Relief for Payment of Interest

Orders of the Day — Finance Bill – in the House of Commons at 12:00 am on 17th May 1972.

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3.47 p.m.

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

I beg to move Amendment No. 102, in page 46, line 42, after 'assessment', insert: 'from the asset or assets purchased with the sums borrowed'.

Photo of Mr Selwyn Lloyd Mr Selwyn Lloyd , Wirral

I understand that it will be for the convenience of the Committee if Amendment No. 67 is taken at the same time, in page 47, line I, leave out from 'rate' to end of line 3 and insert: 'which constitutes a going commercial market rate of interest, relief under this section will be permitted to that extent, but not exceeding a gross rate of 12 per centum per annum'. I understand that the Committee does not demur from that.

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

The Amendment seeks to limit the extent to which interest as defined in the Clause would be allowed, but I want to make it absolutely clear that we on this side of the Committee oppose the Clause as it stands. The Clause emphasises and goes to the very root of the difference between the two sides of the Committee. Indeed, we had this spelt out in the early hours of this morning by the Chief Secretary to the Treasury. It is a good time, at night, to have these differences spelt out.

We had some very interesting comments by the hon. Gentleman, and I think they are worth repeating, because they go to the heart of our difference. I have not got the printed OFFICIAL REPORT, but I have taken these extracts from the typewritten copy in the Library. The Chief Secretary said: We are merely going some way to redress the distortion, which was too far in the other direction. He went on: On unearned income of £100,000 the effective rate of tax only shows a fall on that income of 0·8 per cent. Only a fall of 0·8 per cent.! This really goes some way to indicate the difference between us, because we would like to see someone with unearned income of £100,000 having not a fall in the rate of tax but an increase, because any fall can only be at the expense of those at the other end of the scale.

The Chief Secretary went on to say—this may have been because of the time of the morning, because I can hardly believe that he really means this— I believe we have struck a fair balance. The Government feel that they have struck a fair balance in what they have done about investment income. I suppose the hon. Gentleman could be forgiven for what he said because he was replying to a suggestion by his hon. Friend the Member for Surrey, East (Mr. William Clark) who was not satisfied even with what he was asking for. He wanted more. He wanted investment income surcharge to be reduced to 5 per cent. The Chief Secretary told him that the effective rate under the unified tax does not exceed the effective rate now until a single man has an investment income of about £150,000 a year. In other words, for a bachelor the effective rate of tax does not change under the unified tax system until he receives £150,000 a year. That is the element of fairness which the Chief Secretary sees in this Budget.

That and the Clause in the way that it deals with loan interest go a long way to indicate that the Government are using their so-called reform of the tax system as a cloak for massive unfairness. We seek a very much fairer system than that which the Chief Secretary has in mind. We seek to remove the opportunities for blatant tax avoidance. One could use the Government's own case for VAT—a case which now has many holes in it—namely, that if there were a comprehensive tax it would be possible to keep the rate lower. That is the Government's case for VAT. One could make the same case for income tax. If there were a truly comprehensive tax which was not avoided as easily as the Government are seeking to have it avoided there could be a lower rate of tax, and that is what we seek. The Clause is typical of Tory philosophy. It does not stop loopholes; it creates massive new ones, and those loopholes are not being created for the docker and the railwayman.

The only case for the Clause—and it was not made by the Chancellor either in his Budget speech or on Second Reading—is that if loan interest is disallowed one is taking income on a gross basis rather than on a net basis. There are two points against the purity of that argument. First, the loan interest under the Clause will not be available to every taxpayer. The vast majority of taxpayers either cannot or do not want to borrow—or if they can borrow so much they do not—in excess of £500 by way of loan and, therefore, there will be no benefit to them. The real benefit of the Clause will go to those who borrow sums very much in excess of £500.

The only other point to sustain the argument to which I have referred is that if it were allowed against an income-producing asset the allowance would be at the rate that was charged. In other words, if someone buys an asset the income from which is taxed at 60 per cent, it is fair to set the interest which he pays against that income-producing asset. But on the one hand that is not allowed for the majority of those who buy assets of small value not producing income; namely, those borrowing on hire-purchase. On the other hand, however, it is allowed for the small number of people who buy expensive assets which are not producing income but are, instead, producing capital growth which is either free of tax or subject to tax at the rate of only 30 per cent, as a capital gain, whilst the interest, which is as much as 90 per cent, at the top end, is allowed against investment income.

If the Chancellor is genuine about what he is seeking to do in the Clause he should accept the Amendment, because it seeks to limit the interest against the income of the asset purchased and at the same time disallow any surplus interest against other income. I hope the Minister of State will not say that the Amendment is technically not correct, or that it should have been worded differently. He knows the principle that we have in mind, and he knows the case that I am making, and if he were to accept the principle of the Amendment it would be a simple matter for him to introduce an Amendment of his own on Report.

But we know that the Chancellor is not willing to restrict interest in this way, and that the result, in practice rather than in theory, will be not to remove an anomaly but to create a massive new one which will provide help for the few and refuse help for the many. This is not a case of allowing only the interest which is now disallowed. The Clause gives the green light to people to adjust their affairs to take advantage of the Chancellor's gift, and there will be considerable and important side effects.

There is one side effect relating to mortgages. Money is now flowing into the stock market and unit trusts. I understand that the amount of money flowing into building societies is beginning to diminish. That is my narrow experience, and it is apparently the experience of some financial commentators. That was the view taken by one commentator in the London Evening News the other day. I shall be interested to hear from the Minister whether there is any evidence of that kind of repercussion on building society receipts. If anyone doubts the grave repercussions and the extent of the free gift by the Chancellor he has only to look at the financial columns of the daily Press and particularly the Sunday Press to see just how people will take advantage of the Clause.

We are told by the Chancellor that the cost of this provision will be about £3 million this year and £7 million next year. In other words, that will be the figure when people have had time to organise in order to obtain greater benefits. I believe that the figure of £7 million is likely to turn out to be a massive understatement, and I shall be interested to learn from the Minister on what basis he makes his calculation that the cost will be only that sum next year. Is it, as I believe, that he has done this calculation in the deliberate knowledge that the extent of the benefit will be confused by the new unified tax scales and the relief to investment income so that it will not be possible truly to get an idea of the full extent of this gift? The reason why I believe that £7 million will prove to be a considerable underestimate is my knowledge of the great sophistica- tion of the tax avoidance industry. It will not be slow to take advantage of the Clause.

The Chancellor recognised the scale of what he was doing because he took fright at the greediness of his hon. Friends, and what he has done is illogical. Despite his own arguments and philosophy he has restricted this to £2,000. How does he square that restriction with the Conservative philosophy of a free market and the maximisation of profits? Why has he limited this to £2,000? I believe that by doing that he has gone more than half way towards meeting the case that I am making. Is it, perhaps, that he is feeling just a small degree of shame at the extent to which he is allowing a few taxpayers to manipulate their tax affairs at the expense of the average taxpayer? That is what I believe he is really doing, and I suppose one could paraphrase the late Sir Winston Churchill and say "Never have so few been given so much at the expense of so many."

One could sum up by saying that there is no excuse for creating this bonanza. There is not even the usual claim for reducing the top level of taxation, because the Chancellor is reducing taxation for a few who can, and will, manipulate the tax system through the lucrative undergrowth along paths thoughtfully provided by the Chancellor. Such schemes are numerous. I do not propose to set all of them out before the Committee. but, as will be well known, they include life assurance, unit trusts, bonds and public school fees.

In that respect it is not only under this Clause that those who are paying public school fees will be helped, because we had a very interesting little debate at about 12.30 a.m. today. The Chief Secretary referred to public school fees. We were talking about the Amendment about VAT in education. The Chief Secretary said: In so far as they are charities"— that is, public schools— they stand to benefit from the concessions … in estate duty and capital gains tax. This represents a significant measure of support and encouragement to the independent schools. 4.0 p.m.

We know what those Clauses are about. But there is more yet to come for those paying public school fees, as hon. Members on the Government side will be aware, because they can manipulate this Clause to very considerable advantage. These schemes were going very well before 1969, when my right hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins) put a stop to them. But they will certainly grow again.

I hope that we shall not have any humbug about its being good for growth, investment and the economy. The type of investment which the Clause encourages would not put the national interest first; it would put the quickest possible capital gain first. Judging from the debates we had yesterday, it would be interesting to know what sort of consultations the Chancellor had and what consideration he gave to the effect of this Clause on the economy. Unless someone could prove that these schemes proliferated in the past anything other than the growth of the wealth of a few I would not be prepared to listen.

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

The Clause has no merit. Therefore, I say now that my right hon. Friend, when he has the opportunity—which will not be long delayed—would once again disallow this type of interest and all the schemes that go with it. I am aware of the shuttlecock argument and the awful tangle that one can get into when successive Governments repeal the other's legislation. But that would be no excuse for leaving this appalling Clause on the Statute Book.

I recognise that the pledge has important consequences, and that is the intention. I hope that it will mean that the more blatant schemes will be killed in advance. If the Minister of State does not agree, it would be interesting to know whether the old borrow-almost-all type of policies will once again come back, or whether he wants to see them return. I am sure the Minister of State is aware of the type of scheme under which one paid one or two premiums on a very substantial policy and borrowed the remainder. So I hope the more blatant schemes will be killed in advance.

I do not apologise for giving that pledge. The Government should not object, because they claim that the Clause is only equitable and that they do not intend to encourage such schemes. Thus, the pledge kills only the scheme designed to use the Clause in a way that the Government do not intend.

The best way to save all concerned a great deal of trouble would be to throw out the Clause now. I hope that that is what the Committee will do.

Photo of Mr Hugh Dykes Mr Hugh Dykes , Harrow East

I shall intervene only briefly on the subject of the Clause in general and the main Amendment. However, Sir Robert, as I understand that you have selected Amendment No. 67 in my name and the name of my hon. Friend the Member for Derbyshire, South-East (Mr. Rost) for discussion with the main Amendment, I shall speak about that also.

Regarding the general principle, what the hon. Member for Heywood and Royton (Mr. Joel Barnett) has said will be categorically and enthusiastically rejected by my hon. Friends as a partisan, sadly dogmatic and anachronistically doctrinaire view of what my right hon. Friend the Chancellor has done to rectify something which the previous Labour Administration did in 1969, I believe, as a party political piece of tax relief, adjustment or reduction. That was exclusively motivated by party political reasons and was based traditionally on the kind of long-standing argument which has always been manifested within the ranks of the Labour Party about the Conservative Party representing a particular narrow, sectarian interest, and so on.

I categorically reject that. It will be rejected by my hon. Friends, and possibly—though they may not say so loud and clear—by Opposition hon. Members.

There had been established over the years before 1969 a firmly accepted principle in this country that loans were available for abatement of the tax paid in respect of their interest and that that applied to the generality of loans and was, therefore, indivisible in its effect. However, I concede the argument of some hon. Members over previous years that, unfortunately, there had been abuses creeping into these arrangements, particularly in recent years. It was for the old arguments, perhaps, that these abuses were seized upon by the financial spokesmen of the present Opposition as a reason for abolishing a general abatement of taxation which was to the immense benefit of large numbers of loan seekers and loan interest payers of a very modest size obtaining loans for a host of different purposes. The classic example was when the finance companies began to move away from hire-purchase-type contracts, where the asset was secured as far as they were concerned, to the credit sale-type of agreement, where no other security except that of the borrower himself existed but none the less interest relief could be obtained.

