed in convincing himself, but he does not convince my hon. Friends.

Perhaps the most remarkable part of the right hon. Gentleman's speech was when he announced that he would tell us what ought to be done, and the House waited with keen expectation because we know that the right hon. Gentleman is a man of considerable originality of thought. I again quote from my notes: "What ought to be done? One—I do not know." It seemed to have all the ingredients of the perfect parliamentary answer—brief, accurate and adding nothing to the available information. So when he lectured us about compassion, sound business principles and turning the clock back, perhaps I may be forgiven for having felt a little impatience. Right hon. Gentlemen opposite bequeathed to the Government a uniquely difficult combination of rising unemployment and soaring prices. They hardly carry conviction when they lecture us on how we ought to deal with it.

Photo of Mr Arthur Lewis Mr Arthur Lewis , West Ham North

And a balance of payments of £800 million.

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

That was last time.

My hon. Friend the Member for St. Marylebone (Mr. Kenneth Baker) referred to the change in the Finance Bill, to the restoring of capital allowances. I shall deal with this briefly because, rather surprisingly, the extent of the reforms of the structure of capital allowances, as they stand in the Bill, have not been appreciated either inside or outside the House. I do not need to go into all the reasons why we prefer a system of tax allowances to one of grants. Suffice it to say that in our view tax allowances, being profit related, are inherently more likely to lead to profitable investment than grants paid irrespective of profits. It simply does not make sense to subsidise out of the proceeds of excessive taxation the generality of industrial investment. It is far more rational to encourage investment by giving incentives through the tax system. In that way the benefit goes to firms which operate profitably and not to those which do not.

But we did not merely stop there. We did not just revert to the system which we had before. We aimed to use the change to effect a radical simplification of the tax allowance system, and I believe we can claim to have achieved this. Part III of the Bill represents a more ambitious step than has ever been attempted before.

Last October my right hon. Friend announced, basically, the three main tax incentives: a 100 per cent. first year write-off for industrial plant and machinery in development areas; a 60 per cent. first year write-off for all other plant and machinery; and a single 25 per cent. rate of annual writing-down allowance. This accelerated depreciation—that is what it is—plus the single standard rate of write-off was the first step.

In the Bill we go a good deal further than that. Once we have all the plant being written off after the first year at a single rate, there is nothing to prevent the firm putting all its qualifying assets into a single pool and writing them down in a single calculation. Of itself this would be a considerable improvement over the previous system, which involved several different rates. But by itself it is not enough. We lose most of the advantage of the single rate if when an asset is disposed of we have to go through the motions of calculating the balancing charge or balancing allowance. So we have carried the pooling concept to its logical conclusion and have introduced an entirely new system.

Clause 34 provides that for capital expenditure incurred since last October, all the taxpayer's plant and machinery will go into a single pool. It will be written down in one annual sum, and so long as the trade continues, balancing charges will become very much the exception. This will save a great deal of computation for companies and their accountants. I hope that the hon. Member for Heywood and Royton will not suffer the result in reduced fees. If an asset is sold, the proceeds are subtracted from the pool, and the next annual writing down applies to the balance remaining in the pool. When a new asset is bought the first-year allowance is given and the written-down value goes into the pool. In other words, we are abandoning for the great preponderance of business assets used by firms and acquired since last October the asset-by-asset writing down which the previous system required.

Some people have asked why we cannot do this for all assets—pre-October as well as post-October assets. The short answer is that this would be extremely expensive, a great deal more so than my right hon. Friend was prepared to contemplate. We envisage that eventually all relevant capital expenditure should come into the pool and be dealt with in the way I have described.

The Bill, when we deal with it in Committee, will be seen also to have a marked simplification for dealing with leased assets and a greatly simplified system for dealing with assets bought on hire purchase, and all in all will represent a notable additional simplification of the tax system which will be of great benefit to companies and their advisers. I hope firms will regard this as useful.

The right hon. Member for Cheetham, the hon. Member for Ashton-under-Lyme (Mr. Sheldon) and my hon. Friend the Member for St. Marylebone raised the question of a Select Committee on taxation to look at our reforms. In the Budget debate my right hon. Friend the Chief Secretary said: …we are prepared to consider the possibility of a Select Committee to study the Green Paper on corporation tax…"—[OFFICIAL REPORT, 5th April, 1971; Vol. 815, c. 52.] Consultations are proceeding in the normal way with a view to setting up a Select Committee for this purpose. I regret that I cannot give any further details at this point in time.

My right hon. Friend the Member for Kingston-upon-Thames—I thank him for it—congratulated the draftsmen of the Bill upon the draftsmanship and also noted the brevity of the Bill compared with the amount of substance it undoubtedly contains. These points are well taken. What my hon. Friends will have noticed, rather like the dog that barked in the night, is what has not been put into the Bill this year but what was in so many recent Finance Bills. There are none of those complex anti-avoidance provisions which have been such a feature of recent Finance Bills and which have taken us so often into the early hours.

This year we have concentrated our main effort on the reform of the tax system and on reducing taxes. I would not be so foolish as to suggest that merely by lowering taxes and simplifying the system we shall eliminate avoidance. However, this year we have thought it wrong to load a Bill which is already full of new and far-reaching proposals with legislation which, if past experience is a guide, would inevitably be lengthy and complex. I am sure that most hon. Members will welcome this division.

