That is certainly true. I do not know which is the chicken and which is the egg. It is the expectation of inflation by foreigners which tends to make them mark the pound down. On the other hand, it is the fact that the pound is marked down by foreigners which causes inflation to be manifested by rising import prices. Perhaps the two are just two sides of the same coin. Until we persuade those who deal in our currency that we intend to make it a stronger currency, through our domestic and internal actions, they will continue to hold it speculatively.
I think that the right hon. Gentleman was on to a major fallacy in saying that the pound had been dragged down in the wake of the dollar. I do not see how. I do not see why. I do not see that there can be any connection between the value of the pound and the value of the dollar now that they are floating the one against the other. I will admit the coincidence that the movements have been roughly the same, but I suspect the connection, if there is one, is because the pound and the dollar are regarded as the weak currencies and the franc, the yen and the mark are regarded as the strong currencies. So in hunting to find the right parities people tend to move large sums of money against both the pound and the dollar at the same time. They may well be right. If that is what they think the pound is worth, who are we to tell them that they are wrong?
Who are these people who move these large sums? They are mostly the oil rich sheikhs and the Middle East oil countries. The right hon. Gentleman talked about underdeveloped countries and ways in which we can help them. I wonder whether some of these underdeveloped Middle East countries with 80 billion dollars at their disposal could not help us a little. We are becoming the underdeveloped of the world and they are becoming the magnets which have the money.
The only way we can defend ourselves against them in the long term will be for us so to devalue the currencies which we have that their reserves become worth less. The only way for them to defend themselves against that is for them to buy up our real property and our equities so that they effectively earn our currencies. This is a big problem facing us.
The second fallacy of the right hon. Gentleman was that the fact that our currency is low—he seemed to think it was undervalued, as did my right hon. Friend the Chancellor—is in some way disastrous or bad. I do not see why. Surely it was the fact that the yen was undervalued for so long that led to the great Japanese export victory which distorted the Japanese economy to the point where it made it possible for the Japanese to undercut most of the civilised industrial nations with their exports.
If there is a disadvantage to be found in currency parities, it surely lies in having an overvalued currency, as the right hon Gentleman's predecessor, the right hon. Member for Cardiff, South-East (Mr. Callaghan), would testify after his long battle to defend the overvalued pound against the balance of payments crises which he suffered.
My belief is that if the pound is undervalued—it may well be that it is—the buyers and sellers of the pound may have got the value of the pound temporarily wrong themselves. The right hon. Gentleman seemed to suggest that the simple imposition of J curves one upon another led to everything going downwards. As the down strokes are stored up so are the upstrokes stored up. The one problem we do not face is a balance of payments crisis. I think we cannot have one. The problem we face remains inflation.
I have been diverted, Mr. Speaker, by the fascinating topic which the right hon. Gentleman introduced into our debate.
Would it be in order for me now to say a few words about the Finance Bill and then to sit down?
I thank the Treasury team for all the care and consideration they gave to the amendments both in Committee and on Report and for their very great readiness to listen and to accept arguments. We were a happy team both upstairs and downstairs. The only regret was that the Shadow Chancellor of the Exchequer has appeared so fleetingly to grace our debates. He is rather like the Duke of Plaza Toro; he leads his army from behind. He appears and makes a vituperative attack, leaves the Chamber, and takes no part in the reorganisation.
I want to leave two points in my right hon. Friend's mind about next year's Finance Bill. First, the near confrontation which occurred in Committee over the question of corporation tax for unquoted companies and for small companies is not yet properly resolved. I am not even sure after our debates what is the right answer. I know only that we have not yet arrived at the right answer. I hope that more thought can be given to that.
The second point which is lodged in my mind is that we have now got a first-class system of direct personal taxation of income. Hon. Members may argue about whether the rates are too high or too low, but I believe the system to be absolutely first class.
We have not got yet a first-class system of taxation of capital. I refer to the share incentive schemes. A worker can take an option on a share at 70 per cent. of the market value and perhaps sell it seven years later for 150 per cent., but he will he required to pay 30 per cent. capital gains tax on that increase when he comes to sell his share. This might well involve him in paying more tax than if he had taken the money in wages. Indeed, he may well find that he has not a gain at all because of the ravages of inflation.
Although I see the case for taxing windfall gains made by rich people, at the same time we are taxing the savings of small people which may be dwindling in real value due to inflation, as the Page Report has shown, and of any gain they can make to restore that real value we are taking 30 per cent. for the Exchequer.
This is the reverse of a fair taxation system, which should not be regressive. The better-off should pay more. In the case of capital gains, coupled with a 10 per cent. annual rate of inflation at which we are running, we have ended up in a situation which is not fair and which is not equitable. Those who are suffering are those who perhaps do not know and who perhaps are too old to take too much trouble to find out and perhaps are not at all well-off, yet their savings are being decimated by a mixture of inflation and capital gains tax.
I want my right hon. Friend to admit that inflation exists and to think deeply for his next Budget about the reform of the taxes on capital. They need not be thinking about estate duty now. Heaven knows that that was ripe for reform. There is a problem which can no longer be brushed under the carpet, because we all now know that inflation is taking place. We cannot pretend that it is not. It is a major abuse that the capital value of savings—I am not talking about the rich; that is a different problem; redistribution comes into that; I am talking about the savings of the less well off—is being decimated by this mixture of capital gains tax and inflation. I believe that that is the area on which the Government should concentrate in future.
I welcome the Bill. I thank my right hon. Friend for his courtesy in Committee and I hope that the Bill will contribute as another major building block in the massive and impressive tax reforms which this Government have carried out.