Orders of the Day — Taxation

– in the House of Commons at 12:00 am on 21st February 1978.

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4.8 p.m.

Photo of Mr Peter Rees Mr Peter Rees , Dover and Deal

I beg to move. That this House condemns Her Majesty's Government for raising excessive amounts in taxation and for doing so in such a way as to penalise hard work, stifle enterprise and increase unemployment; and calls for a substantial and continuing reduction in the burden of direct taxation in preference to an increase in public expenditure.

Photo of Mr George Thomas Mr George Thomas , Cardiff West

I have selected the Government amendment.

Photo of Mr Peter Rees Mr Peter Rees , Dover and Deal

By a fortunate coincidence this debate succeeds by a few days the Chequers conference at which, we are credibly informed, the Government debated their Budget strategy. In due course, perhaps, some latter-day Crossman will tell us precisely what position any particular Member of the Government took up. But for the moment it must be a matter for conjecture. But at least today's debate—[Interruption.] I do not suggest that the Chief Secretary may have been writing beneath the Cabinet table. But if he did, we shall look with great interest to the first edition of his memoirs which, no doubt, will not be long delayed as soon as he passes into Opposition.

But for the rest of us, and perhaps more especially for the hon. Member for Cornwall, North (Mr. Pardoe)—may I congratulate him on having dug himself out of the snow and having reached the debate today—the motion will enable us to debate these options, too. Speaking for myself, and I hope for my right hon. and hon. Friends. I am old-fashioned enough to believe that these are matters which should more properly be debated in the House of Commons rather than behind closed doors with the Trades Union Congress or, indeed, at Transport House.

More than that, it will give Government spokesmen a chance to reconcile their published utterances with their performance and with the aspirations of Transport House and Mr. Jack Jones who, of course, has just retired with distinction but who no doubt still exercises a considerable influence over the fiscal destinies of the Labour Party which he has supported for so long. Finally, it will give Government spokesmen a chance to reconcile their position with that of the hon. Member for Cornwall, North, and this will be an interesting intellectual exercise.

I remind the House that we had a somewhat similar debate last year, on 3rd March. I am sorry that the Chief Secretary does not propose to participate in the debate today. He might find the words that he uttered on that occasion making a rather unpalatable diet today, 12 months later. It might tax even his robust political digestion. Although I know his memory to be infallible, I remind him of what he said on that occasion: I agree that the levels of direct taxation are too high. I have said this on numerous occasions both in the country and in the House. Equally, we have made clear that it is our intention to reduce them, but the extent to which any Government can reduce the burden of personal taxation, or taxation generally, must depend on the economic and industrial performance of the nation and the level of total national income."—[Official Report, 3rd March 1977; Vol. 927, c. 656.] By that test, the economic and industrial performance of the nation must have been very dismal. Indeed, we know it to have been so, and we know that the level of the total national income has hardly increased at all.

With that, I shall turn if I may to the Government's amendment. It welcomes the start Her Majesty's Government has made in reducing levels of direct taxation; applauds Her Majesty's Government's success in controlling inflation and restoring financial stability; recognises the need to provide adequate public services; and notes that the present Conservative leadership is still wedded to old fashioned dogmas which in the past created so much squalor, social divisiveness and injustice.". Those are fine, ringing words, but let us test them against the facts. Let us see what kind of start has been made.

We have had 1 per cent. off the basic rate. Personal allowances are less in real terms than they were in 1973. Inflation is possibly down to single figures, but not less than that. As for financial stability, the January trade figures have taken a little of the brightness out of the false dawn of October. As regards the level of public services, I only remind the House of the conclusions of the Labour Home Affairs Committee under the inspiring presidency of the right hon. Member for Bristol, South-East (Mr. Benn).

If there has been a start, it has been so protracted and so spiritless as to be imperceptible to the taxpayers in this country. It is now nearly four years since the first General Election in 1974, and I understand that in April we shall have to congratulate the Chancellor of the Exchequer on being the longest surviving Chancellor in this century. However, I say to him that longevity is no substitute for success.

I think that we are entitled, therefore, to stand back and contemplate the right hon. Gentleman's handiwork and to contemplate the tax structure and the rates to which he has dedicated his not inconsiderable talents. There is nothing like the comment of a candid friend, and I remind the Chancellor of the comment last year of the hon. Member for Cornwall, North who described our tax system as "a Gothic nightmare". The hon. Gentleman is always enamoured of his own phrases, and I have no doubt that if I had not quoted him he would have quoted the comment on this occasion. Perhaps I have relieved him of that burden.

On this occasion, the hon. Member for Cornwall, North presumably considers that the tax structure is equally excessive, equally Gothic and equally bizarre, but he condemns successive Governments for raising excessive amounts in income tax. How far he goes back in his historical analysis I know not. It may be that he will catch your eye later in the debate, Mr. Deputy Speaker. It may be that he will have to go back to Gladstone to find a respectable ancestor for the position which he will be adopting today. Certainly Mr. Lloyd George was not reticient in the amounts which he was prepared to raise by way of income tax.

I congratulate the Government on this occasion that, with the doubtful and possible exception of Denmark—and I am happy to leave comment on the tax structure of a friendly Power to Mr. Mogens Glistrup—we have the worst-constructed, most ill-balanced and oppressive system of direct taxation of any country in the Common Market.

I say that for a variety of reasons. First, the Government have over-relied on direct as opposed to indirect taxation. The latest analysis shows, for instance, that France relies for only 11 per cent. of its budget on direct taxation, Italy 19 per cent., Germany 27 per cent. and the United Kingdom 37 per cent. I hope that I shall carry with me the hon. Member for Cornwall, North at least on this part of my analysis.

Secondly, this Government have placed over-emphasis on capital taxes. Again we are without doubt the sole country in the EEC which derives anything like such a proportion of its direct taxes from taxes on capital. If that was not sufficient, we understand from Transport House that we are to expect a wealth tax some time in the not-too-distant future.

Thirdly, our taxes on income bear harshly, without any apparent design, at every level. My hon. Friend the Member for Norfolk, North (Mr. Howell), to whose researches I pay tribute, has identified with great precision the poverty trap. His conclusions have been amply reinforced by the slightly more academic investigations of the Meade Committee.

If I may start at the lower levels of the employment market, income tax at 34 per cent. and national insurance contributions totalling 40 per cent. start to bite at the poverty line and often below it. It can be readily demonstrated that the marginal rates, if means-tested benefits are taken into account, sometimes reach 100 per cent.—for instance, in the case of a married man with two children earning £35 a week. Does the Chief Secretary regard that as a sparkling example of the success of the fiscal policies over which he has presided during the past four years?

I move a little higher up the scale and come to the person on average earnings. There was an illuminating encounter between my hon. Friend the Member for Chingford (Mr. Tebbit) and the Prime Minister in the debate on the Gracious Speech. I recall the Prime Minister, fumbling for his papers, saying that he had a jolly good answer which would destroy the Tory Party. I can only conclude that he is now so insulated in his broad Sussex acres that he is no longer in touch with the person on average earnings. I would encourage the right hon. Gentleman perhaps to spend a little more time, as he did in the past, in the counting houses of Cardiff where perhaps he might receive rather more brutal and direct advice on this problem.

The position on this can be summarised easily. A married man on average earnings is now paying more in tax and national insurance contributions out of a smaller real income than he did in 1973. More than that, proportionately he is paying away a greater part of his income than any comparable person in any other country of the Common Market.

I move a little higher up the scale and come to middling incomes—[Interruption.] The hon. Member for Birmingham. Perry Barr (Mr. Rooker) is no doubt concerned with management and no doubt he will attempt to catch your eye, Mr. Deputy Speaker, to reinforce what I am about to say. I notice the very telling amendment in his name and that of the hon. Member for Coventry, South-West (Mrs. Wise). I am glad that that alliance has survived the test of time and no doubt it will be put to good use in our debates on the Finance Bill.

Photo of Ms Audrey Wise Ms Audrey Wise , Coventry South West

Perhaps the hon. and learned Gentleman will comment on the last phrase of our amendment, which is and notes that there is no valid case for tax hand-outs to the rich".

Photo of Mrs Elaine Kellett Mrs Elaine Kellett , Lancaster

Including the miners?

Photo of Mr Peter Rees Mr Peter Rees , Dover and Deal

I know that the hon. Lady would not perhaps be over-moved by anything I would have to say on that point so I will quote to her the words of the Chief Secretary, leaving her to battle it out with him. He is so good at textual analysis that I should like him on this occasion to put a gloss on his own words, to which I will come later. At present I am dealing with the middle income group. Even on that the Chief Secretary has words of wisdom which I am happy to quote. They could hardly have come better from the EEC Bench: I want to turn to the question of the erosion of differentials. I have said on numerous occasions that we recognise that the combination of the incomes policies of successive Governments, together with tax increases and inflation, has considerably eroded the differentials between the highest and the average paid, between the unskilled and the skilled, and between those in work and those out of it. I have never hidden the fact that I recognise that there is a problem with which we must deal. But we are still waiting because the only way in which we can deal with that problem is by dealing with the basic rate of tax. If the Chief Secretary is a little coy about those words I would remind him that he can derive support from Mr. Hugh Scanlon who puts it in language such as he and we might welcome: There is an absolute need to restore differentials—that is incontrovertible—and not just between crafts but also among the middle employed and among professional people. Failure to use financial inventives as a means of motivation may significantly erode job performance". We can say that again and again. Those words may well qualify Mr. Scanlon for the award of a Companion of Honour from these Benches.

Moving a little higher up the scale, to assuage the anguish of the hon. Lady, if one is successful, difficult though it may be in the prevailing economic climate, in pushing one's income above £6,000, one's tax rate will increase up to 83 per cent. Here again the Chief Secretary has words of wisdom: The disincentive applies particularly to entrepreneurs, professional people and others who begin to feel that there is no point in earning more. … It would be comparatively cheap. … to give substantial relief for those at the top end of the scale". I hope that the hon. Lady will take the Chief Secretary to task if she cannot accept those lapidary words.

Then, one retires loaded with honour, perhaps with a pension of some kind, and this is where social divisiveness creeps in as between the inflation-proofed pension and unearned income. On the latter, derived from savings from unearned income, there are rates up to 98 per cent. There is social divisiveness between those who have inflation-proofed pensions in the public sector and those who have to depend on personal savings.

Finally, to end on a tragic note, aggregating a lifetime of generosity, the hot breath of the taxman is already on the shoulders of one's executors and 75 per cent. is taken away in capital transfer tax.

How did such a crazy, absurd structure come to be erected? I believe that it can shortly be stated—that it derived from the improvidence and malevolence of the Government against a background of continuing inflation.

Photo of Mr Max Madden Mr Max Madden , Sowerby

Some could argue that the hon. and learned Gentleman has a vested interest in the complexities of the tax system as a tax barrister. Would he agree that the likely consequence of a substantial reduction in direct personal taxation would be a substantial increase in indirect taxation? Would he therefore agree that as indirect taxation bears most heavily on the poorest, a move in that direction is not in the interests of low-paid workers?

Photo of Mr Peter Rees Mr Peter Rees , Dover and Deal

I am grateful to the hon. Gentleman for intervening. Let me tell him that on a personal front I am always happy to work politically to the disadvantage of my own professional interests, but I do not think that that was the point of his intervention. Let me remind him of what the Chief Secretary said—that VAT would be nothing like as regressive as we have often thought". It is all there. As the late Aneurin Bevan said, why gaze into the crystal ball when one can read the book? If the hon. Gentleman will look at the volumes of Hansard he will find all this coming from the mouths of his hon. and right hon. Friends.

How did this incredible structure come to be erected? In the first instance, the Chancellor of the Exchequer was so busy winning the October 1974 General Election, placating his hon. Friends below the Gangway, so busy relishing the howls of anguish which he hoped to extract—and did extract—from the rich that he did not realise that he was doing damage, possible irreparable damage, to the social and economic strength of the country.

Ever since those happy halcyon days, we have had the Government Front Bench fluttering their sensitive hands over levels of taxation, as though the tax machine were some kind of juggernaut kept in Somerset House over which they had very little control and about which they were slightly alarmed. They have been sending out emissaries to discover what can be done to remedy the position, and to discover whether any self-employed business men still exist. As a recent Answer has demonstrated, they are a very rare species in this country—7·2 per cent. of the whole work force of the country, compared with 17·3 per cent in Japan Perhaps there is a moral to be drawn there We are entitled to ask, what have the British people to show for four years of hard labour? A higher standard of living? Higher employment? Better economic performance? A higher system of public services?

What of the future? I can only turn again to the words of the Chief Secretary. He said last year that there were four ways of obtaining substantial tax reductions. There was increased borrowing power, which he rejected, as I do. There were cuts in public expenditure, though he said it was difficult to ask workers to accept a pay deal on the basis that there might be cuts in public expenditure. There is no need to ask for massive cuts in public expenditure. Let us wait and see. Let us consider the Expenditure White Paper, which no doubt we shall be debating in a couple of weeks' time. It is constructed on the basis of an increase in public expenditure of 2 per cent. The Treasury evidence to the Select Committee put it at 4 per cent., but on some views it is more likely to be 8 per cent. Obviously, a standstill in public expenditure would give substantial room for manoeuvre to the Government in the fiscal field.

Then the Chief Secretary suggested a switch from direct to indirect taxation, which I give to the hon. Member for Sowerby (Mr. Madden). He said on that occasion that VAT would be nothing like as regressive as we often thought … but it cannot be done over-night."—[Official Report, 3rd March 1977, Vol. 926, c. 666–72]— [HON. MEMBERS: "The hon. and learned Gentleman has said that twice."] Of course I say it twice because these are words of wisdom which we must mark and repeat up and down the country, though for the moment I am content to repeat them back to the Chief Secretary. I hope the hon. Member for Cornwall, North took notice of what the Chief Secretary said on that occasion. I wonder whether he has noticed that nothing has been done about VAT over the past 12 months. I hope that he will join us in condemning the Government for having done nothing about a switch to indirect taxation.

Finally, the Chief Secretary said that we must have better economic growth than we have been able to achieve in recent years. He can say that again and again.

The Expenditure White Paper has been constructed, I understand, on the basis of growth of between 3 per cent. and 3½ per cent. next year. That, again, must be a factor making for a little more flexibility than possibly the Chief Secretary was prepared to discuss during those wintry afternoons in the snow at Chequers.

Beyond that there are two other factors. There is North Sea oil—and we await with eager anticipation the promised Green Paper, and we shall look forward to a debate on it. We shall look forward, too, to the forecast of the revenue that we are likely to derive from North Sea oil, which is bound to give the Government considerable scope for cutting taxes if they have set their heart on that particular objective.

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

I would not bank on that.

Photo of Mr Peter Rees Mr Peter Rees , Dover and Deal

The hon. Member, who is obviously privy to the internal debates of the Government, says that we should not bank on that. Time will show. I shall press the keener for this Green Paper and hope that it will appear before Easter.

Finally, there is the buoyancy factor. This is a factor to which I have never heard any right hon. or hon. Member on the Government Benches pay any attention. Of course, high rates lead to avoidance and evasion. There is no doubt about that. There is, of course, an almost paranoiac obsession on the Labour Benches below the Gangway with avoidance and evasion. Indeed, there is continuous pressure for the screw to be turned tighter and tighter. The latest offering from Transport House, I understand, is that in some way the residents of the Channel Islands should be subjected to United Kingdom rates of tax. I wait breathlessly to find out how those rates will be enforced over there.

With rates at their present level, we move into a kind of twilight world, the world of the "lump" and the 714 certificate, a world from which the divers have only just escaped, by the kind connivance of the Financial Secretary. I hope that he will explain precisely why it is that he found it necessary to exempt divers from Schedule E. I suspect that it was because he realised that they have a highly marketable skill and could take themselves abroad. What applies to divers applies to a whole range of other talents which are increasingly saleable in an international market. Beyond that, the Government have had to resort to the various shabby expedients of taxing fringe benefits while leaving such glaring anomalies as free coal.

The Government have increased the staff of the Inland Revenue from 69,000 in 1974 to 83,000 now with a further projected increase to 90,000. The only secure and, indeed, expanding range of jobs is to be found in the Inland Revenue. I have nothing against the Inland Revenue. There is a great deal of industry and talent locked up there which could be put to far better use outside the confines of Somerset House. Nowithstanding these extraordinary recruitment figures, the machine is still groaning. The 120th report says that the Inland Revenue staff are still under extraordinary pressure.

Against that background, the only two constructive ideas—perhaps I should describe them as destructive ideas—to emerge from the "think tank" of the Labour Party are, first, the taxation of Channel Islands residents, and secondly, a wealth tax. Will Labour Members themselves perhaps glance for a moment at the Irish precedent and notice that in Ireland the Minister for Finance has just repealed the wealth tax there on the basis that it has destroyed jobs and investment and has demoralised the country? Are the Government Front Bench too proud to follow the Irish example and say that they will have nothing more to do with the wealth tax? Even if they cannot cut taxes in this forthcoming Budget, I believe that the greatest fillip to morale in this country would be the unequivocal assertion that they will have nothing more to do with the wealth tax.

There are certain areas in which we shall look for something in the Budget, where we shall test strongly the sincerity of the Government's protestations. I mention first the marginal rates. As the Chief Secretary has said, it would be relatively cheap to do something for those paying the highest rates. To abolish the higher rates altogether would cost only £700 million. I would contend for half of that. Hon. Members laugh, but do they realise that £17 billion is taken by way of income tax at present, as compared with £7 billion, I think, in 1973? Then again, we shall look for something for the basic rate taxpayers.

The hon. Member for Putney (Mr. Jenkins), who is so concerned for the arts, might ponder what it might do for private patronage if the higher rate taxpayers were relieved of that burden. Here we have it. Patronage is apparently to be concentrated in the hands of the State. That, too, will be the material for another debate in due course.

Beyond that, let us look for something off the basic rate. To reduce it to 30 per cent. would cost £1,810 million—a considerable figure, but perhaps not more than the Government are prepared to mortgage in bringing in an intermediate rate. Let me put the Government on notice that certainly we on the Opposition Benches shall not regard an intermediate rate band as tackling in any measureable way the question of differentials. It will complicate the PAYE system, it will benefit single people at the expense of married couples and for most people any possible advantage would be immediately removed by the increase in national insurance contributions which is to come into force on 5th April.

Photo of Dr Jeremy Bray Dr Jeremy Bray , Motherwell and Wishaw

Will the hon. and learned Gentleman make clear that none of his proposals would have any effect at all on the poverty trap?

Photo of Mr Peter Rees Mr Peter Rees , Dover and Deal

I have not come to that. However, the question of the threshold, too, is important. The hon. Member may not have noticed that his right hon. Friend has already made some concessions to a most important amendment, which was—if I dare call it so—the brainchild of my hon. Friend the Member for Blaby (Mr. Lawson) and was carried with Conservative and Liberal votes in Standing Committee.

Photo of Mr Jeff Rooker Mr Jeff Rooker , Birmingham, Perry Barr

Before that inaccuracy is repeated throughout the debate let me say that the amendment on indexation was tabled in Standing Committee by myself and my hon. Friend the Member for Coventry, South-West (Mrs. Wise). It was further added to by the hon. Member for Blaby (Mr. Lawson) after we had taken the initiative.

Photo of Mr Peter Rees Mr Peter Rees , Dover and Deal

I apologise to the hon. Member and to the hon. Member for Coventry, South-West. Of course, I recollect the memorable interventions that they made. I hope that they will be repeated in the next Standing Committee on the Finance Bill. However, I remind the hon. Member that long before he ever strayed into those upper rooms, long before the Patronage Secretary was ever rash enough to put him on a Finance Bill Standing Committee—perhaps the Patronage Secretary will not repeat that this year; I do not know, but it must be a matter for delicate negotiations—and long before the hon. Member ever joined our ranks upstairs, we were debating such matters under the skilled, sophisticated guidance of my hon. Friend the Member for Blaby, to whose contributions I am very happy to pay tribute on this occasion.

Therefore, I say to the hon. Member that in this field our record is impeccable. It is we who have led, and the hon. Member and the hon. Lady have followed. We are always happy to have their support. If it should be that, with becoming modesty, the hon. Member jettisons his own amendment, we should welcome him in our Division Lobby tonight.

Photo of Dr Jeremy Bray Dr Jeremy Bray , Motherwell and Wishaw

Will the hon. and learned Gentleman please make clear that he is not proposing to do anything further at all to relieve the poverty trap?

Photo of Mr Peter Rees Mr Peter Rees , Dover and Deal

I have not said that. I am drawing up a menu. The Government will no doubt put prices on it, as I can, too. I am just indicating the areas in which we shall test the Government's sincerity. The hon. Member can wag his finger at me, but let us wait and hear what is in the Budget and let us wait to hear what the Financial Secretary tells us today, to our advantage or disadvantage.

I suspect that all that the Government are toying with at present, with the connivance of the hon. Member for Cornwall. North, is some kind of intermediate rate band that will have very little effect whatever on the poverty trap. At least the hon. Member for Motherwell and Wishaw (Dr. Bray) can make common ground with me on this: that an intermediate rate band will not solve the poverty trap. If that is all that is offered to us today or in the Budget, I hope that the hon. Member will join us in the Lobby and demonstrate what he feels about the crazy fiscal structure that has been erected over four years by a Government whom he has, off and on, supported.

Beyond that, the range is limitless. However, let us look at investment income surcharge. I believe that this will be pushed into the forefront of our debates, because we understand that there are to be some mouth-watering share incentive schemes to be peddled. Tax reliefs are to be offered. These are certainly ideas that find favour with me. I recall that it was the Prime Minister who first discriminated against share option schemes in the Finance Bill in 1967. The Conservative record on this is impeccable. We have always favoured this kind of scheme but we have never heard anything constructive from Labour Benches.

If we are to have share incentive schemes, work people in business must be offered shares in the company in which they work. Are dividends from these shares to be subject to the investment income supplement? If not, what is the respectable case left for taxing the retirement pensioner who is living on the savings of a lifetime and who has bought perhaps shares in the company in which he has worked.

We live in a mixed economy and the Government must be concerned about the free flow of private capital. What does the Chancellor propose to bring forward on capital transfer tax? Will he do anything to protect the family business or farm, or anything for forestry? What about capital gains tax? I hope that the Government Front Bench will not be to oppressed by the difficulties thrown up in the discussion paper emanating from Somerset House. We shall be looking for something substantial in this area, whether it is tapering or indexation. Do the Government believe that this tax is worth preserving at all?

These are areas in which the Government can demonstrate that they mean something with their fine words. They must demonstrate that they mean something more than a little cheap electioneer ing. I have the greatest doubts about their intentions. We have noticed a perceptible cooling of the atmosphere. The heady days of October and November, when everything seemed possible to the Chancellor of the Exchequer, have long passed. The brittle confidence of that Indian summer has been punctured by the January trade figures.

We must look to the inspired leadership of the Prime Minister. We have it on good authority from the British Ambassador in Washington that the Prime Minister sees himself as Moses leading us to the promised land.

Photo of Mr Ian Lloyd Mr Ian Lloyd , Havant and Waterloo

Was he found in the bullrushes?

Photo of Mr Peter Rees Mr Peter Rees , Dover and Deal

Who found whom in the bullrushes? I leave it to the Pencourt File to determine that.

We have been wandering in the wilderness for four years. No one on this side of the House would deny that it seems more like 40 years. The main commandment brought down from Sinai is open to speculation but it appears from the Pen-court File to be "Thou shalt bear false witness against thy neighbour particularly against his intelligence services" or "Thou shalt covet thy neighbour's house, thy neighbour's wife, his servant, his maid, his ox or his ass and everything that is his shall be subject to capital gains tax, capital transfer tax and the wealth tax."

The analogy is perhaps more exact than hon. Members realise. Moses did not lead his people to the promised land, for he died in the land of Mohab. However, he survived to 120 years of age, and when he died he still had all his faculties and his eyes were clear to the end, which must be bad news for some young aspirants to the Prime Minister's office, notably the Foreign Secretary and the Secretary of State for Prices and Consumer Protection.

So it will be in this case. The Prime Minister will not lead us to the promised land, because the British people do not want a promised land with a basic rate of 34 per cent. income tax, marginal rates of 98 per cent. and a poverty trap which discourages thrift. They want a promised land where it pays to work, save and take risks. Only under the leadership of my right hon. Friend the Member for Finchley (Mrs. Thatcher) can they be led to this new land. On that basis I commend the motion to the House.

4.45 p.m.

Photo of Mr Robert Sheldon Mr Robert Sheldon The Financial Secretary to the Treasury

I beg to move, to leave out from "House" to the end of the Question and to add instead thereof: 'welcomes the start Her Majesty's Government has made in reducing levels of direct taxation; applauds Her Majesty's Government's success in controlling inflation and restoring financial stability; recognises the need to provide adequate public services; and notes that the present Conservative leadership is still wedded to old fashioned dogmas which in the past created so much squalor, social divisiveness and injustice.'. This is the second year that we have had a substantive debate on tax matters in advance of the Budget. It gives us the opportunity to examine some of the main options available to the Government before coming to the House. It limits the area in which we can disclose the analysis which has been carried out, but at the same time it enables the House to express its views and to state clearly its priorities.

The hon. and learned Member for Dover and Deal (Mr. Rees) asked what were the consequences of the present Government's taxation policy. It is right to explain both the consequences and some of the causes of our taxation policies.

In the lifetimes of many of us, there have been three economic crises in which living standards have actually fallen. The first was in the depression when unemployment rose to 21 per cent. of the working population and 27 per cent. in Scotland. This led to actual pay cuts in the public services at a time when income tax was 4s. 6d. in the pound. The inflation rate was less than zero—prices were actually falling. Death duties were a tax on the improvident and the careless At the same time, there was near-mutiny in the Navy and there were those in fashionable society who were busily flaunting their wealth in the midst of poverty. This created a disillusioned and bitter generation and left its mark on much of the character and personality of our people.

In the second economic crisis, much greater hardship was called for because it occurred during the Second World War. A reduction of living standards was called for among all our people. How- ever, that crisis was handled differently. On that occasion, under imaginative leadership the sharing of the sacrifices became the national objective. By means of enlightened social policy, people accepted the inevitable decline in their living standards and the consequent increase in taxation. The 100 per cent. excess profits tax and the rate of 19s. 6d. in the pound on income tax were not just social or economic instruments or means of increasing the efficiency of our people but were also a means of keeping our people united. The signal was that we were a responsible, united and caring democracy. The Beveridge Report covered much of this ground, showing that there was a possibility of laying plans to improve the conditions of those who were less well off.

The third economic crisis resulted from the fivefold increase in oil prices in 1973. Unfortunately, on that occasion we were ill prepared to deal with it. There was trade union resentment because of the Industrial Relations Act and there was the Barber explosion of the money supply—55 per cent. in two years. Inflation, comparing fourth quarter with fourth quarter in the years 1971, 1972 and 1973, was 9 per cent., 8 per cent. and 10 per cent.

There were few who believed the Tory Government's nonsense that those were problems of success. They knew, as we know now, that they were problems of economic failure and, more importantly, problems of industrial and political failure. The oil crisis would have hurt our economy severely whenever it came. It hurt us worse because it added a mighty dose of inflation just at the time when our economy was already being stuffed with cost increases due to the Barber boom.

When the Labour Government took office, it was clear that a reduction in the living standards of our people threatened us once more. We had two previous models to work from—the years of the 1930s and the war years. The question was which of those models we should copy. We knew that there would have to be sacrifices, but the question was how they were to be determined. We chose to equalise those sacrifices, to assist those who were least well off and to ask for extra burdens from those best able to bear them.

Photo of Mr Wyn Roberts Mr Wyn Roberts , Conway

Is the Minister saying that the 1½ million unemployed are not in that situation because of the policies pursued by the Labour Government in the last four years?

Photo of Mr Robert Sheldon Mr Robert Sheldon The Financial Secretary to the Treasury

The hon. Gentleman will know that the 55 per cent. growth in money supply in a period of two years led to inflation before the oil crisis and that that inflation amounted to over 10 per cent. Furthermore we have seen a reduction in the inflation figures, and we shall have some encouraging news for most of this year.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

We might overlook the fundamental point that in October 1974 we were told by the Chancellor that inflation was under control and would be brought down to 8·4 per cent. But I am sure the public will remember that claim. However that may be, the Minister appeared to be arguing that, in the absence of the oil crisis, the miners strike and so on, a reduction in the standard of living was necessary. Is that what he intended to argue?