The expansion of the total hire-purchase debt outstanding over that period, when interest relief was a very attractive additional inducement for people to raise money on moderate net interest terms for purchasing a whole range of consumer durables, was to the immense benefit of the community as a whole. Therefore, to my mind it is the usual approach of the Opposition to say "Let us take our king-size sledgehammer and crack the tiny nut of abuse"—in total terms it was a relatively tiny nut—"in order to deprive out citizenry from the opportunity of obtaining loans on fixed relief terms which are to them very attractive and enable them to buy goods and finance services for themselves and their families, and to have access to things which might not be available otherwise."

Therefore, there will be widespread support among my hon. Friends and in the country as a whole—this has already been demonstrated—for the Chancellor's imaginative decision to bring back this relief for interest payments in general. None the less, we recognise that the abuse that crept into this system in recent years must be dealt with, and, therefore, there will be the special interdiction arrangements for gilt-edged securities and an upper ceiling of relief, which will contain that problem. But it is a very minor problem in relation to the total benefit.

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

The hon. Gentleman has spoken about a large number of people who will benefit from being able to deduct interest. As I read the Clause, it appears that the first amp;35 is not deductible, so many people will be unable to deduct their interest.

Photo of Mr Hugh Dykes Mr Hugh Dykes , Harrow East

My reaction to that is that I should like to see a reconsideration, not necessarily this year but later, perhaps, of the fact that the first £35 of interest is not subject to relief. But it is fair to suggest that that can be taken separately from the general argument.

I return to the point, which I do not think the hon. Member for Heywood and Royton can deny, that, again speaking from memory, the total of hire-purchase transactions grew by several hundreds of millions of £s in the more recent period before the Labour Government's financial crisis and before 1969 when interest relief was abolished—from about £750 million to well over £1,000 million. Much of the growth was due to the attraction of interest relief, to the net interest arrangements and to the fact that many millions of people were able to benefit.

I wish to say a few words about my Amendment because it is much more technical in its aim and is symbolic, to some extent, in its objective. I should be most grateful if my hon. Friend the Minister of State would, in reply, spell out more clearly what the Government mean by "a commercial rate of interest". It could give rise to a great deal of doubt in many circles and in the public mind. I know that there are a number of precedents in previous tax Acts about a commercial rate of interest, but they have always tended to introduce confusion, and, therefore, in symbolically proposing that there should be an upper limit of 12 per cent. as a potential maximum market rate of interest I wish to impinge the light of the Government's attention on this matter, because it needs to be cleared up.

The Government should clearly say, even during periods of high interest rates—and they characterise the Labour Party's periods of administration rather than our own—that they would not envisage anything other than a certain maximum rate of interest to be in accord with the going market rate; or they should go the other way and say that interest relief will be available irrespective of the level of interest negotiated on a loan.

What does the phrase "commercial rate of interest" mean? To expert accountants—the hon. Member for Heywood and Royton is certainly one—it can mean something very different from what is means to people who have only a vague idea of the rates which obtain in the market for the purchase or financing of goods and services. I would appreciate clarification on that more narrow point.

Photo of Mr Jo Grimond Mr Jo Grimond , Orkney and Shetland

I am one of those who have greatly admired the courage and ability of the Chancellor of the Exchequer in his fiscal reforms. He is doing a great deal to simplify the taxation system and has introduced many reforms which my party and I have advocated for many years. It is nice to have a Chancellor who surmounts difficulties and gets things done. However, I have always had doubts about allowing interest to be charged against tax. I have never seen the principle on which it rests. It is a concession, or, to use a more neutral word, a provision, which helps the rich, or at least the comparatively rich. It often helps the very rich. One must have a fairly substantial income before it is of any use.

It has been argued in the past that it was of great benefit to people who did not have large incomes. But, while it would be cut of order to argue the Clause in general, the first £35 of interest is excluded, and this would seem to do a great deal to rebut that argument. The Amendment would at least limit it to the asset or assets purchased with the sums borrowed. There is a great deal to be said for the Amendment, and I shall be interested to hear the Government's arguments on it.

I do not take the view of the hon. Member for Harrow, East (Mr. Dykes) that the opposition to the Clause from this side of the Committee is founded on a narrow, bitter, dogmatic view; far from it. If the hon. Gentleman makes inquiries among members of his party he will find that many people have been unhappy about this provision, and they sympathised, although they may not have expressed their sympathy, with the Labour Government when they abolished this concession.

4.15 p.m.

Apart from the fact that this appears to be a tax concession to those who are, to some extent, being well done by under the Bill and possibly need no more relief, it comes at a particularly unfortunate time. The Budget in general and the fiscal parts of it relating to tax are part of the general management of the economy. We all agree that the great danger facing this country is inflation.

If we are to counter inflation, there must be restraint. There are continual appeals for restraint. Restraint must mean the restraint of incomes right down the scale and, in particular, at the top of the scale. The Government are totally blind if they think that the people putting in wage claims are unaware of or do not mind the tax concessions in the Budget.

The rule that what is good for one person should be applied to all is a very old established principle in economics as well as in politics and morals. Yet again and again people at the top of the scale who are able more than to keep pace with inflation are assisted. People are given rights to subscribe for shares on special terms. We have had the cuts in surtax. There have been very large concessions in income and perquisites for very well-off people. On top of that, there is this further concession. I do not wish to exaggerate. I do not say that this concession will have a stunning effect on the economy. But it is typical of a certain attitude of mind which believes that we can draw a distinction between the railway driver who is not asking for a fortune and the man with substantial income who is to get a concession which will enable him to do a bit better still.

I ask the Government to think again about this matter. It is absolutely fatal to introduce this kind of concession at this moment, not because in itself it will make all that difference but because it is indicative of different standards being adopted for different types of people. If the Government want to deal with the economic state of the country, they must draw us all together and make us all aware that this is not the time for this type of concession. Not only is it indefensible in principle, but it should not be introduced at this time from the purely practical point of view of running the economy.

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

Like the right hon. Member for Orkney and Shetland (Mr. Grimond), I greatly admire the work of my right hon. Friend the Chancellor of the Exchequer in reforming taxation, and if I have not intervened in the debates on the Bill before it is because the best way in which I can express my admiration is by silence.

I think that the Amendment is rubbish. I do not see how we can ever separate out groups of assets which are purchased with the money borrowed and say "This lot of money was used to purchase this lot of assets". That is not a practical way of going about solving the real difficulty which has been mentioned from the Opposition benches.

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

Is the hon. Gentleman aware that if the Clause is passed taxpayers will have to separate out interest in order to have it allowed if they have bought houses or other property?

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

That was not my point. Perhaps the hon. Gentleman would allow me to develop my speech.

I understand the principle on which the Clause was put in the Bill, and I greatly admire the Government, who keep their pledges. The Conservative Party was pledged to introduce this concession. It would have been very difficult for the Government to avoid introducing it after the clear pledge which the late kin Macleod gave.

I will examine the underlying principle. If one borrows money and buys assets with it, it is right and equitable that the interest one pays on the borrowed money should be able to be set against the interest one receives on the assets one has purchased. At first sight that sounds a good principle, but I wonder whether the paying of interest on borrowed money is not like any other form of expenditure. It might be said that rents, food or national insurance contributions are equally essential items which have to be paid out of one's income. The case has to be made more strongly than this particular form of expenditure on interest on borrowed money is in some way an automatic deduction from one's gross income. That has been accepted for very nearly the 200 years that income tax has been with us.

On the whole, we have lived in times of stable currency. There would be little or no advantage in borrowing money to purchase assets because what one spends on the interest will be matched by what one receives from the assets. We now live in times of unpleasantly high inflation and it seems that a different set of circumstances apply. One can borrow money and in ten years when one comes to pay it back the assets purchased are greatly more valuable than the money to be paid back. Therefore, although the principle is arguable, its application in times of inflation must be tempered by an understanding of the unfortunate effects it can have both in equity—the point made by the right hon. Member for Orkney and Shetland—and from the point of view of the contribution which it might make to inflation.

Lying behind the rise in land, share and house prices has been massive purchases of assets of these sorts—antiques and works of art as well—by people who have borrowed money for this purpose knowing that they will be able to sell at a profit at a future stage.

Although I should be happy with the Clause if my right hon. Friends had got the rate of inflation down to an almost non-existent level, I think we must temper our acceptance of the principle underlying it by the practical effects of allowing these transactions to take place in a period of rapid inflation. Not only does it contribute to inflation by pumping money into the system and enabling people to bid up the prices of assets, but at the same time it enables the better-off to protect themselves against inflation at the expense of the less well-off.

It is a little awkward that we have the figure of £35 in the Clause. It would be slightly less awkward if interest were allowable up to £35 rather than not allowable below £35. I understand the technical reasons why it is difficult to relieve interest on hire purchase and other such small transactions, but if we are to have this principle we should have it for all people however small their borrowings and whatever means they use to obtain those funds.

I hope that it will be possible to examine these arguments in relation to the present situation and the concern which has been expressed by all right hon. and hon. Members who have spoken about the £35 exemption.

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

The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) has put forward a convincing argument. He recognises that there are grounds for loan interest relief on the basis of security. At the same time he met the objection of the right hon. Member for Orkney and Shetland (Mr. Grimond) in that he saw that in its incidence it may be unjust, if not arbitrary, on social grounds. Moreover, the hon. Gentleman recognised that some of the consequences may be objectionable in an inflationary situation. The hon. Gentleman also recognised the £35 bar to be indefensible. I can do not more than to demolish that argument. I hope the Committee will forgive me if I do so a little less briefly than the right hon. Gentleman and the hon. Gentleman who have just spoken.

It is important to be clear about the separate category in which loan interest falls. We are all aware that income tax falls essentially into three categories. We are all familiar with the first broad range of allowances which reflect the taxpayer's marital status and the number of dependants and the second group of allowances to which a taxpayer is entitled if he incurs expenses in the course of his trade or profession. We are not concerned with those now. The third category which many find confusing is the small, but select group of allowances which arise as a result of financial transactions, some of which include those transactions which have been mentioned this afternoon.

This confusing category breaks down into three recognisable parts: life assurance premiums, pension fund contributions and interest payments, all of which attract at least some form of income tax relief. It is the latter sub-category that attracts us. It is interest payments and the terms in which they receive relief which the Clause seeks to change and to which the Amendment is opposed.

For example, under the Clause the interest we pay on our bank overdrafts is to be deductible in calculating our tax bill, irrespective of whether the borrowed money is to be used to produce taxable income.

When this matter was last debated in the House in 1969, quite properly it was pointed out that if the lender of money has to pay tax on the interests he receives it is unfair that the borrower should forgo tax relief on the interest he pays. That is an argument we can all understand. To that extent, as far as the argument goes, there is no arbitrary discrimination. Yet there is discrimination, if of a subtle kind, rather like the comforts of the Savoy being denied to the poor, although ostensibly the door is open to the poor and the rich alike.

It is a well-established paradox that only the rich can borrow, primarily because the poor have insufficient credit for the purpose. Their substitute for borrowing—hire purchase, a form of legalised usury—is to carry no tax privileges. That is simply because the conventional hire-purchase contract does not, strictly speaking, and contrary to the impression I received from the hon. Member for Harrow, East (Mr. Dykes), involve a loan of money. There is, therefore, no form of interest element in the sum repaid so that no tax relief can be claimed.

Photo of Mr Hugh Dykes Mr Hugh Dykes , Harrow East

That was the point I was trying to make. The hon. Gentleman is correct about hire-purchase agreements not qualifying in that way. That is why the vast majority of so-called hire-purchase companies have moved on to the credit-sale type of agreement where a loan of money is granted to the borrower.