I have taken careful note of a point my right hon. Friend the Member for Kingston-upon-Thames raised about estate duty. I assure the House that the process of tax reform and review is continuing. This is not just a single shot; this is not a once-for-all exercise. My right hon. Friend the Chancellor and the rest of us in the Treasury are fully aware of the shortcomings of estate duty and particularly of its impact on widows. This is very much in our minds.

My right hon. Friend the Member for Kingston-upon-Thames also mentioned the problem of overlapping surtax. May I make two points about this? The Bill gives a significant relief to high earners and reduces their total tax burden, and, therefore, it reduces the penalty which the overlap will represent. Second, we are giving two-and-a-half years' notice of the time at which the particular payment of surtax becomes due. I do not think that it is unreasonable that people might be expected to make some provision to meet that payment. Nevertheless, I take note of the points made, and we shall consider them.

My hon. Friend the Member for Derbyshire, South-East (Mr. Rost) spoke about savings clubs and the impact of capital gains tax. I think he will agree that it was a somewhat complex point. We shall study in HANSARD what he said, as we shall the point raised by the hon. Member for Llanelly (Mr. Denzil Davies) on the argument about the unified tax.

My hon. Friend the Member for Norfolk, North (Mr. Ralph Howell) raised a point about the P.A.Y.E. system. We do not accept all his strictures, but I can assure him that the whole range of P.A.Y.E. tax problems continues to be under review.

Many of the speeches, including those of the hon. Members for Woolwich, West (Mr. Hamling) Oldham, West (Mr. Meacher) and West Lothian (Mr. Dalyell), tried to reassert the case that the Bill and the Budget confer benefits on no one but the rich. That is absolute nonsense, and the hon. Member knows it.

I gave some of the facts and figures in the Budget debate. The standard rate cut benefits every taxpayer. A total of 6¾ million taxpayers with children benefit from the increase in child allowances.

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

The hon. Gentleman has not been here throughout the whole debate.

More than four-fifths of the total tax cuts in the Budget are accounted for by child tax allowances and the halving of S.E.T. Getting on for 500,000 taxpayers benefit from the increase from one-ninth to 15 per cent. in the earned income relief. Employment and investment will be helped by the cut in corporation tax. It is transparent nonsense to describe it as a rich man's budget.

On the contrary, because it is broadly aimed at restoring confidence, it will help the whole nation. Take the cut in selective employment tax. Almost every day we read in the Press of price cuts because S.E.T. is coming down. Moreover, they are cuts now, not next July. Two days after the Budget the Daily Mail announced: Two more chain food stores announced S.E.T. cuts yesterday. So did a big dry cleaning company and a chain of chemists.

Hon. Members:

Oh!

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

I do not know why hon. Members opposite should jeer. The Sketchley dry cleaning company has 550 branches, and the paper says that it has made reductions of up to 30 per cent. The Daily Mirror announced: Four big supermarket firms plan to cut some food prices now that Selective Employment Tax is to be halved…Sainsbury's, Tesco…Pricerite and Fine Fare are all hoping to pass on some of the money they may save to customers."—

Hon. Members:

Oh!

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

If Labour hon. Members do not want the price cuts, let them say so.

On 5th April it was reported that beer price increases scheduled for later this year had been shelved because of the Government's decision to cut S.E.T. One of the directors of Bass said: The importance of the S.E.T. change is that it will enable us to hold beer prices as they now are."—

Hon. Members:

Oh!

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

Wait for it— and this will be the first year in three that they have not gone up. British Home Stores is cutting prices. Four of the stronger Courage bottled beers have been reduced by the equivalent of 1½p per pint.

On 15th April The Guardian announced: The savings that Marks and Spencer will make following the reduction in S.E.T. from July 5 are to be passed on to the public in advance. From today the group will make price cuts on a selected, but important group of St. Michael clothes and foods.

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

I shall not give way. On 16th April it was reported that Boots had decided to give most of the benefit to the housewife. A Daily Mail report two days ago showed that the second round had started. It reported: The Tesco supermarket chain is cutting prices on 50 more lines following previous cuts at the beginning of the month…

Photo of Sir Austen Albu Sir Austen Albu , Edmonton

Can the hon. Gentleman say what proportion of the cost of food in the retail shops is represented by S.E.T.?

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

A great deal more than purchase tax, which is what the Labour Party would rather have had cut. There is no sense in arguing for a cut in purchase tax when it would not have affected the price of food at all. The list I have quoted shows that food store after food store after food store has been bringing down prices as a result of the cut in S.E.T. The T.U.C. has told the Government that rising taxes were one of the causes of inflation. The T.U.C. is right in that, and we have answered it. Taxes are coming down and so are prices. This Bill cuts taxation not just for the rich but for the whole nation. By voting against it, the Opposition are demonstrating more clearly even than in Government that they are irredeemably the party of high taxation.