Photo of Mr Robert Sheldon Mr Robert Sheldon The Financial Secretary to the Treasury

No, I was not arguing on those lines. I was pointing out that we were already in the middle of inflation, rising at the rate of over 10 per cent. Fourth quarter on fourth quarter in 1972–73, we saw an inflation figure of 10·3 per cent. before the effects of the oil crisis were felt. Furthermore, there was a 55 per cent. increase in money supply and, therefore, whatever happened, we were already geared to a massive inflation. We had to face that reaction at the same time as we suffered a fivefold increase in oil prices, which took us into a very hard time indeed.

Photo of Dr Jeremy Bray Dr Jeremy Bray , Motherwell and Wishaw

To many Labour Members, it is depressing to hear yet another parallel drawn between the present circumstances and the situation in the 1920s in the attribution of the rate of inflation only to monetary phenomena. Will the Minister remember that this has no basis in fact, and certainly has no substantial support on the Labour Benches?

Photo of Mr Robert Sheldon Mr Robert Sheldon The Financial Secretary to the Treasury

My hon. Friend is right to point out that monetary factors are not the only ones to be considered. I shall be dealing with that point later. I think he will find that what I have to say a little later will find some echo in the views which I know he holds.

There are those who believe that democracy can exist only in a country in which there is positive economic growth. Such people believe that the fulfilment of economic expectation is the only means by which tolerance, understanding and the democratic process can flourish. The pre-war history of Germany and France and the post-war history of Latin American and certain other developing countries tend to support that view.

What has happened in the past few years has been the frustration of economic expectations. It was dealt with by a recognition that the British people had the right at such a time to expect the pattern of the second of these economic case histories rather than the first. They have the right to expect shared sacrifice rather than a widening of the gap between rich and poor.

It is against that background that income tax revenue was increased, that the higher rates of tax on earned income rose to 83 per cent. and that the higher rates of tax on unearned income rose to 98 per cent., and it is against that background that we have fulfilled the contract between the generations under which retirement pension has increased by 16½ per cent. in real terms since October 1973 at a time of economic difficulty.

It was this attitude involving the sharing of burdens and the giving of assistance to those in need which enabled us to retain the cohesiveness of the people by doing what was right and what was seen to be right and fair to the people as a whole.

Photo of Peter Bottomley Peter Bottomley , Greenwich Woolwich West

With regard to the Minister's reference to fairness and giving attention to the needs of the various generations, may I ask whether he has given his mind to the subject of community support for children? He may remember that the amount of money provided in child tax allowance, child benefits and family allowance was decreased in terms of the 1977 figure from £2,100 million to £1,800 million. That is a 14 per cent. drop in community support for dependent assisted children, who, of course, cannot go out to work.

Photo of Mr Robert Sheldon Mr Robert Sheldon The Financial Secretary to the Treasury

I shall be dealing with that matter later. There was a time when some Conservatives, faced with economic and social changes of this kind, would have agreed with the approach adopted by Mr. Macmillan and Mr. Butler, as he then was—Conservatives who believed in Toryism with a human face, and men who believed deeply in the essential unity of the country. Unfortunately, the Conservative Party does not now possess as many of those people as it used to have.

Do we believe that at a time of falling living standards—a situation forced upon us by external factors—a reduction in income tax paid by the wealthy, a boost to those with unearned incomes, a considerable injection of incentives to the better off and a continuation of the voluntary estate duty would have made political sense, even assuming that the improvement in incentives which might have been caused by these measures made economic advance remotely comparable to the extreme anticipation of Conservative Members at all possible?

I believe that we had to take the action we did because of the economic circumstances, and not only because we believed that it was the right thing politically to do. At the time there was no alternative because the people's living standards were already in decline. Those who take the contrary view must accept that the damage caused to our social and political identity over these crisis years, even if only small, would be offset by worthwhile economic benefits and that a glorious transformation would occur.

Photo of Sir Nicholas Fairbairn Sir Nicholas Fairbairn , Kinross and West Perthshire

If the Minister is trying to lecture us about fairness, will he not remember that unearned income has been "earned" because it has been taxed twice? Is it not absurd for the Minister to blame everything carried out by his side on world events which could not be avoided and on oil price increases, and to blame every step taken by the Conservative Government on Conservative policies? If the Minister is trying to be fair, should he not apportion blame equally?

Photo of Mr Robert Sheldon Mr Robert Sheldon The Financial Secretary to the Treasury

The difficulty was that the Government in the period 1970–74 came in with one view, they learned their lesson, but they could not cope with the situation and did their famous U-turn. The problems they discovered were at variance with the plans they had laid when in Opposition. Therefore, Labour had to inherit the consequences of that failure—a failure that was condemned by many Conservatives.

Let me say a few words about the glorious transformation which is expected by so many people flowing from the speech of the right hon. Lady the Leader of the Opposition in her speech last Friday. She then said: We are determined to axe tax. I do not know who claimed parenthood for that slogan, but I believe that the right hon. Lady should choose another rhymester. However, I shall not go into the literary merits of that phrase. The right hon. Lady went on to say that this was the only hope of recreating a healthy business climate which we need so that the marvels of modern technology can bring prosperity to these islands. We have frequently heard the claim that managers, executives and others need these sorts of incentives. No one has gone so far as to talk about the marvels of modern technology, but this sort of expression has been in use for some time. We do not need to set up a test bed to try out the theory. We have seen it in operation twice, and it is instructive to learn what happened when the views of the right hon. Lady were carried out.

In 1961, Selwyn Lloyd effectively reduced surtax on earned income by raising the starting point of £2,000 a year for a single person to £5,000 a year. This was an enormous increase, at a stroke, as one might say. One would expect evidence of a healthy business climate and the marvels of modern technology to be available after such a dramatic change. That was an axing of taxing in an extreme form. Yet three years later, we found that, far from prosperity having been brought to these islands, we had a further economic crisis and a total failure of those policies.

One run-through might have been a mistake. Let us therefore look at what happened when we had another rare chance of seeing this method of dealing with our crises in practice.

In 1971, we had the unification of the tax system and a change in the distinction between unearned and earned income. Unearned income was called investment income and, instead of being taxed at 22 per cent. above earned income, it was taxed at 15 per cent. above earned income. In addition, the top rate for earned income was reduced from 88¾ per cent. to 75 per cent. That was another massive axing of taxing.

Anyone who believes that such action leads inevitably to the results stated by the right hon. Lady should look at the results of those 1971 changes. Inflation rates rose, our economic position, far from improving, became worse and the then Prime Minister, the right hon. Member for Sidcup (Mr. Heath), instead of being able to rely on his axing of taxes to lead to the results he had predicted, had to go to the City and elsewhere to complain about the lack of investment. The marvels of modern technology were still not bringing prosperity to these islands.

What hope can we have that these marvels will follow from such action? Few will deny that incentives have some effect, but to pursue them as one pursues bubbles, irrespective of other considerations, including the considerations of all the people of this country, is to have too myopic a vision—a fault that some Opposition Members frequently display.

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

Must we not also ask ourselves why advocates of a high-tax society, such as the right hon. Gentleman, have succeeded in producing nothing better than a fall in industrial production in the last five years?

Photo of Mr Robert Sheldon Mr Robert Sheldon The Financial Secretary to the Treasury

I am not in favour of very high rates of taxation, but neither do I believe that axing taxes is a universal panacea or a philosopher's stone to which we must turn when we are in trouble so that everything else will come right. I do not believe that just by axing taxes we shall recreate a healthy business climate so that the marvels of modern technology can bring prosperity to these islands.

I believe in an intelligent assessment of the situation, and this has no part to play in special pleading for the wealthy under the guise of looking after the less well-off. We all have a part to play in creating the just society that our people can expect. Taxation is a means of getting revenue in the way best suited to those who bear the burden.

In "The Right Approach to the Economy", a document published by a number of leading Opposition Front Benchers, the section on investment income surcharge says: We are increasingly doubtful about the wisdom of retaining any kind of Investment Income Surcharge". Those who are used to the mealy mouthed words that are frequently used to cover up political differences know that when we see the names of the right hon. Members for Lowestoft (Mr. Prior) and Leeds, North-East (Sir K. Joseph), the right hon. and learned Member for Surrey, East (Sir G. Howe) and the hon. Member for Guildford (Mr. Howell) on a document, there is bound to have been a considerable papering over of the cracks.

I am not sure whose views are being expressed on this matter. Clearly the right hon. Member for Leeds. North-East is more doubtful than, perhaps, the hon. Member for Guildford. We see here a questioning of the difference between earned income and unearned or investment income. Of course, older people have a larger proportion of investment income. They have made preparations for their retirement and have had longer to accumulate the capital that lies behind investment income.

We have taken account of this fact. That is why the investment income surcharge has a higher threshold for those over 65, and why there is an age allowance in place of the ordinary personal allowance.

It is right that there should be an investment income surcharge and that such income should be treated differently from earned income. There are expenses associated with going to work that perhaps we do not take sufficient account of in our arrangements. Travelling expenses and incidental expenses have to be offset as costs of employment.

Photo of Mr Robert Sheldon Mr Robert Sheldon The Financial Secretary to the Treasury

I know my hon. Friend's view on this matter. We have had much correspondence on the subject and I am sure that it will continue for a long time.

There must be a distinction between earned and unearned income because of the difference between the manner of earning income and the receipt of dividends and other payments. There is also underlying capital in investment income which gives a certain freedom of manoeuvre that is not always available to those with earned income. In addition, something of the work ethic remains which says that income derived from work and effort should be taxed at a lower rate than that which is not derived from work and effort.

Our improving financial position, which I am pleased to note and which will, no doubt, play a part in much of what is said in the debate, allows us to consider easing the tax burden, and it is useful to look at the changes that have taken place and to take them into account in planning future tax strategy.

One of the problems is that taxation policy must follow and take account of social changes. At the start of this century, there were many fewer income tax payers. It was a tax for the better-off and, naturally, its structure reflected this. For example, hardly any middle-class wives worked and the personal allowances included a special concession for married men. The married men's allowance was higher than that for a single man because it was based on the assumption that, on the whole, taxpayers' wives did not work. Since those days there have been considerable social changes and taxation policy has not always been quick to follow them up.

Photo of Mr Wyn Roberts Mr Wyn Roberts , Conway

Will the right hon. Gentleman cut his cackle and accept the fact that to cut taxation creates the incentive to work and an incentive to provide work?

Photo of Mr Robert Sheldon Mr Robert Sheldon The Financial Secretary to the Treasury

Nobody can deny that we wish to operate at as low a rate of taxation as is compatible with the Government's other policies. If there are to be cuts, surely it is only sensible to consider the various ways in which taxation can be cut and the various options open to the Government in so doing.

Before the war, income tax was largely a middle-class tax. Thresholds were fixed so that income tax was normally paid only by those with above-average incomes. Before the war, too, women worked only up until the time that they were married, at which time a number of employers, including the banks and much of the public sector, dismissed them. That was quite a common arrangement before the war. At that time it was normal for a wife to give up work upon marriage.

In 1951, only 21 per cent. of married women were employed. In 1976, 49 per cent. of married women were employed. In the years with which we are most familiar the number of married women in employment increased from about one-fifth to one-half. It is now the birth of the first child that causes a large drop in the family income, whereas before it used to represent only a modest additional expenditure to a family. That was because the wife was not working and the birth of the first child represented only a small burden upon the family. It is now the first child that causes the largest reduction in family income as the wife and mother has to give up her job. It is that change that is the major cause of a decline in the family income.

From the time of the Beveridge proposals in the war years until last year, no family allowance was payable for the first child. In so many instances its arrival was economically little of a burden, but today it is the fundamental cause of a dramatic decline in the earning power of the family. That fact is only beginning to be recognised in the social tax provisions that we devised.

If we are to have the cuts that are being talked about, we must discuss which sort of cut should be implemented. Income tax cuts fall into three basic categories plus those on the higher rate bands. There are three methods of tax cut and I have distinguished between the higher rate bands and the other categories because one special feature is involved. It is the only element of our income tax system that is truly progressive.

Apart from the higher rate bands, which I now leave on one side, income tax can be reduced by raising personal allowances, by cutting the basic rate or by introducing a lower rate tax band. Each of these methods has a different effect upon the income of the ordinary taxpayer.

A cut in the basic rate will give most to those whose income is around the top end of the basic rate band, or somewhat above. Those who benefit most in proportional terms are those whose current incomes are about £7,000 to £8,000 a year.

Increasing personal allowances has the great advantage that it removes many from tax altogether. If required, it can discriminate between married taxpayers and single taxpayers. For those with low incomes the tax burden is greatly reduced.

A reduced rate band reduces the rate at which lower-paid people pay tax. It removes no one from tax and gives most benefit in proportional terms to those whose incomes are equal to the size of the reduced rate band plus the size of the personal allowances. That is by comparison with the increase in the personal allowances. A reduced rate band provides the largest benefit slightly higher up the income scale than does the personal allowance increase. It gives most to single persons and working wives.

Photo of Mr Jeff Rooker Mr Jeff Rooker , Birmingham, Perry Barr

Will my right hon. Friend admit that the distinction that he has drawn is not clear? The reduced rate band will still keep the low-paid within the tax system. It is bad enough when the low-paid pay a 34 per cent. marginal rate, and it is equally bad when they pay 25 per cent. on the lower rate band. That is the point that should be made at this stage.

Photo of Mr Robert Sheldon Mr Robert Sheldon The Financial Secretary to the Treasury

I thought that I had made that point. I shall repeat it. The raising of thresholds removes many from tax altogether. The reduced rate band is an easier approach to the paying of tax but it keeps people in tax. It also gives the larger benefit to those whose incomes are slightly higher up the income scale or, depending on the width of the band, those who come into tax at the ordinary level of the threshold. That is the main change. There is the additional factor that single persons and working wives, along with one or two other categories, benefit rather more than the married.

The other method is to vary the proportions between direct and indirect taxes, which the hon. and learned Member for Dover and Deal has mentioned.

Photo of Mr David Stoddart Mr David Stoddart , Swindon

I have been closely following my right hon. Friend's argument on direct taxation. At one stage I thought that he was about to deal with the problem that is faced by families, but he has not done so. He said clearly that the point at which the family does worst is after the first child arrives, yet he made no reference to the extreme necessity to concentrate the bulk of the help in direct taxation relief for the family. My right hon. Friend must know that when the woman of the family is not able to go out to work there is a sacrifice of about £1,000 per annum of tax allowances. That is probably the most difficult area of taxation, and it needs the closest and most immediate attention. Families are suffering more than any other section of the community.

Photo of Mr Robert Sheldon Mr Robert Sheldon The Financial Secretary to the Treasury

I agree with my hon. Friend when he talks about the problems of families. He will know that with the change from child tax allowances to child benefit we are now in a position where benefit is not in the control of the taxation system, although it is under the control of the Government as a whole. Therefore, it falls to be treated slightly differently. The provisions are different. The time lags between decision and implementation are different. There are other Ministers involved. All that makes for greater complexity in arranging any family support system that we wish to devise.

Photo of Ms Audrey Wise Ms Audrey Wise , Coventry South West

Does my right hon. Friend accept that it is the Government's responsibility to ensure that the change to child benefit, which was intended to benefit families, achieves what was intended? My right hon. Friend says that other Ministers are involved. I hope that he is not implying that that is an obstacle. The vibrations that we tend to get indicate that although the Treasury does not have sole control, Treasury influence is paramount.

Photo of Mr Robert Sheldon Mr Robert Sheldon The Financial Secretary to the Treasury

I do not think that there is any difference between us. I was talking about the mechanism, and the mechanism has changed. That change has a bearing on the way in which these matters fall to be treated. Child benefit can be fixed according to the level that the Government think fit. All these matters fall to be debated and discussed. We can have a family support system based upon child benefit that gives much greater benefit to families than does the child tax allowance system. There is nothing in the mechanism that prevents that.

Photo of Peter Bottomley Peter Bottomley , Greenwich Woolwich West

We cannot divorce the structure from the way that the structure has been used, especially during the last three or four years. Does the right hon. Gentleman deny that during the change to child benefit and the extension of family allowance to the first child, there has been a net loss of £20 per year per child in terms of what comes out of the Exchequer?

Photo of Mr Robert Sheldon Mr Robert Sheldon The Financial Secretary to the Treasury

The hon. Gentleman must wait for the Budget. We cannot discuss the amounts that can be paid. The point that I made is valid. The child benefit provisions can be up to whatever the Government think fit and they are not impeded by the changed structure. Indeed, the new structure can be a positive advantage in the way that has frequently been described from this Dispatch Box on other occasions.

Another way in which tax cuts can be made is by changing the proportions of direct and indirect taxation. The hon. and learned Member for Dover and Deal referred to the way in which direct taxation has grown. It depends how direct taxation is defined—for example, whether we include corporation tax, which is clearly a direct form of tax. On that basis, there has been little change since 1969–70 right up to date. But corporation tax has been a lower contributor to taxation and has been much offset by incomes tax.

Photo of Mr James Craigen Mr James Craigen , Glasgow Maryhill

My right hon. Friend referred to trends. Is not one of the trends in the last 10 years that the proportion from direct taxation has gone up from about 37 per cent. to just over 50 per cent., according to the Board of Inland Revenue estimates for the current year, whereas the proportion from corporation tax has dropped from over 11 per cent. to an anticipated 7 per cent. this year?

Photo of Mr Robert Sheldon Mr Robert Sheldon The Financial Secretary to the Treasury

I was about to make that point when my hon. Friend intervened. I am glad to have his support for what has happened on this occasion. I was endeavouring to point out to the hon. and learned Member for Dover and Deal that corporation tax has reduced as a proportion of the whole, because of the stock appreciation scheme without which companies would have found themselves in severe difficulties. The only sensible solution is to get the stock appreciation scheme on to a long-term footing as soon as possible. I think that many hon. Members will agree that if it had not been for this scheme, there would have been severe difficulties for manufacturing industry in particular in this country.

Specific duties have been reduced in real terms. There is a demand for indexation generally, but the problems of indexing the specific duties are particularly difficult. Changes of this kind present a number of problems which are not easy to foresee and which require close examination.

Perhaps I may now deal with the option of modest increases in public expenditure. The Opposition would not choose to increase public expenditure in general. However, in "The Right Approach to the Economy", referring to public expenditure cuts, they say: This is not a prescription for poorer social provision; it is a recipe for better housekeeping in all the public services. I know that big cuts in public expenditure can be allayed by Government Departments becoming more efficient and purposeful, but when the Opposition make these claims they must confess that the secrets that they claim to have about how to make the public services more efficient are similar to the secrets that they claim to have on other matters, such as race, and so on. These are not solutions; they are a mask which conceals their real intention. We had a foretaste of that intention from the hon. Member for St. Ives (Mr. Nott), who, in an unguarded moment, talked about cuts in transfer payments. I think that underneath the provisions of which they make much this is what they really have in mind.

I do not believe in the concept of a fixed maximum proportion of public expenditure to gross domestic porducts. I regard the idea of a limiting figure as rather silly. At a time of slow economic growth, if public expenditure were to be increased, personal consumption could fall to unacceptable levels.

There are cycles in these matters. Given large increases in GDP growth, there may come a time when demand for better services will be voiced and expressed by the people of this country. At such a time it is right that we should be ready to provide for such demand.

Income tax, as I have already mentioned, has been used to raise a greater proportion of revenue than we would normally wish to see. There is no room here for any kind of dogma. What frightens me is the new dogma on monetary matters that seems to have overtaken the Opposition. Monetary growth is important in the long run. But it is essential to distinguish various elements in it. The formation of a mechanistic relationship—a blind addiction to looking at the barometer without looking out of the window to see whether it is raining—is unwise, and I am very frightened of the use of instruments in that way.

The role that the Opposition see for the greater independence of the Bank of England, which they forecast in "The Right Approach to the Economy", brings to my mind some unpleasant comparisons with the situation before the war, when Montague Norman was in charge. However, even under him, the Government had some control over what is and must remain an essential part of the economy.

What are the Opposition after? These new Tories, who have fallen for the idea of control of the money supply, make me wonder whether they are after a new theory for old intentions. That is the fear in the back of my mind. I cannot acquit them of the idea that heavy deflation and cuts in public expenditure might be undertaken under cover of the mask of this respectable and fashionable notion of money supply control. If they were ever to implement this idea—I do them the courtesy of assuming that they will have grave doubts if it comes to the final action—there would be a collapse of business confidence with grave consequences for the economy and for our society that we cannot accept. That is the predictable result of what the Opposition are saying. I ask them to think carefully before proceeding further along that road.

I believe that the Opposition motion must be opposed. I ask my right hon. and hon. Friends to support the Government amendment in the Division Lobbies later this evening.

5.28 p.m.

Photo of Mr Russell Fairgrieve Mr Russell Fairgrieve , Aberdeenshire West

It is good debating procedure in the House for a Member, when he rises, to try to answer some of the points made by the previous speaker—in this instance, the Financial Secretary. It may be that I am naive, or that I have failed to understand the subtleties of the right hon. Gentleman's argument, because, apart from three small matters. I shall have to leave that task to my right hon. and hon. Friends on the Opposition Front Bench.

First, the Financial Secretary repeatedly said that because of or out of this background tax levels rose to 90 per cent. They did not rise automatically; they were put up by the Government.

Secondly, the Financial Secretary referred to this Tory Party being somewhat less liberal than its predecessors. I do not know whom he had in mind. Some of my hon. Friends who have not been here long are viewed as being too liberal by some of their colleagues and constituency parties. But the fact that we wish to bring common sense into taxation measures is a different matter. I agree with my right hon. Friend the Leader of the Opposition that we should "axe tax." That is a wonderful saying.

Then the Financial Secretary spoke about the ethic of work. We are concerned about the taxes not just on earnings from work but on savings from work. That is the anomaly about which we are talking. We are talking not about inherited wealth but about the taxes on personal savings being at a different rate.

As we approach the Budget there is no doubt that the commentators will have their usual field day and that the Chancellor of the Exchequer will be receiving a lot of advice—some good, some bad, and some indifferent. He is limited in what he can do because of the 1974–75 spending spree and the huge political bribes that were made at that time. That will cause him great difficulty in the coming Budget. It will be difficult for him to give the people back most of the extra amount of their own money that he has taken from them.

There has been talk about the rate of inflation being down to 9·9 per cent. But we are talking about the rate of inflation, not inflation. This present so-called low rate means that prices will double in seven years. What a thought. We want a stop to inflation, not just a coming down of the rate.

For the Government to bring tax down to where it was when they came into office means that they must give back to the people some £5,000 million-plus. We were at that level without the aid of North Sea oil revenues when we demitted office. We are looking forward to what the Chancellor does in his Budget.

One of the troubles arises from the completely different approaches of the Labour Party and the Opposition to the whole question of taxation. Since the end of the Second World War, every time a Labour Administration has come into office taxes have been raised. Every time a Tory Administration has come into office taxes have been lowered. That is not a political point; it is a historical fact. With that fact alone one wonders why people ever vote Labour. The Labour Party is now not only the natural party of high unemployment but the natural party of high taxation. The real tragedy is that Labour Members do not recognise the link between high taxation and high unemployment.

We believe that taxation is somewhat of a necessary evil. It removes people's money to finance the affairs of the State. The trouble with the United Kingdom today is that the State is spending far too much of the gross national product of the nation. Today it is about 60 per cent. I believe that the danger point for every country is around 50 per cent. and that we should be aiming for 40 per cent. If we achieve that level there would be a release of energy that would bite into the unemployment figures. This necessitates a return of many of the activities that are currently being carried out by the State to private, competitive enterprise.

The Labour Party uses taxation not for its real purpose but as a form of social engineering which is counter-productive in itself. That is why the Chancellor of the Exchequer comes out with phrases such as "howls of anguish". The Labour Party's Budgets are politically motivated and are sometimes vindictive.

Photo of Mr Jeff Rooker Mr Jeff Rooker , Birmingham, Perry Barr

All parties have used the taxation system for social engineering purposes. If when taxation was first introduced it had been based on all income, all the people would have been eaxed the same. Even so, many years ago it was recognised that one cannot tax the low-paid and needy. That is social engineering.

Photo of Mr Russell Fairgrieve Mr Russell Fairgrieve , Aberdeenshire West

I do not accept that argument. Taxation is a necessary evil. It is the Government taking people's money to finance the affairs of the State. We should take as little as possible. Our policy has been that taxation should be at a low level and that there should be an income level below which people are not taxed.

The Labour Party's taxation policy always hits someone who wishes to contribute for himself. For example, if someone wants to contribute towards the education of his child the Labour Party removes the grant-aided schools. That hits not at the really wealthy person but at the person who is at the intermediate level—the person who can afford only to make a contribution.

The same applies to housing. We believe that mortgages should be subject to some form of income tax rebate. The Labour Party does not believe in that, and it is also opposed to the sale of council houses. In that way it hits not the wealthy but those who want to make a contribution. The same applies in the Health Service. Someone may not be able to afford to go for treatment at a private nursing home but may be able to afford a private bed in a hospital for an elderly relative. So the Labour Party decides that pay beds are to be abolished.

I am reminded of the schoolboy joke. "When is a door not a door?" "When it is ajar." One could ask "When is a private ward not a private ward?" "When it is a public ward occupied by one Socialist politician."

I turn to capital transfer tax. We have no objection to the principle of moving from a donor to a donee tax, which was what the change from death duties to capital transfer tax was. But the levels are too high. These levels run against human nature and the natural desire of a person who wishes to pass down something to his children.

Taxation in this country is destroying employment, destroying initiative and destroying the national wealth which is the standard of living of all our people.

Photo of Mr Wyn Roberts Mr Wyn Roberts , Conway

Can my hon. Friend confirm my own sincere belief that unemployment has risen to its present level of 1½ million largely because of the increases in taxation imposed by this Government?

Photo of Mr Russell Fairgrieve Mr Russell Fairgrieve , Aberdeenshire West

I nearly mentioned my hon. Friend the Member for Conway (Mr. Roberts) earlier. I absolutely agree with him. There is a close link between high taxation and high unemployment.

Reference has been made to small businesses. If someone starts a small business—if the Employment Protection Act does not stop him from taking on people anyway—if he takes on more people and makes more money, does the Labour Party cheer? No. It hounds him, harasses him and taxes him until in the end he fails or chucks it up and then, back to the unemployment register go the people that he would have employed. That is no doubt a pleasant Socialist thought, but it is sheer stupidity.

At the other end of the scale is the problem of the entrepreneur. Regardless of what Labour Members think of entrepreneurs, they produce employment. They are the people who run the companies which will break into the unemployment cycle. It is ridiculous to tax such people on earned income at 83 per cent. If we wish to reduce unemployment and encourage the start of more business, that level must be reduced, preferably to about 60 per cent.

I agree that we should move towards indirect taxation and away from direct taxation. Let us consider the historical point about VAT and purchase tax, which it replaced. Purchase tax was basically Socialist in concept. It was introduced in 1942 as a temporary measure, but as we know, taxes are inclined to stay and to increase rather than to diminish and disappear. Purchase tax was imposed at various levels and the Government and the civil servants decided which items were necessities and which were luxuries, and taxed them accordingly. It should be the duty and responsibility of the individual citizen to make that decision. VAT is operated at a lower level than purchase tax and is imposed on everything other than zero-rated items. It leaves the choice of what to purchase up to the consumer.

The Conservatives will certainly, if returned to power, bring VAT back to one level and a zero rate—

Photo of Mr Russell Fairgrieve Mr Russell Fairgrieve , Aberdeenshire West

VAT in this country is at a lower level than for any of our industrial competitors in Europe who are doing better than we are, and so, if we are to reduce direct taxation, there is a case for increasing VAT, because direct taxes will be reduced.

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

The hon. Member should not use international comparisons as a guide to VAT, because if that argument applies, it is an argument for having multi-rates of VAT. All the European countries have multi-rates.

Photo of Mr Russell Fairgrieve Mr Russell Fairgrieve , Aberdeenshire West

I do not accept that all European countries have multi-rates. I shall be interested to see what the Chancellor does in the Budget. Presumably the Lib-Lab pact will ensure a very strong voice for the hon. Member for Cornwall, North (Mr. Pardoe) in the Budget.

We in the Conservative Party believe that there should be a move from taxation by PAYE to taxation by PAYS—from pay-as-you-earn to pay-as-you-spend.

The Labour Party must realise that a relationship exists between taxation and employment. If Labour Members want a higher standard of living for all the people of this country, and if they wish to bite into the disgraceful levels of unemployment, they must allow reality, common sense and human nature to enter into their taxation policies and to push to one side this continuance of Socialist doctrine and dogma.

5.43 p.m.

Photo of Mr Hugh Jenkins Mr Hugh Jenkins , Wandsworth Putney

It always surprises me that the Conservative Party, which I suppose regards itself as the party concerned with good housekeeping in a personal and national sense, can hold such conflicting views. I presume that Conservative Members accept that if the standard of living of a family is to be maintained, its income must be maintained as well. That is so obvious that it hardly needs saying.