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

But the conventional hire-purchase contract is still widespread. It is still the method to which so many poorer people have to resort. It is true that consumers are now arranging to pay for their goods under credit-sale agreements, but as yet there has been no great movement from Egypt into the Promised Land, much less a considerable movement of people towards the personal loan, which hon. Members on both sides understand even better, which qualifies for tax relief.

I will meet the hon. Gentleman and concede that an increasing number of poorer people are now able to raise personal loans. However, they will still not be able to benefit under the Clause. If a person borrows £466 at a flat rate of 71½ per cent. he will get no tax relief. That is because of this other remarkable feature of the Clause that there will be no tax relief on the first £35 of interest. If, for example, a personal loan is used to buy a washing machine or a fridge or to make an installment on a car, there will still be no income tax relief. At this interest rate one would have to borrow more than £466 to qualify for relief. The banks admit that their average personal loan is around £450, but I insist, contrary to what the hon. Member for Harrow, East says, that the poor still tend to go to the hire-purchase firms. The better-off have bank accounts and get their money at a cheaper rate from them. At 9 per cent. flat one has to borrow only £390 in order to be paying interest of £35 a year and so qualify for tax relief.

4.30 p.m.

The Chancellor's action is of less benefit to the poorer borrower. On the other hand, the richer he is the greater the benefit. Anyone paying the top rate of surtax on earned income, now down to 75 per cent., who wants to borrow £1,000 at 7½ per cent. flat will pay, after tax relief, 3·95 per cent. If a person wants to buy a yacht, however, he would have to pay only 2·14 per cent. rate of interest. If he were living on unearned income—for example, investment income—and paying surtax of 88·75 per cent. he would do even better. The yacht would cost only 1·15 per cent. in interest, as The Guardian pointed out, though it did not use my terms.

Such a customer might get even better terms from the bank than would a poorer person. Rather than being foisted off with an expensive personal loan costing a true rate of interest of 15 per cent., for example, he would arrange an overdraft at 9 per cent. or 10 per cent. if he knows his way around, so that his borrowing would cost him less. This raises a point which we must not overlook, for we tend to confuse rates of interest. We tend to confuse nominal rates with true rates. For such a person borrowing £10,000 with the top, unearned, marginal tax rate, paying overdraft terms of say, 9 per cent. true rate, the net tax borrowing rate comes down to a true 1·33 per cent.

I have said enough to show why we on this side of the Committee are so sensitive to relief on loans, and it shows why the last Labour Government decided to end loan-interest tax relief in 1969, except for house purchase or improvement. I hope that when the Minister of State replies he will recall what I said when I touched lightly upon this on the Committee stage of the Finance Bill last year. He did not understand my reference to it then, although I can understand why when I look back at HANSARD, as I did this week. What I have said also explains why we wish to mitigate the effect of this Clause by means of this Amendment, restricting any relief to assets purchased.

What of the many other different means of providing consumer credit? With the whole legal structure of consumer credit facilities in the melting pot as a result of the Crowther Committee's report, why do we have to revive this issue now? For this is a substantial issue,one that symbolises the difference between the two parties' fundamental attitudes towards personal wealth. That is why I am glad to speak in support of the Amendment.

Photo of Mr David Waddington Mr David Waddington , Nelson and Colne

My contribution will be very brief but I should like to hark back to one of the earlier remarks of the hon. Member for Heywood and Royton (Mr. Joel Barnett). He said that Clause 71 was a gift from the Chancellor to a relatively small group of people. I think it should be said quite plainly that all the Chancellor has done has been to restore partially what only a year ago was considered to be the elementary right of every taxpayer. My hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) was right to point out that from the time income tax began until 1969 nobody questioned the principle that there should be relief of tax in respect of interest paid.

The hon. Member for Heywood and Royton went on to say that he feared that if Clause 71 became the law of the land all sorts of dubious schemes would proliferate, and he was against restoration of this relief for that very reason. This is an argument which is frequently advanced from the Opposition benches. I recognise that no tax scheme which approximates in the slightest degree towards justice could prevent all avoidance. But it would be terrible if people were to be deprived of legitimate relief because of the fear that some would abuse the system. That is like saying that no one should be able to charge against the profits of his business the costs of earning those profits because some may be tempted to put in false expense claims. That is a ridiculous attitude. Therefore I would say that in principle I am in favour of restoration of relief for tax on interest paid.

What concerns me and concerns a number of my hon. Friends is that part of Clause 71 which prevents any relief in respect of the first £35. I cannot reconcile that either with my ideas of justice or with what I understand to have been our pre-election pledge. We can take just pride on this side of the House in the fact that we have redeemed so many of the pledges we made before the last election. It gives me great pleasure to go through our election manifesto and not only to strike off one by one those pledges which we made and have kept but to know what will come next, because it is listed in the manifesto. I know that it will not be long before the Government redeem the next pledge which I see on the list. But I cannot remember the late lain Macleod saying that there would be only partial restoration to the system which obtained before the 1969 Budget.

I know that my hon. Friend the Minister of State will say that it is in the interest of administrative convenience that the first £35 shall not be allowed, but I ask him to go away and think about the matter again and to see whether these administrative difficulties can be surmounted. Unfortunately, it is the experience of us all as politicians that on the first occasion the plea of administrative inconvenience is put forward. On the second occasion it is put forward with perhaps a little less enthusiasm. And as the rebellion on the Government back benches grows, the Front Bench spokesman eventually does go away and think about it properly for the first time. I urge my hon. Friend the Minister of State to go away and think about it again so that we can say to the country that we have redeemed our pre-election pledge in full.

Photo of Mr Tam Dalyell Mr Tam Dalyell , West Lothian

Far be it from me to utter dire threats to the Government Front Bench, but the Minister of State might take heed of what his hon. and learned Friend the Member for Nelson and Colne (Mr. Waddington) said about the £35 limit. I hope that he will also clear up one mystery for us. Why did the Treasury alight on the sum of £35 and what are the administrative inconveniences? Perhaps in his reply he will give us a good reason, but it ought to be spelt out.

I see the hon. Member for Harrow, East (Mr. Dykes) leaving the Chamber. I noticed that he said that we were dealing with one tiny nut. But I seem to remember 24 hours ago that the Chancellor was rebuking my hon. Friends and myself for trying to suggest that we were talking about "tiny nuts", or at least small sums of money in relation to children's shoes. The Chancellor said that it involved £12 million which would pay the running costs for six 500-bed hospitals for a year. I suppose that the hon. Gentleman's tiny nut is, to borrow the Chancellor's terminology, 3½ 500-bed hospitals per year, even on the Government's calculations.

The information I have from lawyers is that £7 million is probably an underestimate. That figure is not what is thought in the City, where friends of mine give a figure of £15 million to £20 million. I do not know who is right, but the Minister might spell out precisely what sums the Treasury expects in terms of the erosion of the revenue or otherwise.

I should be prepared to see the sense in what the Government are doing if it could be established that it was related to growth. Has loan interest any relation to growth? With a fair amount of good will, I do not see how the change can be claimed to be made in the interests of growth. If it is, the Minister must spell out why. Granted that the expectations of small businessmen will greatly influence their decisions for growth one way or another, it does not seem to me that this is the kind of measure to achieve it.

The right hon. Member for Orkney and Shetland (Mr. Grimond) was on a very valid point. Although it may be true that those who are negotiating for the National Union of Railwaymen and the Transport Salaried Staffs Association. let alone the majority of their members. do not pretend to know the ins and outs of the recondite measures we have been debating, or even the ins and outs of loan interest, we should be under no illusion that they know what the score is. Many of their leaders are very clued up on the provisions of the Bill. The Government should reflect on whether this is the kind of measure which looks to fairly objective people as a handout, as a directing of money towards the better-off and something biased against the worst-off. Is this the time when such a change should be made, during delicate negotiations? If the cry is for restraint and that inflation is the major enemy, this measure seems to make no kind of sense, especially if no convincing argument can be adduced that it is a growth measure.

Lawyers and friends tell me that experience shows that giving loan interest rebates lends itself to precisely the kind of avoidance, and a whole ethos of avoidance. that my hon. Friend the Member for Heywood and Royton (Mr. Joel Barnett) spelled out. What sort of advice has the Treasury had on the possibilities of avoidance? This is not quite the same kind of question as I put yesterday on consulting outside bodies, but it is a perfectly serious question. How much discussion has there been on the possibilities of avoidance? Can the Government convince us that the allowance of relief on loan interest does not lend itself to avoidance in the way many people in the City have suggested?

[Mr. E. L. MALLALIEU in the Chair]

Photo of Mr Cecil Parkinson Mr Cecil Parkinson , Enfield West

The hon. Member for West Lothian (Mr. Dalyell) and the right hon. Member for Orkney and Shetland (Mr. Grimond) both made the same point, that the Clause will benefit a section of the community and that we as a party have been gearing our efforts in that direction. The relief is available only to those who pay interest, and the right hon. Member for Orkney and Shetland said that what is good for one should be good for all. But the Government can point to a substantial record of benefits given to people in need which are not available to everyone. We introduced the family income supplement for the working poor, which is not a benefit available to the rich but is exclusively available to those who need it.

Opposition Members do not make the point that we have introduced a range of benefits available only to those in need. All the time they say that the Conservative Party is discriminatory, that we give reliefs to people who borrow money and that those who do not borrow do not receive any relief. Obviously those who have no investment income do not pay tax on their investment income. It is misleading to go on about the benefit which may become available to one section without mentioning the 2½ million people who will pay no tax as a result of the Government's measures. When we came to power a man earning £20 a week, with two children, paid £60 a year in taxes, but he now pays no tax and qualifies for substantial benefits.

There are two sides to every coin. Labour hon. Members harp on about the railwaymen being very aware in their wage negotiations that there will be relief for loan interest. I hope that the railwaymen are also also aware that the same Government introduced substantial benefits for people who needed help, and that the railwaymen will stop trying to encourage inflationary wage settlements and wage demands by people whose needs are not always absolutely established. Labour hon. Members are misleading when they harp on as they do, and the right hon. Member for Orkney and Shetland also spoke in this vein.

4.45 p.m.

The hon. Member for Heywood and Royton (Mr. Joel Barnett) has not always felt about bank interest as he says he feels now. I have looked at the OFFICIAL REPORT of the Committee debates on the 1969 Finance Bill when he and his hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) pointed out some of the anomalies that arose from not giving any relief for loan interest. They did not vote with their Government when an Amendment was moved to allow relief for people borrowing money to acquire shares in companies they worked for.

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

If the hon. Gentleman reads through those debates fully he will find that my hon. Friends and I generally supported the Clause then proposed by my right hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins), but there were one or two small Amendments which eventually my right hon. Friend conceded.

Photo of Mr Cecil Parkinson Mr Cecil Parkinson , Enfield West

But only partially. The allowance to people who wanted to borrow money to buy shares in companies was fairly limited, and the relief given was very limited. That in its turn produced a great number of anomalies. The hon. Gentleman talked amusingly about anomalies when he spoke about VAT, but there were substantial anomalies in the relief he and his hon. Friends squeezed out of the then Chancellor. There are still very serious anomalies. I cannot see why it should be right to allow relief on money borrowed to buy shares in a private company or closed company but not to buy shares in ICI if one happens to work for it. It is a crazy situation when a large number of our labour force are excluded from relief on money borrowed to buy shares to obtain a stake in their company. We said at the last General Election that the anomalies arising from abolition of the relief were very serious and that we would remedy them, bringing back relief.

I share a number of my hon. Friend's misgivings about the first £35. I accept that the Chancellor's argument that 1,000 additional civil servants would be involved in extending the relief is very valid, but I hope that later we shall be able to reconsider the matter and extend the relief to the first £35 of interest paid.