The right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) told the House on 15th April, 1969, that an increase in one of the earned income allowances was a high priority for a later Budget. I was mug enough to think that he meant it. Yet today he is intending meekly to trot through the Lobby to vote against a Bill which does just that. Many of the Co-operative Members opposite spoke, and some of them honourably voted against S.E.T. year after year. They are going to go into the Lobby tonight to vote against a Bill which cuts it in half. The hon. Member for Oldham, West bewailed the low tax threshold for families with children. The Opposition will he voting against a Bill which raises it substantially.

Virtually all right hon. and hon. Members opposite have called for measures to increase investment. The cut in corporation tax has been widely welcomed by industry as an incentive to do just that. Yet the Opposition will be voting against that too. Above all, the right hon. Member for Stechford longed to go down in history as a great reforming Chancellor, but having shrunk from introducing the very reform that constitutes the heart of this Bill—the unification of income tax and surtax—he is now advising his party to vote against it.

This is not Opposition. These are the politics of sour grapes and will do the Labour Party no good. The Bill has been widely welcomed, not only because it cuts taxation, not only because with it we are embarking on a long overdue programme of tax reform, but mainly because for the first time for years, it sounds a new message of hope and a new message of confidence. I commend it to the House.

10.10 p.m.

Photo of Mr John Nott Mr John Nott , St Ives

I want to make a brief point that will take only two minutes, and it may be a matter with which hon. Members opposite will agree. As this will be the only opportunity which back benchers will have in this House of raising the question of the Resolution which comes after the Second Reading, I would like to say a few words about the contents—

Photo of Wing Commander Sir Robert Grant-Ferris Wing Commander Sir Robert Grant-Ferris , Nantwich

Order. The hon. Member must not address his remarks to the Resolution now.

Photo of Mr John Nott Mr John Nott , St Ives

I will keep to the Bill and say that it used to be the practice for the Finance Bill to be debated in full upon the Floor of the House. I wish to make no comment as to whether it should be taken upstairs or divided in two. I understand that only one person may speak against a Resolution connected with the Finance Bill suggesting that it be divided in the way proposed. If this is not the case I would appreciate the guidance of the Leader of the House because I understand that there is no opportunity under the Standing Orders for back benchers to debate the manner in which this Bill is being divided.

The opportunity should arise for back benchers to say whether they wish particular Clauses to be debated upon the Floor of the House or whether they wish those Clauses to be taken upstairs in Committee. It is wrong that there should be no debate upon the Resolution following the Second Reading.

Photo of Miss Irene Ward Miss Irene Ward , Tynemouth

No, no. I would like guidance on the Resolution that follows this because I also—

Photo of Wing Commander Sir Robert Grant-Ferris Wing Commander Sir Robert Grant-Ferris , Nantwich

Order. I cannot give the hon. Lady guidance on the Resolution until we reach it. All I can do is to try to keep her in order on the Second Reading.

Photo of Miss Irene Ward Miss Irene Ward , Tynemouth

Arising out of the Bill, having listened to what has been said by my hon. Friend the Member for St. Ives (Mr. Nott), it seems reasonable that I should make some comments. If you cannot give me any guidance I will get on with what I want to say and if, when the Resolution is moved after the Second Reading of the Bill has been carried, there is no opportunity for discussion, I shall have made my protest, perhaps a little less vigorously than I made it once before, with the support of my party, although it voted against me, quite rightly, in support of Mr. Speaker's Ruling.

Without commenting on the Bill, I want to know why, without any previous declaration, the Government have decided to send part of the Bill upstairs. I thoroughly disapprove of this and wish to say so. There are a lot of things in the Bill—

Photo of Wing Commander Sir Robert Grant-Ferris Wing Commander Sir Robert Grant-Ferris , Nantwich

I am afraid the hon. Lady is out of order in raising the question of whether parts of the Bill should be sent upstairs on Second Reading.