Let me translate that into the position of the State. The Conservative Party always seems to imagine that the income of the State can be drastically reduced while its standard of living in terms of social services can be maintained. That is such arrant nonsense that the people of this country cannot be expected to swallow it. The Conservatives persist in assuming that the income of the State must go down while its expenditure increases. That is a simple and straightforward point which, when it is exposed, causes the Conservative arguments to fall to the ground.

The Conservatives persistently tell us that direct taxation must be reduced. If they are not arguing that the total income of the State must be reduced, it must follow that they believe that the State should have some other form of income, and that must mean that they believe that indirect taxation should be increased. Clearly it is not so much the total amount but the sort of taxation that concerns them. Or are they coming perilously close to saying that they want the poor to be more heavily taxed and the rich to pay less tax? That is the direction in which their arguments seem to be moving. When we try to obtain from them in simple terms that ordinary people can understand what they are after, we find it very difficult to discover what they mean.

Photo of Mr Wyn Roberts Mr Wyn Roberts , Conway

The hon. Member talks about families as opposed to the State. The fact is that the average family in this country is £6 a week worse off under this Government than it was under the previous Government. Taxation has a great deal to do with that.

Photo of Mr Hugh Jenkins Mr Hugh Jenkins , Wandsworth Putney

I do not believe that to be the case, but even if it were it would not prove the hon. Gentleman's point. In the motion he and his party are saying that the taxation system penalises hard work, stifles enterprise and increases unemployment, and it calls for a substantial and continuing reduction in the burden of direct taxation in preference to an increase in public expenditure. The Conservatives seem to be saying that they want income tax to come down, but they do not tell us precisely how they wish this to be done. I suspect that they want a reduction in the standard rate. If that is so, they are seeking to give advantage to the wealthy at the expense of the poor, because that is what a reduction in the standard rate would mean. If that is what the Conservatives want, the people of this country should understand what they are up to.

I support the two amendments to the motion and I am sorry that they cannot both be carried. If it were possible to carry both, I should vote for both, given the opportunity. They are much more constructive and much more the sort of thing that the people of this country can grasp than the blanket condemnation voiced by Conservative Members.

I regret, however, that neither of the amendments carries a reference to the desirability of a wealth tax. Our armoury of fiscal weapons will not be complete and no serious reduction in income tax will become possible until we have a wealth tax which can do something to rectify the gross inequalities which disfigure social relationships in this country.

The hon. and learned Member for Dover and Deal (Mr. Rees) referred to the wealth tax. I regret that the Green Paper which proposed an acceptable way of dealing with this matter was not translated into legislation. I hope that when my right hon. Friend the Minister of State replies to the debate he will be able to reassure us that the Government fully intend to proceed with a wealth tax as soon as possible, thereby bringing this country into line with many of our European neighbours who are so much admired in fiscal terms by some Conservatives.

Photo of Ms Audrey Wise Ms Audrey Wise , Coventry South West

I accept my hon. Friend's modest criticism of the amendment in my name and that of my hon. Friends. We are certainly in favour of a wealth tax, and the omission is simply a matter of practicalities.

Photo of Mr Hugh Jenkins Mr Hugh Jenkins , Wandsworth Putney

I am most grateful to my hon. Friend for that assurance. I have no doubt that when my right hon. Friend the Minister replies and gives an assurance that it is the Government's intention to do that, my hon. Friend will applaud him as loudly as I shall. We await that with confidence.

I come now to my specific point. I am rather bothered that my right hon. Friend the Financial Secretary is no longer present, because my correspondence to which I wish to refer has taken place with him. Therefore, I shall have to ask my right hon. Friend the Minister of State to refer to this matter. The suggestion has been made that there has been a recent change of policy in the Treasury in relation to the taxation of literary awards and prizes, which were previously regarded as non-taxable. It is now suggested that they are being increasingly regarded as taxable, which I believe is a change of policy. Therefore, as a number of people who from time to time receive literary awards happen to live in my constituency—Putney is full of artists and literary people—I am raising the matter.

I shall mention two particular cases which I took up with my right hon. Friend. As they have already come to public notice, I know that the people concerned will not mind my mentioning them. The first was that of Mr. Gavin Ewart, the poet, who received an Arts Council award. As he had previously received the award, he thought that it was not to be taxed, but then he was told not only that it would be taxed but that it would be taxed retrospectively, having been received two years previously.

When I wrote to my right hon. Friend, he replied arguing that the award was in his opinion taxable: I should emphasise that there has been no change in Revenue practice with regard to the taxation treatment of these awards. It may be that it is necessary in the Treasury to tell fibs from time to time. For example, when it comes to Budget intentions it is sometimes desirable to conceal the truth. But one does not want to translate them into a statement of this sort, which can easily be exposed.

The same sentence was used when I raised the matter of the taxation treatment of Andrew Boyle's award of the Whitbread Prize, which he received in 1974 for his biography of Brendan Bracken. The prize was believed not to be taxable, but Mr. Boyle has been told that in the Inland Revenue's view it is taxable. My right hon. Friend wrote: I should add that there is no question of and change in the Revenue's interpretation of the law applying to these awards Is there not? I rather suspect that there is.

Let me give the evidence for suggesting that my right hon. Friend has been misled in this matter. As long ago as the 1960s, Her Majesty's Principal Inspector of Taxes agreed with the Society of Authors: A prize awarded on the ground of honour or public esteem, and not directly sought or worked for by the recipient, would not be a professional receipt, while a prize arising from a specific competition or contest in which the author seeks a reward would be taxable. On that basis, neither of my constituents awards should be taxable. Therefore there has been a change of policy. What is set out in my right hon. Friend's letter constitutes a change of policy.

Let me give a little more evidence on this. The Arts Council has become worried about the matter. It has always been able to tell recipients of its individual grants that they are tax-free prizes. In 1965–66 it spent £42,000 on such prizes for 146 artists. In 1975–76 the figure went up to £420,000 on 792 artists. I have some evidence that the Revenue took the view that de minimis could no longer apply. Because the sum was no longer only £42,000, the Revenue decided that it could no longer put a telescope to the blind eye and ignore the prizes. When the sum approached £500,000 from the Arts Council, the Revenue began to think that perhaps the matter should be tackled.

If my right hon. Friend had written to me saying that that was what had happened, we should have been on common ground, but he said that there had been no change of policy, when all the facts suggest that there has been. If there has been a change of policy, it should be spelt out and justified.

The Arts Council is pursuing the matter and has probably spent on legal opinion the amount of one good prize already. If prizes that are not sought and are not worked for are to be regarded as taxable income, we are moving into a new ball game. I should like my right hon. hon. Friend to examine this and not maintain the fiction that there has been no change of policy when all the evidence shows that there has been. Let us have it spelt out and decide the circumstances in which prizes are and are not taxable. Let us not have the present position in which prizes can be awarded on the assumption that they are not taxable and then have retrospective taxation imposed two years later. That is unreasonable.

I ask my right hon. Friend to tell the Revenue "All right. The law lays down no clear rule here, and what you do about it is one of those things which is left to the Revenue's decision in relation to the particular circumstances of the recipient. Up to now, you have decided as a matter of practice that you will not exact taxes on these things. This has come to be expected. There is no reason why people who have been in the expectation of receiving awards which are untaxed should suddenly, with no previous knowledge, be placed in the position of having the awards taxed." If there is to be a new policy, let it be spelt out for the future but let the present policy, under which the awards are not taxable, continue to be applied until something new and different has been agreed with the rewarding bodies, the Arts Council and other appropriate organisations.

As the finance director of the Arts Council wrote to me, The position is clearly complicated and I have now written to the Inland Revenue at Somerset House and asked them to stay their hand on outstanding cases until we can settle the future. In this respect we are now going forward to Leading Counsel and I can keep you abreast of the progress here. We intend to consult the Inland Revenue in an attempt to obtain an overall solution. That is all right, and no one could object to that, but let us no longer maintain the fiction that there has been no change of policy. Let us agree that, until such time as a change of policy is agreed, the existing system shall continue to operate.

I want to say a word about the Meade Report. This is a very interesting report. I believe that Professor Meade and his group have put their fingers on an important aspect of the British taxation system. It is that, as compared with taxation systems in other countries, the British system of direct taxation is extremely unpopular. Of course, no taxation anywhere is popular. The Meade Committee suggests a complete change of approach. This change could be applied without damaging social consequences, and possibly with some considerable social benefit, especially if the wealth tax recommendations of its report are incorporated in its general recommendations.

I readily recognise that, in suggesting that the report should be looked at seriously by the Government, I am moving on to delicate ground, because this is the sort of combination of changes which could be used either for social benefit or for social disadvantage, and the application of it would be a matter for the Government of the day. I ask my right hon. Friend the Minister of State to say that the Government will look very carefully at the recommendations of the Meade Committee's report. It is a distinguished committee with a distinguished chairman, Professor Meade. I hope that the Government will come up with their views on the report in some appropriate form—perhaps a Green Paper or something of that sorts—before too long.

It is not sufficient to push these suggested changes on one side. As the Meade Report says, changes in the fiscal system cannot be sweeping. They have to be approached carefully. But what the report recommends is that the direction in which those changes shall be made should be charted beforehand and that the changes should move in an agreed direction.

It would be desirable for the House to know what are the Government's reactions to the Meade Report and their feelings about it, and whether they will come forward to the House with a series of recommendations as to how the findings of the report might be applied in a Socialist manner.

Photo of Mr Wyn Roberts Mr Wyn Roberts , Conway

I agree with the hon. Gentleman about the position of Gavin Ewart, whose poetry I enjoy very much, but will he direct his mind to the amendment in the name of his hon. Friend the Member for Coventry, South-West (Mrs. Wise)? Does he not agree with me that the amendment is totally malevolent and contradictory in that it blatantly asks for extra public expenditure and at the same time for direct tax cuts?

Photo of Mr Hugh Jenkins Mr Hugh Jenkins , Wandsworth Putney

What the amendment does is to suggest the way in which any cuts should be applied and that if there is to be relief from direct taxation it should be applied at the bottom end of the scale. As my right hon. Friend the Financial Secretary to the Treasury said, the object of the Government will be not to cut tax right along the line, so that the rich get most benefit, but rather to take out of the direct taxation system those who can least afford to pay.

I am grateful to the hon. Member for Conway (Mr. Roberts) for what he said about my distinguished constituent, Gavin Ewart, and I hope that the Minister will be able to give me some assurance on this point when he replies to the debate.

6.4 p.m.

Photo of Mr Peter Brooke Mr Peter Brooke , City of London and Westminster South

The hon. Member for Putney (Mr. Jenkins) has spoken of a wealth tax. It is a subject to which, if he will allow me, I shall return in the later stages of my speech. If in the meantime I do not follow the Financial Secretary to the Treasury into the labyrinth of numbers into which he led us, and which every such debate occasions, it is not because I fear the Minotaur upon the Treasury Bench but rather in an arid desert to supply some light relief, such as is provided by the drinks interval during the six hours of a test match on a hot day.

The words of the motion put down by my right hon. and hon. Friends, and so agreeably and forcibly moved by my hon. and learned Friend the Member for Dover and Deal (Mr. Rees), states simply the burden which excessive taxation represents. The amendment put down by the Liberals does not vastly disagree with it. The Government have put down their own amendment, which marries, not altogether happily, the styles of Dr. Pangloss and of Dickens. The Government's friends below the Gangway have put down their own trailer for the more distant amendments of the summer.

During the past year that I have sat in the House, the Government have shown commendable signs of repentance about the level which taxation has reached. Of course, as my hon. Friend the Member for Aberdeenshire, West (Mr. Fairgrieve) has pointed out, these levels were of the Government's own making. In the outside world it is said that a manager cannot be judged until he has been in a job long enough to have to live with the consequences of his own decisions. In the longevity of office which the Chancellor of the Exchequer has now achieved—to which my hon. and learned Friend the Member for Dover and Deal referred—he has had plenty of opportunity to recognise the cul-de-sacs into which he led fiscal policy in the early years of his reign.

The Treasury is ever a bed of nails, but no fakir—I spell that word deliberately with an "i"—ever fashioned or sharpened his bed of nails as laboriously as has the present Chancellor. The Government's early White Paper on public expenditure envisaged no perceptible rise in personal consumer expenditure in the ensuing years. I will say for the Government what they have now said for themselvs in their latest White Paper on the same subject, namely, that they have been as good as their word, and there has been no perceptible rise in personal consumer expenditure during those years. The price has been paid in recent years not by the Chancellor himself but by the Socialist candidates in what were hitherto Socialist constituencies—and no doubt the electors of Ilford, North will shortly add to the list.

Somewhere along the road to Damascus—given the conduct of all negotiating behaviour which traditionally exists in the back streets of Damascus, and which has now been adopted by the Government in their management of the black list—it is clear that the Chancellor saw the light, and he now recognises that direct taxation is too high. That view is concisely reflected in the Opposition's amendment.

Against this background of seeming unanimity across the Chamber, on terms which the Opposition have echoed again and again in the past four years, I should like to add five points for consideration for the future. First, notwithstanding the Government's deathbed repentance, they are, I fear, still of the view that personal income in the pocket instead of in the tax coffers does not constitute an incentive. I will put a case on this. It is a recognised commonplace of remuneration theory that money may not surely be a motivator but that it is incontrovertible that its absence is a de-motivator.

The disadvantage of direct tax rates which vastly exceed those of competitor countries is that men and women stop going the extra yard. If one were a manager, one could no longer ask colleagues or subordinates to work socially undesirable hours, because their wives would say to them—as my wife has said to me—that at their tax rate there was no point in their working at evenings or weekends. And so they do not, and the total enterprise suffers, for it is often the extra yard that counts in a competitive environment. The history of this island since the war is a macrocosm to match the microcosm that I have just described for the individual.

My second point, which can be extended to the investment income surcharge as a whole, relates to the savings of a single girl prior to her marriage. A girl can be working for, say, six or seven years and accumulate the sort of savings to which yesterday's home purchase Bill referred. When she marries, the investment income from those savings will be aggregated with her husband's income and taxed at his marginal rate. This seems to be a manifest disincentive to savings by a single girl, and her withdrawal from work upon becoming a mother—to which the Financial Secretary alluded in his speech—only serves to make this combined marginal rate more penal and more unjust.

The effects of the investment income surcharge upon individual investors, who play so important a part in maintaining orderly financial markets, is well known. No doubt others of my hon. Friends will return to it.

Third, there is the subject of investing in one's own company. Coming events cast their Pardoes before them, if I may be excused the phrase, and no doubt we shall have some sort of scheme of general application in the Budget. In the meantime, we have a situation where senior members of professional firms are inhibited from putting money into their own firms—even if they are not receiving any special price or special deal—because any capital gain they would make would be taxed at marginal income tax rates. That seems in every way opposite and opposed to the economic needs of the country at this time, and opposite to the noises that have been emanating from the Chancellor of the Duchy of Lancaster about the virtues of small business.

I am also told that it not only applies to small firms but that it can apply equally to large industrial companies and that it can be overcome only by that vast investment of professional time which the right hon. Member for Huyton (Sir H. Wilson) so often used to decry. This last observation has a particular irony in the context of a great company which in recent years has been recovering from a bad patch. All the efforts of management in achieving that recovery—with all the extra work that that involves—has necessarily gone unrewarded under incomes policy and high marginal tax rates.

I totally understand the arguments for employment protection, but in such cir- cumstances as I have described it adds insult to injury to those managers involved in that recovery that the only ones among their colleagues who have accumulated any capital throughout that recovery have been those few whose services were dispensed with and who received ex gratia payments running into tens of thousands of pounds.

I have mentioned this case at some length because capital gains under present legislation were not available as an alternative way of rewarding those managers who would otherwise go unrewarded without infringing incomes policy.

Fourth, I have mentioned employment protection. Its effect on unemployment, especially in small businesses, is now well known. I understand that the Government are now resurrecting ideas of a wealth tax, despite the comments of the hon. Member for Putney, who has now left the Chamber. For a Government who have phrased today's Panglossian amendment—which implies therein that they have at last recognised that business confidence plays an important part in investment and employment—to bring back talk of a wealth tax at present makes one despair a little.

As the ancient poet had it, those whom God would destroy He first sends mad", but today it would be all of us, not just the Government or the wealthy, who would be destroyed by the introduction of such a tax with its effect on confidence throughout the small business sector.

Fifth, and finally,—I hope I can end on a non-controversial note—I want to refer to complexity. I hope that the Government will return again and again to simplification. Form P3, which explains to employees how they are coded, now runs to six whole pages of notes. I think that all of us in this House owe it to those outside this Chamber to urge on the Government that one way of reducing the burden of tax would be to continue resolutely with the process of simplifying the system.

6.15 p.m.

Photo of Mr Jeff Rooker Mr Jeff Rooker , Birmingham, Perry Barr

I agree wholeheartedly with the last point that the hon. Member for City of London and Westminster, South (Mr. Brooke) made, both for the reason which he gave and for reasons which I shall give. The tax system, whether corporate taxes or individual taxes, is in a complete and utter mess. Because the system is so complex, there is an incentive to create an industry to avoid paying one's proper and fair taxes. I shall come to this in a moment.

I must confess to some disappointment at not learning very much more about Conservative Party policy. The hon. and learned Member for Dover and Deal (Mr. Rees) was twice asked by my hon. Friend the Member for Motherwell and Wishaw (Dr. Bray) what precisely he would do to counteract the poverty trap. That was a phrase which came strange from the lips of the hon. and learned Member for Dover and Deal. He said "I am coming to that", but he never did. He simply sat down.

The sum total of Tory Party policy advocated in the hon. and learned Gentleman's speech was to increase the rate of VAT, although to what level we do not know. He also spoke of a decrease in the basic rate of income tax—which, as my right hon. Friend the Financial Secretary said, has many problems when taken in conjunction with the other forms of reduced tax. There was also a proposal to reduce capital taxes—capital gains tax and capital transfer tax—and one for the abolition or reduction of investment income surcharge.

That seemed to be the sum total of Conservative policy. But we did not get any figures. The hon. and learned Gentleman said nothing about the poverty trap, although he spent some part of his speech referring to it. The decision not to say anything about what level the Conservative Opposition think VAT ought to be at means that we should take their attitudes as being somewhat cynical.

For myself—I have no doubt that some of my hon. Friends may not agree—I think there is a case for a single rate of VAT. By definition, that would mean raising one rate and dropping the other. I understand that having a common rate of VAT of 10 per cent., in addition to certain zero-rated items, would increase the revenue by about £600 million and add only 0·75 per cent. or 0·8 per cent. to the retail price index. That is a modest increase in the circum- stances. At the same time as an increase in revenue, there would be a simplification of the VAT system, because it would not be possible to raise the basic rate to 10 per cent. and retain the 12½ per cent. rate as they are to close together to be meaningful or worth the paperwork involved. There is a case to be made for a simplication of the VAT system.

If I were asked—which I have not been—to draw up a list of proposals for the Budget, on the revenue side there would be a movement to one rate of VAT. There would also be a proposal for the abolition of the cut-off point for social security tax—the 5¾ per cent. I see no reason why people should not pay 5¾ per cent. of all their income instead of having a cut-off point at £105 or £110 a week.

That means a marginal rate of tax if one takes income tax and national insurance contributions together, which for all practical purposes is a social security tax. Taking them together, there is a lower marginal rate of tax on an income of around £7,000 than there is on an income of £6,000. Such a change would bring £480 million into the revenue.

Here are two items on the revenue side that would produce around £1 billion. I shall not read out a shopping list, because until one knows what the Chancellor has in mind it is a great deception on the public to argue what one would like to see in monetary terms without the detail necessary on the revenue side. Of course, the Conservative Opposition are well aware of this. They have considerable taxpayers' funds at their disposal—about £500,000 in the last three years—in order to run their parliamentary assistance and research effort.

I would have thought that we would have a better opening speech than that of the hon. and learned Member for Dover and Deal, who seemed to rely on his own prejudices and the research work and parliamentary Questions of one hon. Member—the hon. Member for Norfolk, South (Mr. MacGregor), I believe. To that extent, I believe that the Tory Party has done itself a disservice this afternoon.

As I mentioned earlier, the tax system is now so complicated—both corporate and personal taxes—that there is scope for wide areas of abuse. It is very easy to get headlines in the national or local Press, as the hon. Member for Aberdeen. South (Mr. Sproat) has made clear in recent years, by having a go at the scroungers. I deprecate that as much as anyone else, but the sum total of abuse of the social security system is only £3·2 million out of a total of £11 billion.

Photo of Peter Bottomley Peter Bottomley , Greenwich Woolwich West

On what evidence does the hon. Member base the sum of £3 million? I do not dispute his general point, but there is an element of certainty in what he said which is normally absent.

Photo of Mr Jeff Rooker Mr Jeff Rooker , Birmingham, Perry Barr

I was not certain. I was about to say £2·6 million, because that was the figure in the previous year. But I know that the figures changed recently with the latest national insurance year, and the latest figure which was given in a parliamentary answer just after Christmas is a little more than £3 million, which is accepted to be abuse.

One can see headlines every day outlining this, but one never sees headlines in the popular Press about the abuse which is taking place on the income tax side. The Board of Inland Revenue's annual report always makes interesting reading, and I draw attention to tables 9 and 10 on pages 44 and 45. In 1976, the last year for which we have figures, the amount of tax written off as irrecoverable was £28 million, of which income tax represented £21 million. There were other smaller taxes and the amounts were small, so they do not alter my argument.

Then, if we look at table 10 to see the reasons why the tax was written off as irrecoverable in 1976, we see that £10 million was due to insolvency but that £12 million—four times the level that is accepted to be lost because of social security abuse—was written off because the taxpayer was untraceable or had gone abroad. It is no wonder that we need an increase in Inland Revenue staff to chase down the people involved in this massive abuse. In terms of total Government tax revenue of £17 billion or £18 billion, £12 million is chicken feed. But so is the small abuse discovered on the other side of the Welfare State equation. One is blown up out of all proportion, whereas the other is politely and neatly swept under the carpet by editors in Fleet Street who probably have their salaries paid from the Cayman Islands anyway.

Photo of Ms Audrey Wise Ms Audrey Wise , Coventry South West

Will my hon. Friend agree also that there is a difference in the prosecution policies in relation to the two kinds of offences?

Photo of Mr Jeff Rooker Mr Jeff Rooker , Birmingham, Perry Barr

Very much so, and no doubt my hon. Friend will develop that from the information in the report.

When, however, there is a bit of a scare, it is easy to lay on public expenditure in order to provide a few more inspectors in the DHSS, whereas it does not seem possible to provide a few more people to do a good job in the Inland Revenue making sure that people pay their lawful taxes. We have a situation where, in answer to a Question the other day, I was told that the current establishment of the Inland Revenue is some 450 below what was agreed to be necessary to do the job and that no action is being taken to find these additional people.

The second example on the abuse side which I give is buried deep in the latest report of the Comptroller and Auditor General on the Appropriation Accounts for 1976–77, published two weeks ago in House of Commons Paper No. 138. That contains two or three very interesting paragraphs on the outturn of the Inland Revenue.

The Comptroller and Auditor General makes a point in paragraph 75 relating to taxation of directors' remuneration. Throughout that and the ensuing paragraphs, he says quite clearly that the Revenue is losing tax on earnings that directors are taking out of their companies and failing to tell the Revenue. Having made certain accepted qualifications about this, he ends up by saying: Nevertheless there remains a substantial proportion which does reflect the failure by companies to apply PAYE properly to directors' remuneration. I want to know what is to be done about that.

But the more serious charge of the Comptroller and Auditor General appears in paragraphs 80 to 84 on taxation of partnerships. Here he has done the House a service. He has uncovered a further loophole leading to substantial tax avoidance, and it concerns the switching on and off of partnerships, by and large between the same people—firms of accountants, probably the legal profession and possibly the medical profession, but certainly in areas where partnerships operate. It is possible to close down and open up partnerships, given that it is done at the right time of the year, and avoid tax liability.

The Comptroller and Auditor General says in paragraph 83: Examination by my staff suggested that many partnership changes were in fact contrived to secure the maximum tax advantage from the commencement and cessation provisions and that in some cases the process was repeated at regular intervals … the total profits escaping assessment might be of the order of £5 million a year and the consequent annual tax loss about £3 million. I have heard that figure before as a fraud on the Welfare State.

Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames

I agree that tax evasion is a deplorable practice, but I hope that the hon. Member will not give the impression that tax evasion is confined to schemes affecting directors and partnerships. The cash economy—the moonlighting, the doing of odd jobs, the builders doing jobs without contracts—has become very widespread in our society. It is practised by ordinary working people just as much as by the people mentioned by the hon. Member, and the cost of that sort of evasion is much, much greater.

Photo of Mr Jeff Rooker Mr Jeff Rooker , Birmingham, Perry Barr

There are no figures for that sort of evasion. I am the first to admit that there can be degrees of moonlighting. But the hon. Member included builders in his list of those who are ripping off the system. It was the present Government who sought to close the loophole regarding the "lump". We heard constantly about the 714 certificates and, of course, the Opposition complained. We had a debate almost a year ago this week on the 714 certificates. That was a loophole closed by the Government. The effect had been dramatic in that it stopped proper training in the building industry, it stopped the supply of skilled craftsmen coming forward, and it meant that wages went through the roof and local councils could not get homes and hospitals constructed.

I am giving my side of the argument. It is open to Opposition Members to give their side. However, it is very rare for this House to debate general tax matters as we are able to do today, and it is noticeable that when the Opposition have the opportunity to do so they never seem to concentrate on the area of tax avoidance, when the hon. Member for Kingston upon Thames (Mr. Lamont) could rightly make the point he has just made and when, of course, he would be met four square by Government supporters putting forward the other side of the equasion.

No one is saying that everyone is an angel. But I am talking about known abuses. I do not know where the £12 million which the Inland Revenue wrote off because the taxpayer was untraceable lay in the economy. I do not know whether it came from moonlighting or from people closing businesses and leaving the country. I have no means of knowing. But it is £12 million in lost tax revenue which we do not hear about very much.

The other area of tax evasion, simply because the system is so complicated, is in corporation tax. The hon. and learned Member for Dover and Deal is well acquainted with this area of tax abuse—I do not mean that personally, of course—because he and I have taken part in television programmes where comment has been made on it.

Just one example will suffice. George Wimpey and Company, one of our largest building companies, for a fee of £2·8 million was able to purchase a tax fiddle which meant that it did not have to pay £18£2 million which was due in corporation tax. This was well documented in The Sunday Times of 29th May last year, and certain loopholes in these forms of corporation tax abuse were closed in the last Finance Bill.

My right hon. Friend the Chief Secretary has already told us that further schemes of tax avoidance such as the commodity trading options which were started up will be closed, and closed retrospectively, I hope. I do not want any nonsense from those on the Treasury Bench about their not being able to make this retrospective beyond Budget day. The announcement was made well before Christmas. People knew that they were doing it and that if they were caught the loophole would be closed.

One of the tax brains who set up the George Wimpey rip-off, Mr. Godfrey Bradman, said both in the interview in the Sunday Times and during the television programme to which I referred that every time the Inland Revenue became aware of such a scheme he knew that he would have to go away to think up another one, because he knew that the Inland Revenue would stop it. That is the argument why we should not take any notice of arguments in this House against retrospective legislation.

There are three areas, and I shall refer to one more before mentioning briefly some other aspects of the amendment not yet debated. This refers to the breed of accountants who specialise in tax laws. There are many of them. It is a big industry because the tax system is complicated and there is a large "gravy train" related to it. I can on this occasion speak with notes before me on the kind of information and advice given by people like Mr. I. P. A. Stitt, who, when he did this confidential course, was a senior partner in Arthur Andersen and Company, a firm of international accountants which does a lot of work for the Government and which has not kept off the gravy train, because it had some £300,000 worth of work during the penultimate financial year.

In his lecture on inter-company pricing and charges, at about this time last year, Mr. Stitt told companies how to operate transfer prices to ensure that their corporate tax liability was very low. On page 8 of his notes he gave this kind of advice, which I could not quote last time as I had left my briefcase elsewhere and was threatened with legal action if I spoke of this outside the House. This well-heeled accountant, who is feeding off the taxpayer through Government contracts, gives advice to big firms on how to cut their corporation tax. He said in paragraphs (c) and (d) of his notes that major companies should seek to play off, wherever possible, the Inland Revenue against other United Kingdom or foreign Government Departments, for example, Customs, the Bank of England, the Department of Health and Social Security and the Price Commission … attempt to bring the Inland Revenue into conflict with an overseas tax authority in connection with the transfer pricing enquiry, e.g. the Internal Revenue Service of the United States. Because our tax system is so complicated, not just because our tax rates are so high, such people are making a very fat living, giving advice, running courses and setting up particular operations so that certain people do not have to pay their proper tax. The Inland Revenue has set up a special unit, under the Finance Acts of 1970 and 1976, to look into the problems. The last time I inquired into the result by means of a parliamentary Question, I was told that the unit had recovered £20 million.