What we are doing is right. It is all very well to say that a number of very rich people will enter into schemes, but the hon. Gentleman and I know that if this provision is not available they will look for another. We are talking about a tiny group. If we made a law so watertight that it caught them, it would make life impossible for the rest of us. The Government can point to the fact that avoidance schemes are being made less valuable by their cutting the overall rate of tax for all. We are devaluing the currency of tax avoidance schemes based on exorbitant rates of tax.

The hon. Gentleman returned to a favourite theme of his, which is constantly repeated from the Opposition benches, that there is disincentive effect in high taxation. I do not believe him. I invite him to stand with me outside the gates of any factory in my constituency and talk about its being no disincentive. He would be laughed out of court, and he knows it. Being a practising accountant, he knows, as I do, that we spend a lot of time advising people who want to get on with the job of building up their businesses but have been forced or encouraged to divert too much of their energies towards working out how not to pay the excessive taxes imposed by him and his hon. Friends. We are creating a system in which people have incentives to get on with doing the job they are best at. We are reducing the value of the tax avoidance schemes, cutting into the value of the tax avoidance lawyer.

The overall effect of the Bill will not be what the hon. Gentleman says it will be. It will create a freer, more enterprising environment, and I welcome that.

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

I agree in one respect with the hon. Member for Enfield, West (Mr. Parkinson). The Clause is the other side of the family income supplement coin; it is the family income supplement for rich families. The only difference is that it is more like a family capital supplement, because it provides them with capital at very low rates of interest.

The only conclusion we can come to about the exclusion of the first £35 is that the Clause has been drafted for purely party political motives. It has no relevance to the pursuit of a just and equitable tax system. It has no relevance to reducing unemployment, and it will do nothing to alleviate the serious economic situation. It is intended primarily as a reward for those few people, most of them based on the City, who just before the last election made a substantial investment in the Tory Party and have seen their investment treble and quadruple. The Clause is the second half of a package deal. The first half appeared last year, when the Chancellor abolished the short-term capital gains tax. This year he is removing the discrimination, as the Government call it, against interest payments, thereby enabling the rich speculator to convert his income into capital by using borrowed money subsidised by the general taxpayer.

The Government cannot make a case in logic or justice for making interest payments deductible. One Conservative Member tried to argue that there was some kind of hallowed principle enshrined in the income tax legislation that interest payments should be deductible. A better case could be made out for allowing other expenditure, such as rent, rates and the cost of food. There is no such principle. The deduction for interest payments crept into the original income tax legislation mainly for the purpose of assessment machinery. The reasons have now disappeared.

I should like to quote briefly from a judgment by Viscount Radcliffe on this matter in the House of Lords, in the case of the Commissioners of Inland Revenue v. Frere. He said: …it is irrelevant to the determination of a person's taxable income that some part of it has been expended by him on what would normally be regarded as his own income account, in paying rent, wages, mortgage interest, rates, insurance, for example, or that the payments that he makes for such purposes will themselves constitute or contribute to assessable income in the recipient's hands.…The mere fact, then, that part of a taxpayer's income has been used to pay interest on a loan during a year, even assuming that you visualise 'income' as a separate spending fund, would not in itself set up a reason for reducing the assessment of his taxable income. The payment of the interest, whether long or short, would be no more. for this purpose, than an 'application' of his income. But if a case can be made out on grounds of social justice—and it can in certain circumstances—for some interest payments to be deductible, it cannot be made out in the way the Government have drafted this Clause. If considerations of justice and equity had arisen in their minds, they would have at least allowed the first—35 and disallowed the balance. In that way, they would at least have been spreading the benefit over a wider group of people, generally the less well off in substance than the minority who are actually to benefit.

Reference has been made to the amount of loan one can borrow from the bank on which the interest would be about £35. Possibly one could get a loan of £400, but not much more. The Government are, however, to exclude loans of £400 or so, although this might be the kind of amount that a young married couple, for example, might secure for the purchase of such things as kitchen appliances. The Government are excluding that kind of interest payment in favour of long interest payments on loans of more than £400 up to £20,000.

Thus, a rich man may borrow £20,000 from the bank, being able to set off the interest—say, £2,000 a year—against his other income. He will be able to buy a capital asset, which he may well sell within a few months at a profit which will be taxable on 30 per cent. The interest payments will be deductible against his other income. It does not matter that the capital asset produces no income. He will have made some real money, as they would say in the City, having converted his money into low rates of interest. It is not a case of avoidance or of abuse or of finding one's way round the Clause. The Clause does it all for one. This is a deliberately drafted device by a Tory Chancellor to enable the rich to convert income into capital and to do so by money borrowed at very low rates of interest.

Another indication of the political motive behind the Clause is in subsection (1)(b). This deals with short-term interest, which is the interest on bank overdrafts and various other short-term loans meant to be repaid fairly quickly. This is right in the case of loans from banks and discount houses. It is fair enough to allow deductibility of interest in such cases. But tucked away in the middle of subsection (1)(b) there is a reference to stockbrokers' loans. It stipulates that the interest paid in respect of loans from stockbrokers will qualify for this relief. I do not know how stockbrokers get into this. Banks and discount houses are in the business of lending money, but stockbrokers are not. They may lend money but they are not in the business of lending money; they are in the business of buying and selling shares. Solicitors and department stores, for example, also lend money, so why do stockbrokers alone creep in? I suggest that this is a very nice reward for the City.

What could be more convenient if one sees the opportunity to make a gain on a new issue, for instance? A man goes to the stockbroker saying that he has no money to buy the shares. He borrows the money from the stockbroker. The stockbroker buys the shares for him. They are sold again within six months or so and there is a profit on 30 per cent. The stockbroker gets his quick return and commission. The man pays a low interest and gets a taxable gain on 30 per cent. The Inland Revenue will actually assist him to do so. He will pay 30 per cent. for the amount in relation to trading gain. This is all neatly tied up for the City, following the abolition of short-term capital gains tax. Under short-term capital gains tax, such a situation could not have arisen because a sale within a year would have attracted surtax and income tax. This is all part of a package. The Government could not put it all through last year because of a guilty conscience, but they have done it in stages.

Photo of Mr Peter Trew Mr Peter Trew , Dartford

Will the hon. Gentleman deal with the situation in which shares depreciate in value?

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

In times of roaring inflation, which the present Government have caused in the country, shares appreciate quickly in value—many of them at a rate of 8 or 10 per cent. That is the situation which obtains at present.

The Prime Minister, when worried by a guilty conscience, perhaps, took out Disraeli, dusted him down, and called for one nation. That is common practice with the Conservative Party in such circumstances. But how are the Government creating that mythical conception? If they really believe in one nation, they can make a start with this Clause. They can either withdraw it or accept the Amendment. Either way, they would be demonstrating their sincerity to the millions who support the conception of one nation. But they will not do it. They have no hope of securing the support of the unions or the working people when they introduce legislation of this kind. Not only do they have no hope of getting it—they do not deserve to get it.

5.0 p.m.

Photo of Captain Walter Elliot Captain Walter Elliot , Carshalton

The hon. Member for Llanelly (Mr. Denzil Davies) jibes at us for making speeches endeavouring to create one nation. But hon. Members opposite. including himself, are always making speeches designed to create two nations—but perhaps that is a little outside the Amendment.

I take a fairly simple approach to this matter. It is the balance of interest as between the taxpayer and the tax gatherer. I hope that I might take hon. Members opposite along with me on that point. It often seems to me that all the scales are weighted against the taxpayer, as I think they are in this case. After all, we all pay tax on our deposit accounts and surely we should then get relief on our overdrafts. That seems to me the opposite side of the coin. High and low alike pay tax on their overdrafts and I, like most others who have spoken, do not quite understand why the figure of £35 is in the Clause. As my hon. and learned Friend the Member for Nelson and Collie (Mr. Waddington) said, I do not recall any qualification of our pledge that relief on overdraft interest would not apply to £35 or below. I thought that we had given an unqualified pledge and I hope that in the end we shall be able to carry it out.

I presume that the line is drawn in some way to help business and those who have quite large loans, but, of course, for every person who borrows over, say, £1,000, there must be 10,000 people who have much lower overdrafts than that. It seems to me, therefore, that some sort of value judgment has been made here and that it may be at fault. I am afraid it bears all the hallmarks of a Treasury departmental value judgment and perhaps not one by my hon. Friend the Financial Secretary, who, I hope, will he able to give us some encouragement that this matter will be looked at again with a view to helping the many small people who, for very good reasons, sometimes want small overdrafts.

Photo of Mr Peter Rees Mr Peter Rees , Dover

The hon. Member for Heywood and Royton (Mr. Barnett) concentrated, as he so often does, on tax avoidance, and he was, of course, supported in a sharply partisan speech by the hon. Member for Llanelly (Mr. Denzil Davies). But we know that behind their partisanship they both conceal considerable expertise in these matters. Indeed, the hon. Member for Heywood and Roy-ton made our mouths water by hinting at the various schemes of tax avoidance that he might now indulge in, but left it to us to approach him professionally outside the Chamber.

Photo of Mr Peter Rees Mr Peter Rees , Dover

The hon. Gentleman's modest disclaimer will not put us off.

It is apt to remind the Committee, including the hon. Members for Heywood and Royton and Llanelly, that all the Government are attempting to do is to restore if not completely the position to what it was before 1969. This is not a new, novel concept introduced to buy off the supporters of the Tory Party. It is simply a measure of elementary justice putting back the position to what it was before it was tampered with in such an ill-judged manner by the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins). I am sorry that the right hon. Gentleman has left the Chamber and is not contributing to our debate, because he could make a notable contribution.

It is interesting to look back on the debates in 1969 when the provision disallowing loan interest relief was first introduced. The right hon. Member for Stechford and, more particularly, Lord Diamond, did not concentrate on tax avoidance on that occasion but on the need to restrain consumption—a point picked up today by the right hon. Member for Orkney and Shetland (Mr. Grimond). There was an interesting passage between my right hon. Friend the present Home Secretary and Lord Diamond, when my right hon. Friend put to Lord Diamond that when there was no longer any need to restrain consumption the provision disallowing interest relief might be repealed. Lord Diamond rather deftly changed the balance and said that there was another principle underlying the provision—that one should be allowed to deduct relief only in the nature of business expenses. The theme of the Labour Government then was that it was necessary to restrain consumption. Contrary to what the right hon. Member for Orkney and Shetland has said, there is no longer any need to restrain consumption. It may arise again in future but at the moment we are suffering cost-push inflation and not demand-push inflation. If one were to carry this through and be logical, there should not even be a limit of £35. I am a little unhappy about that limit, although I recognise the balance of administrative complications as opposed to the desirability of abolishing the limit.

I do not believe that the sums of money borrowed and whose interest will be affected by these provisions are borrowed primarily for consumption. It is not easy to prove this—nor is it easy to prove that the money will be borrowed for tax avoidance schemes. Such schemes sound easy when outlined rather cursorily in our debate but they bristle with practical difficulties. So we should not be overenthusiastic about adopting various suggestions made by the hon. Member for Llanelly, who was thrown a little off-balance by a timely intervention from my hon. Friend the Member for Dartford (Mr. Trew).

In my experience, the sums of money borrowed on the kind of scale which will produce interest of more than £35 a year are borrowed for the acquisition of productive assets and are not always for the purpose of speculation. It is easy to label a whole class of persons as specu1'itors and think that that concludes the argument, but we are not over-concerned, at this particular point, with the motives of the person in borrowing, but more with the consequences. I have yet to be persuaded that those who are so glibly and loosely dismissed as speculators necessarily harm the economy. A reasonable case can be advanced for saying that they assist the market, helping to loosen it up.