Photo of Miss Irene Ward Miss Irene Ward , Tynemouth

Arising out of the Bill, I still want to make my protest, and

Division No. 352.]AYES[10.13 p.m.
Adley, Robertdu Cann, Rt. Hn. EdwardJames, David
Alison, Michael (Barkston Ash)Dykes, HughJenkin, Patrick (Woodford)
Allason, James (Hemel Hempstead)Edwards, Nicholas (Pembroke)Jennings, J. C. (Burton)
Archer, Jeffrey (Louth)Elliot, Capt. Walter (Carshalton)Jessel, Toby
Astor, JohnElliott, R. W. (N'c'tle-upon-Tyne,N.)Johnson Smith, G. (E. Grinstead)
Atkins, HumphreyFarr, JohnJones, Arthur (Northants, S.)
Awdry, DanielFell, AnthonyJopling, Michael
Baker, Kenneth (St. Marylebone)Fenner, Mrs. PeggyJoseph, Rt. Hn, Sir Keith
Barber, Rt. Hn. AnthonyFidler, MichaelKaberry, Sir Donald
Batsford, BrianFisher, Nigel (Surbiton)Kellett, Mrs. Elaine
Beamish, Col. Sir TuftonFookes, Miss JanetKershaw, Anthony
Bell, RonaldFortescue, TimKilfedder, James
Bennett, Dr. Reginald (Gosport)Foster, Sir JohnKing, Evelyn (Dorset, S.)
Benyon, W.Fowler, NormanKing, Tom (Bridgwater)
Berry, Hn. AnthonyFox, MarcusKinsey, J. R.
Biffen, JohnFraser, Rt. Hn. Hugh(St'fford & Stone)Kirk, Peter
Blaker, PeterFry, PeterKitson, Timothy
Boardman, Tom (Leicester, S.W.)Galbraith, Hn. T. G.Knight, Mrs. Jill
Body, RichardGardner, EdwardKnox, David
Boscawen, RobertGibson-Watt, DavidLambton, Antony
Bossom, Sir CliveGilmour, Ian (Norfolk, C.)Lane, David
Bowden, AndrewGilmour, Sir John (Fife, E.)Langford-Holt, Sir John
Boyd-Carpenter, Rt. Hn. JohnGlyn, Dr. AlanLegge-Bourke, Sir Harry
Bray, RonaldGodber, Rt. Hn. J, B.
Brewis, JohnGoodhew, VictorLe Marchant, Spencer
Brinton, Sir TattonGorst, JohnLewis, Kenneth (Rutland)
Brown, Sir Edward (Bath)Gower, RaymondLloyd, Rt. Hn. Geoffrey (Sut'nC'dfield)
Bruce-Gardyne, J.Grant, Anthony (Harrow, C.)Lloyd, Ian (P'tsm'th, Langstone)
Bryan, PaulGray, HamishLongden, Gilbert
Buchanan-Smith, Alick (Angus,N&M)Green, AlanLoveridge, John
Buck, AnthonyGrieve, PercyLuce, R. N.
Bullus, Sir EricGriffiths, Eldon (Bury St. Edmunds)McAdden, Sir Stephen
Burden, F. A.Grylls, MichaelMacArthur, Ian
Butler, Adam (Bosworth)Gummer, SelwynMcCrindle, R. A.
Campbell, Rt.Hn.G.(Moray&Nairn)Gurden, HaroldMaclean, Sir Fitzroy
Carr, Rt. Hn. RobertHall, Miss Joan (Keighley)McMaster, Stanley
Channon, PaulHall, John (Wycombe)Macmillan, Maurice (Farnham)
Chapman, SydneyHall-Davis, A. G. F.McNair-Wilson, Michael
Chataway, Rt. Hn. ChristopherHamilton, Michael (Salisbury)McNair-Wilson, Patrick (New Forest)
Chichester-Clark, R.Hannam, John (Exeter)Maddan, Martin
Churchill, W. S.Harrison, Col. Sir Harwood (Eye)Madel, David
Clark, William (Surrey, E.)Haselhurst, AlanMaginnis, John E.
Clarke, Kenneth (Rushcliffe)Hastings, StephenMarples, Rt. Hn, Ernest
Clegg, WalterHavers, MichaelMarten, Neil
Cockeram, EricHawkins, PaulMaude, Angus
Cooke, RobertHay, JohnMaudling, Rt. Hn. Reginald
Coombs, DerekHayhoe, BarneyMawby, Ray
Cooper, A. E.Heseltine, MichaelMaxwell-Hyslop, R. J.
Corfield, Rt. Hn. FrederickHicks, RobertMeyer, Sir Anthony
Cormack, PatrickHiggins, Terence L.Mills, Peter (Torrington)
Costain, A. P.Hiley, JosephMills, stratton (Belfast, N.)
Critchley, JulianHill, John E. B. (Norfolk, S.)Miscampbell, Norman
Crouch, DavidHill, James (Southampton, Test)Mitchell, Lt.-Col. C. (Aberdeenshire, W.)
Crowder, F. P.Holland, PhilipMitchell, David (Basingstoke)
Curran, CharlesHolt, Miss MaryMoate, Roger
Davies, Rt. Hn. John (Knutsford)Hordern, PeterMolyneaux, James
d'Avigdor-Goldsmid, Sir HenryHornby, RichardMoney, Ernie
d'Avigdor-Goldsmid, Maj.-Gen. JamesHornsby-Smith, Rt. Hn. Dame PatriciaMonks, Mrs. Connie
Dean, PaulHowe, Hn. Sir Geoffrey (Reigate)Monro, Hector
Digby, Simon WingfieldHowell, David (Guildford)Montgomery, Fergus
Dixon, PiersHowell, Ralph (Norfolk, N.)Morgan, Geraint (Denbigh)
Dodds-Parker, DouglasHutchison, Michael ClarkMorrison, Charles (Devizes)
Drayson, G. B.Iremonger, T. L.Mudd, David

if I cannot make it in any other way I shall just keep on saying, "Arising out of the Bill I want to make my protest."

Photo of Wing Commander Sir Robert Grant-Ferris Wing Commander Sir Robert Grant-Ferris , Nantwich

The hon. Lady might consider, and I feel the House will surely consider, that she has made her protest.

Question put:

The House divided: Ayes 286, Noes 250.