This aspect must be looked at. It is not receiving sufficient attention from the Treasury Bench, and it will certainly not receive attention from the Conservative Party, inside or outside the House, because by and large it is their friends who are doing these tax avoidance schemes, as my right hon. Friend is well aware. I sent him a copy of Mr. Stitt's notes some time ago so that at least the Inland Revenue may know what advice is being given to people.

Photo of Mr Russell Fairgrieve Mr Russell Fairgrieve , Aberdeenshire West

Before the hon. Gentleman leaves that point, I would ask him one question. In the complicated tax jungle that we have in this country today, is there anything wrong in accountants giving companies advice on how they may pay the minimum legal tax due under the law?

Photo of Mr Jeff Rooker Mr Jeff Rooker , Birmingham, Perry Barr

The kind of things that I have been talking about are not illegal. It is a question of morality. If the public are told that the corporation tax rate is 52 per cent., quite rightly they are led to believe that 52 per cent. of company profits finds its way into the Treasury. Once one takes off the myriad allowances and corporation tax contributions, in percentage terms this is some 7 per cent. less of the total Government revenue than three or four years ago.

The simplest procedure of all, which was done by George Wimpey and was totally immoral, was to purchase a tax "fiddle" scheme for £2·8 million, which meant that that company did not have to pay its proper dues in corporation tax. Is the hon. Gentleman defending the morality of that? Is it Conservative Party policy to approve of such a scheme? I can tell him that one of his hon. Friends on his Front Bench attacked that scheme in a television programme and seemed to think that there was something very shady about it. He was put on the spot and he came up to the mark admirably in speaking on behalf of the Conservative Party. If the hon. Member for Aberdeenshire, West (Mr. Fairgrieve) thinks that the Tory Party supports these schemes, he should talk to his hon. Friends outside.

Coming to the issue of the tax on low incomes, we are bound to take into account the disastrous effects of the tax system, which has rightly been referred to as an "engine of poverty". It has operated in that way over the last four or five years, particularly with the current and previous very high inflation rates; and the Treasury Bench did not take cognisance of it as it affected the low paid, who really got screwed and were pushed down and down so that it really did not pay many of them to go to work. This gives a minority of hon. Members opposite a weapon with which to beat the Government and to undermine the Welfare State.

The Supplementary Benefits Commission is certainly an arbiter in this. In its evidence to the Royal Commission on the Distribution of Wealth, alluded to in SBC "Notes and Views" of 8th August last year, two very important points were made which are worth putting on record in the light of changes in the Budget which nevertheless have already been brought about: Any appreciable improvement in the supplementary benefits scale rates must be preceded by an improvement in other net disposable incomes of 'the working poor'"— because that is what my hon. Friends and I have referred to in our amendmentparticularly through the more generous family support which child benefits and housing subsidies may provide, and through higher tax thresholds, higher minimum wages and more effective enforcement of Wages Council Orders. The Supplementary Benefits Commission "Notes" also referred to a certain number of cases in which supplementary benefit equals or exceeds the recipient's potential earnings by saying: The number of cases … is far less than is sometimes suggested, but there are many more cases in which an unemployed man returning to work could well be demoralised by the narrowness of the gap between society's assessment of his worth in and out of work. That was said also during the Budget discussion last year, and I thought that there was hope for the future. That has been repeated in letters from the Treasury to many members of the public and cer- tainly to many of my constituents, quoting the Chancellor of the Exchequer when people write to support the activities of my hon. Friend and myself in the Financial Committee.

The Chancellor said during his Budget speech that the highest priority for the future must be to raise the tax thresholds and, if circumstances permitted, to increase their level to the point where they stood clear of the levels of the main social security benefits. Recently I asked the Treasury whether it still stood by that as a priority. The answer I received was "Yes". It would be a gross error of judgment for the Chancellor of the Exchequer not to do so, bearing in mind that he has little money to spend anyway. I shall not talk in terms of £2 billion or £3 billion, but perhaps the hon. Member for Cornwall, North (Mr. Pardoe) will enlighten me.

We really cannot put figures to these equations, but I know the cost of indexing the threshold. The Chancellor of the Exchequer has said he has already done so and in October last year, in the Act on income tax personal reliefs, he actually brought forward his indexation provision which should operate in the next Budget. I do not know whether my right hon. Friend is precluded from going one step further and giving the tax thresholds the extra boost that they would need for a further rise of 12 per cent. or thereabouts, concomitant with last year's increase in the retail price index, which would take the tax thresholds above and well clear of the main supplementary benefit levels.

That is vitally important. To me it is a first priority, along with the increase in child benefit. I do not see how one can distinguish between the two. In the old days, when thresholds were raised the child tax allowance would have been raised as well. It would have been part of the Budget announcement. These days, however, there is a slight problem in that as far as DHSS Ministers are concerned the Treasury still holds the purse strings.

Hon. Members on both sides of the House have made the point that the effect on families over the last few years has been disastrous. The only way in which it can effectively be reversed is by a substantial increase in child benefit along with the raising of thresholds. Only after that action is taken will I then start to advocate and support with my vote a reduced rate band. To get the record clear and to say that I am not prepared to be put on test about anything later in the year, let me say that only if that were done would I then push for the reduced rate band.

For someone on very low pay to get sucked into the tax system where his marginal rate is 34 per cent., it is no argument to say that every extra pound is to be taxed at 25 per cent. There is almost no difference for the low paid. It is only a few pence. But they are still in the tax system at a point at which they know that they may be better off not working, and all the pressure will be put upon them.

Therefore, we have to get that increase before we introduce the lower rate band. Only after the lower rate band has been introduced do we then start to talk of a decrease in the basic rate of income tax. It is the very last of the priorities. If my right hon. Friends on the Treasury Bench are in any doubt about this matter, let me tell them that the order in which we listed these proposals in our amendment was supposed to indicate priorities. It clearly states that only at the very end of the line would we advocate and support a reduction in the basic rate. All the other things must come first. The last point is referred to in the last part of the amendment: there is no valid case for tax hand-outs to the rich. I was disappointed with the speech of my right hon. Friend the Financial Secretary. I hope that Treasury Ministers will not make the sort of mistake that he made when this place gets sound broadcasting. My right hon. Friend talked as though he accepted what Opposition Members say when they say "The rich are badly hit. Everyone is paying 83 per cent. tax. My God, we must get that level cut." However, we ought to preface our remarks by saying that in order to pay 83 per cent. income tax one has to be earning over £400 a week. That is the message that must go out when the microphones here are switched on for the listening public. The public will be fed the argument that we must get the tax burden off the managers, otherwise there will be no more jobs. It must be made abundantly clear that in order to reach that tax threshold one must be earning well over £400 a week.

We have made our contribution to the rich in last year's Budget. I note that my right hon. Friend the Minister of State, Treasury nods. I shall give just one example. I asked a Question last August—it was answered only in letter form—about the total effect of all the Chancellor's changes on many different levels of income. I chose all sorts of levels of income, such as those of judges and admirals, and I chucked in a few ministerial levels, and Opposition levels, because we have to remember that the Leader of the Opposition is paid a salary from public funds.

The answers were very informative. I choose to cite just one of them. It is the average sort of figure that may be quoted by Opposition Members. It is of someone on a salary of £13,200. The figure relates to a married couple. This was before the changes last October. It was as a result of all the original Finance Act changes. Someone on a salary of £13,200 would have had a decrease in his income tax of £647. In my book, that amounts to £12 a week, in the pocket, net. That is the point to note.

In order to get that sort of increase in the pocket, someone earning £13,200 would have to have had an increase in gross salary of £2,158, simply because of the higher marginal rates of tax. That is equivalent to a gross increase in salary of 16 per cent. Therefore, the sort of person receiving £13,200 has already walked away with £12 a week extra in his pocket.

That happens to be a salary that is way above the average production manager's salary in industry. Opposition Members talk about salaries in manufacturing, salaries of the people who have to drive industry. They do not talk of the works manager and production manager levels and of very low salaries of £6,000, £7,000 and £8,000. It is very rare to find one up to £9,000 a year. One certainly does not see jobs advertised at £13,200 for the manager who is really at the sharp end of industry.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

Would the hon. Gentleman care to suggest what happens to the real income, allowing for inflation and tax, of the person at the level of income that he has mentioned? The hon. Gentleman ought to look at what has been happening in real terms and not just in money terms.

Photo of Mr Jeff Rooker Mr Jeff Rooker , Birmingham, Perry Barr

I have taken one year. Everyone was affected by a rate of inflation of between 25 per cent. and 30 per cent. As I have already made clear, the poor got really screwed. They were paying a marginal rate, at one time, of 106 per cent. They were losing money by getting a £1 a week increase at work because they lost some benefits, such as free school meals, rent allowance and so on. They were then sucked into the tax system as well for a £1 a week increase in gross earnings. A man could be 6p a week worse off. That is a much higher marginal rate of tax than the 98 per cent. that is quoted.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

I appreciate the point that the hon. Member has made about the poverty trap, but he is switching his argument from percentages to absolute amounts and back again. If he is starting his argument by saying that it is an enormous absolute amount increase, in terms of what is happening to real incomes after tax and inflation he ought to revert to absolute amounts. In that case the reduction in a person's real income, after allowing for inflation and tax on income, is very great indeed.

Photo of Mr Jeff Rooker Mr Jeff Rooker , Birmingham, Perry Barr

One could make the same argument about people on the lower levels. I was citing the effect of last year's Budget. I do not want to go over the background as to how real income has been affected over the last two years. I am saying that we have already given the rich a substantial tax hand-out. Someone on a salary of £13,200 walked away with £12 a week in his pocket. I said that, in order to obtain that as an increase in salary, he would have needed an increase of £40 a week, just over £2,000 a year, to get that amount clear after tax. The increase would he 16 per cent. That is somewhat above the percentage in relation to average industrial earnings of £80 a week quoted by the Chancellor.

Everyone is suffering from inflation. Richer people may or may not have suffered from it more than others, but that is not the point. The point is that they had a substantial net increase in their pockets after last year's Budget.

Photo of Mr Jeff Rooker Mr Jeff Rooker , Birmingham, Perry Barr

I shall not be fed by interventions. It would deprive some of my hon. Friends of time in which to make their speeches, and some of them are prepared to debate these issues with the Tory Front Bench and with the Government Front Bench. Everyone has been affected by what the hon. Member for Worthing (Mr. Higgins) is seeking to imply. I have implied that richer people have not been so affected. I have chosen one example of someone who walked away with £12 a week or more. [HON. MEMBERS: "No."] He did. His tax liability was reduced by £647 a year. That is for a person receiving £13,200.

I have chosen that figure because it fits most closely the salary of the Leader of the Opposition. She gets £13,700. I am not making a party point. I have quoted figures from Cabinet salaries in the past. I say that if the cap fits, wear it, and that applies to both sides of the House and both Houses of Parliament right up to the Law Lords who walk away each year with £20,000. Their tax reductions have given them an extra £15 in the pocket each week. These factors must be taken into account.

The Government have made a commitment to increase tax thresholds and reduce taxes on the poor. By lifting the thresholds above the supplementary benefit level, they will be helping families and improving their position. This may mean taking unpleasant decisions about single people and some earned income allowances.

I read the Orange Paper from the Equal Opportunities Commission about the gross unfairness of the tax system on the women of this country. We have reached the point where, because of the creeping of the tax threshold to the State pension level, women between 60 and 64 who get a national insurance pension earned in their own right could be paying tax on the basic old-age pension. That position is grossly unfair. They do not obtain the benefit of the age allowance, which is really a retirement allowance. Had it not been for the upset and embarrassment that would have been caused, my hon. Friend the Member for Coventry, South-West (Mrs. Wise) and I, who caused the Government to reorganise £500 million of tax cuts in favour of the poor, would have pushed the amendments to the Finance Bill to help these women.

I hope that when the Chancellor announces his Budget he will make clear that we do not intend to operate a tax system that is as grossly unfair to women as it has been in the past.

6.52 p.m.

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

The hon. Member for Birmingham, Perry Barr (Mr. Rooker) is magnificently constructive and infuriatingly wrong-headed, which is a better combination than very many right hon. and hon. Members.

In opening the debate the hon. and learned Member for Dover and Deal (Mr. Rees) did me the honour of quoting freely from my views on taxation. He did not distort my views at all. I stand by every word of criticism that I have made in the past about our taxation system—particularly the incidence of income tax. Our direct tax is a prison in which the entreprenurial and wealth-creating spirit of the British people lies wasting in chains.

Last week I thought that it would be impossible for the Conservative Opposition to produce a motion for which I would not have to vote, but they must have burned the midnight oil trying to do so, because they have succeeded. They have produced a nonsense of a motion, in its first phrase in the first line. The Government motion is not free of nonsense either, in its first line. Of course it depends on what one means by "making a start". One has to look with a fiscal microscope for any start that has been made in shifting the burden of taxation from income to expenditure. I want rather more than what the Government call a start.

Returning to the Conservative motion, exactly what are excessive amounts of taxation? What standards of comparison are they using? Is there a proportion of GNP in taxation that is bad and a proportion that is good? At what stage do we reach it? Is there an international comparison and, if so, with which countries do we compare ourselves? In making international comparisons one is always behind the times. One can only quote figures of a few years ago. In the December 1975 issue of Economic Trends, table 113 shows an international league of 10 in which we are sixth in relation to the proportion of GNP going in tax. This includes social security contributions. In other words, we are about the middle of the industrial league table, and that is about the right place for us at our present stage of development.

It is plainly misleading to pretend that the fault of the British tax system is over-taxation. If one goes on pretending that, it leads to all manner of nonsensical conclusions. I believe that this conclusion will be drawn by the Conservatives now, just as they drew it in the period before 1970. They got their tax wrong then and they have got it wrong now.

In any case, if it is true that we are over-taxed as a nation, it is incumbent upon Conservatives to spell out the way in which they would reduce the total level of taxation. We never get any such statements from the Opposition Front Bench. In order to reduce the total taxation the Opposition must have specific programmes for reducing expenditure. What is it that the Government do now that will not be done under the Conservatives? We will never get an answer to that question from the Tories.

The reason is that every member of the Shadow Administration is generally in favour of cutting public expenditure, but at the same time each one depends on making promises to increase it. [HON. MEMBERS: "No."] Oh, yes. Take, for example, the Shadow Education Minister. I well remember his calling on the hon. Member for Eton and Slough (Miss Lestor) to resign as a junior Minister at the Department of Education because of cuts that the Government had forced on that Department. He was deeply critical of the cuts, and recently has advocated increased expenditure on education, and particularly on the arts.

Then there is the Shadow Health Minister. Is he really in the business of saying that the country can afford to make massive cuts in expenditure on the Health Service? Of course not. He is deeply critical of the cuts and of the level of services.

Take also the Opposition approach to social security provisions. We find that when the Government delayed the announcement of the increase that they intended to make in social security benefits—these are made in November, but announced in advance—the Shadow Health Minister made a critical attack on the Government and implied that the reason for the delay was that the Government were going back on their commitment to index the benefits.

Some Member of the Shadow Administration must tell the House quite clearly that he intends to cut expenditure. If we know what it is that will be cut we shall be able to say how far that will go towards financing cuts in total taxation. The list could continue. It could extend to defence and the range of items on which the Tory Party is committeed to spend money.

Photo of Hon. Tim Sainsbury Hon. Tim Sainsbury , Hove

May I put two points to the hon. Gentleman? First, what is the Liberal Party's attitude to subject of pay beds? Do the Liberals want to increase the amount of public expenditure on health by cutting pay beds? Secondly, the hon. Gentleman did not mention the shadow Secretary of State for the Environment, who, by getting rid of the Community Land Act, will save a great deal of public expenditure. What is the Liberal Party's attitude to that matter?

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

In 1970 there was much talk from the Conservatives about cutting taxation and about expenditure being too high. But when they came to office, what did they do? They operated through "the snatcher" and cut children's milk. That was a saving of a mere £7 million. At a quick calculation I estimate that in respect of pay beds the hon. Gentleman is speaking of a sum of £20 million. That figure, revalorised, amounts to about £7 million. It may not be quite that figure, but not much more will be saved by that course. In other words, the sum will amount only to peanuts. It is nonsense to believe that that sort of sum will do anything to encourage the entrepreneurs and those who create the wealth in our community. It is hypocritical hooey to talk about pay beds and other fringe activities in this context.

Photo of Mr Nicholas Budgen Mr Nicholas Budgen , Wolverhampton South West

I believe that the hon. Gentleman's general proposition is right and that there will have to be substantial cuts in public expenditure before there can be tax cuts across the board. However, he does not deal with the substantial amount of new tax that will come from North Sea oil.

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

I thought we would get to that subject. The English are extraordinary. Unlike the Scots, the Cornish and the Welsh, they believe that God is an Englishman and that He set us down on this island built on coal and surrounded by a sea that is full of delicious fish, when that coal has been taken over by Arthur Scargill and our fish has all gone to Iceland. In some people's eyes, He said "Let there be oil", and this miraculous brown liquid started to flow into Conservative coffers. They envisage that future Conservative Chancellors will be able to dole out more of this brown gold to British taxpayers.

That view is absolute nonsense. The hon. Gentleman should read the review produced by Paul Nield, commissioned by Phillips and Drew. He will then see that he should approach very cautiously the subject of our gaining a great deal of revenue from the North Sea. The money will not be there to fund these massive cuts in taxation which the hon. Gentleman and I both wish to see.

There is another matter that should be mentioned besides the subject of North Sea oil, and that is the borrowing requirement. I am in favour of increasing the borrowing requirement. I believe that the Government have got the matter wrong. I believe that they have made a mistake and have made expenditure cuts which they did not intend to make. In other words, they have overcut the borrowing requirement. That figure has come out very much lower than the Government expected.

In 1973 the borrowing requirement was 6·6 per cent. of GDP. In 1976 it was 8·6 per cent.; in the first three quarters of 1977 it went down to 4·2 per cent. I believe that with Western economies in their present state that figure is too low and should be raised. However, it will not produce the money that is required to make the necessary changes.

The major matter that is wrong with our system is not over-taxation but over-dependence on personal incomes. In 1960, taking the figure of taxes on income and taxes on expenditure given in the financial statistics table, we see that the figure in respect of taxes on income amounted to 51 per cent. In 1970 that figure rose to 53 per cent., in 1973 to 55 per cent., and in 1976 to 60 per cent. It is that trend which has gone wrong and is causing the stresses and strains in our taxation system.

It is a very different picture in other countries. For instance, in West Germany a figure of 33 per cent. is taken in total tax revenue and income tax. In Italy the figure is 21 per cent., and in France 20 per cent. That seems to me to be a somewhat more wholesome balance.

I part company with the hon. Member for Perry Barr when he says that he believes that tax is too high only at the lower levels of income. I believe that taxation is too high at every level of income. It is at every level that we must make an impact, and we must do so quickly.

What must be done about the situation? We need major reforms and major reductions. We cannot afford to be timid. Our eventual aim is to bring down the standard rate of income tax to 20p in the pound. On current values it was 30p in the pound when the Conservatives left office and it is now 34p in the pound. I would regard any action aimed at reducing the figure to 30 in the pound as far too timid because such a figure would do nothing to stimulate the entrepreneur or to create wealth in our community.

The threshold has been set well above the supplementary benefit level. On that matter I agree wholeheartedly with the hon. Member for Perry Barr. The cost of indexing the threshold is very high indeed. If we examine the situation in 1973 we see that the single person's allowance was then £595. That would have to be increased by 113 per cent. to bring it up to current values, which would take the figure to £1,268. The current existing allowance is £945.

I quote those figures because it seemed right to obtain the figure of supplementary benefit. Therefore, this appears to be a reasonable figure to take as a standard. We should be moving somewhere in that region because enormous costs have to be met.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

Perhaps the hon. Gentleman should not merely say that the costs are enormous. Perhaps he can say, in terms of the threshold, what a cut in the standard rate to 20 per cent. would mean.

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

I shall come to that matter. However, perhaps I can give the hon. Gentleman the threshold figure. One can obtain this information. It is not Government information, but it can be obtained by any reasonable economist or mathematician. That counts me out of the exercise, because I rely on other calculating machines than my own. An indexed scheme showing a person's allowance to April 1973 will bring the figure to £1,268, and that would mean a total figure of £1,000 million. If one wanted to go in for the whole range, the figure would be about £1,500 million or £1,600 million in personal allowances. I shall come to the standard rate in a moment, because I wish to deploy that argument rather differently.

I wish now to deal with the problem of child benefit and child tax allowance. I see no reason to delay the phasing out of tax allowances until April 1979. We could phase it out in April 1978. I believe that that would be a far better move. If we were to decide to make a change in the standard rate, I am sure that the hon. Member for Perry Barr would immediately say that a substantial problem would be created at the lower levels. Therefore, we must deal with the problem by increasing child benefits. In other words, it is better to deal with the proverty problem through direct grants than by fiddling with the tax system. I accept that there will have to be a switch, and I hope that will happen.

I must tell the hon. Member for Perry Barr that I believe the major stumbling block will be the trade union movement. It believes that it would be wrong to make this great switch of money now. It believes that it would be difficult for its members if we immediately made the switch from the pocket of the man to the purse of the women. I hope that people in the trade union movement will realise that they are being used as a stumbling block and will speak out if they disagree with that position.

Photo of Peter Bottomley Peter Bottomley , Greenwich Woolwich West

What possible evidence is there for the hon. Gentleman's saying that the TUC does not want this change? The Government used the trade unions as an excuse when the TUC had not even been consulted about the postponement of the child benefit scheme.

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

I have said what I have said. If the TUC denies it, I shall be the most delighted hon. Member in the House.

Photo of Mr Jeff Rooker Mr Jeff Rooker , Birmingham, Perry Barr

What on earth does the hon. Gentleman think the row was about when the Cabinet documents were leaked? The Government were caught red-handed telling the PLP that it could not do this because the TUC was opposed to it and telling the TUC that the PLP would not stand for it. This is open knowledge. It is what the row about the disclosure of the documents by Frank Field was all about. There is no evidence that the TUC is opposed to such a transfer.

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

I am delighted by the row that I have created. That was precisely what I intended. I hope that we shall now get a denial from the TUC. The Government will then know what to do and we can have the change-over in 1978. We shall have won the argument and used Parliament for one of its most important purposes—to change the mind of the Government. I regard the child benefit scheme as one of the highest priorities for increased public expenditure.

Last year, I proposed an amendment to the Finance Bill to introduce a lower rate band in the income tax system. It is better than nothing, but it is administratively complicated and very expensive and I think that we should go for a much lower standard rate, by which I mean 25 per cent. If we came down to near 25 per cent. as a standard rate, we would not need to worry about the high level at which people enter the system. In terms of administration and cost, it would be better to do that.

I have said that such a move would require huge sums. We would need between £4 billion and £5 billion to get the standard rate down to 25 per cent. Where would the money come from? I have already suggested that the borrowing requirement is too low. I was interested to note that the Treasury, after much prodding, has at last put out some figures on a full employment budget in this month's economic progress report. It refers to a table on page 5 and says: The figures in the table suggest that if the level of activity in that year had been consistent with an unemployment rate of 3 per cent., the public sector would have been around £3 billion less or about two-thirds of the deficit of £8·3 billion actually recorded. That is a very substantial amount, and that figure must be taken into account in any assessment of the borrowing requirement that Britain could tolerate in 1978.

Most of the money will have to come from taxes on spending. VAT is not as broadly based an expenditure tax as many thought it would be in the initial planning stages. We have got ourselves, largely for historical reasons, a tax which exempts about 50 per cent. of all family expenditure, including food, children's clothes, fuel and light. I do not think that anyone would easily advocate that we should insert any of those things into the coverage of VAT.

We must accept the limitations of VAT and the fact that it does not raise a great deal of revenue. Simply standardising the rate on present goods at 10 per cent. would bring us £700 million. That does not take us far, but it takes us some of the way. We could find at least another £500 million or £600 million by the revalorisation of all duties—

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

—with the exception of petrol. I got that in quicker than the hon. Member for Perry Barr. I knew that it was coming. Petrol will not be revalorised.

Photo of Mr Jeff Rooker Mr Jeff Rooker , Birmingham, Perry Barr

Because the Liberals say so.

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

The hon. Member for Perry Barr said it; I did not.

If we revalorise the other duties, particularly those on tobacco, cigarettes and drinks, it will bring in about £500 million or £600 million. That should be done. However, there must be a source of substantially greater amounts of money, and I put it to the House that these can come only from the source used in other major European industrialised countries—the payroll tax.

Taxation of the corporate sector in Britain is ludicrously low in its totality compared with that in other industrial countries. I understand why. The profitability of British companies has been extremely low, there are massive allowances against corporation tax, and stock relief has virtually decimated the yield of corporation tax. The only other major taxation of the corporate sector comes from the payroll tax, and it is very much higher in the rest of Europe than in Britain. For example, British employers pay 11 per cent. or 12 per cent. of their wage bills in payroll tax, but the German employer pays 15 per cent. or 16 per cent., the French employer well over 20 per cent. and the Italian employer 30 per cent.

Photo of Mr Nicholas Budgen Mr Nicholas Budgen , Wolverhampton South West

Does the hon. Gentleman agree that a payroll tax would be yet another disincentive to employers and that the other countries to which he has referred do not have the whole corpus of legislation that has been put on the statute book, with the hon. Gentleman's approval, recently and is already a massive disincentive?

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

It is a demonstration of unbelievable ignorance for anyone who takes an interest in economic matters to try to delude the House into believing that the legislative burdens suffered by British employers are greater than those suffered by employers in other industrial countries. Anyone with experience of trading or doing business with other countries knows that it is as difficult to sack a Swiss employee as it is to dismiss a British employee and that the process is almost as difficult in Germany. It is getting more and more difficult around the world, and it is a good thing that that should be so. There should be no going back on the Employment Protection Act. I do not believe that it is the reason for the malaise of British manufacturing industry.

A 1½ per cent. increase in the payroll tax would bring in well over £1,000 million in a tax year and would bridge the gap. Employers are engaged in a massive row with the Government over their determination to insert clauses into public service contracts limiting employers to giving their employees wage increases of 10 per cent.

The employers cannot have it both ways. If they cannot afford to pay the Government an extra 1½ per cent. on the payroll tax, they cannot afford to pay their employees more than a 10 per cent. increase in wages. If it were not for the Government's guidelines, we should be getting wage increases of 15 per cent. to 20 per cent. or more. That puts the whole question in context. That is where most of the money must come from. I see no alternative to raising it that way.

I say to big and small employers that if one believes, as I do, that income tax is the greatest disincentive to the wealth-creating process in this country, we have to argue honestly and show the financing of substantial income tax reductions in an economic context. We have done that and we are prepared to spell out the cost of reducing income tax. It is essential that this should be done and that we are prepared to say to employers that the benefits that we shall offer to them by making a substantial reduction in income tax are huge and enormous by comparison with the small sacrifice that we are asking them to make in terms of increased company taxation.

7.20 p.m.

Photo of Ms Audrey Wise Ms Audrey Wise , Coventry South West

When my hon. Friend and I tabled the amendment which has unfortunately not been called for debate, we deliberately commenced with a reference to expenditure on the essential public services, the services that the people want and expect and are right to want and expect. Those are the services that Opposition Members are apparently satisfied to see starved of essential funds. We commenced our amendment with a reference to public spending because we believe that the raising of revenue and the spending of revenue need to be discussed together. We are opposed to the artificial separation of the two factors.

We are also deeply opposed to the method which is used by Opposition Members, who suggest to the people that they can have reductions in taxation and more money in their pockets—that is, more money in everybody's pocket, from top to bottom, from the highest earners and owners of the greatest wealth right through to the lowest paid—and at the same time have adequate services. Life is not like that, and my hon. Friends and I make it clear in our amendment where our priorities lie.

It happens that in Coventry this very evening the community health council will be discussing correspondence it has received from the BMA, in which is enclosed a letter from my right hon. Friend the Secretary of State for Social Services. My right hon. Friend makes it clear that he realises that the National Health Service is unable at present to meet the people's expectations and that the doctors and area health authorities have extremely difficult decisions to make. In reaching some decisions, it is necessary for those concerned to play God. In some instances decisions have to be made which mean that people will die before the Health Service gets round to treating them. In such circumstances, my hon. Friends and I believe that it is right to declare loud and clear that expenditure on social services, the Health Service, housing and the like has to be a priority.