As my hon. Friend the Member for Enfield, West (Mr. Parkinson) cogently pointed out, many people borrow not necessarily to speculate but to acquire an interest in their own firms. The Spartan simplicity of the conception which underlay the measure which the Labour Government introduced to disallow loan interest relief became rapidly eroded in Committee, when it was pointed out to the Government how many hard cases the provision would create. One of the hard cases for which they were compelled to make concessions was that of people who were going to buy a substantial interest in close companies. I see the hon. Member for Heywood and Royton nodding assent. If that kind of concession is to be made, why not make a concession for an employee of ICI, Courtaulds or Shell who wished to buy a stake in his company? Such a motive is equally meritorious. It is such a case that will be relieved beyond doubt by this Measure.

It would perhaps be churlish in the light of that to join issue with my hon. Friend the Financial Secretary at any point on the Clause. However, the Government have sought to distinguish in the Clause relief for annual interest paid on loans from banks, stockbrokers and discount houses. I am sure that the hon. Member for Llanelly, with his professional experience, knows that this Clause has a very long history indeed and that such relief goes back at least 50 years.

My question to my hon. Friend the Financial Secretary is: why cannot this relief be extended right across the board to annual interest and to short interest from whatever source? I acknowledge that this would be an innovation, but it would have the merit of simplicity and it would tidy the whole thing up administratively. If we say that for administrative reasons we must limit this relief to loans with interest exceeding £35 a year, why not admit that same administrative argument and concede the argument right across the board? Subject to that one small point, which I hope that my hon. Friend the Financial Secretary will look at before Report, I support the Clause with enthusiasm and I reject with scorn the specious argument in the name of the hon. Member for Heywood and Royton.

Photo of Mr John Nott Mr John Nott , St Ives

This has been an interesting and quiet debate. When I look at hon. Members opposite I cannot help recalling the very long and interesting debates we had on this subject in Standing Committee and on Report of the 1969 Finance Bill. 1 recall that the measures which were announced in 1969 by the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) received to some extent in Standing Committee a muted welcome from one or two hon. Members. I am endeavouring to be fair, but I must say that the then Financial Secretary—the right hon. Member for Manchester, Cheetham (Mr. Harold Lever)—was absent during a fair proportion of those debates. To imply that there was complete unanimity of view about the 1969 measures of the then Labour Administration is probably putting it rather too firmly.

I remember also the reasons given at the time of the 1969 Budget by the then Chancellor—the right hon. Member for Stechford—for introducing this measure. He ended his remarks on this issue by saying this: By attacking the problem of loans for personal expenditure at both ends, discouraging borrowers as well as lenders, I expect to secure a substantial reduction in consumer demand"—[OFFICIAL REPORT, 15th April, 1969: Vol. 781, c. 1041.] This was one of the principal purposes of the right hon. Member for Stechford when he introduced the disallowance of interest. The wish to restrict consumer demand has not been very evident from the speeches and actions of the Opposition over the past few months.

I recognise the concern which has been expressed about inflation. I take it rather more seriously from the right hon. Member for Orkney and Shetland (Mr. Grimond) and from my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley). However, the case for the measure in the Clause was never one surrounding the whole subject of demand and demand management. The Govern- ment are pursuing expansionary policies and this measure does not conflict with those objectives. With unemployment at its present high level, to try to restrict consumer demand—the right hon. Gentleman indicated that he was concerned about this aspect of my right hon. Friend's measure—would be likely to cut back on the activity rate in the economy at present when we already have a very substantial surplus of capacity and it probably would not have any effect on the rate of inflation.

5.15 p.m.

The purpose underlying the Clause is quite different from either of the points that I have mentioned. It is to end the anomalies which were created by the 1969 legislation. I will quickly remind the Committee of some of the problems which arose from the measure introduced by the Labour Government at that time.

Photo of Mr Tam Dalyell Mr Tam Dalyell , West Lothian

The hon. Gentleman used the word "expansion". Is this the proper moment to inquire about the effect on growth?

Photo of Mr John Nott Mr John Nott , St Ives

My right hon. Friend the Chancellor of the Exchequer discussed his policies for the expansion of the economy in his Budget statement. I have nothing to add to or detract from the comments my right hon. Friend then made.

Photo of Mr Tam Dalyell Mr Tam Dalyell , West Lothian

Is this measure claimed to be a measure for growth?

Photo of Mr John Nott Mr John Nott , St Ives

I was saying that this measure was not related to the question of the management of demand in the economy. I am going on to give the principal reasons for introducing the Clause.

The concentration of reliefs for interest into several special areas, which is what happened in the 1969 legislation, led, as hon. Members who served on the Finance Bill Committee at that time know, to a whole host of anomalous and distorted situations. The following four concessions were granted in Committee by the then Labour Government—interest on loans to a working proprietor of a close company; interest on loans to acquire plant and machinery; interest on a loan to executors to pay estate duly and annual interest on loans contracted before 1969.

Nevertheless, although these concessions were made, they did not remove the principal anomaly, which is that a businessman can borrow to offset his borrowing, but the private individual cannot. In an intervention yesterday the Shadow Chancellor gave a very vivid description of the man who took his children to school in a Rolls-Royce. I cannot understand why it should be all right in the philosophy of the Labour Party for this rich man to take his children to school in a Rolls-Royce purchased on his business but that somehow there is something wrong with his taking his children to school in a Rolls-Royce when it is purchased by himself.

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

Does the Minister of State accept that the businessman or company director taking his child to school in his Rolls-Royce would be paying for that himself and not out of his business?

Photo of Mr John Nott Mr John Nott , St Ives

No. If this particular businessman was taxed under Schedule D, as he may well be, it would be perfectly possible for him to arrange for the Rolls-Royce to be bought by his business. Under the 1969 legislation this would have been allowable for tax.

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

Perhaps, but I see that the Chief Secretary is looking at the Minister of State. Perhaps the two Ministers should have discussions. The proportion of the capital cost and of the running costs for taking the child to school would certainly be disallowed and would be paid, not out of tax, but by the man. If the law has changed, I should be very interested to hear it.

Photo of Mr John Nott Mr John Nott , St Ives

The question of the running costs of the Rolls-Royce is an entirely different issue.

Photo of Mr John Nott Mr John Nott , St Ives

Yes. I was referring to the purchase of the asset, and that is entirely different.

A very anomalous situation was thrown up for the Schedule D taxpayer carrying on a business following the 1969 legislation, in that he was able to draw as much as he wanted out of his business for his personal expenditure and then borrow the money to refinance the business, treating the interest as a business expense. The Clause will remove this principal anomaly and a host of others and restore the position which succesive Governments recognised as being fair and proper right up to 1969.

Something has been said in these debates, principally by hon. Members opposite, about the benefits which the Clause will bring to the wealthy. We must get the basic facts straight. A person who is paying 15s. in the £ in tax will benefit more from most tax allowances in absolute terms than his compratriot who pays 5s. in the amp; in tax. This situation derives, not from the allowances, but from the high rates of tax.

I do not understand—I say this to the right hon. Member for Orkney and Shetland and about most of the comments made from the other side—why the Opposition should argue that rates of tax should rise progressively with incomes but that this principle should not apply conversely to tax relief. The argument is not logical.

The situation was recognised perfectly clearly by the Crowther Committee, which said on page 341 of its report: It is, of course, clear that the discrimination, or apparent discrimination, between the first man and the second"— this is the very high taxpayer and the low taxpayer— arose not out of the relief attracted by the payment of interest, but out of the rates of tax to which their incomes were subject at the margin". That is where the situation arises. It is not anything to do with the tax relief as such. It is only under a regressive system of taxation that tax reductions can yield more in absolute terms to the poor than to the rich.

Several hon. Members have spoken about the effects that the Clause will have in the country. I will outline some of the things that my right hon. Friend did in his Budget. Many people were taken out of the tax bracket who would otherwise have paid tax in 1972–73. The threshold was raised to £1,116. Ninety-six per cent. of the total amount of £1,200 million in a full year which was made available through the increase in the personal allowances went to those with incomes under £4,000 a year, and nearly 60 per cent. went to those with incomes under £2,000 a year.

I do not think it is right to say, looking at the Budget as a whole, that it can be considered as anything other than one of the fairest and least partisan budgets of recent years. This measure must be seen in that context.

I come now to the Amendments. The object of Amendment No. 67 is to limit interest relief in all cases to interest not exceeding a gross rate of 12 per cent. Its effect would be to replace the rule in the Bill disallowing relief in excess of a reasonable commercial rate with a rule disallowing interest in excess of a gross rate of 12 per cent.

I listened with care to the remarks made by my hon. Friend the Member for Harrow, East (Mr. Dykes) in propounding the Amendment. I still do not see any reason for disallowing interest as long as it is paid at a reasonable commercial rate, whether or not that rate exceeds 12 per cent. As my hon. Friend said, the expression "a reasonable commercial rate" is used in other tax Statutes. In this instance it makes a great deal of sense. If the sponsor of the Amendment advocates that ceiling as a measure of consumer protection, any such ceiling should apply to the rate of interest itself and not to the tax relief on the interest, which is, after all, what we are debating. As my hon. Friend will be aware, this would bring us into the realm of the Moneylenders Acts, and that is a matter for the Department of Trade and Industry.

The Crowther Committee considered this point and came to the conclusion that what was reasonable from the lender's point of view depended on the circumstances of the transaction and bore no necessary relationship to what was socially harmful or otherwise. It depends on the nature of the transaction. Clearly, the commercial rate in a hire purchase transaction with a bank overdraft and a secured mortgage will be different in every case, and it is not likely that the safeguard will be needed, but it needs to be there in case of unusual circumstances which we are unable to foresee.

I come now to the official Opposition Amendment No. 102. If we gave relief on interest paid only against the income for the tax year in question from the asset purchased with the sums borrowed, the effect would be to confine relief under the Clause to income-producing capital assets. In theory there is attraction in the argument that interest should be allowable as an expense only against income which the taxpayer receives as a result of paying the interest, but the idea suggested in the Amendment is not practical for the reasons I shall give.

A taxpayer may be forced to borrow in order to retain income-producing assets which he would otherwise be forced to sell—that would not be covered by the Amendment—or, having bought such assets with borrowed money, he may sell them and buy other income-producing assets while the loan remains outstanding; or he may borrow to pay for the maintenance of the income-producing assets in order to maintain the income yield. The Amendment is far too restrictive and would throw up a great many anomalies.

The main objection to the idea underlying the Amendment is that, except in such cases as a building society mortgage taken out in connection with the acquisition of a house, there is no legal connection between the source of the money which is borrowed and the way in which the money is spent.

At the time of the 1969 Finance Bill this very Amendment was considered and rejected by the then Labour Government. In moving the Second Reading of the 1969 Finance Bill the then Chief Secretary to the Treasury, now Lord Diamond, said: The second argument which is put forward is that where a loan has been used to buy income-producing assets the interest on that loan should be treated as a deduction for tax purposes.…It would mean that anybody who had some capital and borrowed money could claim the interest for tax purposes, whereas anybody who did not have capital would not be able to claim the interest."—[OFFICIAL REPORT, 6th May, 1969; Vol. 783, c. 296.] The Amendment would benefit those who already have capital against those who wish to build it up. I therefore leave it to Lord Diamond—than whom no better source is available—to give for me the reason why we do not find the Opposition Amendment acceptable.

5.30 p.m.