Murton, OscarRidley, Hn. NicholasTebbit, Norman
Nabarro, Sir GeraldRidsdale, JulianTemple, John M.
Neave, AireyRippon, Rt. Hn. GeoffreyThatcher, Rt. Hn. Mrs. Margaret
Nicholls, Sir HarmarRoberts, Michael (Cardiff, N.)Thomas, John Stradling (Monmouth)
Normanton, TomRoberts, Wyn (Conway)Thomas, Rt. Hn. Peter (Hendon, S.)
Nott, JohnRossi, Hugh (Hornsey)Thompson, Sir Richard (Croydon, S.)
Onslow, CranleyRost, PeterTilney, John
Oppenheim, Mrs. SallyRussell, Sir RonaldTrafford, Dr. Anthony
Orr, Capt. L. P. S.St. John-Stevas, NormanTrew, Peter
Owen, Idris (Stockport, N.)Sandys, Rt. Hn. D.Tugendhat, Christopher
Page, Graham (Crosby)Scott, NicholasTurton, Rt. Hn. R. H.
Page, John (Harrow, W.)Scott-Hopkins, Jamesvan Straubenzee, W. R.
Parkinson, Cecil (Enfield, W.)Sharples, RichardVaughan, Dr. Gerard
Peel, JohnShaw, Michael (Sc'b'gh & Whitby)Waddington, David
Percival, IanShelton, William (Clapham)Walker, Rt. Hn. Peter (Worcester)
Peyton, Rt. Hn. JohnSimeons, CharlesWalker-Smith, Rt. Hn. Sir Derek
Pike, Miss MervynSinclair, Sir GeorgeWalters, Dennis
Pink, R. BonnerSkeet, T. H. H.Ward, Dame Irene
Pounder, RaftonSmith, Dudley (W'wick & L'mington)Warren, Kenneth
Powell, Rt. Hn. J. EnochSoref, HaroldWeatherill, Bernard
Price, David (Eastleigh)Speed, KeithWells, John (Maidstone)
Prior, Rt. Hn. J. M. L.Spence, JohnWhite, Roger (Gravesend)
Proudfoot, WilfredSproat, IainWhitelaw, Rt. Hn. William
Pym, Rt. Hn. FrancisStainton, KeithWiggin, Jerry
Quennell, Miss J. M.Stanbrook, IvorWilkinson, John
Raison, TimothyStewart-Smith, D. G. (Belper)Wolrige-Gordon, Patrick
Ramsden, Rt. Hn. JamesStodart, Anthony (Edinburgh, W.)Woodhouse, Hn. Christopher
Rawlinson, Rt. Hn. Sir PeterStoddart-Scott, Col. Sir M.Woodnutt, Mark
Redmond, RobertStokes, JohnWorsley, Marcus
Reed, Laurance (Bolton, E.)Stuttaford, Dr. TomWylie, Rt. Hn. N. R.
Rees, Peter (Dover)Sutcliffe, John
Rees-Davies, W. R.Taylor, Edward M. (G'gow, Cathcart)TELLERS FOR THE AYES:
Renton, Rt. Hn. Sir DavidTaylor, Frank (Moss Side)Mr. Reginald Eyre and
Rhys Williams, Sir BrandonTaylor, Robert (Croydon, N.W.)Mr. Jasper More.
NOES
Abse, LeoDavidson, ArthurHardy, Peter
Albu, AustenDavies, Denzil (Llanelly)Harper, Joseph
Allaun, Frank (Salford, E.)Davies, G. Elfed (Rhondda, E.)Harrison, Walter (Wakefield)
Allen, ScholefieldDavies, Ifor (Gower)Hart, Rt. Hn. Judith
Archer, Peter (Rowley Regis)Davies, S. O. (Merthyr Tydvil)Hooson, Emlyn
Armstrong, ErnestDeakins, EricHoram, John
Ashley, JackDelargy, H. J.Houghton, Rt. Hn. Douglas
Ashton, JoeDempsey, JamesHowell, Denis (Small Heath)
Atkinson, NormanDoig, PeterHuckfieid, Leslie
Bagier, Gordon A. T.Dormand, J. D.Hughes, Rt. Hn. Cledwyn (Anglesey)
Barnes, MichaelDouglas, Dick (Stirlingshire, E.)Hughes, Mark (Durham)
Barnett, JoelDouglas-Mann, BruceHughes, Robert (Aberdeen, N.)
Beaney, AlanDriberg, TomHughes, Roy (Newport)
Benn, Rt. Hn. Anthony WedgwoodDuffy, A. E. P.Hunter, Adam
Bennett, James (Glasgow, Bridgeton)Dunnett, JackIrvine, Rt. Hn. SirArthur (Edge Hill)
Bidwell, SydneyEadie, AlexJanner, Greville
Bishop, E. S.Edelman, MauriceJeger, Mrs.Lena (H'b'n&St.P'cras, S.)
Blenkinsop, ArthurEdwards, Robert (Bilston)Jenkins, Hugh (Putney)
Booth, AlbertEdwards, William (Merioneth)Jenkins, Rt. Hn. Roy (Stechford)
Boyden, James (Bishop Auckland)Ellis, TomJohn, Brynmor
Bradley, TomEnglish, MichaelJohnson, Carol (Lewisham, S.)
Brown, Bob (N'c'tle-upon-Tyne, W.)Evans, FredJohnson, Walter (Derby, S.)
Brown, Hugh D. (G'gow, Provan)Faulds, AndrewJones, Barry (Flint, E.)
Brown, Ronald (Shoreditch & F'bury)Fernyhough, Rt. Hn. E.Jones, Dan (Burnley)
Buchan, NormanFisher, Mrs. Doris (B'ham, Ladywood)Jones, Rt. Hn. Sir Elwyn (W. Ham, S.)