As my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) has said, we have made no attempt to quantify the claims that we are making on the nation's resources, and that is justifiable in such an amendment. But, at a time when the lowest paid have had taxation bearing upon them very heavily, it is also justifiable that we look to the Treasury, with a Labour Chancellor, to ensure that whatever tax cuts can be afforded will go into the pockets of those who need them the most. In addition, my hon. Friends and I believe that the time has come for an injection into the economy, for a reflationary package and we believe that that has to affect both the public services and tax on low incomes.

We are told from the Opposition Benches, including, I am sorry to say, the Liberal Bench, that we lack the entrepreneurial spirit. It is said that it is being taxed out of existence by our heavy income tax. I find that difficult to understand. The hon. Member for Worthing (Mr. Higgins) seems to think that those on high incomes have some divine right, because they have had a larger share of the nation's wealth, to continue having a disproportionately large share of the nation's wealth. Most Labour Members deny that absolutely. The idea that we have difficulties in our economy because top managers or middle managers are being ground down by taxation is total rubbish. It would reflect badly on top and middle managers if that were true, if they were withholding part of their talent and effort because they were greedy for more cash or tax relief.

Photo of Mr Paul Hawkins Mr Paul Hawkins , South West Norfolk

I entirely agree with the hon. Lady's comments about the terrible state of the National Health Service, with consultants not being able to see people for many months and even years. Does she agree that most of the cause lies with the high personal taxation that has driven abroad many of the young doctors who would have stayed in the hospitals to give the service and the attention that is now lacking? Surely that is a reason for wishing to reduce high personal taxation.

Photo of Ms Audrey Wise Ms Audrey Wise , Coventry South West

If some doctors who are trained at public expense are not prepared to stay and treat the British people, that reflects badly on those doctors, but it does not apply to the whole of the medical profession. Conservative Members are always keen to call on the low paid to work for the good of their souls, but they seem to look with positive favour on those who would take every advantage from this country only to leave it at their own convenience for what they see as greener pastures overseas. I have no time for such people, and I do not believe that we rely upon them.

Part of the difficulty in the Health Service also arises from consultants who will make people wait for years before they can be seen in the National Health Service, although they say "I shall see you next week" or "I shall see you in a fortnight's time" if the patient is 'prepared to attend them privately. That is another factor to be taken into account. Nevertheless, there is no doubt that the NHS needs a considerable injection of funds. We have to replace old and neglected hospitals, for example.

I return to the entrepreneurial spirit which Opposition Members seem to think is being crushed out of top and middle managers. I suppose that we had entrepreneurial spirit in the 1920s and 1930s when taxation was much lower. I suppose that we had that spirit then and that everything was lovely. Was it lovely? I suppose that we had entrepreneurial spirit when taxation was even lower in Victoria's heyday, when wealth was ground out from the very blood and bones of the poor. I suppose that one's attitude depends greatly on a plain and straight forward understanding of class position.

My interest is firmly in ensuring that the vast majority who contribute to the best of their ability to earning our national wealth receive the benefit of any tax concessions that can be made.

Photo of Mr Nicholas Budgen Mr Nicholas Budgen , Wolverhampton South West

If we accept the hon. Lady's argument that she is in the House, as she has often said, to represent the views and interests of ordinary working-class people, is it not right that ordinary working-class people want to be employed? Is it not right that in future they will be employed mainly because entrepreneurs have seen profitable ways of providing employment for them?

Photo of Ms Audrey Wise Ms Audrey Wise , Coventry South West

The hon. Gentleman does not seem to live in the age of the multinationals in which the rest of us have to live. In talking of the individual entrepreneur, the hon. Gentleman is indulging in romance. We live in the days of huge monopolies which wield enormous decision-making power. On the whole, they wield it not in the interests of ordinary people but with complete disregard of the massive talent, interest and capacity that exists throughout the population, not only in the persons of top managers. If, for example, the Opposition took the interest that we take in the plans of the Lucas aerospace workers, they would understand where and why talent is wasted.

Photo of Mr Nicholas Budgen Mr Nicholas Budgen , Wolverhampton South West

Is the House to assume that the hon. Lady is suggesting that all employment in future should come from the State sector?

Photo of Ms Audrey Wise Ms Audrey Wise , Coventry South West

I assure the hon. Gentleman that I am no lover of excessive State power. The Lucas aerospace workers' plan is not about State power. I do not believe in dispossessing the multinationals in order to have an all-powerful State. I believe in finding a structure of society which allows ordinary people to have more control over their own lives.

Photo of Ms Audrey Wise Ms Audrey Wise , Coventry South West

That is not the kind of society which the hon. Member for Wolverhampton, South-West (Mr. Budgen) wants. We are engaged in a debate on taxation. I should like to educate the Opposition on how to harness the talents of working people, but this is not the time. I am sure that I should be called to order by you, Mr. Deputy Speaker, if I were to do that. If the Opposition would have a Supply Day on, for example, the need to encourage workers' co-operatives or some such subject, we could explore this matter to our hearts' content.

I do not believe that there is an argument for tax concessions throughout every level of the population. Those who pay a marginal rate of 83 per cent., because their taxable income is more than £21,000, are not in dire need of help from the community at large.

That brings me to a consideration of the precise form which tax concessions should take. As long as we have a tax threshold which overlaps with social benefits, such money as is available for tax concessions would best be utilised in raising the tax threshold beyond that overlap. Last year we made enormous strides in that direction. The process which was started in Committee on the Finance Bill was admirably continued by my right hon. Friend the Chancellor of the Exchequer in October when he uroceeded to make further increases in the tax threshold. We can now say that, broadly speaking, the tax threshold is not below the supplementary benefit level. That was a considerable and important advance.

However, I urge my right hon. Friends, when considering this matter, to take into account the relationship between the tax threshold and family income supplement. As long as working people pay income tax with one hand and receive family income supplement with the other, they will regard that as wasteful in the extreme, incomprehensible and stupid. They will be right. Therefore, I urge that the first priority for tax concessions should be to raise the tax threshold at least to the extent where it does not overlap with family income supplement.

We have referred to child benefit in our amendment. We have done that deliberately and linked it with tax cuts. We know that there is now a mechanism for family support technically different form tax allowances. The danger—the unexpected danger when we passed with wholehearted enthusiasm the Child Benefit Bill—is that it has become all too clear that, while it was exceedingly easy for the Chancellor of the Exchequer, if so minded, to raise child tax allowances without the constraints which apply to increases in public expenditure, this is not so for child benefit. Simply refraining from levying tax is not regarded as being in the same category as spending tax which has already been raised. Therefore, we have the irony of money being expended on child tax allowances without public expenditure constraints, whereas the same amount, if allocated to child benefit, would encounter enormous hurdles.

We have an accounting system which seems to put senseless barriers in the way of increasing child benefit. I do not think that any of my hon. Friends will accept a statement from the Chancellor of the Exchequer that he has had to increase the married couple's allowance because he is now unable to help families through child tax allowance. It is imperative that adequate and generous amounts should be devoted to increased family support. That can be done only through child benefit. It is for the Treasury to do it.

We shall not be minded to accept excuses about the state of the contingency fund. People might from time to time accept that the country cannot afford certain things, but they will not and should not accept the notion that the country can afford but cannot arrange its bookkeeping so as to pay the benefit in the most sensible fashion. Therefore, child benefit must become inextricably linked in the Treasury's mind with the concept of tax forgone. If not, we shall continue to flounder on the subject of child support with dire consequences when we have to face the electorate. I urge this matter most strenuously on the Treasury Bench.

We have referred in the amendment to an intermediate rate band. We are aware that the TUC favours a lower rate band, and we are certainly not opposed to it. We would give priority to the raising of the threshold and to an increase in child benefit. But there is a strong argument for saying that it is wrong for people to come into the tax band at 34 per cent.

I do not accept the rash statement from the Liberal Bench that there is a possibiuity of reducing the standard rate of tax sufficient to give marked improvements to those at the lower end. A reduce- tion in the standard rate of tax would simply be a way of giving proportionately more to the better off. I should reject that completely.

My hon. Friend the Member for Motherwell and Wishaw (Dr. Bray) posed to the Opposition Front Bench the question of the poverty trap. The Opposition signally failed to answer that question. However, it has been answered in our amendment and in my remarks relating to the overlap with FIS and social benefits. We on these Benches are prepared to grapple with the problem of the poverty trap. The Opposition have clearly demonstrated their incapacity and unwillingness to grapple with the problem of the poverty trap. Despite being twice challenged, the Opposition Front Bench spokesman contented himself with a weak and obscure reference to indexation, indicating that it was sufficient that personal tax allowances at the lower end were indexed. The hon. and learned Member for Dover and Deal (Mr. Rees) sought to take credit for that improvement in last year's Finance Bill. Mistakenly, he assured us that his hon. Friends had been fighting for years for such indexation of personal tax allowances. One would have thought that there had never been a Conservative Government in power.

When it comes to measures which proportionally give more help to the lowest paid, the Opposition are apt to find their enthusiasm waning. Simply by the foresight of my hon. Friend the Member for Perry Barr and myself in tabling the indexation amendment twice in slightly different terms did that provision come about. The first time that the suggestion was put before the Committee, so enthusiastic were the Opposition that they could not even muster all their Members to support it. They had someone locked out. Such carelessness, or was it lack of enthusiasm? Only because we tabled the amendment twice was the situation redeemed.

It ill becomes the Opposition to boast about their concern for the low paid in view of their general record and their total unwillingness to specify the way in which they would deal with the poverty trap. They are unwilling to commit themselves to sharing the wealth of the country fairly.

It is not possible to maintain good public services, give the poor a fair share of the wealth they help to create and at the same time protect the riches of the rich. One knows what the Opposition would choose if they were faced with the choice. They would choose to defend the position of the privileged and wealth in our society and to sugar that with the implication that it is only by defending the wealthy and priveleged that there will be the smallest crumb left for working people. We are supposed to be so grateful for their efforts at making money for themselves that we say that top priority must be given to preserving their position so that the privileged will then be good enough to employ the rest of the population and provide it with some semblance of civilised life.

That is not our philosophy. It is not the philosophy which we expect to see reflected in the next Budget. In view of the statements that have been made about improvements in the state of the economy, we look forward to some real improvement for working people both in terms of the standard of public services and in tax concessions. We shall look with favour on such concessions but with great disfavour if any concessions are made to the Conservatives' philosophy.

7.45 p.m.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

The late Iain Macleod, who produced many memorable phrases, had one of which he was particularly fond, not because of its witticism but because of its truth. He said that Socialist Governments increased taxation and Conservative Governments cut it. As a statement of fact that is something which is clear if one compares the records of both Conservative and Labour Governments.

I should like to take up a number of points that have been made by the Financial Secretary and the hon. Members for Birmingham, Perry Barr (Mr. Rooker) and for Coventry, South-West (Mrs. Wise) before turning to the main argument. I agreed with the hon. Member for Coventry, South-West when she said that the speech by the Liberal Party spokesman was extremely rash. We are used to rash statements from the Liberal Party. However, they are not likely to have to fulfil their rash promises. After the Lib-Lab pact that will be even more true in the future.

I absolutely reject the hon. Lady's statement about my party's concern for the poor, and in particular what she said about the poverty trap. Had we not lost the election in February 1974 we should have legislated in the next Finance Bill for a tax credit scheme which would have done more to remove the poverty trap, once for all, than anything that this Government have done. Similarly, I reject the view that we did not do a great deal to help the lowest-paid. One has only to look at the record to see what we did.

I wish to take up some of the points made by the Financial Secretary and I hope that the Minister of State will convey them to him. The Financial Secretary referred—he seemed to have a desire to go back into the past—to the situation which the present Government inherited when they came to office in 1974. I am glad to see that the Financial Secretary has returned to the Chamber. It is important to make comparisons not between one moment in time and another but over a period of time involving two Governments. If one examines the figures one finds that the main economic indicators look different now, in terms of real income. We have had complete stagnation for four years. Under the previous Conservative Government we had a record improvement in the real standard of living.

The unemployment record of this Government, at its peak, is more than 50 per cent. above what it was under the Conservatives. The cost of living comparisons are remarkable. The Financial Secretary quoted curious statistics, which I do not have before me. I was surprised by them, because if one takes the year-on-year figures they are: 1971, 9·4 per cent.; 1972, 7·1 per cent.; and 1973, 9·1 per cent. If one looks at the sequence for the following years one finds that the figures are 16 per cent.; 24·2 per cent. and 16·5 per cent. I am surprised that the Financial Secretary should think that there is anything to be gained from making the comparisons that he made.

When referring to the question whether the problems which we have faced since February 1974 were due to excessive increases in the money supply the Financial Secretary overlooked the fact that in October of that year we were assured by the present Chancellor of the Exchequer that inflation was under control. Therefore, the Financial Secretary is stopped from arguing that the problems which we have faced since then have been due to that increase.

I sought to analyse the effects of the money supply increase in The Sunday Times of 11th November last in a way which no opportunity is provided in the House. When I am quoting the figures I hope that the Financial Secretary will look at the figures in "Greenwell's Bulletin" for February 1978, because it is a matter for some concern. This suggests that the percentage increase, at least on the last month, not allowing for increases in building society deposits, is very similar to the figures that he quoted for our last period of office. If he cares to look at the diagram for the increase in M3, he will see that that monthly figure is not vastly different, in terms of the rate of increase, from the figure when we left office.

I do not say that this is necessarily a significant comparison to make, because it takes the figure at a certain moment in time.

Photo of Mr Nicholas Budgen Mr Nicholas Budgen , Wolverhampton South West

Does my hon. Friend recollect that when these figures were announced the Minister of State himself commented on them to the Press and, as I recall, made it clear that the Government were going to get the money supply figures down within the 13 per cent. constraint?

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

I understand that point. It is the main issue that I want to deal with in my speech, but I have one or two preliminary remarks to make about the structure of taxation before I come to that.

If one considers the end of our period of office and the beginning of that of the Government it is necessary to remember one necessary element, namely, that the danger that the stop that took place in the spring and summer of 1974 was taken by industry in particular and those concerned with investment decisions as a stop of the traditional sort. I do not believe that that is so, I believe that it was due to the oil crisis and the effects of the miners' strike. Hon. Members on both sides of the House do themselves no service if they believe that stops of that sort are inevitable, because if they do that they may formulate policy in the wrong way for the future.

My final point on that aspect of the Financial Secretary's speech is that the inflation from which we suffered from October 1974 on was due to a tremendous extent to the wild wage explosion which the Labour Government permitted to take place on their coming into office, and particularly between the two elections in 1974, when there was no need for them to do that. If they had taken the correct action and if the present Leader of the House had not extended to surface workers the excessive wage claim settlement by the miners, with all the repercussions that that involved, the situation would have been a great deal better than it was. We are still suffering from that gross irresponsibility by the Government.

I want to turn now to one or two aspects of taxation, and in particular its structure. It is right that we should get back to a single rate of VAT, and I believe that the 10 per cent. rate that we originally introduced has a tremendous amount to recommend it. It is simple and furthermore it would give the Chancellor more scope for reducing direct taxation in the Budget. The hon, Member for Perry Barr surprised me, because he seemed to take the case of a particular individual with an income of about £13,000, allow for a change in his income and tax, and then make no allowance for the effect of inflation on the rest of his income. In absolute terms that would substantially reduce the real figure.

I am surprised that there has been no reference by the Financial Secretary or anyone else to Professor Meade's committee dealing with a change in the taxation system. Perhaps the Minister of State will refer to it later. I had the advantage of attending the professor's first lectures when he became professor of political economy at Cambridge. One cannot dispute the record of his analysis and the interest which the structure generates from an academic point of view. Although there are advantages in improving the position of the Stock Exchange and the mobility of capital, I have considerable doubts about the way in which Professor Meade seems to envisage exchange control as a permanent feature of our economy. The prospect of a planned 10-year period of tax reform is not one that I view with a great deal of equanimity. I doubt whether the Financial Secretary would disagree with me.

Looking at the overall structure, however I think that we can all agree on the paramount need to reduce direct taxation. I was surprised that there was no reference by the Minister in his opening remarks to the successful CBI conference which I attended as a delegate a few months ago, or to the pleas by the CBI for a reduction in the level of direct taxation, particularly for middle management, where differentials have been squeezed disastrously. Even the hon. Member for Coventry, South-West would be prepared to accept that this might have serious effects on the general level of incentive for management and the carrying of responsibility

I turn now to the more technical question of what scope there is for tax reductions. I have suggested that a change in the VAT rate should give more scope for dealing with direct taxation, but we have to consider carefully the high level of unemploymentßžI think everyone will agree that it is unacceptably highßžand the waste of resources that that involves, and the danger of a resurgence of inflation, which in time would endanger employment even more.

I believe that a difficult technical debate has been taking place between the so-called monetarists on the one hand and the so-called neo-Keynesians on the other. It is puzzling that so many of those engaged in this debate seem unable to understandßžI think that Patrick Hutber, in the Sunday Telegraph is a classic caseßžthat it may be possible to use the two methods to fight inflation and reduce unemployment and even to raise the general standard of living. I consider myself, matters. I have always believed that both monetary and fiscal policy are useful tools for helping to manage the economy. It is on that point that I want my concluding remarks.

It seems that in this technical debate a false dichotomy has been created which is crucial to our management of the economy. False dichotomies have existed between those who draw a sharp distinction between monetary policy and demand management. Both of those dichotomies are extremely dangerous if we are to get the right answer and establish what scope there is for reducing taxation. This is, after all a, crucial question at present. I disregard completely the rash and wild statement of the Liberal spokesman in this respect.

Both monetary and incomes policies have a role to play but it all depends on what is meant by "incomes policy". I feel that there is no way in which one can govern and run the British economy without having an incomes policy for the public sector, including the nationalised industries. That is so whatever one may say about free collective bargaining, and that can mean a great many different things, as we all know. But it is essential that the Government should take a lead in setting the level of pay settlements, preferably by the system of de-escalation employed by the Conservative Government, which reduced the rate of wage and price inflation by more than half over the first 11 month that we were in office. If one does that, it goes hand in hand with sensible fiscal and monetary policy, and one needs to use all three if one is to succeed.

I accept that if the present Government had not taken the line they did, after the wild wage explosion when they came into office we would long since have been in a quite disastrous situation. In spite of the stringent monetary policy that the Government have been pursuing in recent month, at the instigation particularly of the IMF I do not believe that that policy alone would have been sufficient to reduce the level of wage claims in a number of specific cases in the public sector where it has been necessary for the Government to stand firm. The Government have a responsibility to stand firm, though I do not accept the constitutional impropriety of the present system of black lists.

I still believe that it is wrong that in some areas, such as the hotel industry, the Government should have allowed wage increases of between 15 per cent. and 19½ per cent. That is completely unfair. The monetary and income policy side taken together give scope for sensible management of the economy.

This brings me to the other dichotomy, between monetary policy and demand management. Here the matter becomes rather more technical and raise the extremely important question of when it is safe to reflate. In some quarters "reflation" has become something of a dirty word, and synonymous with inflation. That is a dangerous idea. It is dangerous for us to get into this semantic jungle.

I do not believe that reflation is necessarily identical with inflation. There are differences between the situation with regard to supply and demand—I have great faith in supply and demand—in an individual market and supply and demand in the economy as a whole. If there is excess capacity in the economy as a whole and one increases aggregate demand, there is initially an increase in output rather than in prices. Gradually both go up together, and finally prices alone go up. This means that there is some scope for reflation in certain circumstances. The crucial question now is whether the circumstances are such that there is that scope.

Here we need to rethink our views about economic management. I was very impressed by an article by Mr. David Kern some while ago, in the National Westminster Review, headed: An assessment of Britain's medium-term financial prospects". Mr. Kern suggested that we should have to accept quite explicitly that the existence or otherwise of spare physical capacity, however significant at the level of the industrial plant or even the industrial sector, cannot be a useful operational concept against which to formulate national policies. He also suggested that in a sense there was some kind of monetary sub-ceiling, below the capacity ceiling, through which it was dangerous for one to go.

If that is so, we must consider what would be the effect of tax reductions on the public sector borrowing requirement and, in turn, on the money supply. What worries me is that during the past four years we have had a virtual stagnation in GNP and presumably—although it is always difficult to establish this—a significant increase in productive potential within the economy. Therefore, the question is whether it is safe for the Chancellor to reflate without running the danger of inflation and unemployment again, whether a reduction in taxation of the order that has been suggested—of about £1.500 million, which would virtu- ally take us back to the position of about a year ago, allowing for fiscal drag—would run us through the monetary guidelines that have been laid down.

If it is at about that point that we run through the monetary guidelines, we are effectively saying that the limits, because of the restraints on the money supply that the Government have annouced, are such that there is no prospect of reducing the level of unemployment below present levels and no real prospect of achieving further economic growth in real terms. I hope that the Minister of State will say whether he believes that a reduction of that order—I am not asking him to say whether he will make it; he knows that I am not so naive as to do that—would be consistent with the maintenance of the present monetary guidelines.

My belief is that it probably is at about that level of tax reduction that one runs into problems with the monetary guidelines. The crucial question then is to what extent the Government can finance the deficit and avoid an increase in the money supply by selling debt to the on-bank public. This, in turn, has crucial implications for interest rates. We are in an extremely difficult position if we are to have restraints placed on the money supply which restrict reductions in taxation in such a way that there can be no real increase in aggregate demand and no real growth in the economy. This is the crucial matter that we must face.

It is sometimes said that money supply should be neutral from now on. There were certain Press comments over the weeked suggesting that the increase in money supply should be sufficient to be neutral and finance the increase in wages plus growth at, say, 3 per cent. The problem then always is: how is it possible to ensure that it goes to real growth in output rather than bigger than expected increases in money wages? That is always a dilemma. I hope that we shall have from the Minister of State tonight an indication of the prospects that he sees for real growth in the economy and whether he believes that it can be achieved consistent with his monetary targets.

The Financial Secretary made a remarkable statement towards the end of his speech. He said that democracy could succeed only in a country with positive economic growth. I believe that that is an exact quotation from what he said.

Photo of Mr Robert Sheldon Mr Robert Sheldon The Financial Secretary to the Treasury

It was a quotation from somebody else. I said "It has been said that".

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

That puts a slightly different complexion upon it, but the right hon. Gentleman seemed to be endorsing it.

We must look at the figures on the front page of today's Financial Times, which clearly show that the gross domestic product is now at a lower level than at the end of 1973. With the 1970 index figure at 100, the figure for GDP in the fourth quarter of 1977 was 110·2, whereas at the end of 1973 it was 110·4. That is very worrying. I hope that the Minister can give us an indication of the extent to which he supports the view quoted by the Financial Secretary.

It is true that we have some assistance from North Sea oil. I hope—the motion reflects this hope—that we shall concentrate on reductions in taxation rather than increases in public expenditure. At the same time, we must take account of the effect of North Sea oil. If we are not careful, it may seriously raise the exchange rate and cause the so-called Dutch disease, with the result that industrial investment falls.

In that respect the priorities that we have suggested are right. But I hope also that we shall see a relaxation of exchange controls and considerable repayment of overseas debt, so that we can have an exchange rate which encourages industrial investment and, by then encouraging exports, leads to a higher rate of economic growth than I fear the Government, with their present inhibitions and history of management of the economy over the past four years, are likely to achieve.

Several Hon. Members:


Photo of Sir Arthur Irvine Sir Arthur Irvine , Liverpool Edge Hill

The last four speakers have taken almost exactly two hours. A number of hon. Members have been waiting for most of the day to speak, and there are in addition several who have gone out for a moment or two, with permission, in order to sustain themselves. I call the hon. Member for Norfolk, South-West (Mr. Hawkins).

8.8 p.m.

Photo of Mr Paul Hawkins Mr Paul Hawkins , South West Norfolk

Thank you for calling me to speak, Mr. Deputy Speaker. I shall be brief, as I generally am.

I want briefly refer to the speech of the hon. Member for Coventry, South-West (Mrs. Wise)—

Photo of Mr Thomas Swain Mr Thomas Swain , North East Derbyshire

On a point of order, Mr. Deputy Speaker. Is it not the custom of the Chair to call speakers from each side of the Chamber alternately? As I saw it, my hon. Friend the Member for Newham, North-West (Mr. Lewis) rose, yet two Opposition Members have been called consecutively.

Photo of Sir Arthur Irvine Sir Arthur Irvine , Liverpool Edge Hill

As far as I am aware, the hon. Member for Derbyshire, North-East (Mr. Swain) has only just come into the Chamber.

Photo of Mr Thomas Swain Mr Thomas Swain , North East Derbyshire

I have my eyes open, just the same.

Photo of Sir Arthur Irvine Sir Arthur Irvine , Liverpool Edge Hill

Had he been here, the hon. Gentleman would have noticed that there were three speeches which did not come from the official Opposition Benches and which took up an hour and 40 minutes.

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

Further to the point of order, Mr. Deputy Speaker. It may well be true that while you have been in the Chair you have not observed my presence. I must be slimming more than I thought. I have been here for the whole of the debate, with the exception of the last hour, when I had to go out, and you have already said that hon. Members have to go out from time to time. I rose in my place, but it appears that I must now stop slimming, otherwise I shall not get called.

Photo of Mr Paul Hawkins Mr Paul Hawkins , South West Norfolk

I was about to refer to the speech of the hon. Member for Coventry, South-West. Unfortunately, her speech seemed to be so full of class hatred that she seemed to have forgotten what makes human beings tick. It was evident when she said that no one who had been taught medicine in this country should ever dream of going abroad. The country has been losing not only a large number of doctors but a large number of other skilled people.

With regard to the hon. Lady's remarks about the Health Service, I must point out that in Norfolk the lists are so long that people cannot get an appointment for a consultation in under a year. I believe that the Health Service is near breaking point, not because immense sums of money have not been spent on it and not because immense numbers of people are not employed in it, but because we have allowed so many skilled people to leave the country as the result of personal taxation being so high.

I found the ideas of the hon. Member for Cornwall. North (Mr. Pardoe) very constructive. As I am not an expert on taxation, I am not able to know whether they are entirely practical, but I sat with him for a year on the Select Committee considering a wealth tax, where he put forward all sorts of very attractive ideas. I think that I agreed with most of them.

I believe that high personal taxation in this country is the killer of initiative and enterprise, the qualities with which we must be re-equipped if we are to succeed. I therefore support my right hon. and hon. Friends in their motion.

Historically, the Labour Party has always been the party of high taxation. It still believes that it can spend the ordinary man's earnings far better than the man himself is able to do. This illustrates the great difference between the Conservative Party and the Labour Party. Conservatives believe in trying to leave as much money as possible in the wage earner's pocket, so that he can spend it as he likes. We believe that the wage earner is the right judge of what to spend his money on, and as a general rule he shows sound common sense in that respect.

I understand that the first amendment is not to be called. I should not have mentioned it except for its reference to the measures it puts forward as being preferable to a reduction in the standard rate, which has not been requested by the TUC, Parliamentary Labour Party, or the Labour Party. I find it extremely arrogant of those who put down the amendment that they should believe that the country should not have a reduction in the standard rate of taxation unless it has been requested by the three bodies just mentioned.

We are always being told of resolutions which have been passed by the Labour Party conference. They have become a sort of Bible which Labour Members are supposed to follow. I believe that we must not stick to the outmoded ideas of the extreme Left of the Labour Party but must try to get away from them and cut our personal taxation to something close to that of our Continental neighbours.

I want to refer to two points on taxation which affect my constituents. Mine is a big rural constituency, with no large centres of employment. Men and women have to travel 10, 12 or 15 miles to work and back again. Because they live in small villages there is no public transport for them. In order to get to Norwich, King's Lynn or Thetford—all outside my constituency—it costs them £7, £8 or £9 a week to run a car. They cannot charge this against tax.

In addition, they are taxed on the extra money that they earn through setting off from home three-quarters of an hour early and returning three-quarters of an hour late. They work hard and when they get home, after paying for their petrol and running their car, they find that their neighbour, who has stayed at home, and is unfortunately unemployed, has received within £1 or £2 of what they have been able to earn by going to work. This has the effect of putting them off work. Many younger people do not go out to work, because of the high taxation and the enormous cost of travel.

I put it to the Treasury Ministers that consideration should be given to the difficulties of the ordinary working men in country districts who have to travel these enormous distances.

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

Why should Ministers, with their tax-free cars, know about it?

Photo of Mr Paul Hawkins Mr Paul Hawkins , South West Norfolk

I ask the Treasury to consider whether an arrangement can be made whereby these men and women who have to travel long distances to work are able to set off against tax the cost of their travel.

My next point concerns capital taxation on farmers. Capital taxation is destroying the farmer. We have been promised a wealth tax, with a threshold of £100,000. A 150-acre farm—which is not a very economic proposition except on the very best land—would today be valued at £150,000. Every year an acre or so would have to be sold in order to pay the wealth tax and other taxes. This, after both Conservative and Labour Governments have been giving money to farmers to amalgamate smallholdings, seems to me to be one of the most ridiculous suggestions that I have come across.