I will briefly try to answer one or two smaller points made by the hon. Member for Heywood and Royton. He raised the question of insurance policies—"borrow-all" policies was the term he used. The Measures in the 1968 Finance Act introduced by the Labour Government are still on the Statute Book. We did not feel there was any need to add to them or to take them away. In so far as Measures exist to prevent the sort of transactions about which the hon. Gentleman was concerned, we shall be relying on legislation put forward by his own Government, and I hope that will satisfy him.

The hon. Gentleman mentioned the £2,000 limit. We set the limit at £2,000 as a matter of political judgment. It might have been some other figure, but we felt that was a fair limit. The £7 million cost has been mentioned by several hon. Gentlemen. That is the cost. At the time of the 1969 Measure the cost was said to be much higher. I will come now to the £35 limit, which concerned several of my hon. Friends, and explain why we set the limit at this level. The cost is £7 million—and I give the hon. Member for Heywood and Royton that assurance——

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

In the Financial Statement the cost of £7 million is shown against income tax. There is no reference to the cost against surtax. Is it an additional figure for surtax or is the total figure £7 million?

Photo of Mr John Nott Mr John Nott , St Ives

I shall have to consult the Red Book and give the answer to that later.

In dealing with the £35 limit I can do no better than repeat the remarks made by my right hon. Friend the Chancellor in his Budget statement. He said, referring to the earlier remarks he had made about the Crowther Committee report: I also made it clear that the burden on the Administration must be a major factor and that reallowance without restriction would require 1,000 extra trained staff.…For the reasons I explained last year, there cannot be relief for ordinary hire purchase transactions. That, of course, has always been the position..For administrative reasons at present, and to maintain equity as between different forms of credit, the first £35 of all interest paid will not qualify for tax relief except in the case of loans for house purchase."—[OFFICIAL RFPORT, 21st March, 1972; Vol. 833, c. 1370.] I do not think I can add to that statement of my right hon. Friend.

The Measures conform to the request of the Crowther Committee Report, page 345, and leave the ordinary purchaser of goods on hire purchase in precisely the same position as he is at present. I believe that the proposals are right in equity because they apply right across the board and nobody, as a result of the £35 limit, can be affected by more than £10. It is a significant amount of money but not a very large one.

I conclude by saying that the Clause will remove the anomalies created by the Labour Government's Measures of 1969 and restore the position recognised by all Governments up to that time. It places individuals back in the same position as private businesses and, much no doubt to the surprise of the Opposition, it meets yet another of the Conservative Party's pledges made at the last election. I commend the Clause to the Committee.

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

I had thought that in this debate we should have had presented to us the reason in principle why the Clause is included in the Bill. We have had some interesting arguments from hon. Gentlemen opposite. The hon. Member for Harrow, East (Mr. Dykes) told us that the Clause helped a large number of borrowers. The hon. and learned Member for Nelson and Colne (Mr. Waddington) told us that it was an elementary right. The hon. and learned Member for Dover (Mr. Peter Rees) told us that it was an elementary piece of justice. But no case has been made for allowing interest. The only case presented by the Minister was on the question of anomalies.

The hon. Member for Enfield. West (Mr. Parkinson) said that only a small amount of avoidance would arise and if the Government did not have this method of avoidance they would have other methods of avoidance. That is a guide to future Chancellors of the Exchequer. It is an interesting suggestion that one method of avoiding tax should not be removed because if it is the experts will only find another method. I suppose the answer is for the Chancellor to seek methods of tax avoidance to include in the Finance Bill to save the tax experts the trouble of looking for them.

Photo of Mr Cecil Parkinson Mr Cecil Parkinson , Enfield West

What I said was—as the hon. Member for Heywood and Roy-ton (Mr. Joel Barnett) knows better than anyone—that if people are determined to avoid or evade taxes they will find a way of doing so and that there has not been. and never will be, a watertight Finance Bill. I went on to say that to make a Finance Bill watertight would be to make life impossible. I was not asking for an easy way of avoiding tax. I do not think there will be much avoidance. I think the hon. Gentleman is grossly overstating the possibilities.

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

The hon. Gentleman has repeated what he said before, and I do not think I did him an injustice. He was arguing that we should not be too bothered about this, because it is a complicated method of tax avoidance which was open only to a select few. I agree with him on that.

The Minister of State said that the purpose of the Clause was to remove anomalies. I accept that it does remove some anomalies and in that respect it is comparable to VAT. VAT removes the anomalies in purchase tax but, after what has been said in the last five days, I do not think either the Minister of State or the Financial Secretary would argue that there are no anomalies in VAT.

Although I accept that the Clause removes some anomalies, there are still some anomalies which remain in the matter of loan interest. There is a level of £35 below which interest is not allowed. An Amendment was tabled which went some way towards meeting the views of some hon. Gentlemen opposite in that it allowed interest only below £35 and not beyond it. I agree that it is a matter of political judgment where the limit should be set, but in setting the figure at £35 the Minister is creating new anomalies.

The Minister of State said that the £2,000 level was also a matter of political judgment, and I accept that. That round figure obviously has great attractions to the Chancellor since it applies to investment income as well. But that is working in a different way, although it is of considerable benefit to a similar group of people. By putting on a figure of £2,000 new anomalies will be created, but the biggest anomaly of all is that hire-purchase interest will not be allowed.

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

It is not now, I agree, so there is the anomaly that hire-purchase interest is disallowed, whereas on money borrowed from a bank to buy the same goods interest is allowed.

The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) pointed out that interest in this sense is a sort of purchase, whether it is on hire purchase or on money borrowed from a bank. Once we start in this minefield there will obviously be a large number of anomalies, but this one is the biggest, and the Chancellor has done nothing about it. If that is the only purpose of the Clause the Minister of State has made no case for it.

The case against the Clause has been made very well by my hon. Friends the Members for Sheffield, Attercliffe (Mr. Duffy) and Llanelly (Mr. Denzil Davies). There were also some further very interesting comments by the hon. Member for Cirencester and Tewkesbury and also by the right hon. Gentleman the Member for Orkney and Shetland (Mr. Grimond).

The hon. Member for Cirencester and Tewkesbury agreed with the Clause, with the idea behind it, though he did not give any reason why, but he said that it was not perhaps suitable now. I do not think I am doing him an injustice by saying that that was what he was arguing, that it was not really suitable now, because—I took down his words—it would contribute to inflation. This is what he said. He went on to say that it would help the better off. Those were the words he used. Of course, nobody can dispute that. That is inevitable about this Clause. Of course it will help the better off.

On the question of inflation and the sort of boosting of inflation inherent in this Clause, the Minister of State had nothing to say. It is a fact, as the hon. Gentleman said, that money at times of inflation—such as this Government are presiding over—is not too valuable: that what one needs to do is to buy assets. What that does is push up prices of those assets. We have seen it, and are seeing it, all the time. This Government are not only in their whole economic policy presiding over inflation but they are now giving it a further boost by this Clause.

Photo of Mr John Nott Mr John Nott , St Ives

It is true to say, is it not, that the 1969 legislation tended to concentrate the purchase of assets into land, in particular, because borrowing against land was allowed? I do not know how the hon. Gentleman can make this point, when his own measures were responsible for doing this.

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

The hon. Gentleman is now saying that, before, this allowance for interest was allowable against land and, therefore, was inflationary in that sense, but he is now trying to make it inflationary over a much wider field. He is not trying to solve the problem. What he is trying to do is to broaden it. So now we have a situation where, as the Chancellor says, people buy antiques, or stocks and shares. Anything anybody cares to think of people can buy. This is the hon. Gentleman's solution to the problem. It is a very interesting one, very interesting indeed.

I think it was the right hon. Member for Orkney and Shetland who pointed out that it is not surprising that railwaymen and dockers learn from this. They will not buy stocks and shares. They will not have the opportunity of using this Clause, but when the Chancellor of the Exchequer tells those groups of workers, and others, that when they submit wage claims they should exercise restraint—I think that that was the word used by somebody in the debate: the right hon. Member for Orkney and Shetland. I think—It might be a good idea if he were also to tell those people who are waiting for this Clause to be passed to use it.

Photo of Mr John Nott Mr John Nott , St Ives

I am sorry, but I must go back to the hon. Gentleman's answer to my original intervention. This Measure does not in itself increase the total amount of money in circulation. The hon. Gentleman said that it broadens the areas in which money can be invested. That is perfectly true. It broadens them beyond land, which is one of the things which he allowed, but this Measure does not increase the total amount of money in circulation.

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

This is a very interesting argument, and I should like to pursue it for an odd moment, because what the hon. Gentleman is now saying is that we have the same amount of money in circulation but he is broadening it, as he himself has conceded; so what he is doing is taking the same amount of money and broadening the field in which it is going to be used. This is the case he is making, and, of course, it is precisely what I am saying, that by doing this he gives a further boost to inflation in all those other fields. The Clause inevitably gives a boost to inflation, as his hon. Friend pointed out to him. This is the crazy situation created by this Clause.

This is not the intention, because the Clause, the hon. Gentleman said, was not intended to boost consumption. This is not the purpose, because, as his hon. and learned Friend the Member for Dover pointed out, the sort of people borrowing to take advantage of the Clause will not be using it for consumption purposes; but it makes possible capital gains, either tax free by buying in gilts and borrowing less than £2,000, or saving capital gains of 30 per cent. in purchasing antiques and so on. These are the ways in which the Clause will be used, and this is what the Minister intends.

5.45 p.m.

It was obvious that the Minister was arguing that, if we increase these allowances, clearly the top taxpayer benefits most. The Minister instanced taxpayers paying 75 per cent. rate of tax. Obviously, if we increase the allowances they will benefit most from that. That is perfectly true, so what this Chancellor decides to do is not just increase personal allowances in this respect for everybody but to give a small increase in allowances purely for a very small and select few paying 75 per cent. tax and higher. That was his argument. That was what he was saying.

He went on to boast about the increased allowance. What in fact he was doing was boasting about the rate of inflation he presides over. He would not have needed to have increased personal allowance to anything like the same degree if we had not had the rate of inflation which we have had in the last 18 months. He could have boasted about an even higher personal allowance if he had presided over an even higher inflation. What a strange argument he made.

The hon. Gentleman said our Amendment is restrictive. Of course it is. That is its intention. It is restrictive. It does at least have the principle, as he was prepared to concede, of allowing interest only against the income producing the asset.

The hon. Gentleman said there would be administrative problems if he accepted it. I accept that there are administrative problems in that. That is why I would prefer, rather than make this Amendment to the Clause, to throw out the Clause altogether, and that is what I

invite my right hon. and hon. Friends to do.

Question put, That the Amendment be made:—

The Committee divided: Ayes 181, Noes 197.