Butler, Mrs, Joyce (Wood Green)Fletcher, Raymond (Ilkeston)Jones, Gwynoro (Carmarthen)
Callaghan, Rt. Hn. JamesFletcher, Ted (Darlington)Jones, T. Alec (Rhondda, W.)
Campbell, I. (Dunbartonshire, W.)Foley, MauriceJudd, Frank
Cant, R. B.Foot, MichaelKaufman, Gerald
Carmichael, NeilForrester, JohnKelley, Richard
Carter, Ray (Birmingh'm, Northfield)Fraser, John (Norwood)Kerr, Russell
Carter-Jones, Lewis (Eccles)Freeson, ReginaldKinnock, Neil
Clark, David (Colne Valley)Galpern, Sir MyerLambie, David
Cocks, Michael (Bristol, S.)Garrett, W. E.Lamond, James
Cohen, StanleyGilbert, Dr. JohnLatham, Arthur
Coleman, DonaldGolding, JohnLawson, George
Coneannen, J. D.Gordon Walker, Rt. Hn. P. C.Leadbitter, Ted
Conlan, BernardGourlay, HarryLee, Rt. Hn. Frederick
Corbet, Mrs. FredaGrant, George (Morpeth)Leonard, Dick
Cox, Thomas (Wandsworth, C.)Grant, John D. (Islington, E.)Lever, Rt. Hn. Harold
Crawshaw, RichardGriffiths, Eddie (Brightside)Lewis, Arthur (W. Ham, N.)
Cronin, JohnGriffiths, Will (Exchange)Lewis, Ron (Carlisle)
Crosland, Rt. Hn. AnthonyGunter, Rt. Hn. R. J.Lipton, Marcus
Cunningham, G. (Islington, S.W.)Hamilton, James (Bothwell)Lomas, Kenneth
Dalyell, TamHamilton, William (Fife, W.)Loughlin, Charles
Darling, Rt. Hn. GeorgeHamling, WilliamLyon, Alexander W. (York)
Lyons, Edward (Bradford, E.)Orbach, MauriceSmith, John (Lanarkshire, N.)
Mabon, Dr. J. DicksonOrme, StanleySpearing, Nigel
McBride, NeilOswald, ThomasSpriggs, Leslie
McCartney, HughOwen, Dr. David (Plymouth, Sutton)Stallard, A. W.
McElhone, FrankPalmer, ArthurStoddart, David (Swindon)
McGuire, MichaelPannell, Rt. Hn. CharlesStonehouse, Rt. Hn. John
Mackenzie, GregorPardoe, JohnStrang, Gavin
Mackie, JohnParker, John (Dagenham)Strauss, Rt. Hn. G. R.
Mackintosh, John P.Parry, Robert (Liverpool, Exchange)Summerskill, Hn. Dr. Shirley
Maclennan, RobertPendry, TomTaverne, Dick
McMillan, Tom (Glasgow, C.)Pentland, NormanThomas, Rt. Hn. George (Cardiff,W.)
McNamara, J. KevinPerry, Ernest G.Thomas, Jeffrey (Abertillery)
MacPherson, MalcolmPrentice, Rt. Hn. Reg.Thorpe, Rt. Hn. Jeremy
Mahon, Simon (Bootle)Prescott, JohnTinn, James
Mallalieu, J. P. W. (Huddersfield, E.)Price, J. T. (Westhoughton)Tomney, Frank
Marks, KennethPrice, William (Rugby)Torney, Tom
Marquand, DavidProbert, ArthurTuck, Raphael
Marsden, F.Rankin, JohnUrwin, T. W.
Marsh, Rt. Hn. RichardReed, D. (Sedgefield)Varley, Eric G.
Mayhew, ChristopherRees, Merlyn (Leeds, S.)Wainwright, Edwin
Meacher, MichaelRhodes, GeoffreyWalden, Brian (B'm'ham, All Saints)
Mellish, Rt. Hn. RobertRichard, IvorWalker, Harold (Doncaster)
Mendelson, JohnRoberts, Albert (Normanton)Wallace, George
Mikardo, IanRoberts, Rt. Hn. Goronwy (Caernarvon)Watkins, David
Millan, BruceRobertson, John (Paisley)Weitzman, David
Miller, Dr. M. S.Roderick, Caerwyn E. (Br'c'n&R'dnor)Wellbeloved, James
Milne, Edward (Blyth)Roper, JohnWells, William (Walsall, N.)
Molloy, WilliamRose, Paul B.Whitehead, Phillip
Morgan, Elystan (Cardiganshire)Ross, Rt. Hn. William (Kilmarnock)Whitlock, William
Morris, Alfred (Wythenshawe)Shaw, Michael (Sc'b'gh & Whitby)Willey, Rt. Hn. Frederick
Morris, Charles R. (Openshaw)Sheldon, Robert (Ashton-under-Lyne)Williams, Alan (Swansea, W.)
Morris, Rt. Hn. John (Aberavon)Short, Rt. Hn. Edward (N'c'tle-u-Tyne)Williams, W. T. (Warrington)
Moyle, RolandShort, Mrs. Renée (W'hampton, N. E.)Wilson, Alexander (Hamilton)
Mulley, Rt. Hn. FrederickSilkin, Hn. S. C. (Dulwich)Wilson, William (Coventry, S.)
Murray, Ronald KingSillars, JamesWoof, Robert
Ogden, EricSilverman, Julius
O'Halloran, MichaelSkinner, DennisTELLERS FOR THE NOES:
O'Malley, BrianSmall, WilliamMr. Alan Fitch and
Oram, BertMr. William Hamling.