I want next to refer to the complete unfairness of the taxation position as between the ordinary private farmer and large institutions, such as insurance companies, trade unions, and so on, which buy land and are not affected by capital taxation. I sincerely hope that the Government will look at this matter very carefully. In my area large institutions are buying a large slice of the bigger farms. This is cutting down the land available for the ordinary farmer who wants to farm on 400 acres or 500 acres. There are villages in my area which are totally occupied by institutions which farm land, although the principals live in London and have no connection at all with the villages. This is very bad from a social point of view, and the practice is very unfair on the private farmer.

I believe that the Liberal Party should be able to support the motion in the name of my right hon. and hon. Friends, which in my opinion would do far more than anything else to increase employment.

8.20 p.m.

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

I am sorry to have to confess this, Mr. Deputy Speaker, but, believe it or not, today happens to be my birthday. It is my twenty-first birthday—

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

The hon. Gentleman does not know that I have been briefed by the Treasury and that the briefing cannot be correct, because I have been here for 33 years.

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

Yes, all the time. Hence, when I say that I have been here 33 years and that I am only 21, something must be wrong. The "wrong" is the fact that I have been briefed by the Treasury.

During my time in this House, I have listened to all Governments and all kinds of Ministers, fat, thin, large and small. Every two or three months they come along and swear by God that they have got it right—that they have got inflation down, got inflation up, or whatever. But the following week they come along and tell us that they have got it wrong.

I have been amazed as I have sat here for these last 33 years. I do not normally take part in Budget debates or debates on Treasury or financial matters. But I have listened to the experts and the pundits from both sides of the House. The only difference between them is that those on the Government side are better than those on the Opposition side at reading their briefs. They are not party politicizing, because the same people draw up the same briefs irrespective of which party sits on the Government Benches. But because Government Members have written briefs in front of them, they are better at reading them than Opposition Members.

I remember the start of the so-called wages freeze. It was thought up by a man called Mr. Armstrong, who was head of the Civil Service. He thought that it would be a good thing to have a wages freeze and that it would solve all our problems. But before he persuaded what was then our Government—the so-called Labour Government—to introduce a wages freeze, he took great care to ensure first that top civil servants had a 25 per cent. increase in their salaries. He first cushioned them from the effect of the freeze.

He then saw to it that they had an indexed pension scheme in order to cushion them from whatever inflation might come. Then, as he was about to retire himself, he saw to it that he prepared the day. When he retired, he did not draw his pension immediately but put it off for 12 months. Why? It was because he wanted to get the indexed pension.

Then, of course, he went off with a very fat pension. Ordinary civil servants got fat pensions because, it was said, they could not expect to get jobs outside. By jingo, what happened? Like his predecessor who was Chancellor, Mr. Armstrong went off to be chairman of a bank at a salary of £20,000 a year on top of his indexed pension.

He then went off and attended a Salvation Army meeting and said "Thank God for God, and thank God for this great right of approaching our taxation matters on a fair basis." He is now Lord Armstrong. He has joined Lord Barber, who once sat on these Benches.

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

Of course it is true. They are all bloody hypocrites.

Photo of Sir Arthur Irvine Sir Arthur Irvine , Liverpool Edge Hill

Order. The hon. Gentleman must moderate his language with regard to another place.

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

Very well, Mr. Deputy Speaker. I am sorry that my enthusiasm ran away with me. All except members of another place are bloody hypocrites.

I am glad to follow the hon. Member for Norfolk, South-West (Mr. Hawkins). I agree with what he said. Is it not hypocrisy not to allow workers to have tax allowances for their travel to work but so to fiddle the system by co-operation between the two Front Benches—the Liberals are never here, I do not know where the Scottish nationalists are, and the Welsh nationalists remain in Wales—that we allow Ministers to have free travel to and from their places of residence and their offices?

The two Front Benches fix it because one day the Opposition will benefit from it. It is a racket. Like other hon. Members, I have been here late at night and have seen cars going out of New Palace Yard. One person per car goes off while the stupid blighters—I was going to say something stronger than that—the ordinary Members of Parliament, have to get taxis, trains or buses and pay either tax on the fares or the actual amounts. What a farce. What hypocrisy. That is happening almost every night of the week.

Then, of course, two right hon. Members on the Back Benches, who have probably earned more out of their parliamentary activities than any other hon. Members sitting here, are provided with cars—with drivers, petrol, oil, insurance, clearance and so on—worth at least £5,000 a year. They are the right hon. Members for Huyton (Sir H. Wilson) and Sidcup (Mr. Heath).

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

No, she gets it for being Leader of the Opposition. Yet those two right hon. Members are so busy that they are rarely here, not because they are on parliamentary business but because they are signing books. Each of them has earned vast incomes. But ordinary working-class men and women are paying for their privilege out of taxation.

Let us consider the problem of housing. Every Labour Member—I do not know about the Conservative Opposition—has housing problems in his constituency. We used to have a Chancellor of the Exchequer who owned three houses. I think he now owns only two. One he lived in, one he let and one he was using at the taxpayers' expense. He has now sold the one he was letting and has the one that he is living in and the one which the taxpayers pay for.

Not only does he get the house, but he gets coal, fuel, lighting, cleaning and everything else, worth between £10,000 and £15,000 a year. He says "I must have that because of the exigencies of my job". Next door to him happens to be the Prime Minister. The Prime Minister has not got a house. He finds that he can manage without one. But then the same Chancellor of the Exchequer comes forward and tells my firemen, my dustmen, my bricklayers and my carpenters that they cannot have an additional £2 or £3 a week because that would be above the 10 per cent. What bloody hypocrisy! I say "hypocrisy" because that is what it is.

The Government tell us that they cannot find money for the National Health Service, the social services and the rest. Of course, they can. They spend money like water when it suits them. They are not a bit interested in making savings where they can be made without damage either to the social fabric or the country or to the well-being of ordinary people. They are not a bit interested because most of them, on both sides of the House, came into politics because it was a step in their careers and because coming into this House would forward those careers. They were interested only in making progress in their careers.

Photo of Mr Leslie Spriggs Mr Leslie Spriggs , St Helens

Is my hon. Friend aware that when the last Finance Bill was before the House I had been invited to move an amendment putting Back Benchers on a par with Ministers of the Crown in terms of their expenses in travelling to and from Westminster? Although that amendment was quite in order, Mr. Speaker did not call it. However, he called the motion in the name of the Chancellor of the Exchequer to excuse himself from paying tax on the property which he lived in at the expense of the taxpayer.

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

My hon. Friend is quite right. But we must never criticise or question the occupant of the Chair, and I shall not do so. We all know the usual custom whereby all Government motions and amendments are always in order, whereas Back Bench Members' motions and amendments are not always so. I do not criticise that, although I accept my hon. Friend's contention.

We find duplicity and double dealing which is supported by both Front Benches. When it comes to it, there is no difference between them.

Here I come to the attitude of the electorate. The people are fed up to the eye teeth with both political parties. I ignore the Liberals. They are non-existent. They will be washed out in the next General Election. No one supports them. They are so politically dishonest that no one has confidence in them. I know nothing about the Scottish nationalists, other than that they are never here. My only connection with the Welsh nationalists is that I have a Welsh name and my forebears were born in Wales. But the Welsh nationalists are never here either. However, people say—and they are right—that there is nothing to choose between the two major political parties.

Let us consider the latest furore about immigration. I shall not go into the rights or wrongs of it. However, with the population that I have in my constituency, of whom 25 per cent. are immigrants. I know that there are problems. There are grave housing, education and health problems, and I could go on. Most of those problems could be resolved overnight if the Government allocated enough money to build schools, houses and hospitals. If they poured in the money, that could be done. But they do not do it, and then they come bawling to us that we must not have unrest about immigration. They say "Do not let us have unrest". But I say to them "Then do something about it instead of having your cars and houses and feathering your own nests. Let us look after the people who are really in urgent need. Let us look after the people who are living three and four families to a house. Let us look after the people who cannot get into hospital without waiting for months on end".

They do not do it, of course, because the Treasury has not got it in its brief. It was the late Franklin Delano Roosevelt who said something to the effect that in politics, if it happened, it did not just happen; it was planned that way.

In this country, with this Government, we have planned to have unemployment. I have been in public life and in the Labour movement for 40-odd years, 33 of which have been spent in this House. I never thought that I would live to see the day when a Labour Government planned for unemployment. The reason is that the IMF so directed them. The IMF told the Government that, if they wanted money, they had to cure inflation by having unemployment. Therefore, we had deliberate unemployment created by this Government.

Is it not the case that we have unemployed bricklayers, carpenters and builders? Do we not need schools and hospitals? They are needed in my constituency. What is stopping us having them? There is only one thing—money. And who says "No"? It is the Treasury. It is those same advisers who cushion themselves with pensions and £20,000-a-year jobs. There are people who come here seeing it as a new job in their career. They come in and sit on the Front Bench and court the eye of the Prime Minister. They get a job as a Minister and then are told "Please get up and read out this brief from the Treasury".

Someone said something about the Chancellor of the Duchy of Lancaster. Who is he? Is he the man who was always absent for four years on end when in Opposition? Is he the man who is looking after small business interests? We know that he is fully capable of looking after small business men. Now we are told that the cost of living is going down. We are told that the Government have brought inflation down to 9·9 per cent. But have they? I do not know. I suggest that they should ask any housewife.

On Friday last, we heard from the right hon. Gentleman the Secretary of State for Prices and Consumer Protection. On the very day that he was at Ilford proclaiming how well we had done, the brewers announced an increase of 2p on the price of beer. What did the Government do? Not a thing. Of course, the Minister does not have to believe me on this. He can ask any housewife, because in that very week the Grocers' Gazette announced increases in the price of 270 items ranging from baby food to beer. After that, the Government come along and try to kid us. They can kid some of the people some of the time, but they cannot kid all the people all the time.

We have here three amendments. One is the official one. I believe in the first part but not in the last part of it. I am all in favour of private enterprise and want to see more of it, particularly in areas such as mine which have always been neglected. Unfortunately, the other amendments will not be called, so I shall not support them. Normally I would have voted against or abstained, but if I do so it means that I am defeating my own object of seeking increased public expenditure, something I want to see. But I do not want anyone to think I am satisfied with the approach of this Government to a number of problems.

In one particular school in my area, 80 per cent. of the schoolchildren—eight out of ten—are immigrants, but we cannot get schoolteachers. Let us not laugh at this, because it is a serious and tragic matter. We cannot get teachers because they do not want to go to this school because it is not possible for them to communicate. Teachers, irrespective of party, politics, race or religion, are very interested in their job,. They love it. They have gone into teaching because they want to communicate. But they cannot communicate in this school because five different languages are spoken there—Urdu, Hindi and so on. Therefore, a teacher cannot communicate. That is why I ask for more money so that we can get teachers to teach these languages.

In my constituency there are appalling schools that were condemned 100 years ago. I cannot blame the present Government or the Opposition for that, but I can blame the Governments of the past 100 years, of both major parties. These schools have been condemned for 100 years, yet there are still children and teachers in them and the Treasury is still stopping us from getting the necessary money.

I am not in any way enamoured of either Front Bench. I feel like the chap in the market square who is trying to tell his story. One goes to one stall and the stallholder says that he has the finest existing product to sell and that it has come from the finest manufacturer. The next stallholder says exactly the same thing, except that he probably says a little more, and one buys the article. When one returns later, one finds that one could have bought the same object cheaper from the first stallholder.

Let us not believe the Government. I am sure that the public do not believe them. That is why there is such a cynical approach to politics.

We are now seeing the emergence of fringe parties. I hate and despise the National Front, but let us not worry too much about the National Front because other fringe parties can and, I think, will come forward unless we get down to the job of being honest. We are not honest today because Governments of both major parties fall back on the Official Secrets Act. When they want to cover up something, they do it by using that Act, saying that it is not in the public interest to know, be it the scandal of the Crown Agents or scandals of this or that place or whatever else. They do not want the public to know.

Many wrongs would be put right and many misdirections would be corrected if we had a freedom of information Act whereby any Member of Parliament and any taxpayer who paid the wages of Ministers and civil servants would have the right to know and the right to examine all the facts and figures upon which advisers give advice to the Treasury Bench. If we had the chance to know, I am sure that advisers and Ministers would not make the dangerous mistakes that they are making now and have been making during the past few years.

8.43 p.m.

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

When the hon. Member for Newham, North-West (Mr. Lewis) rose to speak, he declared that today was his birthday. His speech was very long, but it is still the same day. I wish him many happy returns. I equally wish him many happy returns from the speech that he has made, and I congratulate him on the fact that every time he rises to make a speech he seems to make the same one, although in a different tone. It is amazing how he manages to keep everything in order. However, he has been in this place for 33 years and he is an experienced Member.

We know how the hon. Member always attacks the Treasury. We may wonder why he has not been a Minister in the 33 years that he has been a Member of the House, until we listen to his speeches, when we know why that is so.

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

I have not been a Minister, either, so let us get the matter right.

The debate is actually about the motion on the Order Paper. We have heard a variety of speeches from both sides of the House. I should like to refer in detail to the speech of the hon. Member for Cornwall, North (Mr. Pardoe), speaking for the Liberal Party, but before doing so I want to make special reference to the hon. Member for Birmingham, Perry Barr (Mr. Rooker). I am sorry that he is not here. He made a very important contribution by drawing attention to the fact that there are many people who have not paid their taxes.

The hon. Member referred to the report of the Comptroller and Auditor General. Had he done his homework properly he would have known that the Public Accounts Committee, of which I am a member, cross-examined Sir William Pile, the head of the Inland Revenue. We were very worried about the number of people who got away without paying tax. At our sitting on 18th May last year, I asked Sir William: I think that I have questioned you on this before and have never quite understood it—why you cannot collect tax from people who have gone abroad. Presumably, if you caught up in ten years' time with these people shown as having gone abroad, they would have to pay, plus the interest that was owing, would they? Sir William answered: Yes. The fact that we remit a tax, let it be said straight away, is not discharging a tax. They still owe us the money. We have just given up because we have exhausted for the time being all the ways that we can employ to get it, but it is still there, and if they come back they will pay it, if we can get hold of them. The situation is simply that we allow people to go in and out of the country without checking whether their tax is paid. In the United States of America—anybody who has worked there will know that this is true—before one can get an exit visa one must prove that one's taxes have been paid up to date.

The hon. Member for Coventy, South-West (Mrs. Wise) made a remarkable speech. It summarised extremely well the basic difference between the Socialist and Conservative Parties. The hon. Lady based all her arguments on the belief that anybody who goes abroad in order to pay less tax is disloyal. She claims that as such people were trained in this country they should not take their talents overseas, because it is not partiotic.

It is remarkable that a person who goes abroad to work for a so-called multinational company—which Labour Members dislike so much—and makes profits abroad to bring back to this country should be criticised. But, in the view of the hon. Member for Coventry, South-West this action is wrong.

If someone strikes because he cannot get proper differentials and holds up supplies bound for overseas, hon. Members on the Government Benches regard it as an expression of the solidarity of the trade unions. But I believe that these people are guilty of export sabotage. They are stopping exports and therefore holding up the expansion of the company and causing unemployment.

When it is all boiled down, the greatest difference between the two parties is that Conservatives believe that one can shear a sheep once a year. Socialists believe that if one takes the skin off a sheep it still will not die. It is the middle management of this country which creates employment. The middle management takes the brunt of the work, works long hours and has to sustain a decent standard of life. It is middle management that is always affected by taxation.

I was talking to a man recently who went out from this country to do a job abroad. He was successful and earned a good salary in Australia. He reorganised a company there and made it a success. The question arose whether he should return to this country, and he sat down to calculate the difference it would make in taxation if he were to return to this country. He was receiving a salary of about £20,000 a year. The hon. Member for Newham, North-West mentioned a director of a bank who was receiving a salary in that region. I think the hon. Gentleman got the figure wrong, because that director was probably receiving £40,000.

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

I was not objecting to that; I was objecting to the man fiddling the books before he went, namely, by taking a Civil Service pension out of the taxpayers' pocket.

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

I refuse to discuss these matters with the hon. Member because the person concerned is not here to defend himself. It is unfair for the hon. Member, within the privilege of this House, to make such allegations against a civil servant for whom we have high regard. I repeat that that man cannot be here to defend himself.

Let me return to the story of the successful business man who was in Australia and considering whether he should return to the United Kingdom. He calculated that it would cost him over £11,000 a year in take-home pay if he were to return to this country and undertake exactly the same job at exactly the same salary. Does that make sense? We are forcing young people to go abroad because they cannot earn a decent take-home sum.

I am sorry that the hon. Member for Coventry, South-West is not present, because I wanted to refer to her. She is always objecting to anybody having a reasonable income, but does she not realise that it is that kind of person who buys motor cars and whose wife buys dresses—the kind of person who creates employment? Is that a terrible crime? Even if people save, the money eventually goes in death duties. We must create a feeling that it pays to take risks.

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

What about the firemen and the miners? Do they take home £11,000 a year?

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

The hon. Gentleman has already spoken for 20 minutes. He should contain himself in patience. The firemen carry out an extremely good job and save many lives, but I am speaking of people who create employment and opportunities.

The Labour Party is always complaining that there is insufficient investment, but how can we expect people to risk everything they have if at the end of the exercise they are allowed to retain only 3p in the pound. I have taken risks in my business life; indeed, I have risked everything I had, and, thank goodness, I have been successful. But I certainly would not have worked as hard and taken as many risks if I had known that I would retain only 3p in the pound. That is what this is all about, and it is why we have such high unemployment. Let us give people the opportunity to make profits.

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

Yes, all the people. We are now regarded as a low-paid nation. Japanese firms are coming here to set up factories because they know that our rates of pay are among the lowest in the world. That is the fault of the Government, because they do not encourage enterprise. Because that is their policy, it does not attract investment and it prevents the creation of new employment.

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

Since there is no Labour Government in the United States and since there are incentive policies in that country in a totally free capitalist system, why does the hon. Gentleman think that there is such a high level of unemployment there?

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

I should be going outside the terms of the motion if I discussed unemployment in the United States. We do not have the time for such a discussion anyway.

There are people in America who are better off than people in this country. I have worked in America and I appreciate that there are some things about the American economy that we do not like, but at least opportunities exist there and people can get on and keep what they make.

Several Hon. Members:


Photo of Mr Myer Galpern Mr Myer Galpern , Glasgow Shettleston

Order. Before calling the hon. Member for Bolsover (Mr. Skinner), I indicate to the House that the winding-up speeches are due to begin at 9 o'clock.

8.55 p.m.

Photo of Dennis Skinner Dennis Skinner , Bolsover

I shall be as brief as I can, Mr. Deputy Speaker. After seeing the Opposition's motion, I decided to do a little exercise to find out precisely what the Tories want. They say that they want to reduce direct taxation, and no doubt they will be repeating that claim in Ilford time and again between now and polling day.

We should examine their intentions in terms of taxation and especially in relation to direct taxation. A cursory glance at the Questions to the Chancellor of the Exchequer for Thursday of this week gives an indication of what they want to do and how they will manage to reconcile cutting back direct taxation while, apparently, also allowing massive reductions in indirect taxation.

In his Question, the hon. Member for East Grinstead (Mr. Johnson Smith) wants to reduce the amount gathered through the development land tax. That would have an effect on the amount raised in taxation. The hon. Member for Christchurch and Lymington (Mr. Adley) is anxious for more money to go into industrial building allowances to assist hotels. He wants it raised to the level in the Common Market. Where will that money come from?

Photo of Mr Jeff Rooker Mr Jeff Rooker , Birmingham, Perry Barr

The hon. Member for Christchurch and Lymington (Mr. Adley) has an interest in hotels.

Photo of Dennis Skinner Dennis Skinner , Bolsover

I know about the hon. Gentleman's interest. Does the Leader of the Opposition agree that there should be an increase in building allowances to assist hotels? The Opposition Front Bench must indicate whether it agrees with such proposals.

If the hon. Member for Derbyshire, South-East (Mr. Rost) supports the Opposition motion, he must want a reduction in direct taxation, but his Question on Thursday asked for a three-year average tax liability to be allowed for agricultural businesses. One can only imagine that he wants a reduction there.

Not content with all these proposals, the hon. Member for Kidderminster (Mr. Bulmer) wants to ensure the protection of the national heritage in respect of buildings and works of art. I assume that this would involve tax measures. If so, they must be balanced against the money due to be raised through direct taxation.

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

What about the stately homes in Bolsover?

Photo of Dennis Skinner Dennis Skinner , Bolsover

We have Bolsover Castle and Chatsworth House, but I am not the one arguing against high levels of taxation. I believe, as I said when the public expenditure cuts took place, that the only way to reduce that human pile of misery known as the dole queue is to ensure high levels of public expenditure in order to keep people at work to carry out the social services that are so necessary and to build and maintain schools and hospitals.

According to Thursday's Order Paper, the hon. Member for Romford (Mr. Neubert) wants exemption from dividend control. Does his Front Bench agree with that? Exemption from dividend control would reduce the amounts available to the Government. How are these sums to be calculated? Not much is collected from dividends anyway, and the hon. Gentleman is attempting to reduce that amount still further.

Photo of Sir Frederick Burden Sir Frederick Burden , Gillingham

The hon. Gentleman has it the wrong way round.

Photo of Dennis Skinner Dennis Skinner , Bolsover

I recall an occasion in July, shortly before the Summer Recess, when Conservative Members supported a measure that would have had the effect of reducing the amount taken by the Government. We know what the Tories are up to, and it is significant that the hon. and learned Member for Darwen (Mr. Fletcher-Cooke) is proposing some relaxation of Schedule D. That is another sum that will go missing.

The hon. Member for Twickenham (Mr. Jessel) wants to know the amount of the annual revenue raised from vehicle excise duty. One can only assume that he is on that bandwagon, too. The hon. Gentleman probably wants to reduce that duty.

The hon. Member for Eastbourne (Mr. Gow), not to be outdistanced by his colleagues, is arguing about North Sea oil. He wants to know the revenue derived from North Sea oil. We know what the Tories did when the Petroleum and Submarines Pipe-lines Bill came before the House. They voted against it. They were against the idea of the North Sea oil companies, which are multinationals, having to pay tax that might equate to about 75 per cent. It is pretty clear that the hon. Member for Eastbourne is attempting to raise that issue again. I want to know what the Leader of the Opposition thinks about that. Will that be included in the Ilford speeches?

The hon. Member for Brentwood and Ongar (Mr. McCrindle), not content with the demand for tax reductions, wants tax relief to apply to mortgages of up to £40,000 instead of £25,000. It may be that my right hon. Friend the Minister of State, Treasury will give us his calculations when he replies.

The hon. and learned Member for Kinross and West Perthshire (Mr Fairbaim) wants the interest on the first £5,000 exempted from tax. How much would that cost? I know that my right hon. Friend will have the answer and will give it to the hon. and learned Member on Thursday.

Every day that we come to the House, whether at social services Questions, defence Questions or at any other time, we hear that Opposition Members want to increase the amount of money that is spent. They continue to ask for subsidies and tax relief. They are specific about what they want. It is time that it was spelt out precisely from the Opposition Front Bench what the Tories would do and how they would cut taxation by the massive amount that they suggest. The Order Paper tells us the real story.

I have ben consistent on these matters. I want public expenditure to be increased. I want services for the working class to be improved. I want to see bus fares for children abolished. I want to see a uniform proposal for the elderly which would mean extra taxation. I am prepared to pay my share. I want to see free school meals. I do not want the means testing that we have at present. All those measures will mean taxation. I am prepared to put my cards on the table.

The Opposition are trying to kid the public that they are against taxation when at the same time they want all the measures to which I have referred. The Opposition Front Bench has a duty to spell out precisely what it would do, where it would go and from where the money would come.

9.3 p.m.

Photo of Peter Tapsell Peter Tapsell Shadow Spokesperson (Treasury)

I am afraid that the hon. Member for Bolsover (Mr. Skinner) will have to contain himself in patience until Question Time on Thursday, when all those Questions may be answered. The hon. Gentleman will then have to wait a few more months until one of my right hon. Friends has the opportunity to open the first Budget of the next Conservative Government. I am here tonight not to do that but to support the motion that was so ably moved by my hon. and learned Friend the Member for Dover and Deal (Mr. Rees).

It used to be said that we could best judge a civilisation by studying its penal code. Today, in the industrialised free world, an even more revealing test has become a nation's tax code. Dynamic, successful and internationally respected countries with rising living standards for their people nearly all have relatively low rates of direct taxation. By contrast, the countries that appear to be in decline, where the industrial arteries seem to be hardening, where the youth and talent are prone to emigrate, where profits, investment, job creation, welfare benefits and living standards are relatively low, almost invariably have high rates of direct taxation.

If that is not cause and effect, it is an historical phenomenon that invites scientific study. Indeed, many hon. Members on both sides of the House—for example, the hon. Members for Birmingham, Perry Bar (Mr. Rooker) and Putney (Mr. Jenkins)—expressed grave concern about the state of our tax system.

In Britain today people start to pay income tax at a lower level of wages than anywhere else in Western Europe. What is more, when they come into the income tax net they are faced immediately with a marginal rate which is the highest in Europe. All levels of society suffer from this burden of excessive direct taxation, as hon. Members on both sides of the House have repeatedly pointed out during the debate. Even those with earnings below the official poverty line, come very close to falling within the income tax net. I was interested by many of the comments made on that subject by the hon. Member for Perry Bar.

As many commentators have pointed out, when lost social welfare benefits are also taken into account, a typical family man, with a wife not at work and two children, moving out of unemployment into a job at a wage as high as £55 a week—I take a higher example than that postulated by my hon. and learned Friend the Member for Dover and Deal—pays an implicit marginal tax rate of no less than 64 per cent. on the early increases in earnings that he achieves above that level. If his wages are lower than £55 a week, that implicit marginal tax rate is even higher and can, as the hon. Member for Perry Bar rightly said, go over 100 per cent.

It is not only at the top end of the income scale that our tax system bears harshly and also acts in a seriously disincentive way. The income tax burden on men and women in middle management in this country is considerably greater than that on their counterparts n, for instance, Germany, France or the United States. For the most talented and successful, our tax rate rises more steeply and to much higher levels than almost anywhere else. Our higher rates of income tax are far above those in the rest of the EEC. Even world-wide they are exceeded only in a handful of developing countries of the less successful kind, where, to put it delicately, the distinction between tax avoidance and tax evasion sometimes gets blurred. For purposes of comparison, they can be disregarded.

In West Germany, the top rate of income tax is 56 per cent. Here it is 83 per cent.

Photo of Peter Tapsell Peter Tapsell Shadow Spokesperson (Treasury)

A parliamentary Answer on 14th February revealed that in France the proportion absorbed by income tax and employees' contributions to social security for a maried man with average earnings and two children is 9·2 per cent.; in the United States, 8·2 per cent.; in Japan, 8·4 per cent.; and in Britain, 25·5 per cent. That is the extent to which the working man on average earnings has his pay packet and incentive reduced by our tax system.

When we consider the treatment of savings income, international comparisons are still more unfavourable to Britain, where the top rate reaches the staggering figure of 98 per cent. When I quote that figure to industrialists overseas, they simply will not believe it. They ask "Where do your new investment funds come from for the private industrial sector of your economy?" They may well ask.

With tax rates such as these, it is no wonder that we have 1½ million people unemployed. There are 900,000 more people out of work now than when this Labour Government took office four years ago. I wonder how many Labour Members below the Gangway promised that to their constituents at the last General Election. It is no wonder, too, that production levels are lower today than in 1973.

Photo of Sir Frederick Burden Sir Frederick Burden , Gillingham

Does my hon. Friend recall than in a debate on employment sometime ago the Minister, in answer to an intervention of mine, said that if unemployment in this country reached 1 million, there would be rioting on the Government Benches?

Photo of Peter Tapsell Peter Tapsell Shadow Spokesperson (Treasury)

Indeed I do. One of the most shocking things about the behaviour of the Labour Party in recent years, with a few honourable exceptions, has been the extraordinary lack of interest and concern that it appears to have shown at the steadily rising rate of unemployment which is the scourge of our society and about which the next Conservative Government are absolutely determined to do something.

No wonder that production levels are lower today than they were in 1973. No wonder that new investment in industry, as we saw in the Financial Times today, is grinding to a halt, or that today's headline in the Financial Times reads: Treasury forecasts only small rise in economic activity. After four years of absolute stagnation and declining activity, is it surprising that the consequent non-competitiveness of British industry has drastically reduced the competitive value of sterling overseas and actually halved its purchasing power at home? Is it surprising that almost everyone's real wages have been cut by an average of 9 per cent., or that this Government have had to borrow $20 billion from our competitors all round the world, just to keep going?