Division No. 186.]AYES[5.47 p.m.
Albu, AustenHarper, JosephOswald, Thomas
Allen, ScholefieldHarrison, Walter (Wakefield)Padley, Walter
Archer, Peter (Rowley Regis)Healey, Rt. Hn. DenisPalmer, Arthur
Armstrong, ErnestHoram, JohnPannell, Rt. Hn. Charles
Ashley, JackHoughton, Rt. Hn. DouglasPardoe, John
Aston, JoeHughes, Rt. Hn. Cledwyn (Anglesey)Parry, Robert (Liverpool, Exchange)
Atkinson, NormanHughes, Mark (Durham)Pavitt, Laurie
Barnett, Joel (Heywood and Royton)Hughes, Robert (Aberdeen, N.)Pentland, Norman
Baxter, WilliamHunter, AdamPerry, Ernest G.
Benn, Rt. Hn. Anthony WedgwoodJanner, GrevillePrentice, Rt. Hn. Reg.
Bennett, James (Glasgow, Bridgeton)Jay, Rt. Hn. DouglasPrescott, John
Bishop, E. S.Jenkins, Hugh (Putney)Price, J. T. (Westhoughton)
Blenkinsop, ArthurJenkins, Rt. Hn. Roy (Stechford)Rankin, John
Booth, AlbertJohn, BrynmorReed, D. (Sedgefield)
Broughton, Sir AlfredJohnson, James (K'ston-on-Hull, W.)Rees Peter (Dover)
Brown, Bob (N'c'tle-upon-Tyne,W.)Johnston, Russell (Inverness)Richard, Ivor
Brown, Hugh D. (G'gow, Provan)
Brown, Ronald (Shoreditch & F'bury)Jones,Rt.Hn.Sir Elwyn(W.Ham,S.)Roberts, Albert (Normanton)
Buchan NormanJones, Gwynoro (Carmarthen)Robertson, John (Paisley)
Buchanan, Richard (G'gow, Sp'burn)Jones, T. Alec (Rhondda, W.)Rodgers, William (Stockton-on-Tees)
Callaghan, Rt. Hn. JamesKaufman, GeraldRoper, John
Campbell, I. (Dunbartonshire, W.)Kelley, RichardRoss, Rt. Hn. William (Kilmarnock)
Carter, Ray (Birmingh'm, Northfield)Kinnock, NeilRowlands, Edward
Castle, Rt. Hn. BarbaraLambie, DavidSandelson, Neville
Cronin, JohnLamond, JamesSheldon, Robert (Ashton-under-Lyne)
Crosland, Rt. Hn. AnthonyLawson, GeorgeShort, Mrs. Renee (W'hampton.N.E.)
Cunningham, G. (Islington, S.W.)Lee, Rt. Hn. FrederickSillars, James
Dalyell, TarnLestor, Miss JoanSilverman, Julius
Davies, Denzil (Llanelly)Lever, Rt. Kn. HaroldSkinner, Dennis
Davies, (for (Gower)Lewis, Arthur (W. Ham, N.)Smith, John (Lanarkshire, N.)
Davis, Terry (Bromsgrove)Lewis, Ron (Carlisle)Spearing, Nigel
Deakins, EricLipton, MarcusSpriggs, Leslie
Dempsey, JamesLomas, KennethStallard, A. W.
Doig, PeterLoughlin, CharlesSteel, David
Douglas, Dick (Stirlingshire, E.)Lyon, Alexander W. (York)Stewart, Donald (Western Isles)
Duffy, A. E. P.Lyons, Edward (Bradford, E.)Stoddart, David (Swindon)
Dunnett, JackMabon, Dr. J. DicksonStrang, Gavin
Eadie, AlexMcBride, NeilSummerskill, Hn. Dr. Shirley
Edelman, MauriceMcCartney, HughSwain, Thomas
Edwards, Robert (Bilston)McElhone, FrankThomson, Rt. Hn. G. (Dundee, E.)
Edwards, William (Merioneth)Mackenzie, GregorThorpe, Rt. Hn. Jeremy
Ellis, TomMackie, JohnTinn, James
English, MichaelMackintosh, John P.Tuck, Raphael
Ewing, HarryMaclennan, RobertUrwin, T. W.
Faulds, AndrewMcMillan, Tom (Glasgow, C.)Varley, Eric G.
Fletcher, Ted (Darlington)Mallalieu, J. P. W. (Huddersfield, E.)Wainwright, Edwin
Foley, MauriceMarks, KennethWalden, Brian (B'm'ham, All Saints)
Foot, MichaelMarsden, F.Walker, Harold (Doncaster)
Ford, BenMarshall, Dr. EdmuundWallace, George
Freeson, ReginaldMason, Rt. Kn. RoyWalkins, David
Galpern, Sir MyerMayhew, ChristopherWeitzman, David
Garrett, W. E.Meacher, MichaelWhite, James (Glasgow, Pollok)
Gilbert, Dr. JohnMellish, Ri. Hn. RobertWhitlock, William
Ginsburg, David (Dewsbury)Mendelson, JohnWilley, Rt. Hn. Frederick
Golding, JohnMikardo, IanWilliams, Mrs. Shirley (Hitchin)
Gourlay, HarryMillan, BruceWilson, Alexander (Hamilton)
Grant, George (Morpeth)Morris, Alfred (Wythenshawe)Wilson, Rt. Hn. Harold (Huyton)
Grant, John D. (Islington, E.)Morris, Charles R. (Openshaw)Woof, Robert
Grimond, Rt. Hn. J.Moyle, Roland
Hamilton, James (Bothwell)Murray, Ronald KingTELLERS FOR THE AYES:
Hamilton, William (Fife, W.)O'Halloran, MichaelMr. James Wellbeloved and
Hamling, WilliamOrme, StanleyMr. James A. Dunn.
Hannan, William (G'gow, Maryhill)
Adley, RobertBalniel, Rt. Hn. LordBlaker, Peter
Allason. James (Hemel Hempstead)Barber, Rt. Hn. AnthonyBoardman, Tom (Leicester, S.W.)
Amery, Rt. Hn. JulianBeamish, Col. Sir TuftonBody, Richard
Atkins, HumphreyBell, RonaldBoscawen, Hn. Robert
Baker. W. H. K. (Banff)Bennett, Dr. Reginald (Gosport)Bossom, Sir Clive
Bowden, AndrewHordern, PeterOsborn, John
Braine, Sir BernardHowe, Hn. Sir Geoffrey (Reigate)Owen, Idris (Stockport, N.)
Brinton Sir TattonHowell, David (Guildford)Page, Graham (Crosby)
Brocklebank-Fowler, ChristopherHowell, Ralph (Norfolk, N.)Parkinson, Cecil
Brown, Sir Edward (Bath)Hutchison, Michael ClarkPeyton, Rt. Kn. John
Bruce-Gardyne, J.Iremonger, T. L.Pike, Miss Mervyn
Buchanan-Smith, AlicMAngus,N&M)Jenkin, Patrick (Woodford)Pink, R. Bonner
Bullus. Sir EricJessel, TobyPounder, Rafton
Butler, Adam (Bosworth)Johnson Smith, G. (E. Grinstead)Powell, Rt. Hn. J. Enoch
Campbell, Rt.Hn.G.(Moray&Nairn)Jopling, MichaelPrior, Rt. Hn. J. M. L.
Chapman, SydneyKaberry, Sir DonaldProudfoot, Wilfred
Churchill, W. S.Kellett-Bowman, Mrs. ElainePym, Rt. Hn. Francis
Clark, William (Surrey, E.)Kilfedder, JamesRawlinson, Rt. Hn. Sir Peter
Clarke Kenneth (Rushcliffe)King, Evelyn (Dorset, S.)Reed, Laurance (Bolton, E.)
Clegg, WalterKing, Tom (Bridgwater)Rees, Peter (Dover)
Cooke, RobertKinsey, J. R.Ridley, Hn. Nicholas
Coombs, DerekKirk, PeterRoberts, Wyn (Conway)
Cooper, A. E.Knox, DavidRost, Peter
Corfield, Rt. Hn. FrederickLane, DavidRoyle, Anthony
Cormack, PatrickLangford-Holt, Sir JohnRussell, Sir Ronald
Costain, A. P.Legge-Bourke, Sir HarrySt. John-Stevas, Norman
Crouch, DavidLe Marchant, SpencerSharpies, Richard
Dalkeith, Earl otLongden, Sir GilbertSimeons, Charles
Davies, Rt. Hn. John (Knutsford)Loveridge, JohnSinclair, Sir George
Deedes, Rt. Hn. W. F.Luce, R. N.Skeet, T. H. H.
Dixon, PiersMcCrindle, R. A.Speed, Keith
Drayson, G. B.McLaren, MartinSpence, John
Dykes, HughMaclean, Sir FitzroyStainton, Keith
Edwards, Nicholas (Pembroke)McMaster, StanleyStanbrook, Ivor
Elliot, Capt. Walter (Carshalton)McNair-Wilson, MichaelStoddart-Scott, Col. Sir M.
Emery, PeterMcNair-Wilson, Patrick (New Forest)Stokes, John
Eyre, ReginaldMaddan, MartinStuttaford, Dr. Tom
Fell, AnthonyMadel, DavidSutcliffe, John
Fenner, Mrs. PeggyMaginnis, John E.TapSell Peter
Fisher, Nigel (Surbiton)Marples, Rt. Hn. ErnestTaylor, Sir Charles (Eastbourne)
Fletcher-Cooke, CharlesMarten, NeilTaylor,Edward M.(G'gow,Cathcart)
Fookes, Miss JanetMather, CarolTaylor, Frank (Moss Side)
Fortescue, TimMaude, AngusTebbit, Norman
Fox, MarcusMaudling, Rt. Hn. ReginaldTemple, John M.
Gardner, EdwardMawby, RayThatcher, Rt. Hn. Mrs. Margaret
Gibson-Watt, DavidMaxwell-Hyslop. R. J.Traftord, Dr. Anthony
Gilmour, Sir John (File, E.)Meyer, Sir AnthonyTrew Peter
Goodhart, PhilipMills, Peter (Torrington)Tugendhat, Christopher
Goodhew, VictorMills, Stratton (Belfast, N.)Turton, Rt. Hn. Sir Robin
Gorst, JohnMitchell.Lt.-Col.C.(Aberdeenshire.W)Waddington, David
Gower, RaymondMoate, RogerWalker, Rt. Hn. Peter (Worcester)
Grant, Anthony (Harrow, C.)Molyneaux, JamesWalker-Smith, Rt. Hn. Sir Derek
Gray, HamishMonks, Mrs. ConnieWarren, Kenneth
Green, AlanMonro, HectorWhite, Roger (Gravesend)
Griffiths, Eldon (Bury St. Edmunds)Montgomery, FergusWiggin, Jerry
Grylls, MichaelMorgan-Giles, Rear-Adm.Wilkinson, John
Hall, John (Wycombe)Morrison, CharlesWinterton, Nicholas
Harrison, Brian (Maldon)Mudd, DavidWood, Rt. Hn. Richard
Hastings, StephenNabarro, Sir GeraldWoodhouse, Hn. Christopher
Hawkins, PaulNeave, AireyWoodnutt, Mark
Hayhoe, BarneyNicholls, Sir HermarWorsley, Marcus
Heseltine, MichaelNoble, Rt. Hn. MichaelWylie, Rt. Hn. N. R.
Higgins, Terence L.Normanton, TomYounger, Kn. George
Hiley, JosephNott, John
Hill, James, (Southampton. Test)Onslow, CranieyTELLERS FOR THE NOES:
Holland, PhilipOppenheim. Mrs. SallyMr. Bernard Weatherill and
Holt, Miss MaryOrr, Capt. L. P. S.Mr. Oscar Murton

Question accordingly negatived.

Question put, That the Clause stand part of the Bill:—

Division No. 187.

The Committee divided: Ayes 201, Noes 183.