Bill accordingly read a Second time.

Motion made, and Question proposed, That Clauses 6, 7, 8, 10, 22, 30 and 49 and any new Clause relating to purchase tax be committed to a Committee of the whole House:That the remainder of the Bill be committed to a Standing Committee:That, when the provisions of the Bill considered, respectively, by the Committee of the whole House and by the Standing Committee have been reported to the House, the Bill be proceeded with as if the Bill had been reported as a whole to the House from the Standing Committee.—[Mr. Maurice Macmillan.]

Photo of Wing Commander Sir Robert Grant-Ferris Wing Commander Sir Robert Grant-Ferris , Nantwich

Does the hon. Member for Kensington, South (Sir B. Rhys Williams) wish to oppose the Motion?

Photo of Mr James Ramsden Mr James Ramsden , Harrogate

On a point of order, Mr. Deputy Speaker. Before my hon. Friend begins, am I right in thinking that the operation of the Standing Order as it affects the future of this important piece of legislation in Committee is susceptible of only one speech for and one speech against the Motion? If this is so, it will not be possible for the feeling in all parts of the House to be adequately expressed on the future of this most important piece of legislation.

Photo of Wing Commander Sir Robert Grant-Ferris Wing Commander Sir Robert Grant-Ferris , Nantwich

The hon. Gentleman is right in his surmise that only one speech is allowed to propose the Motion—and the right hon. Gentleman the Chief Secretary has chosen not to make a speech—and one speech is allowed in opposition to the Motion, which must be short.

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

Further to that point of order. It would appear that we are in a slight difficulty over this matter. Surely it must be possible, apart from being able to oppose the Motion as it is before the House at the moment, for there to be alternative suggestions as to an alternative selection of the Clauses to be taken upstairs and those to be taken on the Floor of the House.

Photo of Wing Commander Sir Robert Grant-Ferris Wing Commander Sir Robert Grant-Ferris , Nantwich

That may or may not be true, but that is not a matter for me now. I have to act in accordance with the Standing Order which governs a Motion such as that which is now before the House. I have called the hon. Member for Kensington, South but if he wishes to give way to his right hon. Friend the Leader of the House he would be allowed to do so.

Photo of Mr William Whitelaw Mr William Whitelaw , Penrith and The Border

Further to that point of order, Mr. Deputy Speaker. It is clear that the Standing Order on which we are operating is absolutely correct and it is not for me to question it or the Ruling you have given. The Standing Order is quite correct as applying to the normal Bill, but it may be that in regard to the procedure which we now adopt in regard to Finance Bills the Standing Order may not be as complete as it is for other Bills. There may well be a desire for discussion as to which part of a Finance Bill is to go upstairs and which is to be heard on the Floor of the House. I feel that this is something that should be considered and, in view of my hon. Friend's points of order, I would undertake in the future to look at the probability of whether some procedure can be devised in regard to the Finance Bill to cover this matter.

Photo of Mr John Nott Mr John Nott , St Ives

Further to that point of order, Mr. Deputy Speaker. We are grateful to the Leader of the House for that statement. I believe that it is possible for the Leader of the House to table an Amendment to this Motion. This would enable us on some future occasion, perhaps next week, to debate this important Motion. Perhaps you could give a Ruling on that point.

Photo of Wing Commander Sir Robert Grant-Ferris Wing Commander Sir Robert Grant-Ferris , Nantwich

I have to operate the Standing Order upon which we are now working. There is no possibility under that Standing Order to move an Amendment at this stage.

Photo of Mr Kenneth Lewis Mr Kenneth Lewis , Rutland and Stamford

Further to that point of order. Are we to take it that, my hon. Friend the Chief Secretary having moved the Motion formally, he is not precluded from speaking? If he cannot explain the situation, the House is put in some difficulty.

Photo of Mr William Whitelaw Mr William Whitelaw , Penrith and The Border

Further to that point of order, perhaps I can help my hon. Friend. On this occasion, we have followed the precedent adopted in pre- vious years. However, in respect of the future Finance Bills, I am prepared to look at this procedure. On this occasion, I hope that the procedure which we have followed, in accordance with precedent, will be acceptable.