Nye Bevan once said that the religion of Socialism is priorities. He was wrong. The religion of Socialism is taxation. From each, irrespective of his capacity; to each according to the dictates of the State. That is the Labour Party's fiscal philosophy. This has not happened by chance, bad luck, or even because of mismanagement, ample though that has been. It was planned and announced. It arises naturally and inevitably from the economic philosophy of Socialism, which is committed, as a fundamental precept, to transfer wealth from the individual to public hands, as many of today's speeches made clear. That is what Socialism is all about.

Photo of Dennis Skinner Dennis Skinner , Bolsover

Since, in Opposition, the Tory Party has changed from what it was when in office and since the hon. Member was a supporter of the Conservative Government between 1970 and 1974, can he confirm that there was a massive increase in public expenditure during that period? Does he say that that equates with Socialism during that period?

Photo of Peter Tapsell Peter Tapsell Shadow Spokesperson (Treasury)

There was a substantial increase in public expenditure in those years. The main reason was that unemployment began to rise towards the 1 million mark. The Conservative Party took that so seriously—unlike the present Government—that it thought it necessary to take action. When the Conservative Party went out of office unemployment had fallen to 600,000. Why does not the hon. Member for Bolsover press his Ministers to do something about its present level?

The Chancellor of the Exchequer promised the comrades, in advance, that there would be "howls of anguish" when he put up taxes. For once, events have proved him right. Speaking to the Labour Party Conference in Blackpool in October 1973, the right hon. Gentleman said: Our programme is going to cost money, and money can only be raised through taxation. If we are to command the support we need from the British people to carry our programme out, we must make certain that the burden of taxation is distributed fairly. Well, the burden of taxation has certainly been distributed, but whether the Chancellor could find anyone anywhere who thought that it had been distributed fairly I beg leave to doubt. Certainly, not many took that view in Walsall, or Workington or Stechford or Ashfield, nor will there be many in Ilford, North.

While the Chancellor of the Exchequer has boasted over the years about his high taxes the Leader of the House, in similar vein, has been boasting about rising public expenditure. Only shortly before Nemesis and the foreign central bankers overtook them the Leader of the House, speaking to the NALGO conference at Eastbourne as recently as 8th June 1976, said: It is no good saying to me in this Labour Government that we are opposed to public expenditure because in fact this Labour Government during the past 2½ years … increased public expenditure proportionately more than any previous Government we have had in our history. He can say that again—and add that they have also increased taxes to pay for it more than any previous Government. They have taken from the British taxpayer in four years £14,000 million in extra taxation over and above the tax rates they inherited from the last Tory Government. Now, with an election on the horizon, the Cabinet has been locked in agonised discussion over the past weekend to see whether it can reduce that extra burden by even one-seventh of an election sweetener.

The fact is that just to restore income tax rates and personal tax thresholds to their Tory equivalent of 1973 would cost approximately £5,000 million in revenue. Apparently even the Secretary of State for Energy has not suggested that this is possible for a Socialist Government, even in an election year. Speaking of energy, we have heard a good deal recently about not frittering away the benefits of North Sea oil revenues. I have news for hon. Members opposite. They have already done it. The money has been well and truly frittered away by them in advance. Even on the most optimistic assumptions the total revenues from North Sea oil in the period 1977 to 1980 inclusive will be £5 billion. That is what it would cost this Socialist Government to get back to Tory tax rates for just one year.

Photo of Mr Jeff Rooker Mr Jeff Rooker , Birmingham, Perry Barr

The hon. Member for Horncastle (Mr. Tapsell) is making an important statement, which needs clarifying so that we may know exactly what the Tory policy is. If the tax rates were put back to what they were when the Tories were in power, in real terms, it would mean that the extra expenditure for which we used the taxes, which initially was to raise teaches' and nurses' salaries, would have to bear the brunt of the change. Is the hon. Member suggesting a reduction in teachers' and nurses' salaries?

Photo of Peter Tapsell Peter Tapsell Shadow Spokesperson (Treasury)

I shall have to give the hon. Member for Perry Barr private instruction at some time, but I cannot have my speech interrupted now with what is an irrelevcance. I have certain important things to say to the House—

Photo of Peter Tapsell Peter Tapsell Shadow Spokesperson (Treasury)

I cannot give way. I started my speech late, having had to wait for the hon. Member for Bolsover to finish his speech.

After 1980 the oil revenues, even on the most optimistic assumptions, might reach £3·5 billion a year. Yet between now and 1984 we have to repay $20 billion of foreign debt incurred by this spendthrift Government. So the brutal fact is that the Socialists have already largely mortgaged the North Sea by their past extravagance, and that is one of the reasons why the latest economic predictions show this country going back into balance of payments deficit by the middle of 1979.

Here we are exceptionally—one might say divinely—privileged by geology in a world nearly desperate about its future energy resources, an island of coal surrounded by a sea of oil. Yet still the Socialists cannot discover a method of government by which this nation can pay its way. The root cause of their problem throughout has been excessive public expenditure financed by excessive direct taxation and expensive foreign borrowings.

The old collectivist cliché about public squalor amid private plenty rather inelegantly dredged up by the Government amendment has been turned on its head in recent years. What we have seen and experienced in recent years has been private penny-pinching amid public extravagance, as even The Observer in its leading article last Sunday went far to admitting. The wider effects of the consequently excessively high taxation are also plain to see both on individuals and on industry.

The sad truth is that millions of working people in Britain less fortunate than we are in this House have jobs which they find dull and uninteresting, or even positively unpleasant. They work to earn a living and to improve the material circumstances of themselves and their families. To them the cash in their pockets at the end of each week or month is the spur to extra effort. It is folly to ignore this basic fact of economic and personal life which provides the main motivation in a free society.

What is true of the individual is true of the organisation. The effect of ever-higher levels of direct taxation has provided a serious disincentive impact on the corporate bodies of industry as it has for the individuals that work for them. The figures for declining company profitability are truly grave. In 1964, at the end of the 13 prosperous years of Tory government during which the people really "had it good", with almost full employment, relatively stable prices and steadily rising living standards, the overall return on capital employed in industrial and commercial companies in Britain was 13·2 per cent. By 1970, after the first recent spell of Socialism, it was down to 8·3 per cent.

Photo of Mr Tom Litterick Mr Tom Litterick , Birmingham, Selly Oak

What happened in America and Germany at the same time?

Photo of Mr Myer Galpern Mr Myer Galpern , Glasgow Shettleston

I ask the hon. Member for Birmingham, Selly Oak (Mr. Litterick) to restrain himself. As I have said on previous occasions, I will not permit sedentary interventions.

Photo of Peter Tapsell Peter Tapsell Shadow Spokesperson (Treasury)

By 1976—these are the latest figures I have seen—after the second spell of Socialism, profitability was down to 3·3 per cent. Those are pre-tax figures. Net of tax, the average return on capital employed by industry and commerce has recently been running at about 2½ per cent., during a period when inflation rates have fluctuated between 10 per cent. and 30 per cent. And then some Socialists have the impertinence to talk about a strike of private capital.

Let us take another yardstick. When one compares the gross figure of 3·3 per cent. profitability on industrial capital with the return that one can obtain by investing in a short-dated British Government bond of 10½ per cent., one asks "Is it surprising that new capital investment in British industry from private sources is hard to come by?" We do not need a Wilson Committee to tell us that, or the reasons for it. The Government are directly responsible for this situation, which is one of the prime causes of rising unemployment.

In a healthy economy return on capital invested in new plant in industry should be at a rate about treble the interest paid on the National Debt, as it was when Mr. Harold Macmillan was Prime Minister and I first entered the House. Today, it is less than one-third. Until that is remedied by the most drastic changes in tax policy, there is no prospect of national recovery or a fall in the levels of unemployment.

A massive increase in the level of profitability of British business enterprises is the bedrock on which a recovery of our national prosperity must be founded. There can be no other. Yet almost everything this Government have done in the tax field and elsewhere, starting with their advance corporation tax in the very first of the Chancellor's 12 Budgets, has tended to reduce profitability and so to reduce investment and so to increase unemployment. That is why the latest figures about the money supply make particularly depressing reading.

To keep within their monetary target rate until April, the authorities will have to keep its increase over the coming three months down to the improbably small monthly average of 0·7 per cent. They should be moving towards the lower 9 per cent. limit of their bracket rather than overshooting the top of the target. If they are not very careful they will be driven to use higher short-term interest rates by again raising minimum lending rate, or to introduce supplementary special deposits. Either of those measures will tend still further to reduce new investment in British industry and thus to threaten employment prospects still more.

The basic underlying cause of all the Government's economic failures has been excessive public expenditure, which they have had to struggle desperately to finance. One would have thought that by now they would have learned that lesson. Yet here they are again, according to their White Paper on public expenditure, apparently still resolved to allow public expenditure to grow at a faster rate than the likely growth of the gross domestic product, on even the most optimistic assumptions.

The vocabulary of the Left is full of references to those poor old cake-eating Bourbons who apparently learned nothing and forgot nothing, but somehow managed to govern France for several centuries. It sometimes seems to me that our latter-day jet-set Jacobins, here today and, I hope, gone tomorrow, labour under an even sadder disadvantage. They are not only incapable of learning; they are astonishingly quick to forget, particularly in matters of public expenditure. I am told that it is a state technically known as election amnesia.

So we are faced yet again with the prospect of higher public expenditure, supported only by stagnant industrial production, rising unemployment and a deteriorating trade balance—the four dread horsemen of the Socialist Apocalypse, all riding hard among us to disaster.

9.24 p.m.

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

May I deal first, Mr. Deputy Speaker, with one or two special points raised in the debate?

My hon. Friend the Member for Putney (Mr. Jenkins) asked about the taxation of literary awards and prizes. He has had correspondence with my right hon. Friend the Financial Secretary to the Treasury. Rather than venture into the field of taxation of copyrights and literary prizes, perhaps he will accept that I have noted what he said and that no doubt my right hon. Friend will also have done so.

My hon. Friend was one of the few speakers in the debate to mention the Meade Report. It is a very interesting and very well-documented report. We are looking at it and considering it. No doubt we shall be able to give a reaction to it when we have had a chance to consider it in depth. But at the end of the day, whatever tax structure is chosen, taxation questions have to be decided by virtue of political considerations. They cannot, at the end of the day, be decided by matters of structure. These are questions of priority and they will always have to be faced, whatever the tax structure in this country.

Photo of Mr Hugh Jenkins Mr Hugh Jenkins , Wandsworth Putney

I am sorry to interrupt my right hon. Friend so early in his speech, but what form is the Government's reaction to the Meade Report likely to take. Will it be the production of a Green Paper or something of that sort?

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

No decisions have been taken on that. The Treasury and the Inland Revenue are looking at the Meade Report, but nothing has been decided as to the form of our final conclusions.

The hon. Member for Worthing (Mr. Higgins) was one of the few speakers to mention money supply. He seemed to chastise the Government or to criticise us to some extent because in January the money supply had increased by more than 2 per cent. He tried to annualise that rate. There were, of course, many factors involved in the increase in the money supply in January. One of them was the reduction in taxation which took place as a result of the October measures and the increase in the personal allowances. If the hon. Gentleman is supporting the motion, as I gather he is, he must expect that an even higher increase in the money supply would result from it.

The hon. Gentleman also asked whether a reduction of £1½ billion in taxation next year would be consistent with the monetary guidelines. Perhaps I can ask him what monetary guidelines he would wish to see. It is not possible to determine the one without considering the other. I think he will appreciate that it is not a simple question of fitting a tax reduction into a monetary guideline. We have to consider what kind of monetary guideline is consistent with rates of inflation.

Several of my hon. Friends and Opposition Members asked about child benefits. As hon. Members will know, we have announced an increase to a weekly rate of £2·30 in April 1978, at a cost of £300 million. For most families—there are exceptions—this increase is likely to maintain in real terms the April 1973 level of family support. Beyond that, we are committed to phasing out the under-11 rate of child tax allowances in April 1979. The hon. Member for Cornwall, North (Mr. Pardoe) would like us to do it a year sooner, but we are committed to doing it in 1979, and the further residual child tax allowances for older children will be dealt with as soon as possible thereafter.

As to the possibility of a further increase in child benefits in the Budget, naturally I cannot anticipate my right hon. Friend's statement, but I can say in relation to child benefit that cost is clearly one important factor. Since every 10p on the child benefit rate over and above the switch from child tax allowances costs some £60 million a year, the rates of £3·30 in November this year and £4·50 in April 1979, which have been suggested, would cost £240 million in 1978–79 and about £900 million in the following year.

Photo of Peter Bottomley Peter Bottomley , Greenwich Woolwich West

Will the Minister repeat his assurance that, with the increase in child benefit in April, the level of family support will be at the same real level as it was in April 1973? Secondly, cannot he understand that by raising child benefit he will be doing more to increase the incentive to work for most of the families who are somewhere near the poverty trap or in it, because it applies only to people with children?

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

I fully appreciate the importance of child benefit to people who have children. I can give the assurance that in real terms, for most families—there may be exceptions—when we take into account the April 1978 increase which will come about, this will maintain the April 1973 level of family support.

The official Opposition's motion is the usual simplistic kind that we have now come to expect from them, especially during the few months before a Budget. Not only does it re-emphasise the primeval Tory incantation "Tax cuts good, public expenditure bad", but no attempt is made in the motion to relate tax policy to monetary policy—we heard nothing about that—inflation or the balance of payments. Substantial cuts in direct taxation not only this year but on a continuing basis as the motion demands could very well have profound and damaging effects both for the balance of payments and for financial stability, and yet little attempt is made by the Opposition to follow through the consequences of this action.

One is again reminded of the events of 1972–73 when the balance of payments and monetary policy were ignored completely by the Tory Government in the general stampede to cut direct taxes regardless of the consequences. It has taken almost four years to put right those excesses, but clearly during those four years the Tory Opposition have still learnt nothing. I shall say nothing about the Bourbons.

As my right hon. Friend the Chancellor has said, both at the lower and at the higher ends of the tax scale marginal rates are too high. We accept this, and now that financial stability has been restored and the rate of inflation is falling there is room gradually for a further reduction. That is why in October my right hon. Friend brought forward the indexation provision of the 1977 Finance Act and increased the personal allowances in the middle of this fiscal year.

Both in his Budget last spring and in October, my right hon. Friend referred to two objectives in the area of direct taxes to which he attached priority. The first was to lift tax thresholds—by increasing the real value of the personal allowances—so that they stood clear of the main social security benefits. The second was the introduction of a band of income charged at a lower rate. Both of these are clearly desirable, and both could make a major contribution towards reducing the burden of direct tax, on the lower paid especially. These are, of course, matters to which my right hon. Friend will be giving close consideration over the next few months before the Budget.

Since these matters were raised in the debate, perhaps I may try to set out the main advantages and disadvantages of raising thresholds as against introducing a lower rate band. There are a number of good reasons why a lower rate band should be introduced.

First, there is no doubt—we accept this—that our onset rate of 34 per cent., which with national insurance contributions approaches 40 per cent., is high in comparison with that in other countries. It may be that in practice what matters for any taxpayer is the average or the effective rate paid on his income rather than either the onset rate on his first slice of income or the marginal rate on his top slice of income. Even if a fairly generous lower rate band were introduced, it would still be the case that for most taxpayers the marginal rate would continue to be the basic rate. Nevertheless, people are often aware of marginal and onset rates of tax but are not aware of the actual rates which they have to pay.

Second, the general structure of our income tax system in this regard is unsatisfactory. The length of our basic rate band, before higher graduated rates start to apply, is again unusual by comparison with most other countries. There is a good case for a more gradual rise to the basic rate level. It would not, of course, be possible to change completely our tax structure overnight. A lower rate band is an expensive matter—a band of £1,000, as the House well knows, at 25 per cent. would cost approximately £2 billion.

Both these points are advantages which are peculiar to a lower rate band and are not shared by an increase in tax allowances. When we come to the actual distributional effects and the distributional consequences, the position is not as straightforward. If one compares the amount of revenue in respect of personal allowances being increased and a new rate band being introduced, the consequences are different for different kinds of taxpayers.

As my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) said, quite rightly, for taxpayers with the very lowest incomes an increase in allowances is better because it takes them out of tax altogether. A lower rate band leaves the number of taxpayers unaffected. For single people and earning wives, once their incomes exceed the threshold by a few hundred pounds, until they are into the higher rates of tax a lower rate band would be more advantageous than an increase in thresholds. Those benefiting would also include a substantial number of young people and part-time workers. Married men, if their wives' earnings were excluded, would, however, do better from an increase in thresholds. The difference might not be very great at basic rate levels of income, but it is still a significant difference.

There is also the question of incentives at lower income levels. Here a lower rate, since it takes no one out of tax, does nothing to reduce the numbers affected by the poverty trap, although it would secure a useful reduction in the marginal rate of what is known as implied tax. In contrast, an increase in thresholds by taking people with the lowest incomes out of tax altogether reduces the numbers affected by the poverty trap. It is arguable whether it is preferable to take the lowest paid out of the poverty trap altogether or to mitigate its effects for those caught in the trap without reducing their numbers.

Of course, the ideal solution is to increase thresholds substantially and to introduce a lower rate band. But this, as the House knows, would be extremely expensive. So the question has to be faced whether we want to take a given number of people out of tax completely or to reduce the rate of tax for those at the lower end of the scale without taking them out of the tax net.

Photo of Mr Lewis Carter-Jones Mr Lewis Carter-Jones , Eccles

Is it not absurd that the Government should be paying to disabled people and war widows money on which they have to pay tax? Is not it true, therefore, that the threshold should be raised?

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

I accept that entirely. If the threshold is raised, persons of that kind are taken out of the tax bracket altogether. On the other hand, if we have a lower rate band they are not taken out of the tax bracket, but at least they enter the tax system at a lower rate.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

Given the horrible mess that the Government have got into on the poverty trap, is not the Minister sorry that he did not introduce a tax credit scheme along the lines proposed by the previous Government?

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

I am sure that the hon. Gentleman will not expect me to pursue the question of tax credits. The real problem has been caused by inflation, and it cannot be solved merely by playing around with the tax system. The first priority is to reduce the rate of inflation.

Photo of Patrick Cormack Patrick Cormack , Staffordshire South West

Does not the Minister accept that there are certain measures which could be be taken at minimal cost? Recently, the Chancellor of the Exchequer indicated to me that if the highest rate of tax on earned income was 50 per cent. the cost to the Exchequer would be £250 million a year, and that if widows under 65 years of age were allowed up to £3,000 a year without tax, the cost would be £60 million. Measures such as that could be taken without vast cost.

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

Many measures could be taken, and in themselves the cost would not be vast, but when they were added together, one would find that, as always, they came to a quite considerable amount.

The Liberal Party's amendment suggests that direct tax cuts could be financed by increasing indirect taxes, and the hon. Member for Cornwall, North (Mr. Pardoe) amplified upon it in his speech. However, hon. Members should be clear about the effect of this on the level of prices. To increase the excise duties to keep pace with inflation in the last year would mean a penny on a pint of beer, which would be about 0·2 per cent. on the retail price index. Comparable increases on fortified wine and spirits would be 12p and 32p a bottle respectively, adding about 0·1 per cent. each to the index. An inflation-linked increase in the petrol duty would mean putting 3p on a gallon of petrol, which would increase the index by 0·1 per cent. On the other hand, it would mean an increase of 4p on a packet of 20 cigarettes, putting no less than 0·4 per cent. on the retail price index.

Revalorising all these taxes and excise duties would put about 1 per cent. on the RPI and would raise about £400 million. The unification of VAT, which the hon. Gentleman also advocated, at a standard rate of 10 per cent. would raise the RPI by almost 1 per cent. and would raise about £600 million in revenue. Therefore, at a cost of between 1½ and 2 per cent. on the RPI it would be possible to reduce, for example, the basic rate of tax by about 2p. Whether it is worth putting up prices by almost 2 per cent. to get that kind of reduction in the basic rate is a matter of argument and debate as to whether one considers the RPI more im-important than direct taxation.

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

Would the right hon. Gentleman agree that a high level of income tax by increasing wage push works through to the RPI just as effectively, though not as quickly, as any increases in taxation on expenditure, and, therefore, that for the Labour Government to tie themselves to the god of RPI is against the best interests of the British economy?

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

I agree that direct taxation can affect take-home pay and inflationary pressure, and I am not suggesting any trade-off. I am merely pointing out that if these excise duties were revalorised, and VAT unified at 10 per cent., which could mean increasing the RPI by 2 per cent., this would be the effect.

Photo of Sir Frederick Burden Sir Frederick Burden , Gillingham

Will the right hon. Gentleman tell us how much the British taxpayer has to find in interest for funding or paying interest on the $20 billion borrowed by this Government and whether, if that amount of interest were otherwise available, it could be used in easing taxation in this country?

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

The hon. Gentleman will have to put down a Question, to which he will get a clear and concise answer.

The hon. Member for Cornwall, North spoke of revalorising excise duties. I remind him that since 1974 the RPI has increased by 85 per cent. If one looks at excise duties over the same period, one sees that the duty on table wine has been increased by 333 per cent., on fortified wine by 199 per cent., on beer by 141 per cent., on spirits by 75 per cent., on tobacco by 133 per cent. and on petrol by 33 per cent. I gather that the hon. Gentleman may be changing his mind in respect of petrol duty.

At least, the Liberal Party spokesman recognised that there was a financing problem, if I may so describe it, in cutting direct taxation. He called for a cut of 9p in the standard rate, which, I gather would cost about £4½ billion, but his figures did not add up. The gap would amount to about £3 billion. Presumbaly, he wishes to reflate by that amount. Of the Liberal attitude and the Liberal amendment, one can say that at least the Liberals recognise that there is a problem even if on this occasion their sums do not add up.

The first thing to be said about the Tory motion is that it ignores most theories of economic policy except taxation. There is the usual old-fashioned dislike of public enterprise, a dislike which the right hon. Member for Worcester (Mr. Peter Walker) has rightly condemned recently. He put it very well, so I do not do any injury to him if I quote from his excellent speech, reported in The Guardian on Friday last. It appeared under a headline which was not his work, Root out old dogmas, Walker tells Tories". The right hon. Member put it very well.

He said: It is a depressing spectacle to watch a small, but vocal and apparently influential section of the Tory Party bow down to worship the free market gods which brought so much squalor, so many slums, so much social divisiveness and injustice.' That is what the right hon. Member thinks about the small but vocal group that now seems to be so influential in Tory Party policy.

There is, of course, a case for reducing taxes further in the coming fiscal year, both to help those at the bottom of the tax scale and to increase take-home pay so as to reduce further inflationary pressures. But we on the Government side of the House do not accept the implication in the Tory motion and the Tory speeches that we have heard tonight that somehow public expenditure is bad and cuts in direct taxation are good. In a modern, complex society there must be a high and adequate level of public services, and most of this must be financed by taxation.

The Opposition motion calls for substantial and continuing reductions in taxation, but, of course, it is silent, as Opposition speakers were silent, on how these reductions are to be financed. Are they to be financed by cutting public expenditure? We have not been told tonight. We were not told in the recent debate when Opposition Members were challenged by my right hon. Friend the Chief Secretary. We were told then to wait and see. We are still waiting, but we still cannot see what the Tory Party would do in respect of public expenditure. But if the Tories wish to reduce tax levels by £5 billion to what they were in 1973, I fail to see how they can do that without drastic cuts in public expenditure.

However, let us give the Tories the benefit of the doubt. Let us suppose that they do not want to cut public expenditure. How would they finance continuing reductions in taxation? There are only two ways of doing it—by borrowing in the market or by printing money. [An HON. MEMBER: "Or by increasing production."] Some hon. Members are unaware, as the Tory Government were in 1974, of the financial mechanisms of this country and how these things work.

If the Tories are to finance reductions in direct taxation either by printing money or by borrowing more, they should tell us the effect that that will have on the financial markets. One does not have to be a slavish follower of Milton Friedman to accept that there must be some relationship between fiscal and monetary policy. Yet Opposition Front Bench Members, who preach monetarism when they are in Opposition, have shown a complete disregard in the motion of the monetary effects of the kind of fiscal boost which they seek by reductions in direct taxation.

Photo of Mr John Mendelson Mr John Mendelson , Penistone

With the approval certainly of Labour Members, my right hon. Friend is accusing Opposition Members of preaching monetarism when in Opposition. Are not his own Government subject to the possible charge that we are preaching Keynesianism when in Opposition and resorting to Friedmanism when in power?

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

I think that the answer to my hon. Friend is, as I have said, that there must be a relationship between fiscal policy and monetary policy. The one must have some effect on the other. I think that the difficulty of economic policy is to steer a middle course between the one and the other.

However, when in Opposition Conservative Members preach monetarism. Perhaps I may quote again that member of the small influential group who is not in his place at present, although I think that he will be here soon. Perhaps he is consulting that group. This is what the hon. Member for Blaby (Mr. Lawson) said to my right hon. Friend the Chancellor of the Exchequer on 10th November when my right hon. Friend introduced his measures to reduce the tax thresholds: There is no way in which the right hon. Gentleman's fiscal boost can be a boost if he is holding the money supply constant. I think that he is right to hold the money supply constant because of the overriding importance of the battle against inflation".—[OfficialReport, 10th December 1977; Vol. 938, c. 982.] If the Opposition are calling for substantial cuts in taxation and for fiscal boosts, how can they do that and keep the money supply constant?

The hon. Member for Horncastle (Mr. Tapsell) spoke of a 9 per cent. money supply target next year. He said that he wanted to see the target reduced to 9 per cent., but how can he do this and at the same time call for the fiscal boosts referred to in the motion?

Photo of Peter Tapsell Peter Tapsell Shadow Spokesperson (Treasury)

I am sure that the Minister would not try to misrepresent me. When he reads Hansard in the morning, he will see that I said that instead of overshooting the top end of the target the Government should work towards the bottom end. That is not laying down any policy for targets for next year.

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

The hon. Member said that one must work down from the top end of 13 per cent. to the bottom end of 9 per cent. How can he do this if he wants the fiscal boost that the motion calls for?

At least I understood the sentiments of the right hon. Member for Leeds, North-East (Sir K. Joseph), who in a lecture at Oxford, as reported in The Observer on 12th February, called for a smaller increase in the money supply in 1978–79 than this year. He wanted lower targets. But how could this be achieved if the policies in the motion were put into effect? I suppose that the right hon. Member will not support the motion.

There is another way that this reduction could be financed, and that is by very high interest rates. That is the only way that stock could be sold in the markets, assuming that it could be sold at all. But that would stifle economic activity and investment and it would lead to the printing of money again. Then we would be back to the 1972–73 situation, with all its inflationary consequences.

One fact is clear. Whether the Conservatives intend to finance tax cuts by cutting public expenditure, by printing money or by high interest rates, the fact is that the effect on the economy—especially on employment, inflation and investment—would be extremely damaging. This action would be least likely to produce the hard work called for in the motion. The last time a Tory Government embarked on such a course, most of the benefit went to those who did very little work.

The Opposition motion makes little reference to the effect of a substantial and continuing reduction in direct taxation on the balance of payments. During the so-called Barber boom—or perhaps it should have been called the Barber bust—a substantial amount of money handed back in tax cuts went into imports, with disastrous results for the balance of payments. No attempt has been made in the motion or by any Opposition speakers to consider the effects of substantial taxation cuts on the balance of payments.

There is one final way in which the Opposition could finance tax cuts—by using revenue from North Sea oil. In a famous interview which the Leader of the Opposition gave to Brian Walden on 18th September last year, the right hon. Lady gave an assurance that she did not intend to cut public expenditure to finance tax incentives. The interview went something like this—and I quote part of the transcript: Mrs. Thatcher: 'There is a gap between giving the incentives and getting extra output and getting the extra work. It is what happens in that gap that is worrying.'Mr. Walden: 'What does happen in the gap?'Mrs. Thatcher: 'Well, one moment. There is one thing that you did not take into account

at all. North Sea oil will make a difference because it is going to bring in extra revenue.'"

I suppose that if the Conservatives did not finance taxation cuts by public expenditure cuts, high interest rates or printing money, they could do it somehow using the benefits of North Sea oil. The extra purchasing power going into imports would damage further our manufacturing capacity, and when the oil ran out all we would have would be a pile of scrap in the shape of consumer goods. It would not be the first time that the Tory Party has frittered away the wealth of the nation, but I very much doubt whether on this occasion the British people would give them the opportunity to do so again.