Division No. 187]AYES[5.57 p.m.
Adley, RobertBody, RichardCarr, Rt. Hn. Robert
Allason, James (Hemel Hempstead)Boscawen, Hn. RobertChapman, Sydney
Amery, Rt. Kn. JulianBossom, Sir CliveChurchill, W. S.
Astor, JohnBowden, AndrewClark, William (Surrey. E.)
Atkins, HumphreyBraine, Sir BernardClegg, Walter
Baker, W. H. K. (Banff)Brinton, Sir TattonCooke, Robert
Balniel, Rt. Hn. LordBrocklebank-Fowler, ChristopherCoombs, Derek
Barber, Rt. Hn. AnthonyBrown, Sir Edward (Bath)Cooper, A. E.
Beamish, Col. Sir TuftonBruce-Gardyne, J.Corfield, Rt. Hn. Frederick
Bell, RonaldBuchanan-Smith, Alick(Angus,N&M)Cormack, Patrick
Bennett, Dr. Reginald (Gosport)Bullus, Sir EricCostain, A. P.
Blaker, PeterButler, Adam (Bosworth)Crouch, David
Boardman, Tom (Leicester, S.W.)Campbell, Rt.Hn.G.(Moray&Nairn)Dalkeith, Earl of
Davies, Rt. Hn. John (Knutsford)Kirk, PeterProudfoot, Wilfred
Deedes, Rt. Hn. W. F.Knox, DavidPym, Rt. Hn. Francis
Dixon, PiersLane, DavidRawlinson, Rt. Hn. Sir Peter
Dray son, G. B.Langtord-Holt, Sir JohnReed, Laurance (Bolton, E.)
Dykes, HughLegge-Bourke, Sir HarryRees, Peter (Dover)
Edwards, Nicholas (Pembroke)Le Merchant, SpencerRidley, Hn. Nicholas
Elliot, Capt. Walter (Carshalton)Longden, Sir GilbertRoberts, Wyn (Conway)
Emery, PeterLoveridge, JohnRost, Peter
Eyre, ReginaldLuce, R. N.Royle, Anthony
Fell, AnthonyMcCrindle, R. A.Russell, Sir Ronald
Fenner, Mrs. PeggyMcLaren, MartinSt. John-Stevas, Norman
Fisher, Nigel (Surblton)Maclean, Sir FitzroySharpies, Richard
Fletcher-Cooke, CharlesMcMaster, StanleySimeons, Charles
Fookes, Miss JanetMcNair-Wilson, MichaelSinclair, Sir George
Fortescue, TimMcNair-Wilson, Patrick (NewForest)Skeet, T. H. H.
Fox, MarcusMaddan, MartinSpeed, Keith
Gardner, EdwardMadel, DavidSpence, John
Gibson-Watt, DavidMarples, Rt. Hn. ErnestStainton, Keith
Gilmour, Sir John (Fife, E.)Marten, NeilStanbrook, Ivor
Goodhart, PhilipMather, CarolStoddart-Scott, Col. Sir M.
Goodhew, VictorMaude, AngusStokes, John
Gorst, JohnMaudling, Rt. Hn. Reginald
Gower, RaymondMawby, RayStuttaford, Dr. Tom
Grant Anthony (Harrow, C)Maxwell-Hyslop, R. J.Sutcliffe John
Gray, HamishMeyer, Sir AnthonyTapsell, Peter
Green, AlanMills, Peter (Torrington)Taylor, Sir Charles (Eastbourne)
Griffiths. Eldon (Bury St. Edmunds)Mills, Stratton (Belfast, N.)Taylor,Edward M.(G'gow,Cathcart)
Grylls, MichaelMitchell.Lt.-Col.C.(Aberdeenshire, W)Taylor, Frank (Moss Side)
Hall, John (Wycombe)Moate, RogerTebbit, Norman
Hannam, John (Exeter)Molyneaux, JamesTemple, John M.
Harrison, Brian (Maldon)Monks, Mrs. ConnieThatcher, Rt. Hn. Mrs. Margaret
Hastings, StephenMonro, HectorTrafford, Dr. Anthony
Hawkins, PaulMontgomery, FergusTrew, Peter
Hayhoe, BarneyMorgan-Giles, Rear-Adm.Tugendhat, Christopher
Heseltine, MichaelMorrison, CharlesTurton, Rt. Hn. Sir Robin
Higgins, Terence L.Mudd, Davidvan Straubenzee, W. R.
Hiley, JosephNabarro, Sir GeraldWaddington, David
Hill, James (Southampton, Test)Neave, AireyWalker, Rt. Hn. Peter (Worcester)
Holland, PhilipNicholls, Sir HarmarWalker-Smith, Rt. Hn. Sir Derek
Holt, Miss MaryNoble, Rt. Hn. MichaelWarren, Kenneth
Hordern, PeterNormanton, TomWeatherill, Bernard
Howe, Hn. Sir Geoffrey (Reigate)Nott, JohnWhite, Roger (Gravesend)
Howell, David (Guildford)Onslow, CranleyWiggin, Jerry
Howell, Ralph (Norfolk, N.)Oppanheim, Mrs. SallyWilkinson, John
Hutchison, Michael ClarkOrr, Capt. L. P. S.Winterton, Nicholas
Iremonger, T. L.Osborn, JohnWood, Rt. Hn. Richard
Jenkin, Patrick (Woodford)Owen, Idris (Stockport, N.)Woodhouse, Hn. Christopher
Jessel, TobyPage, Graham (Crosby)Woodnutt, Mark
Johnson Smith, G. (E. Grinstead)Parkinson, CecilWorsley, Marcus
Jopling, MichaelPeyton, Rt. Hn. JohnWylie, Rt. Hn. N. R.
Kaberry, Sir DonaldPike, Miss MervynYounger, Hn. George
Kellett-Bowman, Mrs. ElainePink, R. Bonner
Kilfedder, JamesPounder, RaftonTELLERS FOR THE AYES:
King, Evelyn (Dorset, S.)Powell, Rt. Hn. J. EnochMr. Oscar Murton and
King, Tom (Bridgwater)Price, David (Eastleigh)Mr. Kenneth Clarke.
Kinsey, J. R.Prior, Rt. Hn. J. M. L.
Albu, AustenCastle, Rt. Hn. BarbaraFord, Ben
Allen, ScholefieldCronin, JohnFreeson, Reginald
Archer, Peter (Rowley Regis)Crosland, Rt. Hn. AnthonyGalpern, Sir Myer
Armstrong, ErnestCunningham, G. (Islington, S.W.)Garrett, W. E.
Ashley, JackDalyell, TamGilbert, Dr. John
Ashton, JoeDavies, Denzil (Llanelly)Ginsburg, David (Dewsbury)
Atkinson, NormanDavies, Ifor (Gower)Golding, John
Barnes, MichaelDavis, Terry (Bromsgrove)Gourlay, Harry
Barnett, Joel (Heywood and Royton)Deakins, EricGrant, George (Morpeth)
Baxter, WilliamDempsey, JamesGrant, John D. (Islington, E.)
Benn, Rt. Hn. Anthony WedgwoodDoig, PeterGrimond, Rt. Hn. J.
Bennett, James (Glasgow, Bridgeton)Douglas, Dick (Stirlingshire, E.)Hamilton, James (Bothwell)
Bishop, E. S.Duffy, A. E. P.Hamilton, William (Fife, W.)
Blenkinsop, ArthurDunnett, JackHamling, William
Booth, AlbertEadie, AlexHannan, William (G'gow, Maryhill)
Broughton, Sir AlfredEdeiman, MauriceHarper, Joseph
Brown, Bob (N'c'tle-upon-Tyne,W.)Edwards, Robert (Bilston)Harrison, Walter (Wakefield)
Brown, Hugh D. (G'gow, Provan)Edwards, William (Merioneth)Healey, Rt. Hn. Denis
Brown, Ronald (Shoreditch & F'bury)Ellis, TomHoram, John
Buchan, NormanEnglish, MichaelHoughton, Rt. Hn. Douglas
Buchanan, Richard (G'gow, Sp'burn)Ewing, HarryHughes, Rt. Hn. Cledwyn (Anglesey)
Callaghan, Rt. Hn. JamesFaulds, AndrewHughes, Mark (Durham)
Campbell, I. (Dunbartonshire, W.)Fletcher, Ted (Darlington)Hughes, Robert (Aberdeen, N.)
Carter, Ray (Birmingh'm, Northfield)Foley, MauriceHunter, Adam
Carter-Jones, Lewis (Eccles)Foot, MichaelJanner, Greville
Jay, Rt. Hn. DouglasMason, Rt. Hn. RoySillars, James
Jenkins, Hugh (Putney)Mayhew, ChristopherSilverman, Julius
Jenkins, Fit. Hn. Roy (Stechford)Meacher, MichaelSkinner, Dennis
John, BrynmorMellish, Rt. Hn. RobertSmith, John (Lanarkshire, N.)
Johnson, James (K'ston-on-Hull, W.)Mendelson, JohnSpearing, Nigel
Johnston, Russell (Inverness)Mikardo, IanSpriggs, Leslie
Jones,Rt.Hn.Sir Elwyn(W.Ham,S.)Millan, BruceStallard, A. W.
Jones, Gwynoro (Carmarthen)Mitchell, R. C. (S'hampton, Itchen)Steel, David
Jones, T. Alec (Rhondda, W.)Morris, Alfred (Wythenshawe)Stewart, Donald (Western Isles)
Kaufman, GeraldMorris, Charles R. (Openshaw)Stoddart, David (Swindon)
Kelley, RichardMurray, Ronald KingStrang, Gavin
Kinnock, NeilO'Halloran, MichaelSummerskill, Hn. Dr. Shirley
Lambie, DavidOrme, StanleySwain, Thomas
Lamond, JamesOswald, ThomasThomson, Rt. Hn. G. (Dundee, E.)
Lawson, GeorgePadley, WalterThorpe, Rt. Hn. Jeremy
Lee, Rt. Hn. FrederickPalmer, ArthurTinn, James
Lestor, Miss JoanPannell, Rt. Hn. CharlesTuck, Raphael
Lever, Rt. Hn. HaroldPardoe, JohnUrwin T W
Lewis, Arthur (W. Ham, N.)Parry, Robert (Liverpool, Exchange)Varley, Eric G.
Lewis, Ron (Carlisle)Pavitt, LaurieWainwright, Edwin
Lipton, MarcusPentland, NormanWalden, Brian (B'm'ham, All Saints)
Lomas, KennethPrentice, Rl. Hn. Reg.Walker, Harold (Doncaster)
Loughlin, CharlesPrescott, JohnWallace, George
Lyon, Alexander W. (York)Price, J. T. (Westhoughton)Watkins, David
Lyons, Edward (Bradford, E.)Rankin, JohnWeitzman, David
Mabon, Dr. J. DicksonReed, D. (Sedgefield)Wellbeloved, James
McBride, NeilRees, Merlyn (Leeds, S.)White, James (Glasgow, Pollok)
McCartney, HughRichard, IvorWhitlock, William
McElhone, FrankRoberts, Albert (Normanton)Willey, Rt. Hn. Frederick
Mackenzie, GregorRobertson, John (Paisley)Williams, Mrs. Shirley (Hitchin)
Mackie, JohnRodgers, William (Stockton-on-Tees)Wilson, Alexander (Hamilton)
Mackintosh, John P.Roper, JohnWilson, Rt. Hn. Harold (Huyton)
Maclennan, RobertRoss, Rt. Hn. William (Kilmarnock)Woof, Robert
McMillan, Tom (Glasgow, C.)Rowlands, Ted
Mallalieu, J. P. W. (Huddersfield.E.)Sandelson, NevilleTELLERS FOR THE NOES:
Marks, KennethSheldon, Robert (Ashton-under-Lyne)Mr. Ernest G. Perry and
Marsden, F.Short. Mrs. Renée (W'hampton.N.E.)Mr. James A Dunn.
Marshall, Dr. Edmund

Questsion accordingly agreed to.

Clause 71 ordered to stand part of the Bill.

[Mrs. JOYCE BUTLER in the Chair]