Photo of Mr John Mendelson Mr John Mendelson , Penistone

Further to that point of order. It is important, because some of my colleagues have raised this matter in various discussions. It should be on record that some hon. Members on this side of the House support the general requests which have come from the back benches opposite. In view of that, it is to be hoped that the Leader of the House will provide an opportunity, even this year, by means of an Amendment, for example, whereby the matter can be considered, and that he will make quite certain that there will be such an opportunity next year.

Photo of Wing Commander Sir Robert Grant-Ferris Wing Commander Sir Robert Grant-Ferris , Nantwich

I think that we should now leave points of order on this matter. The Leader of the House has kindly explained what he hopes to do. I have called the hon. Member for Kensington, South. I think he should now be allowed to make his speech.

Photo of Miss Irene Ward Miss Irene Ward , Tynemouth

Further to that point of order. I am sorry to go against your Ruling, Mr. Deputy Speaker. Will it help my right hon. Friend to suggest that he moves a manuscript Amendment removing everything in the Motion, in which event we can debate the various Clauses?

Photo of Wing Commander Sir Robert Grant-Ferris Wing Commander Sir Robert Grant-Ferris , Nantwich

I am afraid that that is impossible at this juncture.

Photo of Mr Jeremy Thorpe Mr Jeremy Thorpe , North Devon

Further to that point of order. While no one would wish you, Mr. Deputy Speaker, to misconstrue the provisions of Standing Order No. 40, the matter which is relevant at the moment is paragraph 3; namely, that if there is opposition to matters on the Order Paper, one speech in opposition may be allowed. I think that the House will accept that that is the position. It is one which arises only when, after a Bill has been read a Second time, it is committed to a Standing Committee. That process normally follows immediately after the Second Reading of a Bill. If that process were deferred and, for example, took place next week, the Leader of the House would have an opportunity to canvass opinions in all parts of the House where, clearly, there are valuable views which he might wish to take into account.

Photo of Wing Commander Sir Robert Grant-Ferris Wing Commander Sir Robert Grant-Ferris , Nantwich

I have taken advice from the learned Clerk. It would not be possible to do what the right hon. Gentleman wants to do even next week. It would still be subject to the same rules which apply to this Standing Order. Until the House in its wisdom decides to alter the Standing Order we are bound to apply it. Therefore, I hope that the House will now allow the procedure to continue.

Photo of Mr Jeremy Thorpe Mr Jeremy Thorpe , North Devon

With respect, Mr. Deputy Speaker, no one suggests that the rules be changed at this stage, and no one suggests that it is possible to do so this year. All I urge upon you is that the process of permitting only one speech in opposition would be more agreeable to the House if a little time had elapsed so that the views, albeit informally, from different parts of the House could be transmitted to the right hon. Gentleman.

Photo of Sir Brandon Rhys Williams Sir Brandon Rhys Williams , Kensington South

In view of the exchanges which have just taken place it is possible for me to be very brief.

I should like to thank my right hon. Friend the Leader of the House for the assurances which he has given to the House.

I sought to catch your eye, Mr. Deputy Speaker, more in sorrow that in anger, because it seemed to me objectionable that this important Resolution should be brought before the House under this Standing Order, which permits no serious discussion.

I learned only by accident late last night that this Resolution was to appear on today's Order Paper. By courtesy of the Clerk in the Public Bill Office, I was informed which Clauses were to be taken on the Floor of the House and which Clauses were to be taken in Committee upstairs.

My feeling was, and still is, that it is making rather a mockery of the Second Reading that the pattern of the Committee stage should be decided, albeit by due consultation through the usual channels, before right hon. and hon. Members have had any opportunity at all of expressing their views on the Second Reading of the Finance Bill. Indeed, I think it would be more proper to allow the tabling of some Amendments before the final decision is taken about the shape of the Committee stage.

These were the particular points I wished to raise.

I should add that the Finance Bill is perhaps the most important Bill in the year. I know that hon. Members on both sides are particularly sensitive about the new procedure for taking part of the Bill in Committee. Concerning the precedents for this particular procedure for dividing the Clauses, it is right to say that on 6th May, 1969, which was the first occasion on which it was brought before the House, there was so much controversy that a Division was forced upon it. In 1970, when it was again attempted, it was afterwards rescinded.

I hope, therefore, that the protest which has been brought to your notice, Mr. Deputy Speaker, from all parts of the House will result on a future occasion in some other procedure being adopted.

I recommend that due consideration should be given to the expression of views on Second Reading and that proper time should be allowed for right hon. and hon. Members, if they so wish, to table Amendments to the Finance Bill; and that only then should the usual channels come together to make their selections. Even then, when their decision is brought before the House, I suggest that it should be settled by a procedure which allows a reasonable degree of debate.

Question put, pursuant to Standing Order No. 40 (Committal of Bills) and agreed to.

Ordered, After Second Reading of the Finance Bill, to move, That Clauses 6, 7, 8, 10, 22, 30 and 49 and any new Clause relating to purchase tax be committed to a Committee of the whole House:That the remainder of the Bill be committed to a Standing Committee:That, when the provisions of the Bill considered, respectively, by the Committee of the whole House and by the Standing Committee have been reported to the House, the Bill be proceeded with as if the Bill had been reported as a whole to the House from the Standing Committee.

Committee Tomorrow.