I ask the House to reject the motion because it is merely about taxation and does not attempt to assess the consequences of what the motion calls for. I ask the House to reject it because it demonstrates again a lack of understanding by the present Tory leadership of our industrial and social problems. It also demonstrates how irrelevant are the policies of the present leadership—not the whole of the Tory Party—to the needs and aspirations of a modern Britain. I ask the House to oppose the motion.

Question put, That the amendment be made:—

The House divided: Ayes 275, Noes 247.

Forrester, JohnLyon, Alexander (York)Rowlands, Ted
Fowler, Gerald (The Wrekin)Mabon, Rt Hon Dr J. DicksonRyman, John
Fraser, John (Lambeth, N'w'd)McCartney, HughSandelson, Neville
Freeson, Rt Hon ReginaldMcDonald, Dr OonaghSedgemore, Brian
Garrett, John (Norwich S)McElhone, FrankSelby, Harry
Garrett, W. E. (Wallsend)MacFarquhar, RoderickSever, John
George, BruceMcGuire, Michael (Ince)Shaw, Arnold (Ilford South)
Gilbert, Rt Hon Dr JohnMacKenzie, Rt Hon GregorSheldon, Rt Hon Robert
Ginsburg, DavidMaclennan, RobertShore, Rt Hon peter
Golding, JohnMcMillan, Tom (Glasgow C)Short, Mrs Renée (Wolv NE)
Gourlay, HarryMcNamara, KevinSilkin, Rt Hon John (Deptford)
Graham, TedMadden, MaxSilkin, Rt Hon S. C (Dulwich)
Grant, George (Morpeth)Magee, BryanSillars, James
Grant, John (Islington C)Mallalieu, J. P. W.Skinner, Dennis
Grocott, BruceMarks, KennethSmith, John (N Lanarkshire)
Hardy, PeterMarshall, Dr Edmund (Goole)Snape, Peter
Harrison, Rt Hon WalterMarshall, Jim (Leicester S)Spearing, Nigel
Hart, Rt Hon JudithMaynard, Miss JoanSpriggs, Leslie
Hattersley, Rt Hon RoyMeacher, MichaelStallard, A. W.
Hayman, Mrs HeleneMellish, Rt Hon RobertStewart, Rt Hon M. (Fulham)
Healey, Rt Hon DenisMendelson, JohnStoddart, David
Heffer, Eric S.Mikardo, IanStott, Roger
Hooley, FrankMillan, Rt Hon BruceStrang, Gavin
Horam, JohnMiller, Dr M. S. (E Kilbride)Strauss, Rt Hon G. R.
Hoyle, Doug (Nelson)Mitchell, AustinSummerskill, Hon Dr Shirley
Huckfield, LesMolloy, WilliamSwain, Thomas
Hughes, Rt Hon C. (Anglesey)Morris, Alfred (Wythenshawe)Taylor, Mrs Ann (Bolton W)
Hughes, Robert (Aberdeen N)Morris, Rt Hon Charles R.Thomas, Jeffrey (Abertillery)
Hughes, Roy (Newport)Morris, Rt Hon J. (Aberavon)Thomas, Mike (Newcastle E)
Hunter, AdamMoyle, RolandThomas, Ron (Bristol NW)
Irvine, Rt Hon Sir A. (Edge Hill)Mulley, Rt Hon FrederickThorne, Stan (Preston South)
Irving, Rt Hon S. (Dartford)Murray, Rt Hon Ronald KingTinn, James
Jackson, Colin (Brighouse)Newens, StanleyTomlinson, John
Jackson, Miss Margaret (Lincoln)Noble, MikeTomney, Frank
Janner, GrevilleOakes, GordonTorney, Tom
Jay, Rt Hon DouglasOgden, EricTuck, Rapheal
Jeger, Mrs LenaO' Halloran, MichaelWainwright, Edwin (Dearne V)
Jenkins, Hugh (Putney)Orbach, MauriceWalker, Harold (Doncaster)
John, BrynmorOrme, Rt Hon StanleyWalker, Terry (Kingswood)
Johnson, James (Hull West)Ovenden, JohnWard, Michael
Johnson, Walker (Derby S)Owen, Rt Hon Dr DavidWatkins, David
Jones, Alec (Rhondda)Padley, WalterWatkinson, John
Jones, Barry (East Flint)Palmer, ArthurWeetch, Ken
Jones, Dan (Burnley)Park, GeorgeWeitzman, David
Judd, FrankParker, JohnWellbeloved, James
Kaufman, GeraldParry, RobertWhite, Frank R. (Bury)
Kelley, RichardPavitt, LaurieWhite, James (Pollok)
Kerr, RussellPerry, ErnestWhitehead, Phillip
Kilroy-Silk, RobertPhipps, Dr ColinWhitlock, William
Kinnock, NeilPrice, C. (Lewisham W)Wigley, Dafydd
Lambie, DavidPrice, William (Rugby)Willey, Rt Hon Frederick
Lamborn, HarryRadice, GilesWilliams, Rt Hon (Swansea W)
Lamond, JamesRess, Rt Hon Merlyn (Leeds S)Williams, Rt Hon Shirley (Hertford)
Latham, Arthur (Paddington)Richardson, Miss JoWilliams, Sir Thomas (Warrington)
Leadbitter, TedRoberts, Albert (Normanton)Wilson, Alexander (Hamilton)
Lee, JohnRoberts, Gwilym (Cannock)Wilson, Rt Hon Sir Harold (Huyton)
Lestor, Miss Joan (Eton & Slough)Robertson, John (Paisley)Wilson, William (Coventry SE)
Lever, Rt Hon HaroldRobinson, GeoffreyWise, Mrs Audrey
Lewis, Arthur (Newham N)Roderick, CaerwynWoof, Robert
Lewis, Ron (Carlisle)Rodgers, George (Chorley)Young, David (Bolton E)
Litterick, TomRodgers, Rt Hon William (Stockton)
Lomas, KennethRooker, J. W.TELLERS FOR THE AYES:
Loyden, EddieRose, Paul B.Mr. James Hamilton and
Luard, EvanRoss, Rt Hon W. (Kilmarnock)Mr. Joseph Harper.
Adley, RobertBowden, A. (Brighton, Kemptown)Churchill, W. S.
Aitken, JonathanBoyson, Dr Rhodes (Brent)Clark, Alan (Plymouth, Sutton)
Alison, MichaelBraine, Sir BernardClark, William (Croydon S)
Amery, Rt Hon JulianBrittan, LeonClarke, Kenneth (Rushcliffe)
Atkins, Rt Hon (Spelthorne)Brocklebank-Fowler, C.Clegg, Walter
Atkinson, David (Bournemouth, East)Brooke, PeterCockroft, John
Awdry, DanielBrotherton MichaelCooke, Robert (Bristol W)
Baker, KennethBrown, Sir Edward (Bath)Cope, John
Banks, RobertBryan, Sir PaulCormack, Patrick
Bennett, Sir Frederic (Torbay)Buchanan-Smith, AlickCostain, A. P.
Bennett, Dr Reginald (Fareham)Buck, AntonyCritchley, Julian
Benyon, W.Budgen, NickCrouch, David
Berry, Hon AnthonyBulmer, EsmondCrowder, F. P.
Biggs-Davison, JohnBurden, F. A.Davies, Rt Hon J. (Knutsford)
Blaker, PeterButler, Adam (Bosworth)Dean, Paul (N Somerset)
Body, RichardCarlisle, MarkDodsworth Geoffrey
Boscawen, Hon RobertChalker, Mrs LyndaDouglas-Hamilton, Lord James
Bottomley, PeterChannon, PaulDrayson, Burnaby
du Cann, Rt Hon EdwardKilfedder, JamesRathbone, Tim
Durant, TonyKimball, MarcusRawlinson, Rt Hon Sir Peter
Dykes, HughKing, Evelyn (South Dorset)Rees, Peter (Dover & Deal)
Edwards, Nicholas (Pembroke)King Tom (Bridgwater)Renton, Rt Hon Sir D. (Hunts)
Elliott, Sir WilliamKitson, Sir TimothyRenton, Tim (Mid-Sussex)
Emery, PeterKnight, Mrs JillRhodes James, R.
Eyre, ReginaldKnox, DavidRidley, Hon Nicholas
Fairbairn, NicholasLamont, NormanRidsdale, Julian
Fairgrieve, RussellLangford-Holt, Sir JohnRifkind, Malcolm
Farr, JohnLatham, Michael (Melton)Roberts, Wyn (Conway)
Fell, AnthonyLawrence, IvanRossi, Hugh (Hornsey)
Finsberg, GeoffreyLawson, NigelRost, Peter (SE Derbyshire)
Fletcher, Alex (Edinburgh N)Lester, Jim (Beeston)Royle, Sir Anthony
Fookes, Miss JanetLewis, Kenneth (Rutland)Sainsbury, Tim
Forman, NigelLloyd, IanSt. John-Stevas, Norman
Fowler, Norman (Sutton C'f'd)Loveridge, JohnScott, Nicholas
Fox, MarcusLuce, RichardShaw, Giles (Pudsey)
Fraser, Rt Hon H. (Stafford & St)McAdden, Sir StephenShelton, William (Streatham)
Fry, PeterMcCrindle, RobertShersby, Michael
Galbraith, Hon T. G. D.Macfarlane, NeilSilvester, Fred
Gardiner, George (Reigate)MacGregor, JohnSims, Roger
Gardner, Edward (S Fylde)MacKay, Andrew (Stechford)Sinclair, Sir George
Gilmour, Rt Hon Ian (Chesham)Macmillan, Rt Hon M. (Farnham)Skeet, T. H. H.
Gilmour, Sir John (East Fife)McNair-Wilson, M. (Newbury)Smith, Dudley (Warwick)
Glyn, Dr AlanMcNair-Wilson, P. (New Forest)Smith, Timothy John (Ashfield)
Godber, Rt Hon JosephMadel, DavidSpeed, Keith
Goodhart, PhilipMarshall, Michael (Arundel)Spence, John
Goodhew, VictorMates, MichaelSpicer, Michael (S Worcester)
Gorst, JohnMather, CarolSproat, Iain
Gow, Ian (Eastbourne)Maude, AngusStainton, Keith
Gower, Sir Raymond (Barry)Maudling, Rt Hon ReginaldStanbrook, Ivor
Grant, Anthony (Harrow C)Mawby, RayStanley, John
Gray, HamishMaxwell-Hyslop, RobinSteen, Anthony (Wavertree)
Grieve, PercyMayhew, PatrickStewart, Ian (Hitchin)
Griffiths, EldonMeyer, Sir AnthonyStokes, John
Grist, IanMiller, Hal (Bromsgrove)Stradling Thomas, J.
Grylls, MichaelMiscampbell, NormanTapsell, Peter
Hall-Davis, A. G. F.Mitchell, David (Basingstoke)Taylor, R. (Croydon NW)
Hamilton, Michael (Salisbury)Moate, RogerTaylor, Teddy (Cathcart)
Hampson, Dr KeithMonro, HectorTebbit, Norman
Hannam, JohnMontgomery, FergusTemple-Morris, Peter
Harrison, Col Sir Harwood (Eye)Moore, John (Croydon C)Thatcher, Rt Hon Margaret
Haselhurst, AlanMore, Jasper (Ludlow)Thomas, Rt Hon P. (Hendon S)
Hastings, StephenMorgan, GeraintTownsend, Cyril D.
Havers, Rt Hon Sir MichaelMorgan-Giles, Rear-AdmiralTrotter, Neville
Hawkins, PaulMorris, Michael (Northampton S)van Straubenzee, W. R.
Hayhoe, BarneyMorrison, Charles (Devizes)Vaughan, Dr Gerard
Higgins, Terence L.Morrison, Hon Peter (Chester)Viggers, Peter
Hodgson, RobinMudd, DavidWakeham, John
Holland, PhilipNeave, AireyWalder, David (Clitheroe)
Hordern, PeterNelson, AnthonyWalker, Rt Hon P. (Worcester)
Howe, Rt Hon Sir GeoffreyNeubert, MichaelWall, Patrick
Howell, David (Guildford)Newton, TonyWalters, Dennis
Hunt, David (Wirral)Onslow, CranleyWeatherill, Bernard
Hunt, John (Ravensbourne)Oppenheim, Mrs SallyWells, John
Hurd, DouglasPage, John (Harrow West)Whitelaw, Rt Hon William
Hutchison, Michael ClarkPage, Richard (Workington)Wiggin, Jerry
Irving, Charles (Cheltenham)Parkinson, CecilWinterton, Nicholas
Jenkin, Rt Hon P. (Wanst'd&W'df'd)Pattie, GeoffreyWood, Rt Hon Richard
Jessel, TobyPercival, IanYoung, Sir G. (Ealing, Acton)
Johnson Smith, G. (E Grinstead)Peyton, Rt Hon JohnYounger, Hon George
Jones, Arthur (Daventry)Pink, R. Bonner
Joseph, Rt Hon Sir KeithPrentice, Rt Hon RegTELLERS FOR THE NOES:
Kaberry, Sir DonaldPrice, David (Eastleigh)Mr. Spencer Le Marchant and
Kellett-Bowman, Mrs ElainePym, Rt Hon FrancisMr. Michael Roberts.
Kershaw, AnthonyRaison, Timothy

Question accordingly agreed to.

Main Question, as amended, put:

Division No.122]AYES[10.14 p.m.
Abse, LeoBates, AlfBrown, Hugh D. (Provan)
Allaun, FrankBean, R. E.Brown, Robert C. (Newcastle W)
Anderson, DonaldBennett, Andrew (Stockport N)Buchan, Norman
Archer, Rt Hon PeterBidwell, SydneyBuchanan, Richard
Armstrong, ErnestBishop, Rt Hon EdwardButler, Mrs Joyce (Wood Green)
Ashley, JackBoardman, H.Callaghan, Rt Hon J. (Cardiff SE)
Ashton, JoeBooth, Rt Hon AlbertCallaghan, Jim (Middleton & P)
Atkins, Ronald (Preston N)Boothroyd, Miss BettyCampbell, Ian
Atkinson, NormanBottomley, Rt Hon ArthurCanavan, Dennis
Bagier, Gordon A. T.Boyden, James (Bish Auck)Cant, R. B.
Barnett, Guy (Greenwich)Bradley, TomCarmichael, Neil
Barnett, Rt Hon Joel (Heywood)Bray, Dr JeremyCarter, Ray

The House divided: Ayes 274, Noes 248.

Carter-Jones, LewisIrving, Rt Hon S. (Dartford)Phipps, Dr Colin
Castle, Rt Hon BarbaraJackson, Colin (Brighouse)Price, C. (Lewisham W)
Clemitson, IvorJackson, Miss Margaret (Lincoln)Price, William (Rugby)
Cocks, Rt Hon Michael (Bristol S)Janner, GrevilleRadice, Giles
Cohen, StanleyJay, Rt Hon DouglasRees, Rt Hon Merlyn (Leeds S)
Coleman, DonaldJeger, Mrs LenaRichardson, Miss Jo
Colquhoun, Ms MaureenJenkins, Hugh (Putney)Roberts, Albert (Normanton)
Concannon, J. D.John, BrynmorRoberts, Gwilym (Cannock)
Conlan, BernardJohnson, James (Hull West)Roberts, Wyn (Conway)
Cook, Robin F. (Edin C)Johnson, Walter (Derby S)Robertson, John (Paisley)
Corbett, RobinJones, Alec (Rhondda)Robinson, Geoffrey
Cowans, HarryJones, Barry (East Flint)Roderick, Caerwyn
Cox, Thomas (Tooting)Jones, Dan (Burnley)Rodgers, George (Chorley)
Craigen, Jim (Maryhill)Judd, FrankRodgers, Rt Hon William (Stockton)
Crawshaw, RichardKaufman, GeraldRooker, J. W.
Cronin, JohnKerr, RussellRose, Paul B.
Crowther, Stan (Rotherham)Kilroy-Silk, RobertRoss, Rt Hon W. (Kilmarnock)
Cryer, BobKinnock, NeilRowlands, Ted
Cunningham, G. (Islington S)Lambie, DavidRyman, John
Cunningham, Dr J. (Whiteh)Lamborn, HarrySandelson, Neville
Davidson, ArthurLamond, JamesSedgemore, Brian
Davies, Bryan (Enfield N)Latham, Arthur (Paddington)Selby, Harry
Davies, Denzil (Llanelli)Leadbitter, TedSever, John
Davis, Clinton (Hackney C)Lee, JohnShaw, Arnold (Ilford South)
Deakins, EricLestor, Miss Joan (Eton & Slough)Sheldon, Rt Hon Robert
Dean, Joseph (Leeds West)Lever, Rt Hon HaroldShore, Rt Hon Peter
Dempsey, JamesLewis, Arthur (Newham N)Silkin, Mrs Renée (Wolv NE)
Doig, PeterLewis, Ron (Carlisle)Silkin, Rt Hon John (Deptford)
Dormand, J. D.Litterick, TomSilkin, Rt Hon S. C. (Dulwich)
Douglas-Mann, BruceLomas, KennethSillars, James
Duffy, A. E. P.Loyden, EddieSkinner, Dennis
Dunn, James A.Luard, EvanSmith, John (N Lanarkshire)
Dunnett, JackLyon, Alexander (York)Snape, Peter
Eadie, AlexMabon, Rt Hon Dr J. DicksonSpearing, Nigel
Ellis, John (Brigg & Scun)McCartney, HughSpriggs, Leslie
English, MichaelMcDonald, Dr OonaghStallard, A. W.
Ennals, Rt Hon DavidMcElhone, FrankStewart, Rt Hon M. (Fulham)
Evans, Fred (Caerphilly)MacFarquhar, RoderickStoddart, David
Evans, Gwynfor (Carmarthen)McGuire, Michael (Ince)Stott, Roger
Evans, Ioan (Aberdare)MacKenzie, Rt Hon GregorStrang, Gavin
Evans, John (Newton)Maclennan, RobertStrauss, Rt Hon G. R.
Ewing, Harry (Stirling)McMillan, Tom (Glasgow C)Summerskill, Hon Dr Shirley
Faulds, AndrewMcNamara, KevinSwain, Thomas
Fernyhough, Rt Hon E.Madden, MaxTaylor, Mrs Ann (Bolton W)
Fitch, Alan (Wigan)Magee, BryanThomas, Jeffrey (Abertillery)
Fitt, Gerard (Belfast W)Mallalieu, J. P. W.Thomas, Mike (Newcastle E)
Flannery, MartinMarks, KennethThomas, Ron (Bristol NW)
Fletcher, Ted (Darlington)Marshall, Dr Edmund (Goole)Thorne Stan (Preston South)
Foot, Rt Hon MichaelMarshall, Jim (Leicester S)Tinn, James
Ford, BenMaynard, Miss JoanTomlinson, John
Forrester, JohnMeacher, MichaelTomney, Frank
Fowler, Gerald (The Wrekin)Mellish, Rt Hon RobertTorney, Tom
Fraser, John (Lambeth, N'w'd)Mendelson, JohnTuck, Raphael
Freeson, Rt Hon ReginaldMikardo, IanWainwright, Edwin (Dearne V)
Garrett, John (Norwich S)Millan, Rt Hon BruceWalker, Harold (Doncaster)
Garrett, W. E. (Wallsend)Miller, Dr M. S. (E Kilbride)Walker, Terry (Kingswood)
George, BruceMitchell, AustinWard, Michael
Gilbert, Dr JohnMoate, RogerWatkins, David
Ginsburg, DavidMolloy, WilliamWatkinson, John
Golding, JohnMorris, Alfred (Wythenshawe)Weetch, Ken
Gourlay, HarryMorris, Charles R. (Openshaw)Weitzman, David
Graham, TedMorris, Rt Hon J. (Aberavon)Wellbeloved, James
Grant, George (Morpeth)Moyle, RolandWhite, Frank R. (Bury)
Grant, John (Islington C)Mulley, Rt Hon FrederickWhite, James (Pollok)
Grocott, BruceMurray, Rt Hon Ronald KingWhitehead, Phillip
Hardy, PeterNewens, StanleyWhitlock, William
Harrison, Rt Hon WalterNoble, MikeWigley, Dafydd
Hart, Rt Hon JudithOakes, GordonWilley, Rt Hon Frederick
Hattersley, Rt Hon RoyOgden, EricWilliams, Rt Hon Alan (Swansea w)
Hayman, Mrs HeleneO'Halloran, MichaelWilliams, Rt Hon Shirley (Hertford)
Healey, Rt Hon DenisOrbach, MauriceWilliams, Sir Thomas (Warrington)
Heffer, Eric S.Orme, Rt Hon StanleyWilson, Alexander (Hamilton)
Hooley, FrankOvenden, JohnWilson, Rt Hon Sir Harold (Huyton)
Horam, JohnOwen, Rt Hon Dr DavidWilson, William (Coventry SE)
Hoyle, Doug (Nelson)Padley, WalterWise, Mrs Audrey
Huckfield, LesPalmer, ArthurWoof, Robert
Hughes, Rt Hon C. (Anglesey)Park, GeorgeYoung, David (Bolton E)
Hughes, Robert (Aberdeen N)Parker, John
Hughes, Roy (Newport)Parry, RobertTELLERS FOR THE AYES:
Hunter, AdamPavitt, LaurieMr. James Hamilton and
Irvine, Rt Hon Sir A. (Edge Hill)Perry, ErnestMr. Joseph Harper.
Adley, RobertAlison, MichaelAtkins, Rt Hon H. (Spelthorne)
Aitken, JonathanAmery, Rt Hon JulianAtkinson, David (Bournemouth, East)
Awdry, DanielGrieve, PercyNelson, Anthony
Baker, KennethGriffiths, EldonNeubert, Michael
Banks, RobertGrist, IanNewton, Tony
Bennett, Sir Frederic (Torbay)Grylls, MichaelOnslow, Cranley
Bennett, Dr Reginald (Fareham)Hall-Davis, A. G. F.Oppenheim, Mrs Sally
Benyon, W.Hamilton, Michael (Salisbury)Page, John (Harrow West)
Berry, Hon AnthonyHampson, Dr KeithPage, Richard (Workington)
Biggs-Davison, JohnHannam, JohnParkinson, Cecil
Blaker, PeterHarrison, Col Sir Harwood (Eye)Pattie, Geoffrey
Body, RichardHaselhurst, AlanPercival, Ian
Boscawen, Hon RobertHastings, StephenPeyton, Rt Hon John
Bottomley, PeterHavers, Rt Hon Sir MichaelPink, R. Bonner
Bowden, A. (Brighton, Kemptown)Hawkins, PaulPrentice, Rt Hon Reg
Boyson, Dr. Rhodes (Brent)Hayhoe, BarneyPrice, David (Eastleigh)
Braine, Sir BernardHiggins, Terence L.Pym, Rt Hon Francis
Brittan, LeonHodgson, RobinRaison, Timothy
Brocklebank-Fowler, C.Holland, PhilipRathbone, Tim
Brooke, PeterHordern, PeterRawlinson, Rt Hon Sir Peter
Brotherton, MichaelHowe, Rt Hon Sir GeoffreyRees, Peter (Dover & Deal)
Brown, Sir Edward (Bath)Howell, David (Guildford)Renton, Rt Hon Sir D. (Hunts)
Bryan, Sir PaulHunt, David (Wirral)Renton, Tim (Mid-Sussex)
Buchanan-Smith, AlickHunt, John (Ravensbourne)Rhodes James, R.
Buck, AntonyHurd, DouglasRidley, Hon Nicholas
Budgen, NickHutchison, Michael ClarkRidsdale, Julian
Bulmer, EsmondIrving Charles (Cheltenham)Rifkind, Malcolm
Burden, F. A.Jenkin, Rt Hon P. (Wanst'd&W' df'd)Roberts, Wyn (Conway)
Butler, Adam (Bosworth)Jessel, TobyRossi, Hugh (Hornsey)
Carlisle, MarkJohnson Smith, G. (E Grinstead)Rost, Peter (SE Derbyshire)
Chalker, Mrs LyndaJones, Arthur (Daventry)Royle, Sir Anthony
Channon, PaulJoseph, Rt Hon Sir KeithSainsbury, Tim
Churchill, W. S.Kaberry, Sir DonaldSt. John-Stevas, Norman
Clark, Alan (Plymouth, Sutton)Kellett-Bowman, Mrs ElaineScott, Nicholas
Clark, William (Croydon S)Kershaw, AnthonyShaw, Giles (Pudsey)
Clarke, Kenneth (Rushcliffe)Kilfedder, JamesShelton, William (Streatham)
Clegg, WalterKimball, MarcusShersby, Michael
Cockroft, JohnKing, Evelyn (South Dorset)Silvester, Fred
Cooke, Robert (Bristol W)King, Tom (Bridgwater)Sims, Roger
Cope, JohnKitson, Sir TimothySinclair, Sir George
Cormack, PatrickKnight, Mrs JillSkeet, T. H. H.
Costain, A. P.Knox, DavidSmith, Dudley (Warwick)
Critchley, JulianLamont, NormanSmith, Timothy John (Ashfield)
Crouch, DavidLangford-Holt, Sir JohnSpeed, Keith
Crowder, F. P.Latham, Michael (Melton)Spence, John
Davies, Rt Hon J. (Knutsford)Lawrence, IvanSpicer, Michael (S Worcester)
Dean, Paul (N Somerset)Lawson, NigelSproat, Iain
Dodsworth GeoffreyLester, Jim (Beeston)Stainton, Keith
Douglas-Hamilton, Lord JamesLewis, Kenneth (Rutland)Stanbrook, Ivor
Drayson, BurnabyLloyd, IanStanley, John
du Cann, Rt Hon EdwardLoveridge, JohnSteen, Anthony (Wavertree)
Durant, TonyLuce, RichardStewart, Ian (Hitchin)
Dykes, HughMcAdden, Sir StephenStokes, John
Edwards, Nicholas (Pembroke)McCrindle, RobertStradling Thomas, J.
Elliott, Sir WilliamMacfarlane, NeilTapsell, Peter
Emery, PeterMacGregor, JohnTaylor, R. (Croydon NW)
Eyre, ReginaldMacKay, Andrew (Stechford)Taylor, Teddy (Cathcart)
Fairbairn, NicholasMacmillan, Rt Hon M. (Farnham)Tebbit, Norman
Fairgrieve, RussellMcNair-Wilson, M. (Newbury)Temple-Morris, Peter
Farr, JohnMcNair-Wilson, P. (New Forest)Thatcher, Rt Hon Margaret
Fell, AnthonyMadel, DavidThomas, Rt Hon P. (Hendon S)
Finsberg, GeoffreyMarshall, Michael (Arundel)Townsend, Cyril D.
Fisher, Sir NigelMates, MichaelTrotter, Neville
Fletcher, Alex (Edinburgh N)Mather, Carolvan Straubenzee, W. R.
Fookes, Miss JanetMaude, AngusVaughan, Dr Gerard
Forman, NigelMaudling, Rt Hon ReginaldViggers, Peter
Fowler, Norman (Sutton C'f'd)Mawby, RayWakeham, John
Fox, MarcusMaxwell-Hyslop, RobinWalder, David (Clitheroe)
Fraser, Rt Hon H. (Stafford & St)Mayhew, PatrickWalker, Rt Hon P. (Worcester)
Fry, PeterMeyer, Sir AnthonyWall, Patrick
Galbraith, Hon T. G. D.Miller, Hal (Bromsgrove)Walters, Dennis
Gardiner, George (Reigate)Miscampbell, NormanWeatherill, Bernard
Gardner, Edward (S Fylde)Mitchell, David (Basingstoke)Wells, John
Gilmour, Rt Hon Ian (Chesham)Monro, HectorWhitelaw, Rt Hon William
Gilmour, Sit John (East Fife)Montgomery, FergusWiggin, Jerry
Glyn Dr AlanMoore, John (Croydon C)Winterton, Nicholas
Godber, Rt Hon JosephMore, Jasper (Ludlow)Wood, Rt Hon Richard
Goodhart, PhilipMorgan, GeraintYoung, Sir G. (Ealing, Acton)
Goodhew, VictorMorgan-Giles, Rear-AdmiralYounger, Hon George
Gorst, JohnMorris, Michael (Northampton S)
Gow, Ian (Eastbourne)Morrison, Charles (Devizes)TELLERS FOR THE NOES:
Gower, Sir Raymond (Barry)Morrison, Hon Peter (Chester)Mr. Spencer Le Marchant and
Grant, Anthony (Harrow C)Mudd, DavidMr. Michael Roberts.
Gray, HamishNeave, Airey

Question accordingly agreed to.

Resolved,That this House welcomes the start Her Majesty's Government has made in reducing levels of direct taxation; applauds Her Majesty's Government's success in controlling inflation and restoring financial stability; recognises the need to provide adequate public services; and notes that the present Conservative leadership is still wedded to old fashioned dogmas which in the past created so much squalor, social divisiveness and injustice.